North American Chemical Co. v. Superior Court, B109904

• Citation: 69 Cal.Rptr.2d 466,59 Cal.App.4th 764
• Decision Date: 01 December 1997
• Docket Number: No. B109904,B109904
• Parties: , 34 UCC Rep.Serv.2d 332, 97 Cal. Daily Op. Serv. 9015, 97 Daily Journal D.A.R. 14,517 NORTH AMERICAN CHEMICAL COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent, TRANS HARBOR, INC., et al., Real Parties in Interest.
• Court: California Court of Appeals

Page 466

69 Cal.Rptr.2d 466

59 Cal.App.4th 764, 34 UCC Rep.Serv.2d 332,

97 Cal. Daily Op. Serv. 9015,

97 Daily Journal D.A.R. 14,517

NORTH AMERICAN CHEMICAL COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent, TRANS HARBOR, INC., et al., Real Parties in Interest.

No. B109904.

Court of Appeal, Second District, Division 3, California.

Dec. 1, 1997.

Haight, Brown & Bonesteel, Thomas N. Charchut, Santa Monica, William O. Martin, Jr., and Daniel J. Kelly, San Francisco, for Petitioner.

No appearance by Respondent.

Sims, Morrow & Manning, Patrick J. Manning, Costa Mesa, and Selim Mounedji, for Real Parties in Interest.

CROSKEY, Acting Presiding Justice.

Petitioner, North American Chemical Company ("North American"), seeks a writ of mandate to compel the restoration of a cause of action for negligence to the complaint which it has filed against the real parties in interest, Trans Harbor, Inc. and Pac III Partners, doing business as Harbor Pac, a joint venture (collectively, "Harbor Pac"). The trial court sustained Harbor Pac's demurrer to that cause of action without leave to amend.

In its complaint, North American sought recovery of sums it paid as damages in settlement of a customer's claim that arose from a contaminated North American product packaged and shipped for North American by Harbor Pac. Harbor Pac contends that North American can state no claim for negligence, but only one for a breach of contract. North American responds that it is entitled to pursue both remedies until such time as an election may be required by law. The issue is important as it impacts both the applicable statute of limitations and the proper measure of damages. Harbor Pac also raises the objection that North American is claiming only an economic loss and such damages are not recoverable in the absence of physical injury to person or property.

We hold that North American's packaging and shipping contract with Harbor Pac imposed a duty on Harbor Pac which required it to reasonably and carefully perform its contractual obligations; it is this duty North American has alleged was breached. In addition, because this case arises from a contract for the performance of services rather than the sale of goods, and the negligent performance of that contract allegedly resulted in a foreseeable economic loss to North American, the so-called "economic loss rule" does not bar recovery even though (1) the only damages that North American seeks are based solely on economic loss and (2) contractual privity is present. As a result, we conclude that North American has stated a viable cause of action for negligence. ¹ We therefore will grant the requested writ.

FACTUAL AND PROCEDURAL BACKGROUND ²

On or about February 1, 1993, North American, a manufacturer of a large variety On or about May 20, 1993, North American shipped approximately 46 metric tons of bulk boric acid to Harbor Pac from its facility in Trona, California. The shipment was accompanied by bills of lading which provided that Harbor Pac was to package and seal the boric acid into one-ton Flecon bags. The packaged boric acid, as reflected in the bills of lading, was destined for ultimate delivery to North American's customer, N.H. Techno Co., Ltd. ("NHT"), in Nagoya, Japan. In accordance with the terms of its contract with North American, Harbor Pac received the bulk boric acid on May 21, 1993 and packaged and sealed it. Unfortunately, Harbor Pac utilized the same silo that had previously been used to package a product known as "V-bor", and North American's boric acid became contaminated. Harbor Pac shipped the sealed one-ton bags to Japan on May 23 and May 30, 1993. The last part of that shipment arrived in Japan on June 11, 1993.

of chemicals, including boric acid, entered into an oral agreement with Harbor Pac in which Harbor Pac agreed to bag, containerize and transport chemicals to North American's customers at a fixed price per short ton. This agreement was confirmed in writing by Harbor Pac in a letter dated February 5, 1993. By its terms, the agreement was effective through December 31, 1993.

NHT produces specialty glass for thin filter resistors, a key component of liquid crystal displays. It began using North American's boric acid in its manufacturing process on or about October 12, 1993. Within two weeks, it discovered that the boric acid was contaminated with V-bor and it was forced to stop production for approximately twelve days. A provisional claim for damages in the sum of $254,600 was submitted by NHT to North American on or about October 25, 1993. A formal demand by NHT for payment of this sum was made two weeks later on November 8. After some investigation by North American and negotiation with NHT, it was agreed on December 27, 1993, that North American would pay $203,550 (by way of a credit on future product) to compensate NHT for the damages and loss caused by the contaminated boric acid. North American alleges that it "was required" to make such payment and we infer from such allegation that it intends to offer evidence that it agreed to do so in order to protect its own interests and in the good faith belief that it would otherwise be held liable for all of NHT's claimed losses. ³

On January 28, 1994, North American provided documentation supporting the damages claimed by NHT to Harbor Pac together with a demand for payment of that claim. North American asserted that it was Harbor Pac, not North American, which had caused the boric acid to become contaminated with V-bor and this was the direct and legal cause of NHT's loss. Harbor Pac (and its insurer) ignored North American's claim and demand for payment. As a result, North American filed this action on June 9, 1995. After certain law and motion proceedings, North American filed its second amended complaint on October 24, 1996. In that pleading, which is the one before us, North American alleged ⁴ that Harbor Pac had held itself out as Harbor Pac demurred to the negligence cause of action, arguing that it was liable, if at all, only for breach of contract. It argued to the trial court that North American was attempting to convert what was at most a contract breach into a tort and this was not legally permissible. In addition, Harbor Pac argued that it could not be held liable for a claimed loss by North American which consisted solely of economic damages. The trial court agreed and sustained Harbor Pac's demurrer to the third cause of action without leave to amend.

qualified to properly bag, containerize and transport bulk chemical products and that its [59 Cal.App.4th 772] failure to do so, i.e., to carry out its contract with North American in a reasonable and professional manner, constituted negligence for which Harbor Pac was liable. ⁵

North American has sought relief by writ of mandate in this court. On April 3, 1997, we issued an alternative writ and set the matter for hearing.

ISSUES PRESENTED

There are essentially two issues presented by North American's petition: (1) Can the negligent performance of a contractual obligation give rise to an action in tort? (2) Is North American entitled to recover under a negligence theory for injury solely to its economic interests without any need to allege or prove injury to person or property? We answer both of these questions in the affirmative.

DISCUSSION

1. Standard of Review

As already noted, we are reviewing an order of the trial court sustaining a demurrer without leave to amend. "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Irrespective of the labels attached by the pleader to any alleged cause of action, we examine the factual allegations of the complaint, to determine whether they state a cause of action on any available legal theory. (Ellenberger v. Espinosa (1994) 30 Cal.App.4th 943, 947, 36 Cal.Rptr.2d 360; Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908, 274 Cal.Rptr. 186.) If they do, then the trial court's order of dismissal must be reversed. (Platt v. Coldwell Where, as here, the court has sustained a demurrer to only one of several causes of action, its order is not appealable. Review by mandamus is the appropriate way to control judicial discretion where that discretion has been abused. (La Jolla Village Homeowners' Assn. v. Superior Court (Quality Roofing, Inc.) (1989) 212 Cal.App.3d 1131, 1140, 261 Cal.Rptr. 146.) We thus consider de novo whether the trial court's ruling has deprived North American of the opportunity to plead a cause of action. If it has, it has abused its discretion. (Ibid.) Abuse of discretion exists when the trial court has committed substantial error which is clearly prejudicial. Such prejudicial error is present when a court improperly prevents a party from pleading a substantial part of its case. (Angie M. v. Superior Court (Hiemstra) (1995) 37 Cal.App.4th 1217, 1223, 44 Cal.Rptr.2d 197.) Under such circumstances, relief by mandamus is appropriate " 'to prevent a needless and expensive trial and reversal.' [Citation.]." (Holtz v. Superior Court (San Francisco Bay Area Rapid Transit District) (1970) 3 Cal.3d 296, 301, fn. 4, 90 Cal.Rptr. 345, 475 P.2d 441.)

Banker Residential Real Estate Services (1990) 217 Cal.App.3d 1439, 1444, 266 Cal.Rptr. 601.)

2. A Contractual Obligation May Create a Legal Duty the Breach of Which Will Support an Action in Tort

Harbor Pac's...