SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Samuel P. Alloway, III, and New Hampshire Insurance Company v. General Marine Industries, L.P. and
Mullica River Boat Basin (A-48-96)
Argued November 18, 1996 -- Decided June 30, 1997
POLLOCK, J., writing for the Court.
The primary issue in this appeal is whether New Hampshire Insurance Co. (“New Hampshire”) and
its insured, Samuel P. Alloway III (“Alloway”), may recover from General Marine Industries, Inc. (“GMI”)
in negligence and strict liability for economic loss caused by a defect in a power boat purchased by Alloway
and insured by New Hampshire.
In l990, GMI purchased from Glasstream, a company in bankruptcy, substantially all of its assets
“free and clear of any interest in such property.” At some point before then, Glasstream had made the boat
at issue and sold it to Mullica. In July l990, Alloway purchased the thirty-three foot Century Grande XL
from Mullica for $61,070. Century had expressly warranted for twelve months following the purchase that
the boat was free from defects. Following his purchase, Alloway obtained from New Hampshire a
comprehensive general insurance policy on the boat.
Three months later, while docked at the Bayview Marina in Manahawkin, the boat sank as a result
of a defective seam in the swimming platform. No other property was damaged nor was anyone injured.
Alloway filed a claim with New Hampshire, which spent over $40,000 to repair the boat. Alloway paid
approximately $2,500 towards the repairs pursuant to his deductible under the policy. After completion of
the repairs, he received a trade-in credit of over $38,000 for the Grande on the purchase of a new boat.
Thereafter, Alloway filed a three-count complaint against Mullica and GMI, seeking recovery for his
economic loss. In the first count of the complaint, Alloway sought to recover for Mullica's breach of the
manufacturer's warranty for repair or replacement of any defective part. The second count alleged a strict-liability claim asserting that Century had manufactured a defective boat for which GMI was liable as
Century's successor. The third count alleged that Glasstream negligently manufactured and inspected the
boat, that GMI was liable to Century's successor, and that Mullica had failed to discover the defect. Alloway
then assigned his claims to New Hampshire, but retained a claim for the loss in value of the boat and for the
deductible he had paid towards the repair of the boat.
The Law Division subsequently granted GMI's motion to dismiss the complaint for failure to state a
cause of action, holding that a purchaser could not maintain an action in strict liability for economic loss.
The Law Division also relied on an Appellate Division case that held that a consumer who had purchased a
yacht that was not as represented could sue the manufacturer under the Uniform Commercial Code
(“U.C.C.”) for breach of warranty, but not in strict liability. That case viewed the U.C.C. as providing the
consumer with an exclusive remedy for economic loss resulting from breach of warranties.
The Appellate Division reversed, observing that one of the cases on which the Law Division relied
precluded a commercial purchaser, but not a consumer, from recovering economic losses in strict liability.
The Appellate Division further relied on a New Jersey Supreme Court case, Santor v. A&M Karagheusian,
Inc., which recognized that a consumer could maintain a strict-liability claim against a manufacturer for loss
in value of a defective carpet. Essentially, the Appellate Division held that GMI, as the successor to
Glasstream, was liable to Alloway and New Hampshire in negligence and strict liability for economic loss
caused by the sinking of the boat.
The Supreme Court granted GMI's petition for certification.
HELD: Under New Jersey law, GMI is not liable in tort for Alloway's and New Hampshire's economic loss
resulting from a defect in a purchased product that destroyed or diminished the worth of only that product.
1. Generally, tort principles are better suited to respond to claims for personal injuries or damage to other
property, while contract principles more readily respond to claims for economic loss caused by damage to the
product itself. (pp. 6-8)
2. The relative bargaining power of the parties and the allocation of the loss to the better risk-bearer are
relevant to the distinction between tort principles and contract principles of recovery. (pp. 9-10)
3. The Legislature adopted a comprehensive system for compensating consumers for economic loss arising
from the purchase of defective products by enacting the U.C.C., which attempts to strike the proper balance
between manufacturers and purchasers for economic loss arising from injury to a defective product. (pp. 10-11)
4. The vast majority of courts across the country have concluded that purchasers of personal property,
whether commercial entities or consumers, should be limited to recovery under contract principles. (pp. 11-17)
5. The extension of strict liability to include claims for purely economic loss has been criticized by scholars
and has been rejected by the American Law Institute's proposed Restatement of Torts. (pp. 17-19)
6. Several state courts have confined consumers to contract principles in actions for economic loss. (pp. 20-22)
7. Because Alloway and New Hampshire have not raised the issue, the Court does not resolve the issue
whether tort or contract law applies to a product that poses a risk of causing personal injuries or property
damage but has caused only economic loss to the product itself. (pp. 22-23)
8. The Legislature did not intend to codify in the New Jersey Products Liability Law all common-law
remedies and, consequently, that law is not dispositive of claims involving fraud. (pp. 23-25)
9. Because judicial decisions and statutory enactments, including the U.C.C., protect consumers from
overreaching, a tort cause of action for economic loss duplicating the one provided by the U.C.C. is
superfluous and counterproductive. (p. 26)
10. To impose liability on GMI would impose the cost of an uncertain liability on one that did not agree to
assume that cost. (pp. 26-27)
11. In view of the Court's holding, it does not reach the additional issues concerning GMI's liability as
Glasstream's successor or the effect on GMI of the purchase in bankruptcy of Glasstream's assets free and
clear of all claims. (pp. 28-29)
Judgment of the Appellate Division is REVERSED, and the judgment of the Law Division dismissing
the complaint is REINSTATED.
JUSTICE HANDLER filed a separate concurring opinion in which JUSTICE STEIN joins,
expressing confidence that the Court's decision does not preclude tort remedies for economic loss where
there is a gross inequality of bargaining power on the part of the purchaser, whether it be a commercial or a
non-commercial purchaser.
CHIEF JUSTICE PORITZ and JUSTICES O'HERN, GARIBALDI and COLEMAN join in
JUSTICE POLLOCK's opinion. JUSTICE HANDLER filed a separate concurring opinion in which
JUSTICE STEIN joins.
SUPREME COURT OF NEW JERSEY
A-
48 September Term 1996
SAMUEL P. ALLOWAY, III, and NEW
HAMPSHIRE INSURANCE CO.,
Plaintiffs-Respondents,
v.
GENERAL MARINE INDUSTRIES, L.P.,
Defendant-Appellant,
and
MULLICA RIVER BOAT BASIN,
Defendant.
Argued November 18, 1996 -- Decided June 30, 1997
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
288 N.J. Super. 479 (1996).
John C. Penberthy, III, argued the cause for
appellant (Mesirov Gelman Jaffe Cramer &
Jamieson, attorneys; Mr. Penberthy and
Matthew O. Dickstein, on the brief).
Sanford F. Schmidt and Edward A. Penberthy
argued the cause for respondents (Brandt
Haughey Penberthy Lewis & Hyland, attorneys
for Samuel P. Alloway, III, and Mr. Schmidt,
attorney for New Hampshire Insurance Co.;
Suzanne E. Bragg, on the brief).
The opinion of the Court was delivered by
Pollock, J.
The primary issue is whether New Hampshire Insurance Co.
("New Hampshire") and its insured, Samuel P. Alloway III
("Alloway") (jointly described as "plaintiffs") may recover from
General Marine Industries, Inc. ("GMI") in negligence and strict
liability for economic loss caused by a defect in a power boat
purchased by Alloway and insured by New Hampshire. Alloway
purchased the boat from Mullica River Boat Basin ("Mullica"), a
retail boat dealer, and insured it with New Hampshire under a
comprehensive general insurance policy. Mullica had purchased
the boat from Century Boats ("Century"), an unincorporated
division of Glasstream Boats, Inc. ("Glasstream"), the
manufacturer. Subsequently, Glasstream went bankrupt, and GMI,
formerly known as GAC Partners, P.L. ("GAC"), purchased
Glasstream's assets.
Allegedly because of a defective seam in the swimming
platform, water seeped into the boat, which sank while docked.
New Hampshire paid Alloway under the policy. Alloway then
subrogated New Hampshire to his rights, subject to Alloway's
claim for the deductible portion of his loss.
Plaintiffs instituted this action to recover for their
respective economic losses. The Law Division granted GMI's
motion to dismiss, holding that plaintiffs could not recover for
economic loss resulting from damage to the boat itself. It held
that plaintiffs' only claim was for breach-of-warranty under the
Uniform Commercial Code ("U.C.C."), a claim barred by
11 U.S.C.A.
§363 ("§ 363") of the Bankruptcy Code. The Appellate Division
reversed, holding that plaintiffs could recover in tort for the
economic loss and that the Bankruptcy Code did not bar recovery.
288 N.J. Super. 479 (1996). We granted certification, 145 N.J.
372 (1996). We reverse the judgment of the Appellate Division
and reinstate that of the Law Division.
I.
From the limited record, the following facts emerge. In
October 1989, Glasstream filed a voluntary petition in
bankruptcy. Five months later, the Bankruptcy Court directed
Glasstream to sell substantially all of its assets to GMI "free
and clear of any interest in such property." At some unspecified
time, Glasstream made the boat and sold it to Mullica.
On July 14, 1990, Alloway purchased a new thirty-three foot
Century Grande XL ("Grande") boat from Mullica. The purchase
price was $61,070. Century expressly warranted for twelve months
from the date of purchase that the boat was "free from defects in
material and workmanship under normal use and when operated
according to instructions." Alloway obtained from New Hampshire
a comprehensive general insurance policy on the boat.
Three months later, while docked at the Bayview Marina in
Manahawkin, New Jersey, the Grande sank. No other property was
damaged, and no one sustained personal injuries.
Alloway filed a claim with New Hampshire, which spent
$40,106.63 to repair the boat. Alloway, who had a $2,500
deductible under the policy, paid $2,490 towards the repairs.
After completion of the repairs, he received a trade-in credit of
$38,770 for the Grande on the purchase of a new boat.
Thereafter, Alloway filed a three-count complaint against
Mullica and GMI, seeking recovery for his economic loss. In
count one, Alloway sought to recover for Mullica's breach of "the
manufacturer's warranty" for "repair or replacement of any part
found to be defective." Count two alleged a strict-liability
claim asserting that Century had manufactured a defective boat
for which GMI was liable as Century's successor. Count three
alleged that Glasstream, "negligently manufactured and inspected
the boat," that GMI was liable to Century's successor, and that
Mullica had failed to discover the defect.
Alloway then assigned his claims to New Hampshire, but
retained a claim for the loss in value of the boat. He sought
the $2,490 he had paid towards the repair of the boat, "[t]he
difference in value between the price paid for the boat and the
market value of the boat in its defective condition," attorneys'
fees, and costs. Thereafter, plaintiffs filed an amended
complaint asserting, in addition to Alloway's original claims,
New Hampshire's claim for the cost of repairs.
On October 3, 1991, GMI, as successor to Glasstream, removed
the action to the United States District Court for the District
of New Jersey, which referred the matter to the Bankruptcy Court.
Alloway and New Hampshire filed a proof of claim as unsecured
creditors. The Bankruptcy Court then remanded the matter to the
Law Division.
The Law Division granted GMI's motion to dismiss for failure
to state a cause of action. It relied on Spring Motors Distribs.
v. Ford Motor Co.,
98 N.J. 555 (1985), which held that a
purchaser could not maintain an action in strict liability for
economic loss. It also relied on D'Angelo v. Miller Yacht Sales,
261 N.J. Super. 683 (1993), in which the Appellate Division held
that a consumer who had purchased a yacht that was not as
represented could sue the manufacturer under the U.C.C. for
breach of warranty, but not in strict liability. According to
the D'Angelo court, the U.C.C. provides a consumer with the
exclusive remedy for economic loss resulting from the breach of
express or implied warranties. Id. at 688. The Law Division
reasoned that because plaintiffs sought to recover for economic
loss to the boat itself, GMI was not liable as Glasstream's
successor.
Because Mullica's insurer was insolvent, New Hampshire
dismissed its subrogation claim against Mullica. See N.J.S.A.
17:30A-5, -8 (denying subrogation claims against insured of
insolvent insurer). Alloway then settled his claim against
Mullica, thereby extinguishing plaintiffs' claims for breach of
warranty. Thus, Alloway has already received payment from New
Hampshire for the cost of repairs, less the $2500 deductible
under his policy, and an undisclosed sum in settlement of his
claim against Mullica.
The Appellate Division reversed, relying on Santor v. A & M
Karagheusian, Inc.,
44 N.J. 52 (1965), which recognized that a
consumer could maintain a strict-liability claim against a
manufacturer for loss of value of a defective carpet. According
to the Appellate Division, Spring Motors precluded a commercial
purchaser, but not a consumer, from recovering in strict
liability. 288 N.J. Super. at 486-87. Observing that Spring
Motors declined to reconsider Santor, the Appellate Division
concluded that "[s]ince Santor has not been overruled, we must
follow it." Id. at 488. In so holding, the court rejected the
Appellate Division's holding in D'Angelo, supra,
261 N.J. Super. 683.
The Appellate Division also concluded that plaintiffs could
recover against GMI as the successor to Glasstream. The court
relied on Ramirez v. Amsted Industries, Inc.,
86 N.J. 332 (1981),
which permitted a worker who was injured by a defective power
press to maintain a strict-liability action against a defendant
that had purchased the assets of the manufacturer of the press.
According to the Appellate Division, the right to recover in
strict liability against a successor owner should not depend on
whether the recovery was for personal injuries or economic loss.
288 N.J. Super. at 490-91. In addition, the court reasoned that
the Bankruptcy Court's sale of the boat "free and clear of any
interest in [the boat]" did not extend to law suits and,
therefore, did not bar the instant action. Id. at 493. Finally,
the court held that a suit against GMI as the purchaser of
Century's assets in the bankruptcy sale did not constitute a
claim against Century. Consequently, plaintiffs' suit against
GMI did not offend the Bankruptcy Code's scheme for the priority
of claimants. Ibid. Essentially, the Appellate Division held
that GMI, as the successor to Glasstream, was liable to
plaintiffs in negligence and strict liability for economic loss
caused by the sinking of the boat.
II.
The threshold issue is whether plaintiffs may rely on
theories of strict liability and negligence to recover damages
for economic loss resulting from a defect that caused injury only
to the boat itself. Plaintiffs seek damages for the cost of
repair and for the boat's lost value on trade-in. They do not
allege that other property was damaged or that anyone sustained
personal injuries. The question reduces to whether plaintiffs
may use tort theories to recover the lost benefit of their
bargain from the purchaser of the manufacturer's assets, GMI.
Preliminarily, economic loss encompasses actions for the
recovery of damages for costs of repair, replacement of defective
goods, inadequate value, and consequential loss of profits. See
James J. White & Robert S. Summers, Uniform Commercial Code 534-44 (3d ed. 1988); Note, Economic Loss in Products Liability
Jurisprudence,
66 Colum. L. Rev. 917, 918 (1966). Economic loss
further includes "the diminution in 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 Contract?,
114 U. Pa. L. Rev. 539, 541 (1966).
Allocation of economic loss between a manufacturer and a
consumer involves assessment of tort and contract principles in
the determination of claims arising out of the manufacture,
distribution, and sale of defective products. Generally
speaking, tort principles are better suited to resolve claims for
personal injuries or damage to other property. See Spring Motors
Corp., supra, 98 N.J. at 579-80; East River S.S. v. Transamerica
Delaval,
476 U.S. 858, 871-72,
106 S. Ct. 2295, 2302-03,
90 L.
Ed.2d 865 (1986); Seely v. White Motor Co.,
403 P.2d 145, 149-51
(Cal. 1965); Bocre Leasing Corp. v. General Motors Corp.,
645 N.E.2d 1195, 1197 (N.Y. 1995). Contract principles more readily
respond to claims for economic loss caused by damage to the
product itself. See Spring Motors, supra, 98 N.J. at 580; East
River, supra, 476 U.S. at 871-72, 106 S. Ct. at 2302,
90 L. Ed.2d 865; Seely, supra, 403 P.
2d at 149-51; Lewinter v. Genmar Indus.,
32 Cal. Rptr.2d 305, 309 (Ct. App. 1994); Florida Power & Light
Co. v. Westinghouse Elec. Corp.,
510 So.2d 899, 901-02 (Fla.
1987); Oceanside At Pine Point v. Peachtree Doors, Inc.,
659 A.2d 267, 270 (Me. 1995); Bocre Leasing, supra, 645 N.E.
2d at 1199.
Various considerations support the distinction. Tort
principles more adequately address the creation of an
unreasonable risk of harm when a person or other property
sustains accidental or unexpected injury. See Spring Motors,
supra, 98 N.J. at 570-71, 579-80. When, however, a product fails
to fulfill a purchaser's economic expectations, contract
principles, particularly as implemented by the U.C.C., provide a
more appropriate analytical framework. See East River, supra,
476 U.S. at 871-75, 106 S. Ct. at 2302-04,
90 L. Ed.2d 865; Casa
Clara v. Charley Toppino & Sons,
620 So.2d 1244, 1247 (Fla.
1993); Oceanside, supra, 659 A.
2d at 270; Bocre Leasing, supra,
645 N.E.
2d at 1198-99; Waggoner v. Town & Country Mobile Homes,
808 P.2d 649, 652-53 (Okla. 1990). Implicit in the distinction
is the doctrine that a tort duty of care protects against the
risk of accidental harm and a contractual duty preserves the
satisfaction of consensual obligations. Casa Clara, supra, 620
So.
2d at 1246-47; Spring Motors, supra, 98 N.J. at 579.
Relevant to the distinction are "the relative bargaining
power of the parties and the allocation of the loss to the better
risk-bearer in a modern marketing system." Spring Motors, supra,
98 N.J. at 575; see East River, supra, 476 U.S. at 871-73, 106 S.
Ct. at 2302-03,
90 L. Ed.2d 865. Perfect parity is not required
for a finding of substantially equal bargaining power. Spring
Motors, supra, 98 N.J. at 576. Although a manufacturer may be in
a better position to absorb the risk of loss from physical injury
or property damage, a purchaser may be better situated to absorb
the "risk of economic loss caused by the purchase of a defective
product." Ibid.; see East River, supra, 476 U.S. at 871, 106 S.
Ct. at 2302,
90 L. Ed.2d 865 (noting purchaser can insure against
risk of economic loss); Lucker Mfg. v. Milwaukee Steel Foundry,
777 F. Supp. 413, 416-17 (E.D. Pa. 1991) (same); Bocre Leasing,
supra, 645 N.E.
2d at 1196 (same).
In the present case, nothing indicates that Alloway was at a
disadvantage when bargaining for the purchase of the boat.
Moreover, a thirty-three foot luxury boat with a swimming
platform is not a necessity. Additionally, Alloway prudently
protected himself against the risk of loss by obtaining an
insurance policy that distributed that risk to his insurer, New
Hampshire. To this extent, the question becomes whether GMI,
which acquired the assets of the bankrupt manufacturer, or New
Hampshire, which is in the business of insuring against the risk
of harm caused by defective products, can better bear the risk of
loss from damage to the boat. See generally East River, supra,
476 U.S. at 871-72, 106 S. Ct. at 2302,
90 L. Ed.2d 865; Bocre
Leasing, supra, 645 N.E.
2d at 1196, 1198-99.
Also involved is an appreciation of the relative roles of
the legislative and judicial branches in defining rights and
duties in commercial transactions. Absent legislation, courts
possess greater latitude in determining those rights and duties.
Once the Legislature acts, respect for it as a co-equal branch of
government requires courts to consider the legislation in
determining the limits of judicial action. See Spring Motors,
supra, 98 N.J. at 577; see also Danforth v. Acorn Structures,
Inc.,
608 A.2d 1194, 1200-01 (Del. 1992) (declining to displace
provisions of U.C.C. with tort actions). By enacting the U.C.C.,
the Legislature adopted a comprehensive system for compensating
consumers for economic loss arising from the purchase of
defective products. See Spring Motors, supra, 98 N.J. at 577;
Danforth, supra, 608 A.
2d at 1194, 1200-01; Waggoner, supra, 808
P.
2d at 653. The U.C.C. represents the Legislature's attempt to
strike the proper balance in the allocation of the risk of loss
between manufacturers and purchasers for economic loss arising
from injury to a defective product. See generally James J. White
& Robert S. Summers, 1 Uniform Commercial Code 582 (4th ed.
1995); East River, supra, 476 U.S. at 872-73, 106 S.Ct. at 2302-04,
90 L.Ed.2d 865; Seely, supra, 403 P.
2d at 148; Spring Motors,
supra, 98 N.J. at 577; Bocre Leasing, supra, 645 N.E.
2d at 1196.
Consequently, the U.C.C. provides for express warranties
regarding the quality of goods, N.J.S.A. 12A:2-313, as well as an
implied warranty of merchantability, N.J.S.A. 12A:2-314, and an
implied warranty of fitness for a particular purpose, N.J.S.A.
12A:2-315. When a seller delivers goods that are not as
warranted, the buyer may recover the difference between the value
of the defective goods and their value if they had been as
warranted. Furthermore, a provision in a merchant's form is not
binding on a consumer unless the consumer has signed the form.
N.J.S.A. 12A:2-209(2). A consumer, moreover, may recover
incidental and consequential damages. N.J.S.A. 12A:2-715(1),
(2); N.J.S.A. 12A:2-714. In addition, the Legislature has
directed courts to construe the U.C.C. liberally and to promote
the U.C.C.'s underlying purposes and policies. N.J.S.A. 12A:1-102(1).
As a counterbalance, the U.C.C. allows manufacturers to
limit their liability through disclaimers, except for personal
injuries. N.J.S.A. 12A:2-316. Further, the U.C.C. allows
parties to modify or limit damages by agreement. N.J.S.A. 12A:2-719. Finally, the U.C.C. provides a four-year statute of
limitations to institute an action under its provisions.
N.J.S.A. 12A:2-725. This comprehensive scheme offers significant
protection to consumers while insuring that merchants are not
saddled with substantial and uncertain liability. See East
River, supra, 476 U.S. at 874, 106 S. Ct. at 2303-04,
90 L. Ed.2d 865.
Over thirty years ago, before the U.C.C. took effect, this
Court ruled that strict liability in tort provided more suitable
relief than an action for breach of an implied warranty of
merchantability. Santor, supra,
44 N.J. 53. The Court reached
this unprecedented result notwithstanding that an action for
breach of implied warranty, like one in strict liability, did not
require privity between the purchaser and the manufacturer. See
id. at 60-63.
Disagreement with Santor was not long in coming. In Seely,
supra,
403 P.2d 145, which was decided four months after Santor,
the purchaser of a defective truck sued for damage to the truck
and lost profits from his inability to use it in his heavy-duty
hauling business. Writing for the California Supreme Court,
Chief Justice Roger Traynor recognized the purchaser's claim for
breach of an express warranty, but rejected his claim in strict
liability. In reaching that result, Chief Justice Traynor
reasoned that absent personal injury or property damage, strict
liability in tort was not designed "to undermine the warranty
provisions of the . . . Uniform Commercial Code but, rather, to
govern the distinct problem of physical injuries." Id. at 149.
Twenty years later, we addressed "the rights of a commercial
buyer to recover for economic loss caused by the purchase of
defective goods." Spring Motors, supra, 98 N.J. at 560. In that
case, Spring Motors Distributors ("Spring Motors"), a commercial
lessor of vehicles, bought a fleet of trucks from Ford Motor Co.
("Ford"). Id. at 562. Pursuant to the sales, Ford issued an
express warranty on transmissions manufactured by Clark Equipment
Co. ("Clark"), which had issued express warranties to Ford.
Spring Motors' lessee experienced difficulties with the
transmissions. Id. at 563. Consequently, Spring Motors suffered
economic losses, which included costs of repair, lost profits,
and a decrease in the market value of the trucks. Id. at 564.
Thereafter, Spring Motors sued Ford under theories of negligence,
strict liability and breach of warranty. Ibid. The basic issue
was whether the applicable statute of limitations was the four-year statute in the U.C.C., N.J.S.A. 12A:2-725, or the six-year
statute of limitations pertaining to tort actions for property
damage, N.J.S.A. 2A:14-1. We held that Spring Motors had a cause
of action against both Ford and Clark for breach of warranty and
that the U.C.C.'s four-year period of limitations determined the
time for the commencement of the action.
When the harm suffered is to the product itself,
unaccompanied by personal injury or property damage, we concluded
that principles of contract, rather than of tort law, were better
suited to resolve the purchaser's claim. Id. at 580.
Consequently, we held that the U.C.C. provided the appropriate
period of limitations. Id. at 561. Because the action was
between commercial parties, we did not address the issue raised
by Santor, whether a consumer could maintain an action for both
breach of warranty and strict liability. See id. at 575.
One year after we decided Spring Motors, the United States
Supreme Court reviewed the roles of tort and contract law in a
case involving economic loss caused by the defective design and
manufacture of turbines in supertankers. See East River, supra,
476 U.S. 858,
106 S. Ct. 2295,
90 L. Ed.2d 865. In a unanimous
opinion, the Court began, "[i]n this admiralty case, we must
decide whether a cause of action in tort is stated when a
defective product purchased in a commercial transaction
malfunctions, injuring only the product itself and causing purely
economic loss." Id. at 859, 106 S. Ct. at 2296,
90 L. Ed.2d 865.
The Court continued, "charting a course between products
liability and contract law, we must determine whether injury to a
product itself is the kind of harm that should be protected by
products liability or left entirely to the law of contracts."
Ibid.
After analyzing relevant state court decisions, including
Santor, Seely, and Spring Motors, the Court concluded "that a
manufacturer in a commercial transaction has no duty under
negligence or strict products-liability theory to prevent a
product from injuring itself." Id. at 871, 106 S. Ct. at 2302,
90 L. Ed.2d 865. In an action for economic loss, the reasons for
imposing a tort duty are weak while "those for leaving the party
to its contractual remedies are strong." Ibid. For example,
injury to a product itself neither implicates the safety concerns
of tort law, ibid., nor justifies "[t]he increased cost to the
public that would result from holding the manufacturer liable in
tort." Id. at 872, 106 S. Ct. at 2302,
90 L. Ed.2d 865.
Allowing recovery for all foreseeable damages in claims seeking
purely economic loss, could subject a manufacturer to liability
for vast sums arising from the expectations of parties downstream
in the chain of distribution. Id. at 874, 106 S. Ct. at 2304,
90 L. Ed.2d 865.
Subsequently, state and federal courts, when exercising
admiralty jurisdiction, have recognized that East River's bar of
strict-liability claims extends to actions brought by consumers.
See, e.g., Karshan v. Mattituck Inlet Marina & Shipyard,
785 F.
Supp. 363, 365-66 (E.D.N.Y. 1992) (finding purchaser of pleasure
boat barred from recovering economic loss in tort because East
River was not limited to commercial buyers); Stanton v. Bayliner
Marine Corp.,
866 P.2d 15, 23-24 (Wash. 1993) (holding that
matter involving consumer purchaser of allegedly defective
pleasure boat was governed by maritime-product-liability rule,
which denies recovery for economic loss, because weight of
authority interpreting maritime rule has not made distinction
between commercial and consumer transactions), cert. denied,
513 U.S. 819,
115 S. Ct. 78,
130 L. Ed.2d 32 (1994); see also
Lewinter, supra, 32 Cal. Rptr.
2d at 308-310 (affirming grant of
summary judgment because admiralty jurisdiction applied to
consumer purchaser of yacht who brought tort action seeking
compensation for economic loss resulting from catastrophic hull
failure); but see Sherman v. Johnson & Towers Baltimore, Inc.,
760 F. Supp. 499, 501-02 (D. Md. 1990) (holding that East River
did not apply to relationship between commercial party and
consumer).
The vast majority of courts across the country likewise have concluded that purchasers of personal property, whether commercial entities or consumers, should be limited to recovery under contract principles. See, e.g., Arkwright-Boston Mfgs. Mutual Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174, 1178 (5th Cir. 1988) (holding that Texas law did not permit recovery of economic loss resulting from damage to product itself); Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110, 118 (3d Cir. 1987) (holding that, under Pennsylvania law, fire damage to product itself was not recoverable from manufacturer on theory of negligence, but buyer's remedies limited to law of warranty); Purvis v. Consolidated Energy Prods. Co., 674 F.2d 217, 222-23 (4th Cir. 1982) (finding that losses resulting from ineffective equipment were recoverable under law of contracts and not strict liability); East Mississippi Power Assoc. v. Porcelain Prods. Co., 729 F. Supp. 512, 517-19 (S.D. Miss. 1990) (holding that Mississippi law does not allow electric company to recover economic loss from manufacturer of defective insulation); Public Serv. Co. v. Westinghouse Elec. Corp., 685 F. Supp. 1281, 1285 (D.N.H. 1988) (holding that, under New Hampshire law, manufacturer of steam turbine electric generator could not be held strictly liable when allegedly defective product injured only itself); Lucker Mfg., supra, 777 F. Supp. at 415-17 (holding that, under Pennsylvania law, purchaser of defective steel components could not use tort theories to recover damages for
purchase price, higher costs of completing project, and loss of goodwill, because these were in the nature of economic loss); Wellcraft Marine v. Zarzour, 577 So.2d 414, 418 (Ala. 1991) (finding that purchaser of defective motor boat could not recover under state products liability statute because damage was only to boat); Florida Power & Light Co., supra, 510 So. 2d at 902 (holding that buyer's claims for economic loss resulting from negligent design and manufacture of steam turbines were cognizable in contract but not tort); Bay State-Spray & Provincetown S.S. v. Caterpillar Tractor Co., 533 N.E.2d 1350, 1351-53 (Mass. 1989) (finding that action for lost profits and costs of repair concerning defective steamship engines was governed by U.C.C. statute of limitations rather than products liability limitations period); Bocre Leasing, supra, 645 N.E. 2d at 1199-1200 (holding that commercial purchaser of used helicopter, which crashed and caused injury only to itself, could not recover in negligence or strict tort liability for economic loss); Cooperative Power Ass'n v. Westinghouse Elec. Corp., 493 N.W.2d 661, 665-66 (N.D. 1992) (holding that manufacturer of machine sold in commercial transaction not liable in negligence or strict tort liability for economic loss when machine injures only itself); Mid-Continent Aircraft Corp. v. Curry County Spraying Serv., Inc., 572 S.W.2d 308, 312-13 (Tex. 1978) (holding that parties were relegated to contractual remedies because damage to airplane was in nature of economic loss); see also
National Union Fire Ins. Co. v. Pratt & Whitney Canada, Inc.,
815 P.2d 601, 603-05 (Nev. 1991) (holding that economic loss not
recoverable from engine manufacturer under tort theories of
negligence and strict liability even though defective engine
damaged entire aircraft and product caused calamitous crash).
Only a handful of jurisdictions have followed Santor. See
White & Summers, supra, § 10-5 at 580 (criticizing Santor and
stating "courts seem to have grown more willing in the last
decade to label loss as economic, thus not recoverable in tort
than before"); see, e.g., Sharon Steel Corp. v. Lakeshore, Inc.,
753 F.2d 851, 855-56 (10th Cir. 1985) (allowing plaintiff to
recover damages for economic loss under New Mexico law when
plaintiff was subjected to unreasonable risk of injury); Cova v.
Harley Davidson Motor Co.,
182 N.W.2d 800, 804 (Mich. 1970)
(allowing owners of golf course to recover against manufacturer
in strict liability for economic losses resulting from defect in
golf carts); City of La Crose v. Schubert, Schroeder & Assoc.,
240 N.W.2d 124, 127 (Wis. 1976) (holding that manufacturer of
defective roofing materials may be liable for loss of value of
roof under strict liability in tort); see also Lloyd F. Smith Co.
v. Den-Tal-Ez, Inc.,
491 N.W.2d 11, 17 (Minn. 1992) (holding that
although U.C.C. provides the exclusive remedy in commercial
transactions, consumer could still maintain tort actions for
economic loss); Livingston Bd. of Educ. v. United States Gypsum
Co.,
249 N.J. Super. 498, 504 (App. Div. 1991) (holding that
school board could bring strict-liability action for costs of
asbestos removal because board was not a commercial purchaser and
asbestos created grave personal safety risk).
Scholars likewise have criticized the extension of strict
liability to include claims for purely economic loss. See, e.g.,
White & Summers, supra, § 10-5; O'Donnell, Weiss & Kaplan, "On
Differences Between Blood and Red Ink: A Second Look At The
Policy Arguments For The Abrogation Of The Economic Loss Rule In
Consumer Litigation,"
19 Nova L. Rev. 923, 926 (1995) (urging
courts to prohibit strict-liability actions for pure economic
injury, even when the potential plaintiff is not a commercial
entity); Franklin, "When Worlds Collide: Liability Theories and
Disclaimers in Defective Product Cases,"
18 Stan. L. Rev. 974,
989-90 (1966) (criticizing courts as unaware of relevance of
sales law to products-liability law); Feinman, "Doctrinal
Classification and Economic Negligence,"
33 S.D.L. Rev. 137, 150
(1996) (stating that great majority of jurisdictions follow
Spring Motors when commercial purchaser involved); Wade, "Tort
Liability For Products Causing Physical Injury and Article 2 of
the U.C.C.,"
48 Mo. L. Rev. 1, 26 n.87 (1983) (noting that
substantial majority rule is that economic loss is not actionable
in tort); Speidel, "Products Liability, Economic Loss and the
U.C.C.,"
40 Tenn. L. Rev. 309, 316-18, 327 (1973) (pointing out
that justification for imposing strict liability is less
compelling where only commercial loss is suffered); Note, supra,
114 U. Pa. L. Rev. at 548-49 (finding that U.C.C. remedies seem
more appropriate than products liability law when damage is loss
of benefit of bargain).
Following the majority rule, the American Law Institute's
proposed Restatement (Third) of Torts: Products Liability § 21
(Proposed Final Draft April 1, 1997), defines "economic loss" to
exclude recovery under tort theories for damage to a product
itself. Section 21, comment d, states that "[w]hen a product
defect results in harm to the product itself, the law governing
commercial transactions sets forth a comprehensive scheme
governing the rights of the buyer and seller." Id. at comment d.
According to the Restatement, "Santor . . . appears today to
stand alone in allowing a products liability action when a
product did not create an unreasonable risk of harm but merely
caused economic loss when it failed to meet performance
expectations." Id. at Reporters' Note to Comment d.
Recently, several state courts have confined consumers to
contract principles in actions for economic loss. In a case that
involved a pleasure boat with a defective hull, the Alabama
Supreme Court declined to recognize a tort action against the
manufacturer when the boat took on water after striking a
submerged object. Wellcraft Marine, supra,
577 So.2d 414. The
purchaser sued the manufacturer and others for breach of implied
warranties and under the Alabama Extended Manufacturer's
Liability Doctrine. In rejecting the latter claim, the Court
said that the Doctrine did not apply when the damage was to the
product itself. Id. at 418. Declining to distinguish between
purchasers who were consumers or commercial buyers, the Court
held that the "rule remains the same, regardless of the nature of
the consumer." Ibid.; see also Dairyland Ins. Co. v. General
Motors Corp.,
549 So.2d 44, 46 (Ala. 1989) (holding that
consumer purchaser of defective van could not recover economic
loss).
In Casa Clara, supra,
620 So.2d 1244, the Florida Supreme
Court rejected the contention of homeowners that they should be
allowed to recover in tort for economic loss. Consequently, the
Court held that the homeowners could not maintain a tort action
to recover the costs of repair and lost value in their homes.
Id. at 1247. The Court found that statutory remedies sufficed
and that contract principles more appropriately addressed their
claims for disappointed expectations. Ibid.; see Florida Power &
Light Co., supra, 510 So.
2d at 902 (holding that commercial
purchaser suffering economic loss was limited to contract
remedies). Unlike with personal injuries, the "consuming public
as a whole" should not "bear the cost of economic losses
sustained by those who failed to bargain for adequate contract
remedies." Casa Clara, supra, 620 So.
2d at 1247.
Likewise, in Danforth, supra,
608 A.2d 1194, the Delaware
Supreme Court rejected the contention of homeowners that an
individual consumer's unequal bargaining power warranted an
exception to the economic loss rule. Accordingly, the Court
upheld the dismissal of the homeowners' negligence claim. Id. at
1201. Writing for a unanimous court, Chief Justice Veasey
reasoned that to allow an exception for individual consumers
would defeat the legislative intent in enacting the U.C.C. "as
the complete framework of the rights and remedies available to
parties to a sale of goods contract." Id. at 1200-01.
Other jurisdictions also have rejected homeowners' reliance
on tort law to recover economic loss arising out of construction
defects. See, e.g., Oceanside, supra, 659 A.
2d at 270 (rejecting
association's and individual homeowners' tort claims that sought
recovery of economic loss caused by water damage around windows);
Morris v. Osmose Wood Preserving,
639 A.2d 147, 152 (Md. App.
1994) (rejecting homeowners' tort claims against plywood
manufacturer for gradual deterioration of plywood in roofs
because such damage constituted economic loss), modified,
667 A.2d 624 (Md. 1995); Lempke v. Dagenais,
547 A.2d 290, 291 (N.H.
1988) (rejecting property owners tort claims for economic loss
resulting from defective construction of garage); Waggoner,
supra, 808 P.
2d at 650, 653 (rejecting mobile home purchasers'
tort actions against manufacturer for costs of repair and lost
value resulting from defective roof design when damage was to
only the mobile home itself, and holding that claim would be more
properly made in warranty action). Cf. Aronsohn v. Mandara,
98 N.J. 92, 107 (1984) (declining "to decide the validity of
plaintiff's negligence claim, since . . . the contractor's
negligence would constitute a breach of the contractor's implied
promise to construct the patio in a workmanlike manner").
An unresolved issue is whether the U.C.C. or tort law should
apply when a defective product poses a serious risk to other
property or persons, but has caused only economic loss to the
product itself. In the present case, plaintiffs have not alleged
that the defective seam in the boat posed such a risk. Hence, we
do not resolve the issue.
In East River, the United States Supreme Court rejected
cases that adopted intermediate positions, which attempted "to
differentiate between `the disappointed users . . . and the
endangered ones'. . . and permit only the latter to sue in tort."
476 U.S. at 869-870, 106 S. Ct. at 2301,
90 L. Ed.2d 865 (quoting
Russell v. Ford Motor Co.,
575 P.2d 1383, 1387 (Or. 1978). The
Court stated:
[T]he intermediate positions, which
essentially turn on the degree of risk, are
too indeterminate to enable manufacturers
easily to structure their business behavior.
Nor do we find persuasive a distinction that
rests on the manner in which the product is
injured. We realize that the damage may be
qualitative, occurring through gradual
deterioration or internal breakage. Or it
may be calamitous. But either way, since by
definition no person or other property is
damaged, the resulting loss is purely
economic. Even when the harm to the product
itself occurs through an abrupt, accident-like event, the resulting loss due to repair
costs, decreased value, and lost profits is
essentially the failure of the purchaser to
receive the benefit of its bargain --
traditionally the core concern of contract
law.
[Id. at 871, 106 S. Ct. at 2301-02,
90 L. Ed.2d 865 (citations omitted).]
The Restatement implicitly adopts East River, but states
"[a] plausible argument can be made that products that are
dangerous in these respects [i.e. discovery of the defect
prevented harm from occurring or the only harm was to the product
itself, but not to persons or other property] rather than merely
ineffectual, should be governed by the rules governing products
liability law." Restatement, supra, at § 21, comment d.
As previously indicated, in this case we do not resolve the
issue whether tort or contract law applies to a product that
poses a risk of causing personal injuries or property damage but
has caused only economic loss to the product itself. See Spring
Motors, supra, 98 N.J. at 578 (distinguishing "cases involving
claims for actual or potential personal injuries"). Similarly,
we do not reach the issue of the preclusion of a strict-liability
claim when the parties are of unequal bargaining power, the
product is a necessity, no alternative source for the product is
readily available, and the purchaser cannot reasonably insure
against consequential damages.
In addition to the right to recover under the U.C.C.,
victims of fraud or unconscionable conduct possess substantial
rights to recover for common-law fraud or for violations of
various state and federal statutes. The U.C.C. expressly
provides that "[u]nless displaced by the particular provisions of
this Act, the principles of law and equity, including the law
merchant and the law relative to capacity to contract, principal
and agent, estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy or other validating or invalidating cause
shall supplement its provisions." See N.J.S.A. 12A:1-103. The
New Jersey Products Liability Law (the "Law") is to the same
effect. N.J.S.A. 2A:58C-1 to -11. Although the Law excludes
physical damage to the product itself from the definition of
"harm," N.J.S.A. 2A:58C-1b(2), the Legislature did not intend to
codify in the Law all common-law remedies, see Senate Judiciary
Committee Statement, Senate, No. 2805, L. 1987, c. 197.
Consequently, the exclusion of physical damage from harm that
falls within the Law is not dispositive.
Additionally, the Legislature has adopted the Consumer Fraud
Act, which provides generous protection to defrauded consumers.
N.J.S.A. 58:6-1 to -20; see, e.g., Perth Amboy Iron Works v.
American Home Assurance Co.,
226 N.J. Super. 200, 226-27 (App.
Div. 1988), aff'd o.b.
118 N.J. 249 (1990) (holding that
commercial buyer of yacht could maintain Consumer Fraud Act and
common-law fraud claims based on economic loss); Coastal Group v.
Dryvit Sys.,
274 N.J. Super. 171, 177-79 (App. Div. 1994)
(finding commercial party could bring Consumer Fraud Act claims).
In 1971, the New Jersey Legislature amended the Consumer
Fraud Act to authorize a private cause of action by an injured
party for a violation of the Act. L. 1971, c. 247 § 7, codified
at N.J.S.A. 56:8-19. Included in the conduct prohibited by the
Consumer Fraud Act is:
The act, use or employment by any person of
any unconscionable commercial practice,
deception, fraud, false pretense, false
promise, misrepresentation, or the knowing
concealment, suppression, or omission of any
material fact with intent that others rely
upon such concealment, suppression or
omission, in connection with the sale or
advertisement of any merchandise . . . .
[N.J.S.A. 56:8-2.]
Another statute, the Truth-In-Consumer Contract, Warranty
and Notice Act (the "Act"), N.J.S.A. 56:12-1 to -18, protects
consumers by requiring that consumer contracts be clearly written
and understandable. For example, if a seller violates the Act
and "the violation caused the consumer to be substantially
confused about the rights, obligations for remedies of the
contract," the seller is liable to the consumer for actual
damages, punitive damages up to $50, and reasonable attorney fees
not to exceed $2500. N.J.S.A. 56:12-3. A court, moreover, may
reform a consumer contract if a notice provision of the contract
violates the Act and the violation substantially confused and
caused financial detriment to the consumer. N.J.S.A. 56:12-4.1.
The Act further prohibits limitations on warranties that
"violate[] any clearly established legal right of the consumer or
responsibility of a seller." N.J.S.A. 56:12-15. An aggrieved
consumer may seek a civil penalty of not less than $100, actual
damages, or both, together with attorneys fees and court costs.
N.J.S.A. 56:12-17.
Congress has provided further protection for consumers. For
example, the Magnuson-Moss Warranty Act authorizes a suit for
damages for breach of implied warranties, including "an implied
warranty arising under state law . . . in connection with the
sale by a supplier of a consumer product."
15 U.S.C.A.
§2301(7). Thus, the Act offers consumers a basis in federal law
for recovering damages.
15 U.S.C.A.
§2301(b)(1). A consumer
may bring an action against a "supplier, warrantor, or service
contractor" on any "written guarantee, implied warranty or
service contract." Dreier, Goldman & Katz, New Jersey Products
Liability & Toxic Torts Law 689 (1996 ed.). The Act also limits
the types of disclaimers that sellers and others may place on
warranties.
15 U.S.C.A.
§2308.
In sum, judicial decisions and statutory enactments,
including the U.C.C., protect consumers from overreaching.
Against this background, a tort cause of action for economic loss
duplicating the one provided by the U.C.C. is superfluous and
counterproductive.
III.
Here, plaintiffs seek the lost value on trade-in and the
costs of repairing the boat under theories of negligence and
strict liability. Thus, this action raises the question whether
a consumer and his insurer can maintain an action in tort for
economic loss only.
Alloway insured against the risk that gave rise to his
economic loss. In a sense, the question becomes whether the
better risk bearer is his insurer, New Hampshire, or GMI, the
purchaser of the assets of the bankrupt boat manufacturer. To
impose liability on GMI is to impose on it, in addition to the
price it paid for Glasstream's assets in the bankruptcy
proceeding, the added cost of the loss of a boat that it never
owned. The imposition of that cost would dislocate the
allocation of responsibility in the U.C.C. and impose the cost of
an uncertain liability on one that did not agree to assume that
cost. Alloway, on the other hand, relied not on any warranty or
other contractual undertaking from GMI, but on the warranties
issued by the boat dealer, Mullica, and the New Hampshire policy.
Under both the warranties and the insurance policy, Alloway has
been reimbursed.
Over thirty years ago, before the adoption of the U.C.C.,
this Court, concerned about the ability of consumers to reach
remote parties in a chain of distribution, perceived the need to
provide those consumers with a tort action. In the interim, the
U.C.C. has taken effect. By providing for express and implied
warranties, that statute amply protects all buyers -- commercial
purchasers and consumers alike -- from economic loss arising out
of the purchase of a defective product. In addition, many buyers
insure against the risk of the purchase of defective goods either
directly through the purchase of an insurance policy, such as
Alloway's purchase of the New Hampshire policy, or through
insurance provided indirectly through many credit card purchases.
Under the U.C.C. as construed by this Court, moreover, the
absence of privity no longer bars a buyer from reaching through
the chain of distribution to the manufacturer. See Spring
Motors, supra, 98 N.J. at 582, 586-87; Santor, supra, 44 N.J. at
63. In addition, the United States Supreme Court, the
overwhelming majority of state courts, and legal scholars have
recognized the unfairness of imposing on a seller tort liability
for economic loss. Accordingly, we hold that plaintiffs' tort
claims are barred.
Before this Court, GMI argues primarily, as it has in the
lower courts, that it is not liable to plaintiffs in tort.
Alternatively, GMI argues for the first time that admiralty law,
not state law, should determine this case. In view of our
finding that GMI is not liable in tort for plaintiffs' economic
loss under New Jersey law, we need not reach GMI's belated
argument. Cf. Nieder v. Royal Indem. Ins. Co.,
62 N.J. 229, 234
(1973) (finding that "[i]t is a well-settled principle that our
Appellate Courts will decline to consider questions or issues not
properly presented to the trial court when an opportunity for
such a presentation is available" unless the matter involves the
trial court's jurisdiction or is of public importance); see also
Maisonet v. Department of Human Services, Div. of Family Dev.,
140 N.J. 214, 222-23 (1995) (holding that courts not required by
Supremacy Clause to exercise original jurisdiction over civil-rights claim when asserted for first time on appeal); R. 2:10-5
(indicating that exercise of original jurisdiction is
discretionary). Similarly, we need not reach the additional
issues concerning GMI's liability as Glasstream's successor or
the effect on GMI of the purchase in bankruptcy of Glasstream's
assets free and clear of all claims.
The judgment of the Appellate Division is reversed, and the
judgment of the Law Division dismissing the complaint is
reinstated.
CHIEF JUSTICE PORITZ and JUSTICES O'HERN, GARIBALDI and
COLEMAN join in JUSTICE POLLOCK's opinion. JUSTICE HANDLER filed
a separate concurring opinion in which JUSTICE STEIN joins.
SUPREME COURT OF NEW JERSEY
A-
48 September Term 1996
SAMUEL P. ALLOWAY, III, and NEW
HAMPSHIRE INSURANCE CO.,
Plaintiffs-Respondents,
v.
GENERAL MARINE INDUSTRIES, L.P.,
Defendant-Appellant,
and
MULLICA RIVER BOAT BASIN,
Defendant.
HANDLER, J., concurring.
In this case, the Court holds that a consumer, who has purchased a product, cannot rely on a common-law cause of action sounding in strict-products liability and negligence to recover damages solely for the economic loss resulting from a defect that destroys the worth of the product. Instead, the majority determines that the consumer's exclusive remedy consists of the express warranties contained in the Uniform Commercial Code ("U.C.C."). I am not troubled with that disposition because I am convinced that in a case such as this, the consumer is not at a genuine commercial disadvantage and is the kind of consumer who falls within the ambit of the U.C.C. The consumer here is a
purchaser of an expensive luxury boat whose bargaining power is
substantially equivalent to that of the seller. Furthermore,
because the majority has not foreclosed tort recovery for purely
economic loss in instances where the parties may be economic
captives with unequal bargaining power, I am able to join in the
result. See Ante at __ (slip op. at 23-24) ("[W]e do not reach
the issue of the preclusion of a strict-liability claim when the
parties of unequal bargaining power, the product is a necessity,
no alternative source for the product is readily available, and
the purchaser cannot reasonably insure against consequential
damages.").
In Spring Motors Distributors v. Ford Motor Co.,
98 N.J. 555, 596-97 (1985) (Handler, J., concurring), I expressed the
view that the U.C.C. did not foreclose a tort remedy for economic
loss incurred by a non-commercial consumer. That category of
consumer, as I viewed it, encompassed a class of purchasers who
frequently would not have equal bargaining power. I believed
that comparative bargaining power was the most critical factor in
determining whether the U.C.C. was the exclusive remedy and that
the U.C.C. did not bar other avenues of relief to consumers with
substantial bargaining disadvantages. Under the U.C.C., recovery
is restricted to limited claimants who meet the stringent
requirements of the U.C.C. warranty provisions. Moreover,
warranty disclaimers often bar recovery altogether.
(See footnote 1) Such a
result is acceptable only where the parties to the contract have
equivalent bargaining power and meaningful alternatives. See
Williams v. Walker-Thomas Furniture Co.,
350 F.2d 445, 449 (D.C.
Cir. 1965) ("[W]hen a party of little bargaining power, and hence
little real choice, signs a commercially unreasonable contract
with little or no knowledge of its terms, it is hardly likely
that his consent . . . was ever given to all the terms.")
Comparative bargaining power cannot be determined merely by
labeling a consumer either "commercial" or "non-commercial." As
the facts of this case reveal, some non-commercial purchasers
will enjoy equal bargaining power. Similarly, some commercial
purchasers in no sense enjoy equal bargaining power or the
opportunity to secure adequate protections in the bargaining
process. See Spring Motors, supra, 98 N.J. at 592 (Handler, J.,
concurring) ("It would not be correct to consider the U.C.C.
remedy to be exclusively applicable to a purchaser's claim simply
because the transaction can be viewed as `commercial' . . . or
because the ultimate purchaser is in business . . . . [T]he
ultimate purchaser of a vehicle could be a travelling salesperson
or a small-scale trucker, or a carpenter, plumber, electrician,
or landscape gardener.") Whether the U.C.C. should be the
exclusive remedy for economic loss in a particular case can be
determined only by consideration of all the circumstances
surrounding the transaction. In many cases, a gross inequality
of bargaining power will supplant the exclusivity of the U.C.C.
remedy.
In sum, I am confident that the Court's decision does not
preclude tort remedies for economic loss in such circumstances.
I thus concur in its judgment.
Justice Stein joins in this opinion.
SUPREME COURT OF NEW JERSEY
NO. A-48 SEPTEMBER TERM 1996
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
SAMUEL P. ALLOWAY, III, and
NEW HAMPSHIRE INSURANCE CO.,
Plaintiffs-Respondents,
v.
GENERAL MARINE INDUSTRIES, L.P.,
Defendant-Appellant,
and
MULLICA RIVER BOAT BASIN,
Defendant.
DECIDED June 30, 1997
Chief Justice Poritz PRESIDING
OPINION BY