Waggoner v. Town & Country Mobile Homes, Inc.

1990 OK 139, 808 P.2d 649, 13 U.C.C. Rep. Serv. 2d (West) 1002, 62 O.B.A.J. 541, 1990 Okla. LEXIS 157, 1990 WL 259382

• Court: Supreme Court of Oklahoma
• Decided: December 27, 1990
• Docket: 64507
• Status: Published

Opinions

HODGES, Judge.

This appeal presents an issue of first impression. Did the trial court err by instructing the jury on manufacturers’ products liability when a design defect caused only deterioration in the product itself resulting in purely economic loss? We answer in the affirmative and hold that such a claim must be pursued as a warranty action.

There is a second issue. Did the trial court err by denying manufacturer’s motion for a directed verdict on dealer’s claim of malicious interference with a business relationship? We answer in the affirmative.

On June 26, 1979, Richard and Lois Wag-goner (consumers) purchased a mobile home from University Mobile Homes, Inc. (dealer). Consumers chose a model manufactured by Town and Country Mobile Homes, Inc. (manufacturer), which consumers considered to be one of the “Cadillac” mobile homes. Their decision to purchase followed a visit to the factory in Texas where they talked to a representative about an energy package and other options which they eventually chose. The total purchase price was $22,850.

' The first winter consumers spent in the home brought hints of problems to come. There was a rumbling noise in the roof when the wind blew and minor spotting on the ceiling tiles which consumers attributed to a leaking roof. Consumers repaired the ceiling tiles. Manufacturer installed metal “rumble strips” which were screwed to the metal roof along the length of the mobile home.

The second winter (1980-1981), the minor spotting returned. Consumers again treated the ceiling tiles with bleach and “a little white shoe polish” and again they attributed the spots to leaks in the roof. They believed the screws securing the rumble strips had caused some additional leaking. To cure this, they applied a cool-coat sealant to the roof.

When the spotting returned the third winter (1981-1982), consumers realized that leaks were not the cause of the problem. They consulted dealer who informed them that other Town and Country homes with the energy package had been experiencing similar problems. Dealer wrote to manufacturer in January, 1982, outlining these complaints.

The actual cause of the ceiling spots was the design of the home’s roof which did not allow interior moisture to escape. Once outside temperatures fell below the dew point, condensation collected in the attic and dripped back, spotting the ceiling tiles.

Manufacturer responded to consumers’ complaint by installing two power vents to pull air out through the roof of the mobile home to prevent condensation. Manufacturer also hired a repairman to paint the ceiling and seal the roof with cool-coat and membrane cloth.

Unfortunately, the power vents did not prevent the return of the ceiling spots the next winter (1982-1983). Manufacturer told consumers that the home might have to be moved to the factory to have a house-type roof installed. But instead, manufacturer attempted to cure the problem by removing the power vents and installing two “thinking caps.” As with the power vents, consumers were assured that the thinking caps would solve the problem.

Each thinking cap consisted of a motorized ventilator mounted through a hole in the roof. The caps were thermostatically controlled to draw air out of the attic. Six interior vents were cut in the ceiling of consumers’ home. In theory, moist air was to be drawn from the living quarters, through the attic, and out through the caps on the roof. In reality, the system drew even more moisture into the attic. The moisture condensed before it could be drawn out through the roof.

As a result, the next winter (1983-1984) brought the worst condensation consumers had experienced. Water actually dripped from one of the vents in the ceiling. Consumers decided they could not endure any further “cures”. They filed their petition on January 25, 1984.

Both dealer and manufacturer were named as defendants. Consumers sought $30,000 actual damages, as the replacement cost of the home, alleging a design defect and a breach of the express and implied warranties of “habitability” and “proper workmanship.” They also sought $50,000 in punitive damages for “misrepresentations ... suffering and harrassment” resulting from failures in attempting to remedy the condensation. Manufacturer cross-petitioned, seeking contribution from dealer for any damages awarded to consumers. Dealer also cross-petitioned, seeking $100,-000 actual damages and $100,000 punitive damages for malicious interference with a business relationship.

At trial, the jury was instructed solely upon manufacturers’ products liability as to consumers’ claim. The jury awarded consumers $22,800 actual damages and $7,200 exemplary damages against manufacturer. Manufacturer failed in its contribution claim against dealer, but dealer was awarded $5,000 actual damages against manufacturer for interference with its business relationships. Addressing only the products liability issue, the Court of Appeals affirmed the awards.

I.

A product can cause personal injury, property damage, and economic loss. Recovery, under the doctrine of manufacturers’ products liability, is allowed for personal injury, Kirkland v. General Motors Corp., 521 P.2d 1353 (Okla.1974), and damage to property other than damage to the product itself, Kimbrell v. Zenith Radio Corp., 555 P.2d 590 (Okla.1976) (television set alleged to have caused extensive fire damage to plaintiff’s home). This Court has yet to address the question of whether manufacturers’ products liability applies to purely economic damages resulting from product deterioration. The question is one of the proper relationship between the Uniform Commercial Code (UCC) and manufacturers’ products liability.

An action in manufacturers’ products liability is “primarily tortious in nature.” Kirkland, 521 P.2d at 1361. Its rationale “is founded upon public interest in human safety.” Id. at 1362. “[A] plaintiff who has suffered damages by reason of a defectively manufactured article may recover under the doctrine of Manufacturers’ Product Liability all of the damages which were the reasonable consequences of the defective article to the same extent as if the plaintiff’s action was based upon negligence.” Moss v. Polyco, Inc., 522 P.2d 622, 626 (Okla.1974). This liability is independent of UCC warranty provisions because recovery under manufacturers’ products liability arises from a duty to the public rather than from a contractual relationship. Kirkland, 521 P.2d at 1362 (quoting Restatement (Second) of Torts § 402A, comment m). Thus, the parties to a sales contract may not limit a manufacturer’s liability for personal injury caused by a product defect. See Moss, 522 P.2d at 627. See also Okla.Stat. tit. 12A, § 2-719(3) (1981).

Recovery under warranty provisions, however, applies to losses flowing from the sales contract. Moss, 522 P.2d at 625-26. Comment 4 to section 2-313 of the UCC notes that “the whole purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell.” Section 2-314 provides that “[ujnless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.” This warranty extends to a buyer’s family, household, and guests under section 2-318. The ultimate consumer may maintain an action against both the retailer and the manufacturer to recover the benefit of the bargain. See Old Albany Estates, Ltd. v. Highland Carpet Mills, Inc., 604 P.2d 849 (Okla.1979).

As to damages recoverable in a warranty action, section 2-714 of the UCC provides in part:

(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

(3) In a proper case any incidental and consequential damages under the next section may also be recovered.

Consequential damages are defined in section 2-715(2)(b) to include “injury to person or property resulting from any breach of warranty.”

Thus, as to personal injury or injury to other property, manufacturers’ products liability and the UCC warranty provisions provide parallel remedies.¹ But as to damage only to the product itself, the two remedies dramatically diverge.

This Court has long held that manufacturers’ products liability should be distinguished from contractual liability. “While the UCC does envision allowing recovery for personal injury and for property damage arising out of defectively manufactured articles, such recovery arises out of •contractual relationships, express or im-plied_” Moss, 522 P.2d at 625 (citations omitted). This contractual relationship, the sales contract, is also the basis for the recovery of a buyer’s economic losses.

In contrast, “[t]he economic expectations of parties have not traditionally been protected by the law concerning unintentional torts.” Clark v. International Harvester Co., 99 Idaho 326, 335, 581 P.2d 784, 793 (1978). These expectations have been safeguarded by commercial law principles. Therefore, economic damages are more logically related to the UCC than to manufacturers’ products liability.

There is no need to extend manufacturers’ product liability into an area already occupied by the UCC. To extend manufacturers’ products liability to include purely economic losses would undermine the UCC’s “comprehensive and finely tuned statutory mechanism for dealing with the rights of parties to a sales transaction with respect to economic losses.” Id. 581 P.2d at 792. The judicial adoption of manufacturers’ products liability in Oklahoma was never intended to replace the statutory provisions of the UCC. Its adoption signaled the end of warranty defenses, such as lack of privity and warranty disclaimers, when a product causes personal injury or damage to other property. But when purely economic losses are caused by a product, the economic expectations of the buyer are protected by the UCC.

The United States Supreme Court reached this same conclusion in an admiralty context in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). There, a unanimous Court adopted the position of the majority of courts and held that purely economic losses are not recoverable in products liability. The Court noted that protection of the buyers’ expectations as to product value “is precisely the purpose of express and implied warranties.” Id. at 872, 106 S.Ct. at 2303. We adopt this reasoning and hold that in Oklahoma no action lies in manufacturers’ products liability for injury only to the product itself resulting in purely economic loss.

The facts of this case involve only economic loss and disappointment associated with manufacturer’s unsuccessful attempts to remedy condensation within consumers’ mobile home. No personal injury or damage to other property occurred. Damage was limited to the product itself. Therefore, any recovery must be based upon the contractual relationship, specifically the warranty provisions, express or implied.

This case was tried under the wrong theory of recovery and punitive damages were assessed in what should have been a contract action. Although manufacturer’s inability to repair the mobile home is relevant to the effect of the remedy limitation provision of the limited warranty, see Osburn, 613 P.2d at 449-50, it does not provide an independent tort upon which to base punitive damages. Such error cannot be considered “harmless”. The erroneous submission of the case to the jury on a manufacturers’ products liability theory deprived manufacturer of its warranty defenses under the UCC. The case must be remanded for application of the UCC warranty provisions.

II.

Manufacturer also seeks review of the trial court’s overruling of its motion for a directed verdict, at the close of dealer’s evidence, on dealer’s claim for malicious interference with its business relationships. The Court of Appeals opinion indicates that court simply found no merit to this assignment of error.

Dealer’s action was for damage to its business reputation and a substantial reduction in sales caused by the ill will and adverse publicity resulting from “[t]he refusal of Town and Country Mobile Homes, Inc., in performing under its written warranties.” Dealer claimed the “neglect and procrastination” associated with manufacturer’s failure to remedy the condensation problem in consumers’ home and three other mobile homes constituted a malicious interference with its business.

In Oklahoma, “one has the right to carry on and prosecute a lawful business in which he is engaged without unlawful molestation or unjustified interference from any person, and' any malicious interference with such business is an unlawful act and an actionable wrong.” Crystal Gas Co. v. Oklahoma Natural Gas Co., 529 P.2d 987, 989 (Okla.1974). To recover damages for the tort of malicious interference with a business relationship, “a plaintiff must show: 1. That he or she had a business or contractual right that was interfered with. 2. That the interference was malicious and wrongful, and that such interference was neither justified, privileged nor excusable. 3. That damage was proximately sustained as a result of the complained interference.” Mac Adjustment, Inc. v. Property Loss Research Bureau, 595 P.2d 427, 428 (Okla.1979).

The tort was first recognized in Oklahoma in the context of malicious interference with the contractual rights of a business in Schonwald v. Ragains, 32 Okl. 223, 122 P. 203 (1912). That decision defined the element of “malice”, for malicious interference, as “an unreasonable and wrongful act done intentionally, without just cause or excuse.” Id. at 240, 122 P. at 210.

The evidence in this matter did not demonstrate an intentional act of interference with dealer’s business. Although dealer may have suffered reduced sales from manufacturer’s futile attempts to remedy condensation within consumers’ mobile home, no evidence was presented to indicate that manufacturer intended to harm dealer’s reputation or sales. In fact, any harm to dealer’s sales must also have harmed the sales of manufacturer who supplied the mobile homes.

Manufacturer was acting to fulfill its obligations under the sales contract by attempting to repair consumers’ mobile home. These attempts cannot be considered wrongful acts even though the results were poor. To hold a manufacturer liable in tort for failing to adequately remedy product problems would discourage manufacturers from performing repairs pursuant to sales contracts.

Manufacturer’s motion for a directed verdict on dealer’s claim should have been granted and consumers’ action should have been tried under a warranty theory. On remand, the trial court shall enter judgment for manufacturer on dealer’s claim for malicious interference and consumers’ claim will be pursued under a warranty theory.

COURT OF APPEALS OPINION VACATED; JUDGMENT OF TRIAL COURT REVERSED; CAUSE REMANDED WITH INSTRUCTIONS.

HARGRAVE, C.J., and LAVENDER, SIMMS and SUMMERS, JJ., concur. OPALA, V.C.J., concurs in part, dissents in part. DOOLIN, ALMA WILSON and KAUGER, JJ., dissent.

1 . In this regard a mobile home has been regarded as "goods" under the UCC and a “product" for manufacturers’ products liability under Oklahoma law. In cases involving economic loss, with no personal injury or injury to other property, a mobile home has been treated as "goods”. See Osburn v. Bendix Home Sys., Inc., 613 P.2d 445, 448 (Okla.1980) (“A mobile home falls clearly within the definition of 'goods’ found in § 2-105.”); Cochran v. Buddy Spencer Mobile Homes, Inc., 618 <P.2d 947, 950 (Okla.Ct. App.1980) ("A mobile home is a 'good' as defined in section 2-105(1).”). A mobile home has been treated as a "product” only when personal injury occurred. See Dewberry v. LaFollette, 598 P.2d 241 (Okla.1979) (lessor who placed mobile home into stream of commerce was answerable in manufacturers’ products liability for personal injuries sustained when access steps to home collapsed).