Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. James C. Murray, Judge, presiding.
JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied January 30, 1987.
The plaintiff, John L. Szajna (Szajna), filed a suit in the circuit court of Cook County against the defendant, General Motors Corporation (GM), on his own behalf and on behalf of all others who bought 1976 Pontiac Venturas which were equipped with Chevette transmissions. Szajna sought damages based solely on economic loss alleged to have resulted from receipt of the "inferior" Chevette transmission. Count I of his second amended complaint is based on an alleged breach of implied warranty under section 2-314 of the Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1975, ch. 26, par. 2-314) and section 110(d) of title I of the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (Magnuson-Moss) (15 U.S.C. § 2310(d) (1976)). Count II is based on an alleged breach of express warranty under section 2-313 of the UCC (Ill. Rev. Stat. 1975, ch. 26, par. 2-313). Count III alleges common law fraud. The trial court granted GM's motion to strike and dismiss the second amended complaint. Szajna elected to stand on his complaint and filed a motion to reconsider. The trial court denied the motion to reconsider and dismissed the second amended complaint with prejudice. The court did not determine whether the suit could be maintained as a class action. The appellate court affirmed. (130 Ill. App.3d 173.) We granted Szajna's petition for leave to appeal (94 Ill.2d R. 315).
In reviewing the appellate court's affirmance of the trial court's decision to grant GM's motion to strike and dismiss Szajna's second amended complaint, we must accept as true all well-pleaded facts and all inferences which can be reasonably drawn from those facts. Browder v. Hanley Dawson Cadillac Co. (1978), 62 Ill. App.3d 623, 629.
The following allegations were common to all three counts of Szajna's second amended complaint. In August 1976, he bought a 1976 Pontiac Ventura from Seltzer Pontiac, Inc. (Seltzer), in Chicago. Seltzer, as agent for GM, gave Szajna a folder which contained two warranties: one entitled a "Limited Warranty On 1976 Pontiac Car" and another entitled "1976 Pontiac Passenger Car Emission Control System." It was alleged that both warranties were made by GM to Szajna. It was also alleged that thousands of the cars sold as 1976 Pontiac Venturas, including Szajna's, were equipped with Chevette transmissions; that the use of Chevette transmissions in Pontiac Venturas necessitates higher amounts of repairs and that they have shorter service lives than do transmissions ordinarily used in Pontiac Venturas because the Chevette transmission was designed for use in a lighter weight car; that use of the Chevette transmission in Pontiac Venturas lessens the value of the cars; and that Szajna paid $375 to have the transmission in his car replaced.
The following allegations were also common to all three counts. GM manufactured, labeled and made available through its Pontiac Division the 1976 Pontiac Ventura. GM designed and engineered a transmission specifically for the 1976 Pontiac Ventura. "Through its brochures, parts catalogues and repair manuals, as well as through the release of automobile news and information from its public relations department," GM "advised the expert observers, testers and reporters of the nature of the `1976 Pontiac Ventura' model as including the transmission designed for that size of car." The public and Szajna, in buying the cars, relied on the experts and on GM for any noteworthy information on GM cars not readily observable. No information was given to the public or the experts that some of the 1976 Pontiac Venturas were equipped with Chevette transmissions.
Count I of Szajna's second amended complaint alleges breach of implied warranty under section 2-314 of the UCC. It alleges that 1976 Pontiac Venturas equipped with Chevette transmissions were not merchantable because they "would not pass without objection in the trade" under the contract description; "were not of fair average quality within the description, did not run within the variations permitted by the agreement of even kind and quality and did not conform to their labels" as Pontiac Venturas. (See Ill. Rev. Stat. 1975, ch. 26, pars. 2-314(2)(a), (b), (d), (f).) (The "description" referred to above was the name 1976 Pontiac Ventura.) Count I also alleges that the failure by GM to deliver 1976 Pontiac Venturas as warranted rendered them non-conforming goods for which Szajna and other purchasers could revoke acceptance (Ill. Rev. Stat. 1975, ch. 26, par. 2-608) or receive damages (Ill. Rev. Stat. 1975, ch. 26, par. 2-714).
Szajna also alleges in count I breach of implied warranty pursuant to section 110(d) of Magnuson-Moss, which provides that a consumer who is damaged by the failure of a supplier or warrantor to comply with any obligation under an implied warranty may bring suit for damages and other legal and equitable relief in any court of competent jurisdiction in any State. 15 U.S.C. sec. 2310(d)(1) (1976).
In dismissing count I of Szajna's second amended complaint, the trial court entered the following conclusions of law. First, privity of contract is a prerequisite in Illinois to a suit for breach of implied warranty alleging economic loss. Second, Magnuson-Moss, in permitting recovery for breach of implied warranty, incorporates State-law privity requirements. (15 U.S.C. sec. 2301(7) (1976).) Third, no privity of contract existed between Szajna and GM. Fourth, the limited written warranty extended by GM, although running to the ultimate purchaser, did not give rise to the implied warranty of merchantability. The appellate court, in essence, adopted the trial court's conclusions of law. It was of the opinion, however, that while Szajna and GM "were in privity for purposes of the provisions in the express limited warranty, they were not in privity for purposes of implied warranties, which were specifically disclaimed by the express warranty." Szajna v. General Motors Corp. (1985), 130 Ill. App.3d 173, 177.
Szajna urges this court to abolish the privity requirement in suits for breach of an implied warranty when a plaintiff seeks to recover for economic loss. In Suvada v. White Motor Co. (1965), 32 Ill.2d 612, this court held that lack of privity of contract was no longer a defense in a tort action against the manufacturer in a products liability case. In Suvada this court abandoned the concept of implied warranty in tort and followed the holding of the California court in Greenman v. Yuba Power Products, Inc. (1962), 59 Cal.2d 57, 377 P.2d 897, 27 Cal.Rptr. 697, and the position taken in Restatement (Second) of Torts section 402A (1965). This court imposed liability on the theory of strict liability in tort. Later, in Berry v. G.D. Searle & Co. (1974), 56 Ill.2d 548, this court considered an implied warranty of the fitness of a product for a particular purpose under section 2-315 of the UCC (Ill. Rev. Stat. 1965, ch. 26, par. 2-315). After considering the language of section 2-318 of the UCC and this court's prior decisions, it held that privity is of no consequence when a buyer who has sustained personal injury predicates recovery against a remote manufacturer on the theory of implied warranty. (Berry v. G.D. Searle & Co. (1974), 56 Ill.2d 548, 558.) Although Berry involved recovery under the UCC, the action was one for personal injury, not economic loss.
We need not trace in detail the development of the retreat from the strict privity requirement as it relates to implied warranty and the theories upon which recovery, in the absence of privity, has been allowed. That has been the subject of numerous articles. Its discussion further here would be needless repetition. Dean Prosser appears to have spearheaded the attack on implied-warranty privity in two oft-cited articles. (Prosser, The Assault Upon the Citadel (Strict Liability to the Consumer), 69 Yale L.J. 1099 (1960) (hereafter referred to as Assault); Prosser, The Fall of the Citadel (Strict Liability to the Consumer), 50 Minn. L. Rev. 791 (1966) (hereafter referred to as Fall).) Although Prosser favored abolition of the privity requirement and indeed the concept of implied warranty in a broad area, he nonetheless favored the contractual nature of implied warranty and its privity requirement when recovery for economic loss was sought. (See Fall, 50 Minn. L. Rev. 791, 820-23 (1960).) Much more has been written on the historical development of this subject. See Edmeades, The Citadel Stands: The Recovery of Economic Loss in American Products Liability, 27 Case W. Res. 647 (1977); Special Project, Article Two Warranties in Commercial Transactions, 64 Cornell L. Rev. 30, 67-68, 263-65 (1978); Note, Economic Losses and Strict Products Liability: A Record of Judicial Confusion Between Contract and Tort, 54 Notre Dame Law. 118 (1978); see also Privity of Contract as Essential in Action Against Remote Manufacturer or Distributor for Defects in Goods not Causing Injury to Person or to Other Property, Annot., 16 A.L.R.3d 683 (1967); J. White & R. Summers, Uniform Commercial Code sec. 11-2, at 399-401 (2d ed. 1980); 3 R. Anderson, Uniform Commercial Code secs. 2-314:92 through 2-314:100, at 199-207 (3d ed. 1983).
The law, as it applies to recovery for purely economic loss, is far from clear and most certainly is not uniform in all the jurisdictions. Many States have abandoned the privity-of-contract requirement but have done so on different theories. In Santor v. A & M Karagheusian, Inc. (1965), 44 N.J. 52, 207 A.2d 305, the Supreme Court of New Jersey permitted recovery for economic loss in the absence of privity of contract on the theory of strict liability in tort. This rationale has been followed in a small minority of States. (See Razook, The Ultimate Purchaser's and Remote Seller's Guide Through the Code Defenses in Product Economic Loss Cases, 23 Bus. L.J. 85, 87 n. 16 (1985) (hereafter referred to as Razook).) One author has been quite critical of the judicial extension of strict liability in tort. (See Shanker, A Case Of Judicial Chutzpah (The Judicial Adoption of Strict Tort Products Liability Theory), 11 Akron L. Rev. 697 (1978).) The theory of strict tort liability in economic cases was rejected by the California Supreme Court in Seely v. White Motor Co. (1965), 63 Cal.2d 9, 403 P.2d 145, 45 Cal. Rptr. 17, where the court declined to follow Santor. In Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, this court traced the development of products liability law in regard to economic loss and declined to follow Santor and the line of cases which imposed liability for economic loss on the theory of strict liability. This court, instead, adopted the rationale of Seely and held that recovery for economic loss should be had within the framework of contract law rather than tort law.
In Professional Lens Plan, Inc. v. Polaris Leasing Corp. (1984), 234 Kan. 742, 675 P.2d 887, the Kansas Supreme Court traced the development of products liability law in that State and noted that privity requirements had not been applied in areas where public policy so dictated. In such cases implied warranty arose not by virtue of a contractual relationship but because public policy required the imposition of the obligations of implied warranties. Thus, since implied warranties in such cases are not contractual, there is no privity requirement. (See also Rasor, The History of Warranties of Quality in the Sale of Goods: Contract or Tort? A Case Study in Full Circles, 21 Wn.burn L.J. 175 (1982).) In Picker X-Ray Corp. v. General Motors Corp. (D.C. 1962), 185 A.2d 919, the court recognized that courts generally have begun to disassociate contract from implied warranty and that the implied warranty is in fact a duty imposed by law for the protection of the public. Thus, privity is of no consequence.
It appears that much of the confusion involving privity as it relates to implied warranty stems from the imprecise use of the term implied warranty. That term, unfortunately and inaccurately, has been used to describe obligations imposed by law as a matter of public policy totally unrelated to any contractual relationship. It has also been used to describe obligations implied because of a privity relationship between contracting parties. We need not develop this distinction further at this time or discuss its many ramifications. We leave that to the legal scholars and commentators. Suffice it to say that in this State we have, for public policy reasons, abolished the requirement of privity in certain non-economic-loss areas. (See Suvada v. White Motor Co. (1965), 32 Ill.2d 612; Berry v. G.D. Searle & Co. (1974), 56 Ill.2d 548.) However, as noted above in Moorman, we held that recovery for economic loss must be had within the framework of contract law. Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 86.
In Moorman this court quoted at length from Justice Traynor's opinion in Seely, which explained that the distinction between the two standards of recovery is not arbitrary but rests on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his product:
"`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. * * ...