Mid Continent Aircraft Corp. v. Curry County Spraying Service, Inc.

572 S.W.2d 308, 24 U.C.C. Rep. Serv. (West) 574, 21 Tex. Sup. Ct. J. 481, 1978 Tex. LEXIS 368

• Court: Texas Supreme Court
• Decided: July 12, 1978
• Docket: B-7030
• Status: Published

Opinions

DANIEL, Justice.

This is a products liability ease which presents the question of whether, in an “as is” sale to a commercial buyer, the seller’s disclaimer of liability for physical damage caused to the product itself is effective under the Uniform Commercial Code.

■Defendant Mid Continent Aircraft Corp. is a Missouri corporation engaged in the business of buying and selling small aircraft. It sold a reconditioned and overhauled single engine spray plane to the plaintiff, Curry County Spraying Service, Inc., a New Mexico corporation, to be used in Curry County’s business of spraying crops. The plane was acquired by Mid Continent from co-defendant, Bobby Shivers, d/b/a Shivers Flying Service in Vernon, Texas, who had purchased the plane in a wrecked condition. Shivers repaired the airframe of the plane and had the engine overhauled by co-defendant, Robert Hawkins, a Federal Aviation Administration licensed engine mechanic, who maintained the independent Hawkins Aircraft shop in Quanah, Texas. In the transaction between Mid Continent and Curry County, the contract of sale stated that the purchase of the airplane was “subject to the terms and conditions of an ‘as is’ sale.”

Curry sued Shivers, Hawkins, and Mid Continent. The trial court, without aid of a jury, held that all three of the defendants were liable in tort in spite of the “as is” provision in Curry County’s purchase contract. Only Mid Continent appealed and the Court of Civil Appeals affirmed. 553 . The judgment against Shivers and Hawkins has become final. The cause of action against Mid Continent is severed and the judgments of the courts below as to Mid Continent are reversed. Judgment is here rendered that plaintiffs take nothing against Mid Continent.

Curry County had operated the rebuilt plane for approximacely 30 hours when the engine failed and the plane crashed while spraying insecticide on crops in Parmer County, Texas. The crash stemmed from Hawkins’ failure to attach a small crankshaft gear bolt lock plate when the engine was overhauled. Because of the missing lock plate, the gear bolt failed to remain tight and permitted the crankshaft gear to become loose, separating approximately ¾6 of an inch from the rear of the crankshaft. The timing dowel pin that anchors the gear on the crankshaft was sheared off, causing the gear to stop rotating. The ignition magnetos, which are turned by the crankshaft gear, stopped; thus killing the engine. Without power, the pilot made a forced landing on a rough country road. This resulted in substantial damage to the fuselage and wings of the plane. However, the pilot suffered no personal injury and no property other than the aircraft itself was damaged.

In this action against the three defendants, Curry County alleged negligence, breach of warranty, and strict liability. Curry County’s insurer, who had paid a substantial portion of the cost of repairing the airplane and thus was subrogated to part of Curry County’s cause of action, was joined as a party plaintiff. Mid Continent filed a cross-action against Shivers and Hawkins for contribution or full indemnity. However, on joint motion of Mid Continent and Shivers, the cross-action was severed from this suit for a separate trial.

In rendering judgment for Curry County and its insurer, the trial court held the defendants jointly and severally liable for the amount of $4,658.49 for damage to the airplane and $3,690.00 for its loss of use. Hawkins was found to have been negligent in failing to install the crankshaft gear bolt lock plate. Shivers and Mid Continent were held liable under strict liability in tort as sellers of the airplane in the business of selling such a product with a defect that rendered it unreasonably dangerous.

As indicated, only Mid Continent appealed. The Court of Civil Appeals, with one justice dissenting, held that Curry County was entitled to recover from Mid Continent for physical damage to the product itself under strict liability in tort as defined in Section 402A, Restatement, Second, Torts (1965). It was also held that the “as is” disclaimer of warranties was not effective to absolve Mid Continent of strict liability in tort. The Chief Justice dissented, stating that she would not have extended strict liability to cover the loss in this case. Mid Continent’s application for writ of error was granted on the single issue of liability. The correctness of the measure of damages is not contested by the parties.

Heretofore, Texas courts have not been presented with the issue of whether a seller can contract against liability for harm caused by a defective product to itself. The question is whether injury to the product itself is a type of loss that requires contract language explicitly allocating the loss to the buyer before the seller can avoid liability, or should a general contract of purchase “as is” be sufficient to place the loss on the buyer?

TYPE OF LOSS

Pivotal to the question of disclaimer applicability is the determination of whether the product loss is recoverable under a contract theory of breach of warranty or whether it is a tort loss. Generally, disclaimers are enforced less readily in strict liability cases than in those of contract warranty. McMillen Feeds, Inc. v. Harlow, 405 S.W.2d 123 (Tex.Civ.App.—Austin 1966, writ ref’d n. r. e.); Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974); Sterner Aero AB v. Page Airmotive, Inc., 499 F.2d 709 (10th Cir. 1974); Vandermark v. Ford Motor Company, 61 Cal.2d 256, 37 Cal.Rptr. 896, 391 P.2d 168 (1964). See Restatement, Second, Torts § 402A, comment m (1965). Therefore, the type of loss is relevant to the determination of a disclaimer’s validity.¹ Moreover, a decision on a disclaimer’s validity without clearly identifying the type of loss and liability involved would be contrary to the recent writing which separates contract warranties from strict liability in products cases. Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77 (Tex.1977).

Strict liability in tort and contract have had an entangled relationship in the area of products liability. The entanglement is to be expected since strict liability resulted from the combination of tort and contract theories. See Shamrock Fuel & Oil Sales Company v. Tunks, 416 S.W.2d 779 (Tex.1967); Jacob E. Decker & Sons, Inc. v. Capps, 139 Tex. 609, 164 S.W.2d 828 (1942). With the codification of the Uniform Commercial Code, Tex.Bus. & Comm.Code Ann. §§ 1.101-9.507, and the adoption of Section 402A, McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.1967), the theoretical bases of contract and strict liability have been separated and firmly established. Nobility Homes of Texas, Inc. v. Shivers, supra.

The applicability of strict liability has been defined in Texas for personal injuries resulting from unreasonably dangerous products. Bristol-Myers Company v. Gonzales, 561 S.W.2d 801 (Tex.1978); General Motors Corp. v. Hopkins, 548 S.W.2d 344 (Tex.1977); Rourke v. Garza, 530 S.W.2d 794 (Tex.1975); Crocker v. Winthrop Laboratories, Inc., 514 S.W.2d 429 (Tex.1974); Pittsburg Coca-Cola Bottling Works v. Ponder, 443 S.W.2d 546 (Tex.1969); Darryl v. Ford Motor Company, 440 S.W.2d 630 (Tex.1969); McKisson v. Sales Affiliates, Inc., supra. Physical injuries to a consumer’s other property caused by a defective product has also been held to be included under strict liability. O. M. Franklin Serum Company v. C. A. Hoover & Son, 418 S.W.2d 482 (Tex.1967).

The present case involves an unreasonably dangerous product whose defect has caused harm to itself. No personal injury or injury to other property was involved. The critical question is whether, in a commercial sale, strict liability should be extended to cover loss resulting from damage to the product itself.²

Texas has recently adopted the rule that economic loss resulting from a product with defective workmanship and materials is not recoverable in strict liability. Nobility Homes of Texas, Inc. v. Shivers, supra. That loss is merely loss of value resulting from a failure of the product to perform according to the contractual bargain and therefore is governed by the Uniform Commercial Code.

Mid Continent contends that the damage to the airplane in the present case is also an economic loss under the reasoning of Nobility Homes. It argues that there is no difference between a product that is unusable because of defects and one that causes physical harm to itself because of a defect that is unreasonably dangerous. While Texas courts have not before considered this question, it has arisen in other jurisdictions. There is no concensus in the decisions. Some courts have concluded that the loss is recoverable under strict liability. Cloud v. Kit Manufacturing Company, 563 (Alaska 1977); Delta Air Lines, Inc. v. McDonnell Douglas Corp., 503 F.2d 239 (5th Cir. 1974); Sterner Aero AB v. Page Airmotive, Inc., supra; Keystone Aeronautics Corp. v. R. J. Enstrom Corp., supra; Air Products & Chemicals, Inc. v. Fairbanks Morse, Inc., 58 Wis.2d 193, 206 N.W.2d 414 (1973); Arrow Transportation Company v. Fruekauf Corp., 289 F.Supp. 170 (D.Or.1968). Others adopt the position that the loss is of a contractual nature and therefore covered by the Uniform Commercial Code. Long Manufacturing, Inc. v. Grady Tractor Company, 140 Ga.App. 320, 231 S.E.2d 105 (1976); Long v. Jim Letts Oldsmobile, Inc., 135 Ga.App. 293, 217 S.E.2d 602 (1975); Cf. Mike Bajalia, Inc. v. Amos Construction Company, Inc., 142 Ga.App. 225, 235 S.E.2d 664 (1977); Salmon Rivers Sportsman Camps, Inc. v. Cessna Aircraft Company, 97 Idaho 348, 544 P.2d 306 (1975); Cooley v. Salopian Industries, Ltd., 383 F.Supp. 1114 (D.S.C.1974); Hawkins Construction Company v. Matthews Company, Inc., 190 Neb. 546, 209 N.W.2d 643 (1973). 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 Kee-ton 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.”³

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. § 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 Nobility Homes of Texas v. Shivers, supra.

Strict liability arose initially to compensate consumers for personal injuries caused by defective products, although it was sometimes referred to as “implied warranty in law as a matter of public policy.” Jacob E. Decker & Sons, Inc. v. Capps, supra; McKisson v. Sales Affiliates, Inc., supra; Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 27 Cal.Rptr. 697, 377 P.2d 897 (1962). It was reasoned that injured consumers should not be made to depend on the intricacies of sales law for compensation. Greenman v. Yuba Power Products, Inc., supra, 377 P.2d at 901. The present case does not involve personal injury but concerns only economic loss to the purchased product itself. Distinguished from personal injury and injury to other property, damage to the product itself is essentially a loss to the purchaser of the benefit of the bargain with the seller. Loss of use and cost of repair of the product are the only expenses suffered by the purchaser. The loss is limited to what was involved in the transaction with the seller, which perhaps accounts for the Legislature providing that parties may rely on sales and contract law for compensation of economic loss to the product itself. Tex.Bus. & Comm.Code Ann. § 2.715(b)(2).

The consumer protection needs upon which strict liability is based are not sufficiently strong to impose that theory of recovery over the existing sales law remedies for Curry County’s loss in this case. In transactions between a commercial seller and commercial buyer, when no physical injury has occurred to persons or other property, injury to the defective product itself is an economic loss governed by the Uniform Commercial Code. Curry County’s cause of action for the damage of the airplane lies in breach of warranty as provided by the Code.

THE “AS IS” DISCLAIMER

Liability in warranty arises where damage is caused by the failure of a product to measure up to the seller’s express or implied representations. Tex.Bus. & Comm.Code Ann. §§ 2.318-2.315. Curry County’s ability to recover for the damage to the airplane turns on whether Mid Continent has eliminated the warranties applicable to the plane’s quality and performance with the “as is” disclaimer. Curry County, knowing that the rebuilt plane had been wrecked and repaired, bought the plane “as is,” instead of with an express or implied warranty of its condition.

Mid Continent made no representation of quality of performance of the airplane which would give rise to an express warranty under the Code. With regard to the implied warranties of merchantability and fitness, Section 2.316(c)(1) of the Code provides for their exclusion with an “as is” disclaimer. Curry County does not argue that the “as is” disclaimer in this case in invalid for any reason under the Uniform Commercial Code. With that disclaimer Mid Continent has effectively eliminated the implied warranties involved in the sale of the airplane. The result is that Curry County has taken the entire risk as to the quality of the airplane and the resulting loss.

Plaintiffs’ cause of action against Mid Continent is severed from that against Bobby Shivers and Robert Hawkins, who did not appeal from the judgment against them. Judgment is here rendered that plaintiffs take nothing in their suit against Mid Continent.

Dissenting opinion by POPE, J., joined by JOHNSON, J.

1 . Cases from other jurisdictions have considered whether a seller has avoided liability for the injury a product causes to itself through a disclaimer clause. However, most of those courts determine the validity of the disclaimer without discussing the impact the nature of the loss has on their decisions. K-Lines, Inc. v. Roberts Motor Company, 273 Or. 242, 541 P.2d 1378 (1975); Delta Airlines, Inc. v. McDonnell Douglas Corp., 503 F.2d 239 (5th Cir. 1974), cert. denied, 421 U.S. 965, 95 S.Ct. 1953, 44 L.Ed.2d 451 (1975); Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974); Sterner Aero AB v. Page Airmotive, Inc., 499 F.2d 709 (10th Cir. 1974); Delta Airlines, Inc. v. Douglas Aircraft Company, 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (Ct.App.1965). Cf. Haugen v. Ford Motor Company, 219 N.W.2d 462 (N.D.1974).

2 . Barnett v. Ford Motor Company, 463 S.W.2d 33 (Tex.Civ.App.—Waco 1970, no writ), assumed without discussion that loss resulting from damage caused by an unreasonably dangerous product to itself was recoverable in strict liability. See also Melody Home Manufacturing Company v. Morrison, 455 S.W.2d 825 (Tex.Civ.App.—Houston [1st Dist.] 1970, no writ).

3 . 32 SW.L.J. 1, 5 (1978). See and Compare Ribstein, Guidelines for Deciding Product Economic Loss Cases, 29 Mercer L.Rev. 493 (1978); Sales and Perdue, The Law of Strict Liability in Texas, 14 Houston L.Rev. 1 (1976); McNichols, Who Says That Strict Tort Disclaimers Can Never Be Effective? The Courts Cannot Agree, 28 Okla.L.Rev. 494 (1975); Parker, The Warranty Disclaimer v. Manufacturers’ Products Liability, 10 Tulsa L.J. 612 (1975); Wade, Is Section 402A of the Second Restatement of Torts Preempted by the UCC and Therefore Unconstitutional? 42 Tenn.L.Rev. 123 (1974); Comment, Products Liability in Commercial Transactions, 60 Minn.L.Rev. 1061 (1976); Comment, Strict Liability: Recovery of “Economic Loss,” 13 Idaho L.Rev. 29 (1976); Comment, Economic Loss in Products Liability Jurisprudence, 66 Colum.L.Rev. 917 (1966); Note, 19 South Tex.L.J. 337 (1978).