Seely v. White Motor Co.

403 P.2d 145, 63 Cal. 2d 9, 45 Cal. Rptr. 17, 2 U.C.C. Rep. Serv. (West) 915, 1965 Cal. LEXIS 155

• Court: California Supreme Court
• Decided: June 23, 1965
• Docket: L. A. 27618
• Status: Published

Opinions

TRAYNOR, C. J.

In October 1959 plaintiff entered into a conditional sales contract with Southern Truck Sales for the purchase of a truck manufactured by defendant, White Motor Company. Plaintiff purchased the truck for use in his business of heavy-duty hauling. Upon taking possession of the truck, plaintiff found that it bounced violently, an action known as “galloping.” For 11 months after the purchase, Southern, with guidance from White’s representatives, made many unsuccessful attempts to correct the galloping. On July 22, 1960, when slowing down for a turn, plaintiff found that the brakes did not work. The truck overturned, and plaintiff, who was not personally injured, had the damage repaired for $5,466.09. In September 1960, after paying $11,659.44 of the purchase price of $22,041.76, plaintiff served notice that he would make no more payments. Southern thereafter repossessed the truck and resold it for $13,000.

Plaintiff brought this action against Southern and White seeking (1) damages, related to the accident, for the repair of the truck, and (2) damages, unrelated to the accident, for the money he had paid on the purchase price and for the profits lost in his business because he was unable to make normal use of the truck. During the trial plaintiff dismissed the action against Southern without prejudice. The court found that White breached its warranty to plaintiff and entered judgment for plaintiff for $20,899.84, consisting of $11,659.44 for payments on the purchase price and $9,240.40 for lost profits. It found that plaintiff had not proved that the galloping caused the accident and therefore denied his claim for $5,466.09 for the repair of the truck. Both plaintiff and White appeal from the judgment.

Defendant contends that the trial court erred in awarding damages for lost profits and for the money paid on the purchase price of the truck. We do not agree with this contention. The award was proper on the basis of a breach of express warranty.

Defendant included the following promise in the printed form of the purchase order signed by plaintiff: “The White Motor Company hereby warrants each new motor vehicle sold by it to be free from defects in material and workmanship under normal use and service, its obligation under the warranty being limited to making good at its factory any part or parts thereof. ...” This promise meets the statutory requirement for an express warranty: “Any affirmation of fact or any promise by the seller relating to the goods is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the goods, and if the buyer purchases the goods relying thereon.” (Civ. Code, § 1732; cf. Com. Code, §§ 2313, 2314.)¹ The natural tendency of White’s promise was to induce buyers to rely on it, and plaintiff did so rely in purchasing the goods. The reliance on the warranty, and the warranty itself, are manifested by plaintiff’s continued efforts to have the truck repaired, and by defendant’s acceptance of the responsibility to correct the galloping. The statute requires only that plaintiff rely on the warranty. It does not additionally require that he be aware that it was made by the manufacturer instead of the dealer to reach the one who in fact made it. Surely if plaintiff sought to have a part replaced that was covered by the warranty, White could not escape its obligation by showing that plaintiff thought the warranty White made was made by the dealer.

Defendant contends that its limitation of its obligation to repair and replacement, and its statement that its warranty “is expressly in lieu of all other warranties, expressed or implied,” are sufficient to operate as a disclaimer of responsibility in damages for breach of warranty. This contention is untenable. When, as here, the warrantor repeatedly fails to correct the defect as promised, it is liable for the breach of that promise as a breach of warranty. (Rose v. Chrysler Motors Corp., 212 Cal.App.2d 755, 762-763 [28 Cal.Rptr. 185, 99 A.L.R.2d 1411]; Allen v. Brown, 181 Kan. 301, 308 [310 P.2d 923].) Since there was an express warranty to plaintiff in the purchase order, no privity of contract was required. (See Burr v. Sherwin Williams Co., 42 Cal.2d 682, 696 [268 P.2d 1041].) Plaintiff also gave reasonable notice of the defect. (Civ. Code, § 1769; cf. Com. Code, § 2607.)

The damages awarded by the trial court, “the loss directly and naturally resulting in the ordinary course of events from the breach of warranty” (Civ. Code, § 1789, subd. 6; cf. Com. Code, §2714), can properly include lost profits (Grupe v. Glick, 26 Cal.2d 680, 692 [160 P.2d 832] ; Mack v. Hugh W. Comstock Associates, Inc., 225 Cal.App.2d 583, 587 [37 Cal.Rptr. 466]) as well as the amount paid on the purchase price. Defendant contends that plaintiff must elect between these remedies, relying on an analogy to the sales act requirement of election between rescission and damages. (Civ. Code, § 1789.) Since this action, however, is against the manufacturer for consequential damages and not against the immediate seller for rescission of the contract of sale, the sales act does not compel an election of remedies. The often critic zed rule of. election of remedies (see, e.g., Ezer, The Impact of the Uniform Commercial Code on the California Law of Sales Warranties, 8 U.C.L.A.L.Rev. 281, 330), has not been adopted by the Commercial Code (Com. Code, §2608, comment 1), and should not be extended to apply, here.

Defendant also contends that the damages awarded are excessive since the rental value of the truck was not offset against plaintiff’s claim for lost profits. Plaintiff replies that, in estimating that 60 per cent of the lost gross earnings was lost profits, the trial court deducted a reasonable rental value for the truck. We cannot say that the trial court failed to take rental value into account when it evaluated the estimates of profit percentage that ranged from 25 per cent to 77 per cent. Since defendant failed to request a finding on the issue of an appropriate rental value, it cannot complain that a specific finding was not made. (Code Civ. Proc., § 634.)

It is contended that the foregoing legislative scheme of recovery has been superseded by the doctrine of strict liability in tort set forth in Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 63 [27 Cal.Rptr. 697, 377 P.2d 897], and Vandermark v. Ford Motor Co., 61 Cal.2d 256, 261 [37 Cal.Rptr. 896, 391 P.2d 168], We cannot agree with this contention. The law of sales has been carefully articulated to govern the economic relations between suppliers and consumers of goods. The history of the doctrine of strict liability in tort indicates that it was designed, not to undermine the warranty provisions of the sales act or of the Uniform Commercial Code but, rather, to govern the distinct problem of physical injuries.

An important early step in the development of the law of products liability was the recognition of a manufacturer’s liability in negligence to an ultimate consumer without privity of contract. (Macpherson v. Buick Motor Co. (1916) 217 N.Y. 382, 389 [111 N.E. 1050, L.R.A. 1916F 696].) About the same time, the courts began to hold manufacturers liable without negligence for personal injuries. Over a score of theories were developed to support liability (see Gillam, Products Liability in a Nutshell, 37 Ore.L.Rev. 119, 153-155), and the one that was generally accepted was borrowed from the law of sales warranty. (See Prosser, The Assault Upon the Citadel, 69 Yale L.J. 1099, 1126.) “Only by some violent pounding and twisting,” however, could the warranty doctrine be made to serve this purpose. (Patterson, The Apportionment of Business Risks Through Legal Devices, 24 Colum.L.Rev. 335, 358; see also Prosser, supra, 69 Yale L.J. 1099, 1124-1134.) Final recognition that “The remedies of injured consumers ought not to be made to depend upon the intricacies of the law of sales” (Ketterer v. Armour & Co., 200 F. 322, 323; Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 64 [27 Cal.Rptr. 697, 377 P.2d 897]) caused this court to abandon the fiction of warranty in favor of strict liability in tort. (Greenman v. Yuba Power Products, Inc., supra, at p. 63; Vandermark v. Ford Motor Co., 61 Cal.2d 256, 261 [37 Cal.Rptr. 896, 391 P.2d 168].)

The fact that the warranty theory was not suited to the field of liability for personal injuries, however, does not mean that it has no function at all. In Greenman we recognized only that “rules defining and governing warranties that were developed to meet the needs of commercial transactions cannot properly be invoked to govern the manufacturer’s liability to those injured by its defective products unless those rules also serve the purposes for which such liability is imposed.” (Greenman v. Yuba Power Products, Inc., supra, 59 Cal.2d 57, 63.) Although the rules governing warranties complicated resolution of the problems of personal injuries, there is no reason to conclude that they do not meet the “needs of commercial transactions.” The law of warranty “grew as a branch of the law of commercial transactions and was primarily aimed at controlling the commercial aspects of these transactions.” (See James, Products Liability, 34 Tex.L.Rev. 192; Llewellyn, On Warranty of Quality, and Society, 36 Colum.L.Rev. 699, 37 Colum.L.Rev. 341.)

Although the rules of warranty frustrate rational compensation for physical injury, they function well in a commercial setting. (See Com. Code, § 2719; Prosser, supra, 69 Yale L.J. 1099, 1130, 1133.) These rules determine the quality of the product the manufacturer promises and thereby determine the quality he must deliver. In this case, the truck plaintiff purchased did not function properly in his business. Plaintiff therefore seeks to recover his commercial losses: lost profits and the refund of the money he paid on the truck. White is responsible for these losses only because it warranted the truck to be “free from defects in material and workmanship under normal use and service. ’ ’ The practical construction of this language by both parties during the 11 months that repairs were attempted establishes that plaintiff’s use of the truck was a normal use within the meaning of the warranty. (See Woodbine v. Van Horn, 29 Cal.2d 95, 108 [173 P.2d 17].) White’s failure to comply with its obligation to make “good at its factory any part or parts” of the truck after ample opportunity was given it to do so, entitles plaintiff to recover damages resulting from such breach. Had defendant not warranted the truck, but sold it “as is,” it should not be liable for the failure of the truck to serve plaintiff’s business needs.

Under the doctrine of strict liability in tort, however, the manufacturer would be liable even though it did not agree that the truck would perform as plaintiff wished or expected it to do. In this case, after plaintiff returned the truck, Southern resold it to Mr. Jack Barefield, an experienced trucker. Mr. Barefield used the truck “to pull a 40-foot band” over state highways. After driving the truck 82,000' miles, he testified that he had no unusual difficulty with it. Southern replaced two tires, added a new fifth wheel, and made minor alterations to the truck before reselling it to Mr. Barefield, so that it is possible that it found a cure for the galloping. Southern, however, replaced the tires five times, adjusted the fifth wheel, and made many other changes on the truck during the 11 months plaintiff drove it.² Thus, it is more likely that the truck functioned normally when put to use in Mr. Barefield’s business because his use made demands upon it different from those made by plaintiff’s use. If under these circumstances defendant is strictly liable in tort for the commercial loss suffered by plaintiff, then it would be liable for business losses of other truckers caused by the failure of its trucks to meet the specific needs of their businesses, even though those needs were communicated only to the dealer. Moreover, this liability could not be disclaimed, for one purpose of strict liability in tort is to prevent a manufacturer from defining the scope of his responsibilty for harm caused by his products. (Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 63 [27 Cal.Rptr. 697, 377 P.2d 897].) The manufacturer would be liable for damages of unknown and unlimited scope. Application of the rules of warranty prevents this result. Defendant is liable only because of its agreement as defined by its continuing practice over 11 months. Without an agreement, defined by practice or otherwise, defendant should not be liable for these commercial losses.

In Santor v. A & M Karagheusian, Inc., 44 N.J. 52 [207 A.2d 305], the plaintiff purchased from a retailer carpeting that soon began to develop unusual lines. The court held the manufacturer liable for the difference between the price paid for the carpet and its actual market value on the basis of strict liability in tort. We are of the opinion, however, that it was inappropriate to impose liability on that basis in the Santor case, for it would result in imposing liability without regard to what representations of quality the manufacturer made. It was only because the defendant in that case marketed the rug as Grade #1 that the court was justified in holding that the rug was defective. Had the manufacturer not so described the rug, but sold it “as is,” or sold it disclaiming any guarantee of quality, there would have been no basis for recovery in that case. Only if someone had been injured because the rug was unsafe for use would there have been any basis for imposing strict liability in tort.

The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the “luck” of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer’s business unless he agrees that the product was designed to meet the consumer’s demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. 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. (Wyatt v. Cadillac Motor Car Division, 145 Cal.App.2d 423, 426 [302 P.2d 665], disapproved on other grounds in Sabella v. Wisler, 59 Cal.2d 21, 31 [27 Cal.Rptr. 689, 377 P.2d 889] ; Trans World Airlines v. Curtiss-Wright Corp., 1 Misc.2d 477 [148 N.Y.S.2d 284, 290].) The Restatement of Torts similarly limits strict liability to physical harm to person or property. (Rest. 2d Torts (Tent. Draft No. 10), §402 A.)

The law of warranty is not limited to parties in a somewhat equal bargaining position. Such a limitation is not supported by the language and history of the sales act and is unworkable. Moreover, it finds no support in Greenman. The rationale of that ease does not rest on the analysis of the financial strength or bargaining power of the parties to the particular action. It rests, rather, on the proposition that “The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business.” (Escola v. Coca Cola Bottling Co., 24 Cal. 2d 453, 462 [150 P.2d 436] [concurring opinion].) That rationale in no way justifies requiring the consuming public to pay more for their products so that a manufacturer can insure against the possibility that some of his products will not meet the business needs of some of his customers. Finally, there was no inequality in bargaining position insofar as the damages plaintiff recovered in this ease are concerned. Unlike the defendant in Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358 [161 A.2d 69, 75 A.L.R.2d 1], White is not seeking to enforce an industry-wide disclaimer of liability for personal injuries. Here, plaintiff, whose business is trucking, could have shopped around until he found the truck that would fulfill his business needs. He could be fairly charged with the risk that the product would not match his economic expectations, unless the manufacturer agreed that it would. Indeed, the Uniform Commercial Code expressly recognizes this distinction by providing that limitation of damages is prima facie unconscionable in personal injury cases, but not in cases of commercial loss. (Com. Code, § 2719.)

Plaintiff contends that, even though the law of warranty governs the economic relations between the parties, the doctrine of strict liability in tort should be extended to govern physical injury to plaintiff's property, as well as personal injury. We agree with this contention. Physical injury to property is so akin to personal injury that there is no reason to distinguish them. (See Prosser, supra, 69 Yale L.J. 1099, 1143; Rest. 2d Torts (Tent. Draft No. 10), § 402 A; cf. Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 62 [27 Cal.Rptr. 697, 377 P.2d 897].) In this case, however, the trial court found that there was no proof that the defect caused the physical damage to the truck. The finding of no causation, although ambiguous, was sufficient absent a request by plaintiff for a specific finding. (See Code Civ. Proc., § 634.) Since the testimony on causation was in conflict, the trial court's resolution of the conflict is controlling.

The judgment is affirmed, each side to bear its own costs on these appeals.

McComb, J., Tobriner, J., Peek, J., Mosk, J., and Burke, J., concurred.

1 Effective January 1, 1965, the uniform sales act (Civ. Code, §§ 1721-1800) was revised, renumbered, and transferred to the Commercial Code. Citation is given to the comparable sections of both codes.

2 The following changes were made on the truck: five sets of front springs; five drive line changes; alteration of back springs; replacement of front shock absorbers; fish plating of frame; replacement of clutch brake; replacement of two clutch release bearings; replacement of pilot bearing; replacement of two auxiliary transmissions; reinstallation of new front bearings; front end aligned six limes; entire truck and trailer aligned twice; welded cross member; new cross member installed; replaced tires five times; moved fifth wheel back and forth.