Schiavone Construction Co. v. Elgood Mayo Corp.

OPINION OF THE COURT

Fein, J.

Plaintiff Schiavone Construction Company (Schiavone) has been granted an attachment of the assets of defendant Timberland Equipment Limited (Timberland) pursuant to CPLR 6201 (subd 1). In sustaining the attachment, Special Term concluded that plaintiff had demonstrated the existence of a valid cause of action and that it is probable that the plaintiff will succeed on the merits. Plaintiff was granted leave to serve an amended complaint to allege in substance that by reason of defects in a truck hoist designed and manufactured by Timberland and sold by it to plaintiff’s supplier Elgood Mayo Corp. (Elgood), plaintiff sustained damage. The truck hoist, designed to be used in connection with tunnel work undertaken by plaintiff in the East 63rd Street tunnel in New York City, allegedly would not operate because, among other things, the shaft was improper in design and in its fit to the drum, and the cable equalizer did not and could not fulfill the function for which it was intended.

The proposed amended complaint would plead a third cause of action based upon strict products liability in place of the present third cause of action.

Plaintiff purchased the truck hoist from Elgood, which entered into a contract with Timberland under which Timberland constructed the truck hoist purporting to meet the contract specifications. Pursuant to the contract, Timberland’s name did not appear on any of the equipment, nor did it appear on the bills sent by Elgood to plaintiff.

Special Term ruled that under current New York law, no recovery could be had against Timberland on the theory of breach of warranty because there is no privity (Martin v Dierck Equip. Co., 43 NY2d 583; Victorson v Bock Laundry Mach. Co., 37 NY2d 395), and that no cause of action in negligence was stated because, in the absence of privity, it must be shown that the product is inherently dangerous and that damage to persons or property flowing from an accident has been sustained. It was ruled that mere economic loss occasioned by the failure of the product to perform could not ground a cause of action in negligence against the manufacturer by a remote purchaser (Snyder Plumbing & Heating Corp. v Purcell, 9 AD2d 505; Steckmar Nat. Realty & Inv. Corp. v Case Co., 99 Misc 2d 212; Trans World Airlines v Curtiss-Wright Corp., 1 Misc 2d 477, affd 2 AD2d 666).

However, Special Term concluded that the facts alleged were sufficient to state a cause of action in strict liability and granted leave to amend the complaint to plead such cause.

As Special Term observed, the closest case on its facts is Dudley Constr. v Drott Mfg. Co. (66 AD2d 368) granting the right to recover in strict liability for damages sustained in an action against the manufacturer of a crane which sustained physical damage and could not be used for its purpose because the bolts connecting the superstructure to the undercarriage had broken. The superstructure broke loose from its mounting and crashed to the ground along with the attached boom and load. In our case the hoist did not break. It simply would not work because its parts were improperly designed and inadequately attached to each other. Logic suggests that recovery should not be denied because of this difference between a machine which broke as in Dudley (supra) and one which did not work as in our case (see Randy Knitwear v American Cyanamid Co., 11 NY2d 5, 15).

The dissenters conclude that liability may not attach because there is no legal or jural relationship between the plaintiff and Timberland. They note that Timberland had no contract with plaintiff and that this was a so-called “private” job in that Timberland’s name was not to appear as the manufacturer of the equipment. The dissent concludes that an appropriate distinction may be made between damage resulting from physical injury to the crane itself by reason of defective parts as in Dudley (supra) and “economic damage” sustained in our case where the hoist would not work because of defective parts. We see no valid ground for such distinction.

The argument that there must be physical damage or personal injury before strict liability will be imposed is founded on the conclusion that strict liability is theoretically grounded in tort and that the “economic loss”, sought to be recovered in our case is more nearly akin to contract damages for breach of warranty, requiring privity. However, on the facts of our case there is no need to make the issue turn on such historical distinctions among the forms of action and their roots.

The dissent quotes at great length from the California case of Seely v White Motor Co. (63 Cal 2d 9) where liability was imposed in favor of a remote purchaser and user against the manufacturer, cast in damages for repair, damage and consequential economic loss sustained because the truck would not function properly and bounced so violently that it overturned. Although liability in favor of a remote purchaser was imposed on the basis of the manufacturer’s express warranty, upon which the purchaser apparently did not rely, Chief Justice Traynor, in widely quoted dicta, explained why under California law strict liability would not be imposed. It was his view, relied upon by the dissent here, that strict liability is purely a tort doctrine designed to deal with “the distinct problem of physical injuries” as distinguished from the law of warranty which is primarily aimed at controlling commercial aspects of such transactions. In an extensive rationale justifying the distinction between tort recovery for physical injuries and warranty recovery for economic loss, Chief Justice Traynor suggested it rested upon an understanding of the economic responsibility a manufacturer must undertake in distributing his products. The dissent here appears to agree with his conclusion that there should be no right to recover from one not in privity with the plaintiff unless the manufacturer agrees in advance that the product is designed to meet the consumer’s demands. Overlooked is the conclusion that by that .standard recovery should be permitted here where it is alleged that Timberland manufactured the equipment to meet plaintiff’s needs.

An exposition similar to that in Seely (supra) is to be found in Jones & Laughlin Steel Corp. v Johns-Manville Sales Corp. (626 F2d 280, 287-289) also relied upon in the dissent, where it is said that the rationale justifying strict liability in personal injury situations is not well suited to claims alleging only economic loss resulting from the failure of the product to perform, a matter which could and should have been covered by warranty. Theorizing that a lower purchase price for the product may result from the lack of warranty, the case concludes that no claim for economic loss is viable in the absence of privity. This economic argument, also advanced by the dissent, is of dubious validity. If there is a cause of action by the ultimate purchaser against his supplier premised on a breach of warranty, surely the supplier will have a cause of action against the manufacturer. This is the remedy suggested by the dissent. However, under such circumstances the damages will be the same and there will be a circuity of actions increasing the costs and time for recovery. There is no warrant for the distinction. As stated in Randy Knitwear (11 NY2d, at p 13): “Thus, if the consumer or ultimate business user sues and recovers, for breach of warranty, from his immediate seller and if the latter, in turn, sues and recovers against his supplier in recoupment of his damages and costs, eventually, after several separate actions by those in the chain of distribution, the manufacturer may finally be obliged To shoulder the responsibility which should have been his in the first instance.’ ”

There is no reason why New York need follow either California or the Federal courts in attempting to bar liability on the theory that strict liability is grounded in tort and not in warranty. The conclusion in Dudley Constr. v Drott Mfg. Co. (66 AD2d 368, supra) warrants affirmance here. It is noted that the crane in that case was purchased by the ultimate consumer “as is”. The hoist here was manufactured for the job at hand.

As stated in Codling v Paglia (32 NY2d 330) at the outset of the opinion (p 335): “We hold that today the manufacturer of a defective product may be held liable to an innocent bystander, without proof of negligence, for damages sustained in consequence of the defect.” The court proceeded to lay down the applicable rule (p 342): “We accordingly hold that, under a doctrine of strict products liability, the manufacturer of a defective product is liable to any person injured or damaged if the defect was a substantial factor in bringing about his injury or damages; provided: (1) that at the time of the occurrence the product is being used (whether by the person injured or damaged or by a third person) for the purpose and in the manner normally intended, (2) that if the person injured or damaged is himself the user of the product he would not by the exercise of reasonable care have both discovered the defect and perceived its danger, and (3) that by the exercise of reasonable care the person injured or damaged would not otherwise have averted his injury or damages.”

By that standard it is appropriate to fasten strict liability upon Timberland even though there is no personal injury as in Codling (supra) and no physical breaking of the equipment as in Dudley (supra). We have here a relatively simple case of a complicated piece of equipment that will not work. Surely the manufacturer of such a piece of equipment should be held to have contemplated that his equipment would be used for the purpose for which it was designed. Its failure to do-so should impose liability upon him in favor of the person injured.

The situation is unlike the New Jersey case which seems to trouble the dissent here, as it did the California court in Seely (63 Cal 2d 9, supra). In that case, Santor v A & M Karagheusian (44 NJ 52) the manufacturer was held liable to the ultimate consumer where a rug, because of a defect in design or manufacture, did not meet the requirements of the purchaser. It had a plainly visible line running across the design. Plaintiff was allowed to recover the difference between the price paid for the carpeting, viz., its represented value without the flaw, and the market value of the carpeting with the flaw. In a careful opinion the court imposed liability on the manufacturer, relying heavily on the New York case of Randy Knitwear v American Cyanamid Co. (11 NY2d, at p 15) where it was stated: “We perceive no warrant for holding—as the appellant urges—that strict liability should not here be imposed because the defect involved, fabric shrinkage, is not likely to cause personal harm or injury.”

In Santor (supra) the court noted that although the carpeting was usable, it did not serve the purpose for which intended. In Randy Knitwear (supra) the fabric shrank. In our case the truck and hoist assembly, as in Dudley (supra) could not be used at all.

To assert that we here speak of economic loss or the loss of the benefit of the bargain, as in Santor (supra), is to ignore reality. It is plain enough that a piece of complicated equipment which will not work is far different than a rug with a defect in design. It is palpable that a truck and hoist assembly which will not work is more nearly akin to a crane which collapses. It is notable that in all of the cited cases, Santor, Seely, Dudley, Randy Knitwear and Codling (supra) the courts were astute to find a remedy against the manufacturer. No reason appears why we should do less.

It is time that the vestiges of the citadel of privity not be relied upon to bar the courthouse doors to a suit against a manufacturer by a remote purchaser of his equipment who is unable, because of its inherent defects, to use it.

Accordingly, the order, Supreme Court, New York County (Kassal, J.), entered October 31, 1980, granting plaintiff leave to serve an amended complaint alleging a cause of action in strict liability and granting plaintiff’s motion for an attachment of Timberland’s assets, should be affirmed with costs.