State Ex Rel. Western Seed Production Corp. v. Campbell

442 P.2d 215, 250 Or. 262, 5 U.C.C. Rep. Serv. (West) 584, 1968 Ore. LEXIS 747

Opinions

GOODWIN, J.

This is an original mandamus proceeding to review the trial court’s refusal to quash service of summons upon Western Seed Production Corp., an Arizona corporation. The validity of the challenged • “long-arm” service, under ORS 14.035,

① depends upon whether the originating complaint alleges the “commission of a tortious act within.this state.”. OES 14.035(1)(b). There is no allegation of facts that constitute “the transaction of any business within this state.” ORS 14.035(1) (a).

In'this opinion, we will refer to the parties as they are designated in the pending damage action. The complaint therein alleges that the plaintiffs are Oregon sugar-beet growers who purchased through their local supplier seed which had been propagated by Western Seed in Arizona and then sold in Arizona to the plaintiffs’ supplier. The supplier and Western Seed are both named as defendants in the damage action. Plaintiffs claim that defects in the seed caused crop losses and that because their land was occupied for one year in growing a worthless crop their property was damaged. Plaintiffs seek to hold Western Seed responsible for a breach of implied warranty and, in the alternative, on the theory of negligence. If plaintiffs have stated a cause of action on either theory, then it will be necessary to consider whether, for the purposes of “long-arm” jurisdiction, a “tortious act” has been committed within this state.

I. IMPLIED WARRANTY

In Price v. Gatlin, 241 Or 315, 405 P2d 502 (1965), we held that a purchaser of a defective tractor could not hold the wholesaler, with whom he had no contract, strictly liable where the defect had resulted only in a loss of profits to the purchaser’s business. In the present case, plaintiffs lost the profits they expected to derive from a normal sugar-beet crop. There was no damage'to their land; there was only a loss of use thereof. The alleged damage is, therefore, essentially of. the same character as that suffered in Price v. Gatlin.

The pending action, in the context of mandamus, is against a producer rather than against a wholesaler. But since each case involved a remote seller, there is no substantive basis on these facts for distinguishing Price v. Gatlin. In either situation, the question is whether a purchaser of a defective product who suffers only economic loss should be allowed to maintain an action for breach of warranty against one with whom he has had no dealings.

A buyer’s interest in obtaining what he has bargained for is protected by the law of sales. Statutory sales law has recently undergone comprehensive review and revision in the Uniform Commercial Code. ORS ch 72. The code provides a scheme of warranty recovery, in which fault is irrelevant, for all types of loss resulting from “unmerchantable” products. Remedies under the code are subject to certain conditions not associated with common-law tort actions: notice of breach of warranty must be given, ORS 72.6070; remedies for breach of warranty can be limited, ORS 72.7190; certain warránties can be disclaimed, ORS 72.3160. Further, the statute of limitations for warranty actions is four years, ORS 72.7250, while in tort actions it is two years, ORS 12.110. The code is silent, however, as to privity requirements for breach-of-warranty actions. This aspect of sales law has been left to the courts in jurisdictions adopting the code. See Comment 2 to ORS 72.3130, in Oregon’s Uniform Commercial Code, published in 1962 by the Legislative Counsel Committee.

Because of social pressure to compensate innocent victims of personal injuries, and because remedies for such injuries have traditionally been provided by tort law, this court has joined those which have abolished privity requirements in actions for personal injuries from defective products.. We have assumed that such a cause of action sounds in tort and thus is unhampered by the statutory impediments to relief for breach of warranty. See Heaton v. Ford Motor Co., 248 Or 467, 435 P2d 806 (1967); Wights v. Staff Jennings, Inc., 241 Or 301, 405 P2d 624 (1965). Where a product is defective within the meaning of the Bestatement-(Second) of Torts § 402A (1965) and causes personal injury, the injured party can recover for his injuries against any seller of the defective product, without regard to such- warranty notions as notice, disclaimer, or whether the warranty was express or implied.

Where the damages sought do not involve personal injury, however, this court has not yet decided to abandon the traditional remedies under the law of sales. In Heaton v. Ford Motor Co., supra, a personal-injuries case, we said that products liability was ¡a form of strict liability as formulated in the Bestatement (Second) of Torts § 402A. We had no occasion then to decide, and do not now decide, whether strict liability should be imposed upon remote sellers of products which cause property damage instead of personal injury. The application of Section 402A to property-damage is, in this state, an open question.

The risk that a product may not perform as it should exists in every purchase transaction. A buyer who chooses his seller with care has an adequate remedy should any warranties be breached. A buyer whose seller proves to be irresponsible will understandably seek relief further afield. But to allow a nonprivity warranty action to vindicate every disappointed consumer would unduly complicate the code’s scheme, which recognizes the consensual elements of commerce. Disclaimers and limitations of certain warranties and remedies are matters for bargaining. Strict-liability actions between buyers and remote sellers could lend themselves to the proliferation of unprovable claims by disappointed bargain hunters, with little discernible social benefit. Because the buyer and his seller will normally have engaged in at least one direct transaction, litigation between these parties should ordinarily be simpler and less costly than litigation between buyer and remote seller. For these reasons we retain the rule statéd in Price v. Gatlin, supra: Where the purchaser of an unmerchantable product suffers only loss of profits, his remedy for the breach of warranty is against his immediate seller unless he can predicate liability upon some fault on the part of a remote seller.

Plaintiffs, therefore, have not stated a cause of action for breach of warranty against Western Seed, a remote seller. It follows that in the attempted statement of a warranty cause of action the plaintiffs have described no “tortious act committed within this state.”

II. NEGLIGENCE

Though no cause of action for breach of warranty has been stated against Western Seed, the plaintiffs have also alleged negligence. We must decide, therefore, whether the buyer’s interest in having a product perform as it should is one that is protected against negligent invasion by a party not privy to the contract of sale. A -number of cases have allowed negligence recovery against remote sellers, with fault taking the place of privity. See Atlas Aluminum Corp. v. Borden Chemical Corp., 233 F Supp 53 (ED Pa 1964); Spence v. Three Rivers Supply, 353 Mich 120, 90 NW2d 873 (1958); Lang v. General Motors Corp., 136 NW2d 805 (N Dak 1965). Cf. Fisher v. Simon, 15 Wis2d 207, 112 NW2d 705 (1961) (dictum, discussing homebuilder’s liability to nonprivity purchaser). Closest to the facts of this case was one where recovery was allowed for crop losses resulting from negligently mislabeled seed. See Hoskins v. Jackson Grain Co., 63 So2d 514 (Fla 1953).

Other courts have held either that negligence liability will not be imposed for purely economic loss or that negligence liability is limited to situations in which the loss occurred in a violent or dangerous accident. See, e.g., Wyatt v. Cadillac Motor Car Division, 145 Cal App 2d 423, 302 P2d 665 (1956) (dictum) (disapproved on related grounds, Sabella v. Wisler, 59 Cal2d 21, 377 P2d 589, 27 Cal Rptr 689 (1963)); Trans World Airlines v. Curtiss-Wright Corp., 1 Misc2d 477, 148 NYS2d 284 (1955).

. A buyer’s desire to enjoy the benefit of his bargain is not an interest which tort law has traditionally been called upon to protect. It is in this tradition that we have declined, in the absence of fault, to impose upon remote sellers strict liability to insure customer satisfaction. The statutory sales law has set out a scheme of warranty liability in which the element of fault is irrelevant so long as the buyer proceeds against his seller. Fault becomes relevant where the loss of the benefit of the bargain is traceable to the negligence of a remote seller. Recovery for such negligence, because it is grounded upon fault, falls within traditional tort rules and presents no serious conflict with the statutory system of nonfault recovery under the Uniform Commercial Code.

"Where the other elements of a negligence case are present, we see no reason why the availability of a tort remedy should depend upon whether the harm was traumatic. The manufacturer should have a duty of exercising due care to avoid foreseeable harm to the users of his product. As stated by one writer, economic loss from defective products is “within the range of reasonable manufacturer foresight' * * * [and this foreseeability] should raise at least a duty of due care unless some compelling economic or social or administrative reason dictates otherwise.” Franklin, When Worlds Collide: Liability Theories and Disclaimers in Defective Product Cases, 18 Stan L Rev 974, 989 (1966). Not being aware of any such reasons, we hold that a complaint states a cause of action in tort when it alleges that the defendant negligently reproduced and. sold seed which caused plaintiffs to lose the expected profit from their crop.

III. FOREIGN ACT — LOCAL INJURY

Having decided that the complaint under examination alleges a cause of action in tort, it now becomes necessary to decide whether ORS 14.035 applies. The allegations, in effect, are that the defendant’s negligence outside the state caused a loss inside the state.

Many courts, construing similar “long-arm” statutes, have. exercised jurisdiction in the foreign-aetlocal-injury situation. See Gray v. Amer. Radiator & Sanitary Corp., 22 Ill2d 432, 176 NE2d 761 (1961); and see cases cited in Note, In Personam Jurisdiction over Nonresident Manufacturers in Product Liability Actions, 63 Mich L Rev 1028, 1036-1040 (1965).

The Illinois rule is significant in this case because the Oregon statute was copied from the Illinois statute after the Gray case had been decided. When one state borrows a statute from another state, the interpretation of the borrowed statute by the courts of the earlier enacting state, ordinarily is persuasive. See Fleischhauer v. Bilstad et al, 233 Or 578, 379 P2d 880 (1963) (presumption that other state’s interpretation is governing); School Dist. No. 1 v. Rushlight and Co., 232 Or 341, 345, 375 P2d 411 (1962). And see Vandermee v. District Court, — Colo —, 433 P2d 335 (1967) (adopting Illinois interpretation of similar long-arm statute).

That the Illinois construction was probably intended by the Oregon legislature may be inferred from reports of the bar committee which advocated the legislation. See Levin, The “Long Arm” Statute and Products Liability, 4 Willamette L J 331 (1967). In New York, a long-arm statute modeled after the Illinois statute was interpreted to be inapplicable where a foreign act caused an injury in New York. See Longines-Wittnauer v. Barnes & Reinecke; Feathers v. McLucas; Singer v. Walker, 15 NY2d 443, 209 NE2d 68, 261 NYS2d 8 (1965) (consolidated cases). The 1966 New York legislature responded to these decisions by amending the statute so that it specifically refers to an act outside the state causing injury within the state. N.Y. Civ. Prac. Law § 302(a) (3), (McKinney Cum Supp 1967). Such a demonstration of legislative intent should not be made necessary in Oregon.

The Illinois statute was intended to exploit the outer limits of due process in aid of Illinois litigants'. See Currie, The Growth of the Long Arm: Eight Tears of Extended Jurisdiction in Illinois, 1963 U Ill L F 533. It is reasonable, therefore, to hold that a statute modeled after the Illinois statute should be interpreted in Oregon as broadly as constitutional due process will permit.

IV. DUE PBOCESS

The next question is whether due process permits an Oregon court to obtain personal jurisdiction over Western Seed in this case. The- traditional rule that state jurisdiction over a person required personal service within the state has been weakened by Internal. Shoe Co. v. Washington, 326 US 310, 66 S Ct 154, 90 L Ed 95, 161 ALR 1057 (1945). International Shoe held that corporate presence within the state, by doing business there or otherwise, was not necessary for personal jurisdiction. Due process was said to require only that the individual or entity served outside the state have certain minimum contacts with it so that the maintenance of the action would not offend traditiona] notions of fair play and substantial justice: 326 US at 316.

In McGee v. International Life Ins. Co., 355 US 220, 78 S Ct 199, 2 L Ed 2d 223 (1957)., the court expanded upon the International Shoe doctrine to uphold California’s assertion of jurisdiction over a Texas insurance company whose only contact with California consisted of soliciting the insured to buy the policy being sued upon and accepting, premiums mailed from California. The court’s discussion of the fairness of forcing the defendant to defend in California emphasized that burdens on foreign defendants had been lessened by modern communication and transportation advances, that California had an interest in providing a forum for its residents insured by out-of-state- companies, and that because the important witnesses resided- there California was the most convenient place for the trial. "

In Hanson v. Denckla, 357 US 235, 78 S Ct 1228, 2 L Ed 2d 1283 (1958), Florida’s assertion of personal jurisdiction over a Delaware corporate trustee was invalidated as contrary to due process. The trustee’s only contact with Florida was correspondence with the settlor of the trust after the settlor had moved to Florida. The court stated:

“[Due process limitations] * * * are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States * * 357 US at 251.

The court also observed:

“* * * [I] t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws * * 357 US at 253.

Hanson v. Fenckla thus adds to the fairness test of International Shoe an objective element: a purposeful act by the defendant. The requirement of a purposeful act by the defendant prevents the seizing by a forum of bootstrap jurisdiction based upon the unilateral act of the plaintiff.

In deciding whether due process allows the assertion of jurisdiction over an out-of-state manufacturer solely on the ground that his defective product has caused a loss within the forum state, the courts have not been unanimous. Some have held that due process is not satisfied if the only contact with the state asserting jurisdiction was an act outside the state with resultant loss within. See, e.g., Erlanger Mills v. Cohoes Fibre Mills, 239 F2d 502 (4th Cir 1956); Mann v. Equitable Gas Company, 209. F Supp 571 (NB W Va 1962).; Moss v. Winston-Salem, 254 NC 480, 119 SE2d (1961); Hodge v. Sands Manufacturing Company, 151 W Va 133, 150 SE2d 793 (1966).

Other cases, however, have upheld jurisdiction over out-of-state manufacturers whose products have caused losses within the forum state. See,e.g., Vandermee v. District Court, supra; Andersen v. National Presto Industries, 257 Iowa 911, 135 NW2d 639 (1965); Gray v. Amer. Radiator & Sanitary Corp., supra; Ehlers v. U. S. Heating & Cooling Mfg. Corp., 267 Minn 56, 124 NW2d 824 (1963); Golden Gate Hop Ranch, Inc. v. Velsicol Chemical Corp., 66 Wash2d 469, 403 P2d 351 (1965).

In the cases upholding jurisdiction the controlling idea seems to be that manufacturers who seek a nationwide market for their wares ought to prepare at the same time to defend themselves in the courts of the states in which defective products may injure consumers. The idea conforms to the fairness principle of International Shoe as well as to the economic facts of life.

The Hanson v. Denckla emphasis on the defendant’s act in purposefully invoking the benefit and protection of the forum’s laws is satisfied where a seller undertakes to exploit the market in any state where customers may be found for his products.

«* * * -yyiiere a defendant does business of such volume, or with such a pattern of product distribution, that he should reasonably anticipate that his product may ultimately be used in any state, he has done the act required for the exercise of jurisdiction by the' state where the injured user resides * * Keckler v. Brookwood Country Club, 248 P Supp 645, 648 (ND Ill 1965).

In the case at bar, the plaintiffs have asserted that Western Seed propagated and multiplied defective seed in Arizona knowing that-the seed would be planted by growers in Oregon and Idaho. Such allegations sufficiently describe conduct producing foreseeable consequences in Oregon and circumstances justifying long-arm jurisdiction in this case.

If Western Seed had established by its affidavits supporting its motion to quash that the sale out of which the pending action arose was an isolated transaction, and that Western Seed did not engage in interstate commerce, we might have a different question. See Oliver v. American Motors Corp., 70 Wash2d 875, 425 P2d 647 (1967). On the record before us, however, the interstate nature of Western Seed’s business is uncontradicted.

Western Seed has relied primarily on the ground that it does not do business in Oregon (a matter relevant under a different section of the long-arm statute), and upon the nature of the harm (economic loss rather than personal injury), together with the asserted fault-free nature of its conduct (growing seed), for the proposition that no tort has been committed in Oregon.

In view, however, of our analysis of the factual situation alleged in plaintiff’s complaint and of the relevant law derived from the decisions which have been called to our attention in cases dealing with similar problems, we hold that the complaint does state a cause of action for negligence and a resulting loss under circumstances in which jurisdiction can be obtained under OPS 14.035(1) (b).

The demurrer to the alternative writ of mandamus is sustained, and the writ is dismissed.

ORS 14.035 “(1) Any person, firm or corporation whether or not a citizen or a resident of this state, who, in person or through an agent, does any of the actions enumerated in this subsection, thereby submits such person and, if an individual, his personal representative to the jurisdiction of the courts of this state, as to any cause of action or suit or proceeding arising from any of the following:

“(a) The transaction of any business within this state;

“(b) The commission of a tortious act within this state;

u¿¡¡ $ $

“(3) Only causes of action or suit or proceedings arising from acts enumerated in this section may be asserted against a defendant in an action or suit or proceeding in which jurisdiction over such defendant is based upon this section.

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