Appeal from the Appellate Court for the Fourth District; heard
in that court on appeal from the Circuit Court of Adams County,
the Hon. Richard F. Scholz, Jr., Judge, presiding.
JUSTICE MORAN DELIVERED THE OPINION OF THE COURT:
On November 1, 1979, the circuit court of Adams County held that plaintiff, Moorman Manufacturing Company (Moorman), could not recover from defendant National Tank Company under the theories of (1) strict liability in tort, (2) misrepresentation and (3) negligence for purely economic losses resulting from an alleged crack in a grain-storage tank. The circuit court dismissed counts I, II and III of plaintiff's complaint (based upon the above tort theories) but found that count IV, based upon breach of express warranty, was not barred by the statute of limitations (section 2-725 of the Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1977, ch. 26, par. 2-725)). On appeal pursuant to Supreme Court Rules 304(a) and 308(a) (73 Ill.2d Rules 304(a), 308(a)), the appellate court held that plaintiff could recover for economic loss under the tort theories of strict liability, misrepresentation and negligence. The court also found that plaintiff's tort actions were not barred by the statute of limitations (section 15 of the Limitations Act (Ill. Rev. Stat. 1977, ch. 83, par. 16)) and that the storage tank was a product. It reversed the trial court's dismissal of counts I, II and III, but did not rule on the sufficiency of plaintiff's express-warranty allegations under count IV. 92 Ill. App.3d 136.
The issues raised on appeal before us are whether plaintiff can recover for the cost of repairs and loss of use of the tank under the above-named tort theories, and, if so, whether the actions based upon those theories are barred by the applicable statute of limitations, whether the storage tank is a product (a requisite to application of strict liability in tort), and whether count IV, based upon express warranty, was barred by the statute of limitations.
On July 26, 1978, plaintiff filed a three-count complaint containing the following allegations. Defendant designed, manufactured and sold storage tanks. In 1966, plaintiff purchased a bolted-steel grain-storage tank from defendant for use at its feed-processing plant in Alpha, Illinois. In the last few months of 1976 or the first months of 1977, a crack developed in one of the steel plates on the second ring of the tank. Count I alleged that the tank was not reasonably safe due to certain design and manufacturing defects. Count II asserted that defendant had made certain representations, which were in fact untrue, in connection with the sale of the tank. Count III accused defendant of negligently designing the tank. On April 9, 1979, plaintiff filed an amendment to the complaint, adding count IV, claiming it had relied upon an express warranty made by the defendant at the time of the sale. In all four counts, plaintiff sought damages representing the cost of repairs and reinforcement as well as loss of use of the tank. The trial court granted defendant's motion to dismiss the first three counts, concluding that the cost of repair and loss of profits or income were economic losses which could not be recovered under the tort theories named in the complaint. The trial court also held that count IV was not barred by the statute of limitations because an express warranty existed which extended to future performance of the tank.
The tort law of products liability stems from the contract cause of action for breach of warranty. In MacPherson v. Buick Motor Co. (1916), 217 N.Y. 382, 111 N.E. 1050, liability in negligence was imposed upon a manufacturer to an ultimate consumer without privity of contract. Subsequently, courts began to hold manufacturers liable for personal injuries without negligence; the theory generally utilized to reach the manufacturers was based upon the law of sales warranty. (See Prosser, The Assault Upon The Citadel, 69 Yale L.J. 1099, 1126 (1960) (Prosser I).) However, recognition of the difficulties facing consumers with respect to items such as notice and privity led most courts to abandon the privity requirement in implied-warranty actions (see Prosser, The Fall Of The Citadel, 50 Minn. L. Rev. 791 (1966) (Prosser II)) and to ultimately abandon the fiction of warranty in favor of strict liability in tort.
This State adopted the tort theory of strict liability in Suvada v. White Motor Co. (1965), 32 Ill.2d 612, to allow a plaintiff to recover from a manufacturer for personal injuries. Suvada, however, did not address the question of whether a consumer could recover under a strict liability in tort theory for solely economic loss. That issue was first addressed in Santor v. A & M Karagheusian, Inc. (1965), 44 N.J. 52, 207 A.2d 305. There, the plaintiff purchased, from a third-party seller, carpeting that had been manufactured by the defendant. After several months, unsightly lines began to appear on the surface of the carpeting. The Supreme Court of New Jersey held that the plaintiff could maintain a breach-of-warranty claim directly against the manufacturer despite the lack of privity between them. In dicta, the court went on to declare that although the strict liability in tort doctrine had been applied principally in connection with personal injuries, the responsibility of the manufacturer should be no different where damage to the article sold or to other property is involved. 44 N.J. 52, 66, 207 A.2d 305, 312.
Several months later, in Seely v. White Motor Co. (1965), 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17, the Supreme Court of California rejected the rationale by which the court in Santor imposed strict liability in tort for economic loss. In Seely, plaintiff purchased a truck manufactured by defendant. After he took possession, Seely discovered that the truck bounced violently. Nine months later, the truck overturned after brake failure, causing damage to the truck but no personal injury to Seely. Plaintiff had the damage repaired and subsequently stopped making his installment payments. Defendant repossessed the truck, at which time plaintiff sued on theories of breach of express warranty and strict tort liability, and sought damages for the repair of the truck, for money paid on the purchase price, and for profits lost by virtue of the truck's unsuitability for normal use. The court affirmed the trial court's award to Seely for money paid on the purchase price and for lost profits on the basis of express warranty. The court, however, went on to state that these economic losses are not recoverable under strict liability in tort. (63 Cal.2d 9, 18, 403 P.2d 145, 151-52, 45 Cal.Rptr. 17, 23-24.) The court also declared, in reference to Santor, "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." (63 Cal.2d 9, 18, 403 P.2d 145, 151, 45 Cal.Rptr. 17, 23.) Thus, the court refused to expand the scope of its opinion in Greenman v. Yuba Power Products, Inc. (1963), 59 Cal.2d 57, 62, 377 P.2d 897, 900, 27 Cal.Rptr. 697, 700, which declared that a manufacturer is strictly liable in tort for a product that has a defect that causes injury to a person.
Subsequent to these two seminal cases in the area, some courts have held a manufacturer liable under the theory of strict liability in tort for solely economic losses. (See, e.g., Mead Corp. v. Allendale Mutual Insurance Co. (N.D. Ohio 1979), 465 F. Supp. 355 (Ohio law); Berg v. General Motors Corp. (1976), 87 Wn.2d 584, 555 P.2d 818; City of La Crosse v. Schubert, Schroeder & Associates, Inc. (1976), 72 Wis.2d 38, 240 N.W.2d 124; Iacono v. Anderson Concrete Corp. (1975), 42 Ohio St.2d 88, 326 N.E.2d 267; Cova v. Harley Davidson Motor Co. (1970), 26 Mich. App. 602, 182 N.W.2d 800.) Most courts, however, have denied recovery under strict liability in tort for solely economic losses. See, e.g., Posttape Associates v. Eastman Kodak Co. (3d Cir. 1976), 537 F.2d 751 (Pennsylvania law); Fredonia Broadcasting Corp. v. RCA Corp. (5th Cir. 1973), 481 F.2d 781 (Texas law); Southwest Forest Industries, Inc. v. Westinghouse Electric Corp. (9th Cir. 1970), 422 F.2d 1013 (Pennsylvania law), cert. denied (1970), 400 U.S. 902, 27 L.Ed.2d 138, 91 S.Ct. 138; Midland Forge, Inc. v. Letts Industries, Inc. (N.D. Iowa 1975), 395 F. Supp. 506 (Iowa law); Arizona v. Cook Paint & Varnish Co. (D. Ariz. 1975), 391 F. Supp. 962 (under law of Arizona, California, Hawaii, Texas, or Alaska economic loss is not recoverable in strict liability action), aff'd (9th Cir. 1976), 541 F.2d 226; Cooley v. Salopian Industries, Ltd. (D.S.C. 1974), 383 F. Supp. 1114 (South Carolina law); Noel Transfer & Package Delivery Services, Inc. v. General Motors Corp. (D. Minn. 1972), 341 F. Supp. 968; Superwood Corp. v. Siempelkamp Corp. (Minn. 1981), 311 N.W.2d 159; Nobility Homes of Texas, Inc. v. Shivers (Tex. 1977), 557 S.W.2d 77; Morrow v. New Moon Homes, Inc. (Alaska 1976), 548 P.2d 279; Hiigel v. General Motors Corp. (1975), 190 Colo. 57, 544 P.2d 983; Hawkins Construction Co. v. Matthews Co. (1973), 190 Neb. 546, 209 N.W.2d 643; Price v. Gatlin (1965), 241 Or. 315, 405 P.2d 502; Alfred N. Koplin & Co. v. Chrysler Corp. (1977), 49 Ill. App.3d 194; Beauchamp v. Wilson (1973), 21 Ariz. App. 14, 515 P.2d 41; Anthony v. Kelsey-Hayes Co. (1972), 25 Cal.App.3d 442, 102 Cal.Rptr. 113; Rhodes Pharmacal Co. v. Continental Can Co. (1966), 72 Ill. App.2d 362.
Like the California Supreme Court in Greenman and Seely, this court, in adopting the strict liability in tort theory in Suvada, emphasized the unreasonably dangerous nature of the product. (32 Ill.2d 612, 619.) The focus upon the unreasonably dangerous condition of the product in cases involving strict liability has been consistently followed by this court. (Kerns v. Engelke (1979), 76 Ill.2d 154, 161; Hunt v. Blasius (1978), 74 Ill.2d 203, 210-11; Dunham v. Vaughan & Bushnell Manufacturing Co. (1969), 42 Ill.2d 339, 342.) As noted by the dissenting opinion of the appellate court in this case, the unreasonably dangerous nature of a product has particular relevance when a personal injury results and to some degree when property damage occurs. It has little relevance to economic loss when neither personal injury nor property damage is involved.
In Suvada, this court adopted the definition of strict liability set forth in section 402A of the Restatement (Second) of Torts (1965). That section provides:
"One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property * * *." (Emphasis added.)
The appellate court recognized this court's reliance upon that provision in subsequent cases, but determined that the policy behind section 402A should be fulfilled without the court being bound by the section's precise language. Subsequent decisions of this court involving strict liability in tort have applied section 402A as well as comments to section 402A regarding the unreasonably dangerous nature a defect must possess. (Hunt v. Blasius (1978), 74 Ill.2d 203, 211-12; Dunham v. Vaughan & Bushnell Manufacturing Co. (1969), 42 Ill.2d 339, 343.) Contrary to the conclusion reached by the appellate court, we believe the language limiting section 402A to unreasonably dangerous defects resulting in physical harm to the ultimate user or consumer, or to his property, reflects sound policy reasons.
First, the law of sales has been carefully articulated to govern the economic relations between suppliers and consumers of goods. The framework provided by the UCC includes the parol evidence rule (Ill. Rev. Stat. 1977, ch. 26, par. 2-202), express warranties (Ill. Rev. Stat. 1977, ch. 26, par. 2-313), implied warranties (Ill. Rev. Stat. 1977, ch. 26, par. 2-314), rules on disclaimers (Ill. Rev. Stat. 1977, ch. 26, par. 2-316), notice requirements (Ill. Rev. Stat. 1977, ch. 26, par. 2-607), limitations on the extent of a manufacturer's liability (Ill. Rev. Stat. 1977, ch. 26, pars. 2-718, 2-719) and a statute of limitations (Ill. Rev. Stat. 1977, ch. 26, par. 2-725). (See, e.g., Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp. (3d Cir. 1980), 626 F.2d 280, 289; Superwood Corp. v. Siempelkamp Corp. (Minn. 1981), 311 N.W.2d 159.) Although warranty rules frustrate just compensation for physical injury, they function well in a commercial setting. (See Ill. Rev. Stat. 1977, ch. 26, par. 2-719; Prosser I, 69 Yale L.J. 1099, 1130, 1133 (1960).) These rules determine the quality of the product the manufacturer promises and thereby determine the quality he must deliver. Seely v. White Motor Co. (1965), 63 Cal.2d 9, 16, 403 P.2d 145, 150, 45 Cal.Rptr. 17, 22.
We note, for example, section 2-316 of the UCC, which permits parties to a sales contract to limit warranties in any reasonable manner, or to agree that the buyer possesses no warranty protection at all. The parties may even agree to exclude the implied warranties of merchantability and fitness if they do so in writing, and may modify the implied warranty by clear and conspicuous language. (Ill. Rev. Stat. 1977, ch. 26, par. 2-316(2).) Yet, a manufacturer's strict liability for economic loss cannot be disclaimed because a manufacturer should not be permitted to define the scope of its own responsibility for defective products (Seely v. White Motor Co. (1965), 63 Cal.2d 9, 16, 403 P.2d 145, 150, 45 Cal.Rptr. 17, 22; Greenman v. Yuba Power Products, Inc. (1962), 59 Cal.2d 57, 63, 377 P.2d 897, 901, 27 Cal.Rptr. 697, 701; Suvada v. White Motor Co. (1965), 32 Ill.2d 612, 621; Restatement (Second) of Torts, section 402A, comment m, at 355-56 (1965).) Thus, adopting strict liability in tort for economic loss would effectively eviscerate section 2-316 of the UCC.
Further, application of the rules of warranty prevents a manufacturer from being held liable for damages of unknown and unlimited scope. If a defendant were held strictly liable in tort for the commercial loss suffered by a particular purchaser, it would be liable for business losses of other purchasers caused by the failure of the product to meet the specific needs of their business, even though these needs were communicated only to the dealer. (See Seely v. White Motor Co. (1965), 63 Cal.2d 9, 16, 403 P.2d 145, 150, 45 Cal.Rptr. 17, 22.) Finally, a large purchaser, such as plaintiff in the instant case, can protect itself against the risk of unsatisfactory performance by bargaining for a warranty. Or, it may choose to accept a lower purchase price for the product in lieu of warranty protection. Subsequent purchasers may do likewise in bargaining over the price of the product. We believe it is preferable to relegate the consumer to the comprehensive scheme of remedies fashioned by the UCC, rather than 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. See Seely v. White Motor Co. (1965), 63 Cal.2d 9, 17, 403 P.2d 145, 151, 45 Cal.Rptr. 17, 23; Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp. (3d Cir. 1980), 626 F.2d 280, 288-91.
A common argument advanced by those favoring imposition of strict liability in tort for solely economic loss is the arbitrariness in allowing one who has suffered a personal injury to recover for all types of harm, yet preventing one from recovering for economic loss because he fortuitously escaped personal injury. (See Seely v. White Motor Co. (1965), 63 Cal.2d 9, 21, 24-25, 403 P.2d 145, 153, 155, 45 Cal.Rptr. 17, 25, 27 (Peters, J., concurring in part and dissenting in part).) Although the argument has some appeal, we find Justice Traynor's response to that contention in his majority opinion in Seely more persuasive. Justice Traynor stated:
"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." 63 Cal.2d 9, 18, 403 P.2d 145, 151, 45 Cal.Rptr. 17, 23.
Our examination of the considerable number of arguments advanced on both sides of the issue leads us to reject imposition of a strict liability in tort theory for recovery of solely economic loss.
We do hold, however, that when a product is sold in a defective condition that is unreasonably dangerous to the user or consumer or to his property, strict liability in tort is applicable to physical injury to plaintiff's property, as well as to personal injury. When an unreasonably dangerous defect is present, such as the truck's nonfunctioning brakes in Seely, and physical injury does, in fact, result, then "[p]hysical injury to property is so akin to personal injury that there is no reason to distinguish them." (Seely v. White Motor Co. (1965), 63 Cal.2d 9, 19, 403 P.2d 145, 152, 45 Cal.Rptr. 17, 24. See Prosser I, 69 Yale L.J. 1099, 1143 (1960); Restatement (Second) of Torts sec. 402A (1965).) This comports with the notion that the essence of a product liability tort case is not that the plaintiff failed to receive the quality of product he expected, but that the plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or property. On the other hand, contract law, which protects expectation interests, provides the proper standard when a qualitative defect is involved, i.e., when a product is unfit for its intended use. Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co. (3d Cir. 1981), 652 F.2d 1165, 1169. See Seely v. White Motor Co. (1965), 63 Cal.2d 9, 19, 403 P.2d 145, 152, 45 Cal.Rptr. 17, 24.
Plaintiff argues that economic loss is not sought in this case. It asserts in its brief that a product defect existed that posed an "extreme threat to life and limb, and to property of plaintiff and others, a defect which resulted in a sudden and violent ripping of plaintiff's tank, and which only fortunately did not extend the full height of the tank." Plaintiff further asserts that, because costs of repairs are not economic losses, consequential damages resulting from the loss of use of the tank during repairs does not constitute economic loss either.
"Economic loss" has been defined as "damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits without any claim of personal injury or damage to other property * * *" (Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L. Rev. 917, 918 (1966) (Economic Loss)) as well as "the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold." (Comment, Manufacturers' Liability to Remote Purchasers for "Economic Loss" Damages Tort or ...