seller of a used motor vehicle is sufficiently outside the production and marketing chain "to negate any duty to generally inspect or discover defects." Rahn, 455 N.E.2d at 811.
Peterson and Rahn make clear that under either theory of liability (strict tort or negligence), a seller of products must occupy a position within the "original producing or marketing chain" in order to be liable for injuries caused by those products. Moreover, Rahn and Peterson together indicate that, under Illinois law, sellers of used equipment do not fall within the "original producing or marketing chain" and therefore are not typically liable under traditional products liability theories.
Other jurisdictions share the view of the Illinois courts on this issue. In Tillman v. Vance Equipment Co., 286 Ore. 747, 596 P.2d 1299 (Or. 1979), the Oregon Supreme Court held that a used-equipment dealer who sold a crane in a defective condition could not be held strictly liable for injuries caused by the defective equipment. As in Peterson, the Tillman court acknowledged that the policy behind imposing strict tort liability on retailers and distributors was predicated on the assumption that these groups would place pressure on the manufacturer to produce safe products." Id. at 1302. And similar to Peterson, the Tillman court also found used-goods dealers to be "entirely outside the chain of distribution of the product." Id. at 1304. Thus, the court concluded, the underlying goal of encouraging manufacturers to produce safer goods would not be furthered by imposing strict products liability on used-goods dealers. Id; see also Sell v. Bertsch and Co., Inc., 577 F. Supp. 1393, 1399 (D.Kan. 1984) (declining to hold used-product seller strictly liable because seller was "so far removed from the initial chain of distribution that it could not have discouraged the production and manufacture of a defective product.").
In the instant case, defendant Consolidated arguably was even more removed from the original chain than a typical used-goods dealer. Unlike most used-goods dealers, brokers like Consolidated do not take physical possession of the equipment which they buy and sell. Instead, purchased equipment is left in place until a buyer is quickly located. The equipment is usually resold on an "AS-IS, WHERE-IS" basis, leaving the buyer responsible for transportation, installation, and any necessary modifications or repairs.
Defendant Consolidated played only a passive role, acting as mere conduit for the transaction. Consolidated's brief involvement was limited to a wire transfer of funds, and holding paper title to the furnace for a total of nine days. Consolidated never inspected or took physical possession of the furnace.
The Seventh Circuit has held that sellers who play a mere financial role in connection with the sale of goods are not within the "original chain of distribution" for purposes of products liability. Abco Metals Corp. v. Equico Lessors, Inc., 721 F.2d 583 (7th Cir. 1983). In Abco, defendant Equico purchased a piece of industrial equipment solely for the purpose of leasing it to the plaintiff. At the time of the transaction, the parties agreed that plaintiff would buy the machine from defendant upon expiration of the lease period. When the machine turned out to be defective, plaintiff brought a strict products liability action against defendant. In affirming summary judgment for the defendant, the court held that, whether viewed as lessor or seller, Equico's financial role in the transaction was not enough to place it in the original chain of distribution:
Under Illinois law, the label accorded the transaction is of little consequence for purposes of strict products liability; rather, an injured user of a defective product must plead and prove that the defendant was a part of the original chain of production, marketing, or distribution of the product. We conclude that the Illinois courts would find that Equico, which merely provided the financial means for the transaction, was not a part of that chain.
Abco, 721 F.2d at 586.
In addition to this prevailing case law, leading commentators on the subject of products liability agree that
evaluation of strict tort or negligence liability for the seller of used products . . . will turn upon whether the seller is the simple conduit for the transaction, discharging only a passive role in the sale, or alternatively, has assumed a more intrusive and affirmative role by either warranting the condition of the product, or inspecting, reconditioning, or rebuilding the product.
1 M. Stuart Madden, Products Liability § 3.26 (2d ed. 1988); see also Marshall S. Shapo, The Law of Products Liability P 12.14 (1987) (courts are properly reluctant to apply strict forms of liability to brokers and other middlemen who merely serve as a conduit to the transaction).
Sound market reasons dictate that a used-equipment broker acting as a mere conduit to a transaction should not be liable for unknown defects in equipment sold. Unlike the new products market, the market for used products
operates on the apparent understanding that the seller, even though he is in the business of selling such goods, makes no particular representation about their quality simply by offering them for sale. If a buyer wants some assurance of quality, he typically either bargains for it in the specific transaction or seeks out a dealer who routinely offers it . . . . The flexibility of this kind of market appears to serve legitimate interests of buyers as well as sellers.
Tillman v. Vance Equipment Co., 286 Ore. 747, 596 P.2d 1299, 1303 (1979).
Thus, "the sale of a used product, without more, may not be found to generate the kind of expectations of safety that the courts have held are justifiably created by the introduction of a new product into the stream of commerce." Tillman at 1303; La Rosa v. Superior Court, 122 Cal. App. 3d 741, 757, 176 Cal. Rptr. 224 (1981) (noting that consumers of used goods are primarily motivated by price, and that their expectations as to quality -- including safety -- are correspondingly reduced); 1 M. Stuart Madden, Products Liability § 3.26 (2d ed. 1988) ("The prevailing custom in the used product market is that the seller does not offer, and the buyer does not expect, either express or implied representations of quality.").
Finally, from a cost/benefit standpoint, any rule requiring used equipment brokers to inspect and test equipment before selling it cannot be justified. Because (a) used goods brokers lack the ability to encourage the production of safer goods, and (b) the sale of used products does not generate the kind of expectations of safety associated with new products, the risk reduction associated with such a rule would be marginal at best. Tillman, 596 P.2d at 1303-04. Meanwhile, the costs of such a rule would be prohibitive. The vitality of the used goods market depends upon the ability of buyers and sellers to exchange used goods at low prices. See La Rosa, 122 Cal. App. 3d at 757. But a rule which would require brokers to inspect and test each piece of used equipment bought and sold, would necessarily impair their ability to maintain low prices. As the court in La Rosa noted, "Used-goods dealers would find it difficult or impossible to assimilate the cost of ad hoc inspection and repair into an attractive price . . . ." Id. at 758. Thus, the proportionate cost to used-goods dealers of routinely inspecting and testing used products "would tend simply to drive them out of business and to leave the market to the random seller." Id. at 757. An entire market should not be sacrificed in order to obtain marginal gains in safety.
For the foregoing reasons, defendant Consolidated's motion for summary judgment is granted.
DATED: February 2, 1993
ENTER: John F. Grady
United States District Judge