Sacramento Regional Transit Dist. v. Grumman Flxible

• Decision Date: 13 July 1984
• Citation: 158 Cal.App.3d 289,204 Cal.Rptr. 736
• Court: California Court of Appeals Court of Appeals
• Parties: , 38 UCC Rep.Serv. 1608 SACRAMENTO REGIONAL TRANSIT DISTRICT, Plaintiff and Appellant, v. Grumman FLXIBLE, Defendant and Respondent. Civ. 22213.

Page 736

204 Cal.Rptr. 736

158 Cal.App.3d 289, 38 UCC Rep.Serv. 1608

SACRAMENTO REGIONAL TRANSIT DISTRICT, Plaintiff and Appellant, v. Grumman FLXIBLE, Defendant and Respondent.

Civ. 22213.

Court of Appeal, Third District, California.

July 13, 1984.

As Modified on Denial of Rehearing Aug. 13, 1984.

Hearing Denied Sept. 12, 1984.

Phillip M. Cunningham and Mark W. Gilbert, Sacramento, for plaintiff and appellant.

Porter, Scott, Weiberg & Delehant, Nian S. Roberts II, and Terence Cassidy, Sacramento, for defendant and respondent.

SIMS, Associate Justice.

In this case we hold that a complaint filed by a plaintiff who is a merchant (Cal.U.Com.Code, § 2104, subd. (1)) fails to state a tort cause of action for strict liability or negligence against a manufacturer of a product purchased by the merchant where the only injury alleged is the cost of repair of a defect in the product.

FACTUAL AND PROCEDURAL BACKGROUND ¹

Plaintiff operates a fleet of busses in Sacramento for the purpose of public mass transportation. Defendant is the successor of an original bus manufacturer.

Sometime in the fall of 1974 plaintiff issued a request for proposal regarding the purchase of busses. Defendant, through its predecessor, was the successful bidder. In October 1975 defendant delivered to plaintiff 103 new busses, which were accompanied by defendant manufacturer's standard written warranty containing certain terms, conditions, and limitations not here applicable.

On April 17, 1980, plaintiff discovered a broken fuel tank support during routine maintenance on one of the busses manufactured by defendant. Further inspection of all the busses manufactured by defendant revealed that at least 26 of the 103 had the same or similar damage, i.e., cracked fuel tank supports. As a result of further inspection plaintiff determined that all the busses it purchased from defendant would likely suffer the same type of damage unless certain remedial repairs were undertaken. In addition, these inspections revealed damage of a similar nature (cracked or cracking component parts) to other parts of other busses. ²

Subsequently, with the advice and assistance of defendant's employees, damage to the 26 disabled busses was repaired and prophylactic repairs were made to the remainder of the busses manufactured by defendant. All 103 busses were eventually restored to service by plaintiff.

Plaintiff filed this action for damages on November 4, 1980. Defendant demurred on May 3, 1982, contending plaintiff failed to state a cause of action. (Code Civ.Proc., § 430.10, subd. (e).) Following a hearing, the court sustained the demurrer and entered judgment of dismissal on July 6, 1982.

Plaintiff appeals contending the court erred in sustaining the demurrer because the complaint states a cause of action in tort for products liability and negligence. Plaintiff concedes the contractual warranty had long expired when the defects were discovered.

DISCUSSION

I

In response to plaintiff's contention that it adequately pled a cause of action for products liability we briefly review the authorities which define the contours of a products liability action.

"A manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being." (Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 62, 27 Cal.Rptr. 697, 377 P.2d 897.)

"Subsequent cases have expanded the scope of the Greenman doctrine by imposing strict liability on retail dealers [citation]; wholesale and retail distributors [citation]; home builders [citations]; bailors and lessors of personal property [citations]; and licensors of chattels [citation]. The standard of strict liability has been held to apply to a defect in design as well as a defect in manufacture [citations] and extends not only to actual consumers or users but to any human being to whom an injury from the defect is reasonably foreseeable. [Citations.]" (Silverhart v. Mount Zion Hospital (1971) 20 Cal.App.3d 1022, 1026, 98 Cal.Rptr. 187.)

Liability is imposed not only where the defective product causes personal injury, but also where the defective product causes personal injury, but also where the defective product causes physical damage to property. (Seely v. White Motor Co. (1965) 63 Cal.2d 9, 19, 45 Cal.Rptr. 17, 403 P.2d 145; Interna tional Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001, 1005, 168 Cal.Rptr. 301; Kaiser Steel Corp. v. Westinghouse Elec. Corp. (1976) 55 Cal.App.3d 737, 746, fn. 5, 127 Cal.Rptr. 838; Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 649, 55 Cal.Rptr. 94.) The damaged property may consist of the product itself. (See Seely v. White Motor Co., supra, 63 Cal.2d at p. 19, 45 Cal.Rptr. 17, 403 P.2d 145; International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d at p. 1005, 168 Cal.Rptr. 301; Gherna v. Ford Motor Co., supra, 246 Cal.App.2d at p. 649, 55 Cal.Rptr. 94.)

However, where damage consists solely of "economic losses," recovery on a theory of products liability is precluded. (Cronin v. J.B.E. Olson Corp. (1972) 8 Cal.3d 121, 130, 104 Cal.Rptr. 433, 501 P.2d 1153; Seely v. White Motor Co., supra, 63 Cal.2d at pp. 18-19, 45 Cal.Rptr. 17, 403 P.2d 145; Pisano v. American Leasing (1983) 146 Cal.App.3d 194, 196-197, 194 Cal.Rptr. 77; International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d at p. 1008, 168 Cal.Rptr. 301 (conc. and dis. opn. of Fleming, J.); Rodrigues v We believe the line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory. (Alfred N. Koplin & Co. v. Chrysler Corp. (1977) 49 Ill.App.3d 194, 7 Ill.Dec. 113, 115, 364 N.E.2d 100, 102.) " 'Economic' loss or harm has been defined as 'damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits--without any claim of personal injury or damages to other property * * *.' " (Id., 7 Ill.Dec. at 116, 364 N.E.2d at p. 103, quoting, Note, Economic Loss in Products Liability Jurisprudence (1966) 66 Colum.L.Rev. 917, 918; see also Star Furniture Co. v. Pulaski Furniture Co. (W.Va.1982) 297 S.E.2d 854, 859.)

Campbell Industries (1978) 87 Cal.App.3d 494, 498, 151 Cal.Rptr. 90; Kaiser Steel Corp. v. Westinghouse Elec. Corp., supra, 55 Cal.App.3d at p. 746, fn. 5, 127 Cal.Rptr. 838; [158 Cal.App.3d 294] Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 447, 102 Cal.Rptr. 113; see Jones & Laughlin Steel v. Johns-Manville Sales (3rd Cir.1980) 626 F.2d 280, 287, fn. 13, citing authorities; Clark v. International Harvester Co. (1978) 99 Idaho 326, 581 P.2d 784, 791, citing authorities.)

Plaintiff failed to allege physical injury to its property apart from the manifestation of the defect itself in the busses. ³ The rule imposing strict liability in tort for damage to property presupposes (1) a defect and (2) further damage to plaintiff's property caused by the defect. When the defect and the damage are one and the same, the defect may not be considered to have caused physical injury. (National Crane Corp. v. Ohio Steel Tube Co. (1983) 213 Neb. 782, 332 N.W.2d 39, 43-44.) The expenses of repair plaintiff has incurred, and will incur in the future, are purely economic damages. (Ibid; see Star Furniture Co. v. Pulaski Furniture Co., supra, 297 S.E.2d at p. 859-860; Alfred N. Koplin & Co. v. Chrysler Corp., supra, 7 Ill.Dec. at 120, 364 N.E.2d at p. 107; Chrysler Corp. v. Taylor (1977) 141 Ga.App. 671, 234 S.E.2d 123, 124.)

We believe a contrary conclusion in the circumstances of this case would improperly invade rules of law adopted by the Legislature in the California Uniform Commercial Code. ⁴ In that code, " 'Merchant' means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill." (§ 2104, subd. (1).) The drafters of the Uniform Commercial Code wrote, "This article assumes that transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced seller or buyer. It thus adopts a policy of expressly stating rules applicable 'between merchants' and 'as against a merchant', wherever they are needed instead of making them depend upon the circumstances of each case ...." (Official Comment to § 2104; see generally Lattin, Uniform Commercial Code, Article 2 on Sales: Some Observations on Four Fundamentals (1965) 16 Hast.L.J. 551, 552-561.)

Here, the facts pleaded in the complaint demonstrate that, as a transit district, plaintiff had knowledge and skill peculiar to the goods (busses) involved in the transaction. Plaintiff, like defendant, was therefore clearly a "merchant" as defined Kaiser Steel Corp. v. Westinghouse Elec. Corp., supra, 55 Cal.App.3d 737, 127 Cal.Rptr. 838 also supports this view. There, Westinghouse manufactured and delivered to Kaiser an electrical generator built to Kaiser's specifications. Defects in welding of rivets caused the generator to self-destruct. Loss of the generator caused a portion of Kaiser's manufacturing plant to shut down. (P. 742, 127 Cal.Rptr. 838.)

                by section 2104.  The Uniform Commercial Code regulated the various aspects of plaintiff's purchase of busses from defendant, including liability for defects based on express and implied warranties.  (See, e.g., §§ 2303, 2313, 2314, 2315;  Fundin v. Chicago Pneumatic Tool Co.  (1984) 152 Cal.App.3d 951, 957-960, 199 Cal.Rptr. 789;  see generally Lattin, op. cit. supra.)   We see no reason why we should apply tort law to govern plaintiff's commercial relations with another merchant.  "The

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