Sun Refining & Marketing Co. v. Crosby Valve & Gage Co. , 68 Ohio St. 3d 397 ( 1994 )

Pfeifer, J.

Our response to the district court’s certified question is as follows: When a sophisticated commercial buyer sues for property damage caused by an allegedly defective product, claims relating to property other than the defective product itself are controlled by the statute of limitations contained in R.C. 2305.10 for personal property and R.C. 2305.09(D) for real property. Our rationale is set forth below.

In Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co. (1989) 42 Ohio St.3d 40, 537 N.E.2d 624, this court made it clear that in a commercial setting, a buyer’s proper remedy for recovery of economic losses resulting from damage to a defective product itself is through a contract action for breach of warranty under the UCC. This court held that the buyer could not recover for economic losses premised on tort theories “in the absence of injury to persons or damage to other property.” Id. at 51, 537 N.E.2d at 635. The court’s definition of “economic loss” was as follows:

“ ‘Economic loss’ is described as either direct or indirect. ‘Direct’ economic loss includes the loss attributable to the decreased value of the property itself. Generally, this type of damages encompasses ‘the difference between the actual value of the defective product and the value it would have had had it not been defective.’ * * * It may also be described as ‘the loss of the benefit of the bargain * * *.’ * * * ‘Indirect’ economic loss includes the consequential losses sustained by the purchaser of the defective product, which may include the value of production time lost and the resulting lost profits.” Chemtrol at 43-44, 537 N.E.2d at 629.

The court implied that commercial parties are not limited to contractual causes of action when a defective product causes tort damages, ie., damage to persons or property other than the product itself.

This court directly recognized that a commercial buyer may recover damages based upon tort theories of liability in Lawyers Cooperative Publishing Co. v. Muething (1992), 65 Ohio St.3d 273, 603 N.E.2d 969. In Lawyers Cooperative, the counterclaimant attorney sought damages for humiliation, loss of reputation, and damage to his law practice due to the counterclaim defendant’s alleged negligence in publishing faulty information in law books the lawyer had purchased. The defendant publisher claimed that those causes of action should be controlled by the statute of limitations contained in Ohio’s UCC provisions.

This court found that the lawyer had the option of filing a contract claim under Ohio’s UCC, but was not limited to that claim due to the nature of his damages. The court found that the lawyer did not merely seek recovery for economic loss— his allegations of humiliation and loss of reputation were allegations of personal injury and his allegation of injury to his law practice was an allegation of property damage. This court held that Chemtrol, which precluded recovery of' economic losses on tort theories of liability, did not so preclude the lawyer’s recovery of tort damages.

The character of the loss determines whether a commercial party may recover in tort. If the loss is an economic one, a cause of action will lie only in contract.

In the present case, for example, Sun does not seek recovery for damage to the disc nor for loss of profits due to the failure of the disc or other such consequential damages. It seeks recovery for damage to its real estate and fixtures. The damages it seeks are not economic, and are therefore recoverable under a tort theory of liability. For parties like Sun who suffer such injuries, the tort theory of breach of implied warranty is available. Lonzrick v. Republic Steel Corp. (1966), 6 Ohio St.2d 227, 229-230, 35 O.O.2d 404, 405-406, 218 N.E.2d 185, 188.

This line of decisions does not inflinge upon Ohio’s UCC provisions. The underlying purpose of the UCC is, in part, to clarify and make uniform commercial law. R.C. 1301.02(B)(1) and (3). That is, the UCC lends predictability to commercial transactions. It governs the bargain. If the product is faulty, inefficient, or breaks, resulting in diminished economic returns, the proper remedy is through the contract and the relevant UCC provisions. When the benefit of the bargain is diminished or lost, the contract and the UCC control the parties’ rights.

When persons or property outside the original bargain are damaged, the terms of the bargain no longer control. In such an instance, when there is more than a loss of the benefit of the bargain, when the damages fall outside the definition of “economic loss,” a duty outside the contract has been breached. That breach of duty is governed by tort law.

A sales contract does not govern the entire relationship between commercial parties-r-it governs only the sale of the product. A seller still owes to the buyer the same noncontractual duty that he owes to everyone else — that the seller’s product will not cause the destruction of another’s property.

Therefore, in a products-liability action between sophisticated commercial parties, the character of the loss determines the applicable statute of limitations. Losses due to a diminishing of the expected benefit of the bargain fall under the statute of limitations set forth in R.C. 1302.98 (UCC 2-725). Causes of action for losses resulting from damage to property outside the original bargain are controlled by the statute of limitations in either R.C. 2305.10 or 2305.09(D).

A.W. Sweeney and Douglas, JJ., concur. Resnick, J., concurs in the syllabus and judgment only. F.E. Sweeney, J., concurs in judgment only. Moyer, C.J., and Wright, J., dissent.