Sherman v. Sea Ray Boats, Inc.

• Decision Date: 08 August 2002
• Docket Number: Docket No. 227450.
• Citation: 649 N.W.2d 783,251 Mich. App. 41
• Parties: Janet C. SHERMAN, Plaintiff-Appellant, v. SEA RAY BOATS, INC., Defendant-Appellee, and K & M Boating Center, an assumed name of South River Marine, Defendant.
• Court: Court of Appeal of Michigan — District of US

649 N.W.2d 783

251 Mich. App. 41

Janet C. SHERMAN, Plaintiff-Appellant, v. SEA RAY BOATS, INC., Defendant-Appellee, and K & M Boating Center, an assumed name of South River Marine, Defendant.

Docket No. 227450.

Court of Appeals of Michigan.

Submitted March 5, 2002, at Detroit.

Decided April 26, 2002, at 9:10 a.m.

Released for Publication August 8, 2002.

Harvey Kruse, P.C. (by James Sukkar and Paul M. Bogos), Troy, for the plaintiff.

D'Luge, Miles & Miles, P.L.C. (by Brian J. Miles), Mt. Clemens, for the defendant.

Before HOOD, P.J., and GAGE and MURRAY, JJ.

HOOD, P.J.

Plaintiff appeals as of right from the trial court's orders granting motions for summary disposition and reconsideration by defendant Sea Ray Boats, Inc. We affirm.

On August 23, 1999, plaintiff filed a complaint based on the sale of a boat that occurred on June 15, 1985. Specifically, plaintiff alleged that she purchased a new 1985 Sea Ray boat manufactured by defendant from K & M Boat Company.¹ Plaintiff alleged that she purchased the boat with the legitimate expectation that its useful life would exceed twenty-five years. Plaintiff maintained the boat in accordance with the instructions provided in the owner's manual. There were no special or cautionary instructions addressing the care of the wood encased by the fiberglass structural members of the boat. In June 1997, plaintiff noticed an area of decaying wood shelving near the starboard battery. Plaintiff obtained a $4,310.50 repair estimate and authorized the repair in November 1997. Plaintiff alleged that the repair uncovered extensive "latent decay" in seventy-six percent of the stringers, bulkheads, and framing. Plaintiff allegedly received a repair estimate of $38,585.50 on August 18, 1998. Plaintiff suspended the repair effort and tendered a claim to defendant. Approximately one year after receiving notice of the repair costs, plaintiff filed this litigation.

In her complaint, plaintiff raised the following claims against defendant: (1) breach of implied warranty of fitness and merchantability under the Uniform Commercial Code (UCC), M.C.L. § 440.2314; (2) breach of express warranty under the UCC, M.C.L. § 440.2313; (3) negligence; (4) design defect; (5) violation of the Magnuson Moss Warranty Act, 15 USC 2301 et seq.; (6) breach of implied warranty of merchantability of the Magnuson Moss Warranty Act; (7) violation of the Michigan Consumer Protection Act, M.C.L. § 445.901 et seq.; and (8) breach of contract. Defendant moved for summary disposition pursuant to MCR 2.116(C)(7) or (C)(8).² The trial court granted the motion for summary disposition with respect to all claims except "any negligence claims based on a product liability theory." Defendant moved for reconsideration of the denial of summary disposition with regard to the remaining tort claims, and the trial court granted the motion.

This case requires a consideration of the economic loss doctrine under Michigan law. The economic loss doctrine provides that "where a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only `economic' losses." Huron Tool & Engineering Co. v. Precision Consulting, 209 Mich.App. 365, 368, 532 N.W.2d 541 (1995). In Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 486 N.W.2d 612 (1992), our Supreme Court adopted the economic loss doctrine. In Neibarger, the plaintiffs, owners and operators of a dairy farm, purchased a milking system designed by the defendant. After the system was installed in 1979, the plaintiffs' cattle died or were sold because of nonproductivity. The plaintiffs alleged that they did not discover, until 1986, that the vacuum system on the milking equipment had been improperly designed and installed. Consequently, in 1987, the plaintiffs filed suit alleging breach of express warranty, breach of implied warranty, and negligence. The Supreme Court held that the plaintiffs' exclusive remedy of recovery for economic loss caused by a defective product purchased for commercial purposes was provided by the UCC. The Supreme Court explained its basis for adoption of the doctrine:

A contrary holding would not only serve to blur the distinction between tort and contract, but would undermine the purpose of the Legislature in adopting the UCC. The code represents a carefully considered approach to governing "the economic relations between suppliers and consumers of goods." If a commercial purchaser were allowed to sue in tort to recover economic loss, the UCC provisions designed to govern such disputes, which allow limitation or elimination of warranties and consequential damages, require notice to the seller, and limit the time in which such a suit must be filed, could be entirely avoided. In that event, Article 2 would be rendered meaningless and, as stated by the Supreme Court in East River [East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) ], supra at 866, 106 S.Ct. 2295, "contract law would drown in a sea of tort."

Rejection of the economic loss doctrine would, in effect, create a remedy not contemplated by the Legislature when it adopted the UCC by permitting a potentially large recovery in tort for what may be a minor defect in quality. On the other hand, adoption of the economic loss doctrine will allow sellers to predict with greater certainty their potential liability for product failure and to incorporate those predictions into the price or terms of the sale.

Adoption of the economic loss doctrine is consistent with the stated purposes of the UCC. The availability of a tort action for economic loss would "only add more confusion in an area already plagued with overlapping and conflicting theories of recovery," while preclusion of such actions will lead to the simplification, clarification, and modernization of commercial law called for by § 1-102(2)(a). Moreover, because a majority of other jurisdictions have adopted the economic loss doctrine, our decision here will promote the uniformity called for in § 1-102(2)(c). [Neibarger, supra at 528-529

, 486 N.W.2d 612.]

Although they were dairy farmers, there was no indication that the plaintiffs had any expertise in milking systems, and the plaintiffs alleged that the statute of limitations governing products liability law applied. The Supreme Court concluded that the proper approach to determining the applicability of the economic loss doctrine required evaluation of the underlying policies of tort and contract law as well as the nature of the damages. Id. at 531, 486 N.W.2d 612. The Supreme Court examined the nature of the damages from the defective milking system, lost profits, and consequential damages, and determined that the action fell within the principles of the economic loss doctrine and was governed by the UCC and its statute of limitations. Id. at 533, 486 N.W.2d 612.

The parties dispute the extent of the application of the Neibarger decision to this transaction, the sale of a boat to an individual consumer for recreational purposes.³ When determining the propriety of adoption of the economic loss doctrine, our Supreme Court noted the rationale for the doctrine cited by various jurisdictions. From these cited decisions, there is dicta in Neibarger to support the respective positions of each party. For example, the breach of warranty upon delivery provisions may be satisfactory in commercial settings, but are inconsistent with consumer actions against manufacturers for personal injury;⁴ a proposition that supports plaintiff's position that the economic loss doctrine does not apply. However, it was also noted that, while a consumer should not be charged with bearing the risk of physical injury from a product, the consumer may be charged with the risk that the product will not match his economic expectations unless the manufacturer agrees to it.⁵ Because of the disparity in the underlying rationale and the failure, in some contexts, to define the term "commercial," defendant requests that we adopt the federal maritime economic loss doctrine and apply it to this transaction. However, we conclude that plaintiff's tort actions are precluded by principles of Michigan law that evolved into the economic loss doctrine, and that resort to federal doctrine is unnecessary.

In Hart v. Ludwig, 347 Mich. 559, 560, 79 N.W.2d 895 (1956), the parties entered into an oral contract for the care and maintenance of an orchard owned by the plaintiff. The defendant worked the orchard during the spring of 1952, but shortly after beginning work for the 1953 season, he refused to continue for unknown reasons. His alleged omissions included the failure to remove the shoots, to prune, to fertilize, and to protect against destructive animals. The plaintiff alleged that these omissions constituted negligence. Id.

The Supreme Court examined whether an action in contract could also support an action for tort and concluded:

We have simply the violation of a promise to perform the agreement. The only duty, other than that voluntarily assumed in the contract to which the defendant was subject, was his duty to perform his promise in a careful and skillful manner without risk of harm to others, the violation of which is not alleged. What we are left with is defendant's failure to complete his contracted for performance. This is not a duty imposed by the law upon all, the violation of which gives rise to a tort action, but a duty arising out of the intentions of the parties themselves and owed only to those specific individuals to whom the promise runs. A tort action will not lie. [Hart, supra at 565-566

, 79 N.W.2d 895.]

The analysis of whether a duty arose that was separate and distinct from a contractual duty was not premised on or affected by the relationship of the parties. That is, whether the parties were of equal bargaining power was not a precursor to...