Price v. Gatlin

• Decision Date: 10 September 1965
• Citation: 241 Or. 315,405 P.2d 502
• Parties: , 2 UCC Rep.Serv. 1066 Preston PRICE, Appellant, v. Douglas GATLIN, Defendant, and Columbia Tractor & Implement Co., a corporation, Respondent.
• Court: Oregon Supreme Court

Page 502

405 P.2d 502

241 Or. 315, 2 UCC Rep.Serv. 1066

Preston PRICE, Appellant, v. Douglas GATLIN, Defendant, and Columbia Tractor & Implement Co., a corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted June 29, 1964.

Reargued May 6, 1965.

Decided Sept. 10, 1965.

Harrison M. Weatherford, Albany, argued the cause for appellant. On the briefs were Weatherford, Thompson & Horton, Albany.

Ernest Bonyhadi, Portland, argued the cause for respondent. With him on the brief were Bonyhadi & Hall, Portland.

Before McALLISTER, C. J., and PERRY, SLOAN, O'CONNELL, GOODWIN, DENECKE, and HOLMAN, JJ.

GOODWIN, Justice.

This is an action for damages for economic loss resulting from the defective manufacture of a tractor. A jury found that because a new Ford tractor had failed to perform adequately the plaintiff had suffered $4,500 in damages to his business. Judgment was entered against the retail seller, but not against the wholesaler. (The manufacturer was not sued.) The purchaser appeals the judgment in favor of the wholesaler.

The only issue in this case is whether a purchaser of a defectively manufactured product, who is not in privity with the wholesaler, may recover for economic loss against a wholesaler through whose hands the product (or papers representing it) may have passed en route from the manufacturer to the retailer.

A purchaser, or even a stranger, who has sustained personal injuries may maintain an action for damages against a manufacturer whose defective work causes bodily harm. Such a plaintiff is unembarrassed by a lack of contract privity, whether or not he must allege and prove negligence. See, e. g., Wights v. Staff Jennings, Inc., Or., 405 P.2d 624 (September 9, 1965); Strandholm v. General Const. Co., 235 Or. 145, 157, 382 P.2d 843 (1963).

This court has not yet held that a nonprivity purchaser may maintain an action against a manufacturer for economic loss, as distinguished from personal injury, caused by defective workmanship. That issue is not now before us, and we express no opinion upon the matter. This plaintiff is seeking to hold a wholesaler liable for innocently passing along a defective product. This he may not do.

The plaintiff alleges no fault or misrepresentation upon the part of the wholesaler. The plaintiff is frankly searching for a solvent defendant, in this state, whose liability is to be grounded solely upon the fact that he shares in the profits generated by the distribution of merchandise. The plaintiff argues that because the wholesaler makes a profit, even though he is free from fault, he should share in the economic burdens caused by the manufacturer's sale of a defective product.

If both privity and fault are irrelevant, the wholesaler would be liable, not for a duty he failed to perform, nor for the breach of a contract he never made, but because he happens to lie in the stream of commerce. Wholesalers in this state have had no reason to believe that they would be held liable to strangers, in unlimited amounts, when they are without fault. By whatever name it is called, this kind of liability is enterprise liability. We do not believe that the case at bar is a proper one in which to impose this new form of liability upon wholesalers.

We are not unaware of the authority which has been marshaled in support of the plaintiff's theory. We believe, however, that the social and economic reasons which courts elsewhere have given for extending enterprise liability to the victims of physical injury are not equally persuasive in a case of a disappointed buyer of personal property. See Seely v. White Motor Company, Cal., 45 Cal.Rptr. 17, 403 P.2d 145 (1965).

We hold that a purchaser may not recover against a nonprivity seller, who is not alleged to be at fault in connection with the loss, for economic losses caused by a third party's defective workmanship.

Affirmed.

HOLMAN, Justice (specially concurring).

Causes of action brought by the consumer on the basis of the strict liability of manufacturers and wholesalers for damages resulting from the sale of goods of unmerchantable quality should be limited to those situations where the use of the defective product results in physicial harm to persons or property. See the discussion in Seely v. White Motor Co., Cal., 45 Cal.Rptr. 17, 403 P.2d 145 (1965). In the past, the attaching of liability where there is no privity has been primarily for the benefit of persons physically injured by the defect. This is so whether responsibility was attached on the theory of enterprise liability, implied negligence through the doctrine of res ipsa loquitur, or implied warranty. Seldom has it been for solely economic loss.

What is the basis for distinguishing between the two? At first there seems to be no logical basis to distinguish them when they have resulted from the same thing--the defective product. Probably the reason is social rather than legal, if the two can be distinguished. In establishing liability in personal injury cases courts have been motivated to overlook any necessity for privity because the hazard to life and health is usually a personal disaster of major proportions to the individual both physically and financially and something of minor importance to the manufacturer or wholesaler against which they can protect themselves by a distribution of risk through the price of the article sold. There has not been the same social necessity to motivate the recovery for strictly economic losses where the damaged persons' health, and therefore his basic earning capacity, has remained unimpaired. To enforce strict liability for personal injuries because of such necessity and then to allow recovery for purely economic losses because they arise from the same defect is to apply the doctrine of strict liability when the original motivating factor therefor is not present. I doubt that it is wise to swing the door open to all who are disappointed with their purchase. They should be left for that kind of recovery to the one with whom they dealt.

For the reason stated above, I concur in the result of Justice GOODWIN'S opinion.

O'CONNELL, Justice (dissenting).

Plaintiff introduced evidence from which the jury could infer that when the tractor was delivered by Columbia to Gatlin it was not fit for the general purpose for which it was manufactured and sold. This would be sufficient to establish Gatlin's liability based upon an implied warranty of merchantable quality. The question is whether Columbia is also liable upon such a warranty.

Columbia contends that there can be no liability for the breach of an implied warranty unless there is privity between the plaintiff and the defendant. In Wights v. Staff Jennings, Or., 405 P.2d 624 (1965), we held that under the appropriate circumstances strict liability could be imposed upon a seller for personal injuries resulting from the use of a defective product, even though the plaintiff was not in privity with the seller. In the present case the question is whether privity is essential when the defective product causes a pecuniary loss not involving a personal injury and not arising out of an accident.

I would distinguish between (1) cases in which the defect causes an accident resulting in personal injury or property damage, and (2) cases in which the defect causes a pecuniary loss not arising out of an accident. In the first group of cases, applying the traditional tests of tort liability, defendant's duty may be expressed in terms of his obligation to refrain from intentional, negligent or abnormally dangerous conduct creating a risk of physical harm to persons or property. ¹ In the second group of cases defendant's duty is to be expressed in terms of his obligation to refrain from intentional, negligent or innocent misstatements of fact which cause a pecuniary loss divorced from a tangible harm.

Under (1) above a seller, whether or not he is in privity with the plaintiff, is liable just as any one else is liable for intentional, negligent or abnormally dangerous conduct. Whether he is liable beyond this need not be determined in the present case. ² The present case falls under group (2) above. Here plaintiff is complaining that defendants misrepresented their product and that as a result of the misrepresentation plaintiff was deceived. It is not alleged that the defendants either intentionally or negligently misrepresented the condition of the tractor. It is not, therefore, an action of deceit, nor, if recognized, an action for negligent misrepresentation. ³ The complaint is couched in terms of a breach of implied warranties of fitness for a particular use and of merchantable quality. In effect, it charges defendants with making an innocent misrepresentation of fact. ⁴

Strict liability in tort for an innocent misrepresentation of fact has been recognized in certain types of transactions. ⁵ Such liability has long existed in the law of sales under the notion of 'warranty.' But, as we observed in Wights v. Staff Jennings, supra, since warranty was regarded as an aspect of contract law the tort principles underlying the strict liability were not clearly identified. It was not necessary, therefore, to explain why there should be strict liability in tort for innocent misrepresentations concerning the quality of goods and not in most other commercial dealings. ⁶

What is the policy which calls for the imposition of strict liability upon the seller of goods? Certainly, liability should not be imposed simply because the seller is more capable of distributing the loss. As we noted in Wights v. Staff Jennings, supra, the application of that principle would result in imposing strict liability upon the seller for all of his commercial activities resulting in a loss to a third person. However, there are other grounds for imposing strict liability upon one who in the course of marketing goods causes intangible economic harm (as distinguished from personal injuries...