Schiavone Const. Co. v. Elgood Mayo Corp.

• Decision Date: 16 June 1981
• Citation: 81 A.D.2d 221,439 N.Y.S.2d 933
• Court: New York Supreme Court — Appellate Division
• Parties: SCHIAVONE CONSTRUCTION COMPANY, Impresit Girola Lodigiani, Inc. and Thomas Crimmins Contracting Co., a Joint Venture, Plaintiffs-Respondents, v. ELGOOD MAYO CORP. (a Pennsylvania corporation), Brunel, Cochrane & Levy, Inc., successors to Elgood Mayo Corp., (a New York corporation), Defendants, and Timberland Equipment Limited, formerly known as The Timberland Ellicott Limited, Defendant-Appellant. BRUNE, COCHRANE & LEVY, INC., Defendant and Third-Party Plaintiff, v. CONTINENTAL INSURANCE COMPANY, Third-Party Defendant.

Page 933

439 N.Y.S.2d 933

81 A.D.2d 221

SCHIAVONE CONSTRUCTION COMPANY, Impresit Girola Lodigiani,

Inc. and Thomas Crimmins Contracting Co., a Joint

Venture, Plaintiffs-Respondents, v. ELGOOD MAYO CORP. (a Pennsylvania corporation), Brunel,

Cochrane & Levy, Inc., successors to Elgood Mayo

Corp., (a New York corporation), Defendants,

and

Timberland Equipment Limited, formerly known as The

Timberland Ellicott Limited, Defendant-Appellant.

BRUNE, COCHRANE & LEVY, INC., Defendant and Third-Party Plaintiff, v. CONTINENTAL INSURANCE COMPANY, Third-Party Defendant.

Supreme Court, Appellate Division,

First Department.

June 16, 1981.

Raymond S. Jackson, Jr., New York City, of counsel (Peter D. Raymond, New York City, with him on the brief, Thacher, Proffitt & Wood, New York City, attys.), for defendant-appellant.

Eugene Schaffel, New York City, of counsel (Norman D. Alvy and John R. Casolaro, New York City, with him on the brief, Buckley, Treacy, Schaffel, Mackey & Abbate, New York City, attys.), for plaintiffs-respondents.

Before SULLIVAN, J.P., and ROSS, MARKEWICH, SILVERMAN and FEIN, JJ.

FEIN, Justice.

Plaintiff Schiavone Construction Company (Schiavone) has been granted an attachment of the assets of defendant Timberland Equipment Limited (Timberland) pursuant to CPLR 6201(1). In sustaining the attachment, Special Term concluded that plaintiff had demonstrated the existence of a valid cause of action and that it is probable that the plaintiff will succeed on the merits. Plaintiff was granted leave to serve an amended complaint to allege in substance that by reason of defects in a truck hoist designed and manufactured by Timberland and sold by it to plaintiff's supplier Elgood Mayo Corp. (Elgood), plaintiff sustained damage. The truck hoist, designed to be used in connection with tunnel work undertaken by plaintiff in the East 63rd Street tunnel in New York City, allegedly would not operate because, among other things, the shaft was improper in design and in its fit to the drum, and the cable equalizer did not and could not fulfill the function for which it was intended.

The proposed amended complaint would plead a third cause of action based upon strict products liability in place of the present third cause of action.

Plaintiff purchased the truck hoist from Elgood, which entered into a contract with Timberland under which Timberland constructed the truck hoist purporting to meet the contract specifications. Pursuant to the contract, Timberland's name did not appear on any of the equipment, nor did it appear on the bills sent by Elgood to plaintiff.

Special Term ruled that under current New York law, no recovery could be had against Timberland on the theory of breach of warranty because there is no privity (Martin v. Julius Dierck Equip. Co., 43 N.Y.2d 583, 403 N.Y.S.2d 185, 374 N.E.2d 97; Victorson v. Bock Laundry Machine Company, 37 N.Y.2d 395, 373 N.Y.S.2d 39, 335 N.E.2d 275), and that no cause of action in negligence was stated because, in the absence of privity, it must be shown that the product is inherently dangerous and that damage to persons or property flowing from an accident has been sustained. It was ruled that mere economic loss occasioned by the failure of the product to perform could not ground a cause of action in negligence against the manufacturer by a remote purchaser (Snyder Plumbing & Heating Corp. v. Purcell, 9 A.D.2d 505, 195 N.Y.S.2d 780; Steckmar National Realty and Investment Corporation v. J I Case Company, 99 Misc.2d 212, 415 N.Y.S.2d 946; Trans World Airlines, Inc. v. Curtiss-Wright Corporation, 1 Misc.2d 477, 148 N.Y.S.2d 284, affd. 2 A.D.2d 666, 153 N.Y.S.2d 546, 550).

However, Special Term concluded that the facts alleged were sufficient to state a cause of action in strict liability and granted leave to amend the complaint to plead such cause.

As Special Term observed, the closest case on its facts is John R. Dudley Construction, Inc. v. Drott Manufacturing Company, 66 A.D.2d 368, 412 N.Y.S.2d 512, granting the right to recover in strict liability for damages sustained in an action against the manufacturer of a crane which sustained physical damage and could not be used for its purpose because the bolts connecting the superstructure to the undercarriage had broken. The superstructure broke loose from its mounting and crashed to the ground along with the attached boom and load. In our case the hoist did not break. It simply would not work because its parts were improperly designed and inadequately attached to each other. Logic suggests that recovery should not be denied because of this difference between a machine which broke as in Dudley, supra, and one which did not work as in our case (see Randy Knitwear, Inc. v. American Cyanamid Company, 11 N.Y.2d 5, 15, 226 N.Y.S.2d 363, 181 N.E.2d 399).

The dissenters conclude that liability may not attach because there is no legal or jural relationship between the plaintiff and Timberland. They note that Timberland had no contract with plaintiff and that this was a so-called "private" job in that Timberland's name was not to appear as the manufacturer of the equipment. The dissent concludes that an appropriate distinction may be made between damage resulting from physical injury to the crane itself by reason of defective parts as in Dudley, supra, and "economic damage" sustained in our case where the hoist would not work because of defective parts. We see no valid ground for such distinction.

The argument that there must be physical damage or personal injury before strict liability will be imposed is founded on the conclusion that strict liability is theoretically grounded in tort and that the "economic loss" sought to be recovered in our case is more nearly akin to contract damages for breach of warranty, requiring privity. However, on the facts of our case there is no need to make the issue turn on such historical distinctions among the forms of action and their roots.

The dissent quotes at great length from the California case of Seely v. White Motor Company, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, where liability was imposed in favor of a remote purchaser and user against the manufacturer, cast in damages for repair, damage and consequential economic loss sustained because the truck would not function properly and bounced so violently that it overturned. Although liability in favor of a remote purchaser was imposed on the basis of the manufacturer's express warranty, upon which the purchaser apparently did not rely, Chief Justice Traynor, in widely-quoted dicta, explained why under California law strict liability would not be imposed. It was his view, relied upon by the dissent here, that strict liability is purely a tort doctrine designed to deal with "the distinct problem of physical injuries" as distinguished from the law of warranty which is primarily aimed at controlling commercial aspects of such transactions. In an extensive rationale justifying the distinction between tort recovery for physical injuries and warranty recovery for economic loss, Chief Justice Traynor suggested it rested upon an understanding of the economic responsibility a manufacturer must undertake in distributing his products. The dissent here appears to agree with his conclusion that there should be no right to recover from one not in privity with the plaintiff unless the manufacturer agrees in advance that the product is designed to meet the consumer's demands. Overlooked is the conclusion that by that standard of recovery should be permitted here where it is alleged that Timberland manufactured the equipment to meet plaintiff's needs.

An exposition similar to that in Seely, supra, is to be found in Jones and Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280, 287-289 (3 Cir. 1980), also relied upon in the dissent, where it is said that the rationale justifying strict liability in personal injury situations is not well suited to claims alleging only economic loss resulting from the failure of the product to perform, a matter which could and should have been covered by warranty. Theorizing that a lower purchase price for the product may result from the lack of warranty, the case concludes that no claim for economic loss is viable in the absence of privity. This economic argument, also advanced by the dissent, is of dubious validity. If there is a cause of action by the ultimate purchaser against his supplier premised on a breach of warranty, surely the supplier will have a cause of action against the manufacturer. This is the remedy suggested by the dissent. However, under such circumstances the damages will be the same and there will be a circuity of actions increasing the costs and time for recovery. There is no warrant for the distinction. As stated in Randy Knitwear, supra, 11 N.Y.2d at p. 13, 226 N.Y.S.2d 363, 181 N.E.2d 399:

"Thus, if the consumer or ultimate business user sues and recovers, for breach of warranty, from his immediate seller and if the latter, in turn, sues and recovers against his supplier in recoupment of his damages and costs, eventually, after several separate actions by those in the chain of distribution, the manufacturer may finally be obliged 'to shoulder the responsibility which should have been his in the first instance.' "

There is no reason why New York need follow either California or the federal courts in attempting to bar liability on the theory that strict liability is grounded in tort and not in warranty. The conclusion in Dudley v. Drott, supra, warrants affirmance here. It is noted that the crane in that case was purchased by the ultimate consumer "as is". The hoist here was manufactured for the job at hand.

As stated in Codling v. Paglia, 32 N.Y.2d 330, 345 N.Y.S.2d 461, 298 N.E.2d 622, at the outset of the opinion at p. 335, 345 N.Y.S.2d 461, 298 N.E.2d 622:

"We hold that today the manufacturer of a defective product may be held liable to an innocent bystander, without proof...