Sullivan Industries, Inc. v. Double Seal Glass Co., Inc.

• Citation: 17 UCC Rep.Serv.2d 61,480 N.W.2d 623,192 Mich.App. 333
• Decision Date: 27 December 1991
• Docket Number: 117623,Docket Nos. 117593
• Parties: SULLIVAN INDUSTRIES, INC., Plaintiff-Appellee, Cross-Appellant, v. DOUBLE SEAL GLASS CO., INC., Defendant-Cross-Plaintiff-Appellant, Cross-Appellee, and Norton Company, Defendant-Cross-Defendant-Appellant, Cross-Appellee. 192 Mich.App. 333, 480 N.W.2d 623, 17 UCC Rep.Serv.2d 61, Prod.Liab.Rep.(CCH)P. 13,141
• Court: Court of Appeal of Michigan — District of US

Page 623

480 N.W.2d 623

SULLIVAN INDUSTRIES, INC., Plaintiff-Appellee Cross-Appellant, v. DOUBLE SEAL GLASS CO., INC. Defendant-Cross-Plaintiff-Appellant Cross-Appellee and Norton Company, Defendant-Cross-Defendant-Appellant, Cross-Appellee.

Docket Nos. 117593, 117623.

192 Mich.App. 333, 480 N.W.2d 623, 17 UCC Rep.Serv.2d 61,

Prod.Liab.Rep.(CCH)P. 13,141

Court of Appeals of Michigan.

Submitted March 11, 1991, at Detroit.

Decided Dec. 27, 1991, at 9:40 a.m.

Released for Publication March 10, 1992.

[192 MICHAPP 336] Sommers, Schwartz, Silver & Schwartz, P.C. by David L. Nelson, James J. Vlasic and Patrick Burkett, Southfield, for plaintiff-appellee, cross-appellant.

Dykema Gossett by Richard J. McClear, Robert J. Franzinger and Patrick F. Hickey, Detroit, and Bowditch & Dewey by Michael P. Angelini and Vincent F. O'Rourke, Jr., Worcester, Mass., for the Norton Co.

Kohl, Secrest, Wardle, Lynch, Clark & Hampton by Konrad D. Kohl and Heidi D. Hudson, Farmington Hills, for the Double Seal Glass Co., Inc.

Before BRENNAN, P.J., and MICHAEL J. KELLY and WALSH, ^* JJ.

WALSH, Judge.

These appeals, consolidated by this Court's order, arise out of an action brought by a manufacturer of glass doors and windows against its supplier of insulated glass units (IGUs) and that supplier's supplier of polysulfide sealant, a component part used in the assembly of the IGUs. The window manufacturer alleged that defective sealant caused 14,998 IGUs to fail, resulting in catastrophic monetary losses to, and the eventual bankruptcy of, the manufacturer. Defendant Norton Company, in case No. 117593, and defendant Double Seal Glass Co., Inc., in case No. 117623, [192 MICHAPP 337] appeal as of right from a February 1, 1989, final judgment of the Oakland Circuit Court in favor of plaintiff, Sullivan Industries, Inc., and against Double Seal in the amount of $86,662.53, and against Norton in the amount of $508,000. In case No. 117623, Sullivan cross appeals as of right from the February 1, 1989, judgment. We reverse in part, affirm in part, and remand for further proceedings consistent with this opinion.

I

Sullivan began manufacturing doors and windows that contained IGUs in the mid-1970s. An IGU consists of two panes of glass separated by an air space, held apart by a metal "spacer," and sealed around the perimeter by a polysulfide sealant. The sealant structurally laminates the two panes of glass together and retards the transmission of moisture or other matter into the enclosed air space. Double Seal supplied Sullivan with IGUs for installation in doors and windows manufactured by Sullivan. Norton, a formulator and manufacturer of sealants for use in the assembly of IGUs, supplied Double Seal with a polysulfide sealant under the product name "N-470" for use in Double Seal's assembly of IGUs during the period relevant to this action.

According to Sullivan, beginning in the Spring of 1982, "an abnormally large number of seal failures" occurred on the IGUs purchased by Sullivan from Double Seal and incorporated into windows and doors sold by Sullivan. These seal failures manifested themselves in a loss of adhesion between the glass panes and the sealant, which in turn permitted the IGUs to delaminate and allowed moisture and other foreign substances to penetrate the air space between the glass panes. As a result, [192 MICHAPP 338] the IGUs lost their insulating characteristics and fogged. These failures forced Sullivan to replace the affected units.

Sullivan commenced this action in 1983, seeking recovery against Double Seal under the theories of negligence, breach of implied warranty of fitness pursuant to M.C.L. Sec. 440.2315; M.S.A. Sec. 19.2315, breach of implied warranty of merchantability pursuant to M.C.L. Sec. 440.2314; M.S.A. Sec. 19.2314, breach of implied warranty sounding in products liability, and breach of express warranty. Sullivan also sought recovery against Norton under the theories of negligence, breach of implied warranty of merchantability pursuant to M.C.L. Sec. 440.2314; M.S.A. Sec. 19.2314, breach of implied warranty sounding in products liability, and breach of express warranty. The express warranty claim against Norton was dismissed before trial.

Following the close of Sullivan's proofs, both Double Seal and Norton moved for involuntary dismissal of Sullivan's claims pursuant to MCR 2.504(B)(2). The trial court granted the motion with regard to Sullivan's claims of tort-based negligence and breach of implied warranty against Double Seal, finding that the claims were barred by the economic-loss doctrine as set forth in McGhee v. GMC Truck & Coach Division, General Motors Corp., 98 Mich.App. 495, 296 N.W.2d 286 (1980). The court also granted the motion with regard to Sullivan's contractual claim against Norton based on the provisions of the Uniform Commercial Code, finding that the claim was barred by a lack of privity between Sullivan and Norton.

Following the close of all proofs, the court found in favor of Sullivan and against Double Seal with respect to Sullivan's theory of breach of express warranty. The court also found in favor of Sullivan[192 MICHAPP 339] and against Norton with respect to Sullivan's tort-based theories. These appeals followed.

The parties raise a total of thirteen claims of error. Of these thirteen errors claimed, we find two of a sufficient magnitude to warrant reversal. We begin with a discussion of those errors.

II

We conclude that the court clearly erred in finding that Sullivan's tort-based claims against Norton were not barred by the economic-loss doctrine and, hence, in refusing to grant Norton's motion for involuntary dismissal with regard to those tort-based claims. We also conclude, as a logical corollary, that the court clearly erred in granting Norton's motion for involuntary dismissal with regard to Sullivan's claim of breach of implied warranty brought pursuant to M.C.L. Sec. 440.2314; M.S.A. Sec. 19.2314.

We review a decision to grant or deny a motion for involuntary dismissal under the clearly erroneous standard. The decision will not be overturned unless the evidence manifestly preponderates against the decision. Warren v. June's Mobile Home Village & Sales, Inc., 66 Mich.App. 386, 389, 239 N.W.2d 380 (1976).

The economic-loss doctrine is a judicially created doctrine that bars all tort remedies where the suit is between an aggrieved buyer and a nonperformance seller, the injury consists of damage to the goods themselves, and the only losses alleged are economic. McGhee, 98 Mich.App. at 505, 296 N.W.2d 286; Consumers Power Co. v. Mississippi Valley Structural Steel Co., 636 F.Supp. 1100, 1105-1106 (E.D.Mich.1986); S.M. Wilson & Co. v. Smith International, Inc., 587 F.2d 1363, 1376 (C.A.9, 1978). The sound reasoning underlying this doctrine was set forth in Mid-Continent Aircraft [192 MICHAPP 340] Corp. v. Curry Co. Spraying Service, Inc., 572 S.W.2d 308, 312 (Tex.1978):

The nature of the loss resulting from damage that a defective product has caused to itself has received the attention of several commentators. Dean Page Keeton writes:

"A distinction should be made between the type of 'dangerous condition' that causes damage only to the product itself and the type that is dangerous to other property or persons. A hazardous product that has harmed something or someone can be labeled as part of the accident problem; tort law seeks to protect against this type of harm through allocation of risk. In contrast, a damaging event that harms only the product should be treated as irrelevant to policy considerations directing liability placement in tort. Consequently, if a defect causes damage limited solely to the property, recovery should be available, if at all, on a contract-warranty theory."

The Uniform Commercial Code was adopted by the Legislature as a comprehensive and integrated act to facilitate the continued expansion of commercial practices. Tex.Bus. & Comm.Code Ann. Sec. 1.102. For sales of products the above purpose is carried out by Article 2 of the Code, which supplies a complete framework of rights and remedies for transacting parties. In light of the Code's scope and purpose, its terms should not be nullified by applying strict liability when the parties have contracted otherwise. Such an expansion of strict liability would frustrate the Code's purposes of codifying the law of commercial transactions by displacing its applicability in all cases where the sale of faulty products is involved. Some losses resulting from product transactions are best covered by contract liability under the Code.

See also McGhee, 98 Mich.App. at 505-506, 296 N.W.2d 286; Consumers Power, 636 F.Supp. at 1103-1104.

In this case, the court refused to apply the [192 MICHAPP 341] economic-loss doctrine to bar the prosecution of Sullivan's tort claims against Norton for two reasons. First, the court found the doctrine inapplicable because "Norton had no contractual relationship with Sullivan." Second, the court found the doctrine inapplicable because the alleged damage to the IGUs constituted damage "to property other than the subject goods." Both findings are erroneous.

A

In Auto-Owners Ins. Co. v. Chrysler Corp., 129 Mich.App. 38, 42, 341 N.W.2d 223 (1983), two of our colleagues held that privity of contract was a prerequisite for an application of the economic-loss doctrine to bar a tort action brought by a consumer against a remote seller. The majority reasoned that the rationale underlying the application of the doctrine in McGhee was that unfairness would result if a contracting party was allowed to nullify the provisions of the UCC where the only injury is to the property purchased and is caused by the condition of that property. The majority then noted that this rationale fails when there is no contractual relationship between the parties. Id. Accordingly, the majority concluded:

It thus appears that the UCC has no relevancy in a case, such as the instant...