Key International Manufacturing, Inc. v. Morse/Diesel, Inc.

142 A.D.2d 448, 536 N.Y.S.2d 792, 1988 N.Y. App. Div. LEXIS 13886
CourtAppellate Division of the Supreme Court of the State of New York
DecidedDecember 30, 1988
StatusPublished
Cited by69 cases

This text of 142 A.D.2d 448 (Key International Manufacturing, Inc. v. Morse/Diesel, Inc.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Key International Manufacturing, Inc. v. Morse/Diesel, Inc., 142 A.D.2d 448, 536 N.Y.S.2d 792, 1988 N.Y. App. Div. LEXIS 13886 (N.Y. Ct. App. 1988).

Opinion

OPINION OF THE COURT

Bracken, J. P.

The plaintiff Key International Manufacturing, Inc. (hereinafter Key), a New York corporation, commenced the present action in order to recover compensation for the economic losses it suffered in connection with a construction project on Staten Island. In its complaint, Key alleged that it was forced to remedy, "at substantial cost”, various design and construction defects caused by the negligence and breach of contract committed by several defendants, including the respondents Albert Melniker, an architect, and Toder/ Schwartz, a professional engineering firm. The Supreme Court, finding that the respondents were not in privity of contract with Key, and holding that the absence of privity bars Key from recovering for its economic losses against the respondents, awarded summary judgment to them. On this appeal by Key, we find that issues of fact as to whether privity exists and as to whether Key may have standing to sue on a contract theory based on its status as a third-party beneficiary preclude the awarding of summary judgment.

I

The Supreme Court properly held, in light of controlling precedent, that the owner of a construction project may not recover compensation for economic damages caused by the negligence of an architect or engineer with whom it is not in privity of contract. This rule is analogous to the well-settled rule that the manufacturer of a product may not be held liable to a party with whom it is not in privity for economic losses suffered as a result of a defect in the product.

In the area of products liability, the majority rule, as reflected in the seminal case of Seely v White Motor Co. (63 Cal 2d 9, 403 P2d 145), has always been that a product owner [451]*451has no tort remedy for economic losses, as distinguished from personal injury or property damage, against a product manufacturer. An owner of a product who suffers economic loss is limited to whatever remedy the owner may have in contract. This rule has recently been embraced by the Supreme Court of the United States as an aspect of general maritime law (see, East Riv. S. S. Corp. v Transamerica Delaval, 476 US 858). As discussed in these cases, the rationale for this rule is based upon the perception that to allow tort recovery in the absence of privity for economic losses would virtually negate the law of warranty, as codified in the provisions of the Uniform Commercial Code. Those courts which have adopted the majority rule have done so based on "the need to keep products liability and contract law in separate spheres and to maintain a realistic limitation on damages” (East Riv. S. S. Corp. v Transamerica Delaval, supra, at 870-871; see also, Moorman Mfg. Co. v National Tank Co., 91 Ill 2d 69, 435 NE2d 443). It is thought that abandonment of the doctrine of privity in cases of economic loss would cause "contract law [to] drown in a sea of tort” (East Riv. S. S. v Transamerica Delaval, supra, at 866).

The New York Court of Appeals has adhered to the majority view outlined above (see, Schiavone Constr. Co. v Elgood Mayo Corp., 56 NY2d 667, revg 81 AD2d 221, on dissenting opn below). In his dissent in the Schiavone case (supra), later adopted by the Court of Appeals, Justice Silverman quoted approvingly from the language of the California Supreme Court in the Seely case (supra), as follows: " The law of sales has been carefully articulated to govern the economic relations between suppliers and consumers of goods * * *. Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone’ ” (Seely v White Motor Co., 63 Cal 2d 9, 15-18, 403 P2d 145, 149-151, supra; Schiavone Constr. Co. v Elgood Mayo Corp., 81 AD2d 221, 230-231 [Silverman, J., dissenting]). Thus, the rule is settled in New York that a plaintiff has no tort cause of action, sounding in strict products liability or in negligence, for economic loss suffered as the result of a defective product; the plaintiff’s sole remedy is in contract (see also, Cayuga Harvester v Allis-Chalmers Corp., 95 AD2d 5, 25-26; Hole v General Motors Corp., 83 AD2d 715, 717).

The rule which eliminates tort liability for economic losses in the context of defective products has been applied in New [452]*452York to defective buildings as well. This is logical, since " 'there is no visible reason for any distinction between the liability of one who supplies a chattel and one who erects a structure’ ” (Inman v Binghamton Hous. Auth., 3 NY2d 137, 144, quoting Prosser, Torts § 85, at 517 [2d ed]; see also, Cubito v Kreisberg, 69 AD2d 738, 745, affd 51 NY2d 900).

In Alvord & Swift v Muller Constr. Co. (NYLJ, Sept. 15, 1976, at 7, col 4, affd 56 AD2d 761, on opn of Greenfield, J., at Special Term, affd 46 NY2d 276), a negligence action brought by a subcontractor for damages resulting from construction delays was dismissed, insofar as it was asserted against the owner’s architect. One basis for dismissal was the absence of privity between the architect, whose only duty was to the owner, and the plaintiff subcontractor (see also, Crow-Crimmins-Wolff & Munier v County of Westchester, 90 AD2d 785, 786).

Consistent with the Alvord & Swift case (supra), this court held, in Ossining Union Free School Dist. v Anderson LaRocca Anderson (135 AD2d 518), that an owner of a building had no cause of action for economic injuries against a firm of engineers with whom it was not in privity. Citing Ultramares Corp. v Touche (255 NY 170), the court stated that "recovery will not be granted to a third person for pecuniary loss arising from the negligent representations of a professional with whom he or she has had no contractual relationship” (Ossining Union Free School Dist. v Anderson LaRocca Anderson, supra, at 520; see also, Plancher v Gladstein, 143 AD2d 740; Fitzpatrick, Jr. Constr. Corp. v County of Suffolk, 138 AD2d 446).

Also, in Lake Placid Club Attached Lodges v Elizabethtown Bldrs. (131 AD2d 159), the Appellate Division, Third Department, held that the plaintiff, an unincorporated joint venture which consisted of the owners of condominium units, had no negligence cause of action for economic losses against either the builder of the condominium or its architects. The court stated that the plaintiff "has not claimed any damages other than direct and consequential nonaccidental economic loss, i.e., the cost of repair to make the condominium units of * * * habitable quality and loss of market value, for which there is no recovery in negligence” (Lake Placid Club Attached Lodges v Elizabethtown Bldrs., supra, at 162, citing Butler v Caldwell & Cook, 122 AD2d 559; Burnell v Morning Star Homes, 114 AD2d 657, 659; Hemming v Certainteed Corp., 97 AD2d 976, appeal dismissed 61 NY2d 758; Queensbury Union Free School [453]*453Dist. v Walter Corp., 94 AD2d 834; Schiavone Constr. Co. v Elgood Mayo Corp., 81 AD2d 221, 227-234 [Silverman, J., dissenting], revd on dissenting opn 56 NY2d 667). The court also held that the plaintiff had no remedy in contract, since there was no privity between it or its members and either the builder or the architect (Lake Placid Club Attached Lodges v Elizabethtown Bldrs., supra, at 161-162).

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142 A.D.2d 448, 536 N.Y.S.2d 792, 1988 N.Y. App. Div. LEXIS 13886, Counsel Stack Legal Research, https://law.counselstack.com/opinion/key-international-manufacturing-inc-v-morsediesel-inc-nyappdiv-1988.