New York Law Review

Tag: implied warranty

  • Bellevue South Associates v. HRH Construction Corp., 78 N.Y.2d 282 (1991): Economic Loss Rule in Products Liability

    Bellevue South Associates v. HRH Construction Corp., 78 N.Y.2d 282 (1991)

    In a commercial transaction, when a product injures only itself, causing economic loss, the purchaser’s remedy lies in contract law, not in tort law based on strict products liability.

    Summary

    Bellevue South Associates sued HRH Construction and Circle Industries for breach of contract and Masonite for strict products liability, seeking damages for defective floor tiles. The New York Court of Appeals held that Bellevue could not recover replacement costs from Masonite in tort, as the damages were purely economic. The court reasoned that in a commercial context, where the product damages only itself, contract law provides the appropriate remedy. However, the court also found that Circle’s claim for indemnification against Masonite based on breach of implied warranty should have been submitted to the jury.

    Facts

    Bellevue contracted with HRH for the construction of a housing complex, specifying Hartco floor tiles. HRH subcontracted with Circle, who substituted Masonite tiles. Circle partially owned Masonite but did not disclose this to HRH or Bellevue. The architect approved the substitution with a condition about adhesive coverage. The tiles delaminated (separated) after installation, causing problems throughout the complex. Bellevue sued HRH, Circle, and Masonite to recover the cost of replacing the tiles.

    Procedural History

    The trial court dismissed most claims, but the jury found HRH and Circle liable for breach of contract and Masonite liable for strict products liability. The trial court granted judgment notwithstanding the verdict on HRH’s contractual indemnity claim against Circle, but denied Circle’s indemnification claim against Masonite. The Appellate Division affirmed. Masonite and Circle appealed.

    Issue(s)

    1. Whether a plaintiff can recover replacement costs against a tile manufacturer in tort (strict products liability) when the only damages are to the product itself.
    2. Whether the flooring subcontractor should be indemnified by the tile manufacturer on a theory of breach of implied warranty.

    Holding

    1. No, because in a commercial context, when a product injures only itself and the damages are purely economic (replacement costs), the remedy lies in contract law, not tort law.
    2. Yes, because an implied warranty between Circle and Masonite existed, and Circle’s indemnification claim based on this theory should have been submitted to the jury.

    Court’s Reasoning

    The court reasoned that strict products liability is designed to protect consumers from injury caused by defective products, not to resolve commercial disputes where the product damages only itself. The court favored the approach established in East River S. S. Corp. v. Transamerica Delaval, holding that a manufacturer has no duty to prevent a product from injuring itself in a commercial relationship. The court stated that the nature of the defect (less than 100% adhesive coverage), the type of injury (delamination, not personal injury or property damage), the manner of the injury (gradual failure), and the damages sought (replacement costs) indicated that plaintiff’s remedy was in contract law, not tort law. The court also stated, “Commercial interests, together with the fear of liability for any injuries that might occur, are a powerful incentive for such plaintiffs, without the need to open another avenue of redress in the law of torts.”

    Regarding Circle’s indemnification claim, the court stated that the Uniform Commercial Code creates an implied warranty between Circle and Masonite. The court held that Circle’s implied warranty indemnity claim against Masonite should not have been dismissed simply because the plaintiff’s implied warranty claims against HRH and Circle were dismissed. The court also rejected the Appellate Division’s reasoning that Circle’s relationship with Masonite barred the indemnification claim because Circle wasn’t an “innocent party.” Instead, the relevant inquiry is whether Circle has a meritorious implied warranty indemnity claim against Masonite and whether Masonite has any valid defenses to that claim. The court stated, “To recover implied warranty indemnity, Circle must show both the existence and breach of the warranty and that the breach was the proximate cause of plaintiff’s damages”.

  • Caceci v. Di Canio Construction Corp., 72 N.Y.2d 52 (1988): Implied Warranty for New Home Construction

    72 N.Y.2d 52 (1988)

    In New York, a builder-vendor impliedly warrants to a purchaser that a newly constructed home will be built in a skillful manner, free from material defects; this “Housing Merchant” warranty applies to latent defects and cannot be waived by a standard merger clause.

    Summary

    The Cacecis contracted with Di Canio Construction for a new home. After moving in, they discovered the foundation was sinking due to the presence of buried wood and tree trunks. The Cacecis sued for breach of contract, negligence, and breach of implied warranty. The New York Court of Appeals held that a builder-vendor has an implied duty to construct a home in a skillful manner, free from material defects. This “Housing Merchant” warranty protects purchasers from latent defects in newly constructed homes, reflecting a shift away from the traditional caveat emptor doctrine and recognizing the unequal bargaining power between builders and buyers.

    Facts

    Mary and Thomas Caceci contracted with Di Canio Construction Corp. to purchase land and have a one-family ranch home built on it. The contract included a limited one-year guarantee covering plumbing, heating, electrical work, the roof, and basement walls, but limited liability to repair or replacement. Four years after closing, the Cacecis noticed a dip in their kitchen floor. Attempts to repair it failed. They hired experts who discovered the foundation was sinking because it was built on soil containing deteriorating tree trunks and wood. Repair required replacing the entire foundation.

    Procedural History

    The Cacecis sued Di Canio Construction Corp., alleging breach of contract, negligent construction, and breach of implied warranty. The trial court dismissed the fraud and negligent repair claims but upheld the claims for negligent construction and breach of implied warranty, awarding $57,466 in damages. The Appellate Division affirmed solely on the implied warranty theory. Di Canio appealed to the New York Court of Appeals.

    Issue(s)

    Whether New York law recognizes an implied warranty of skillful construction in contracts for the sale of newly constructed homes, protecting purchasers from latent defects caused by faulty workmanship.

    Holding

    Yes, because there is an implied term in the contract between a builder-vendor and a purchaser that the house will be constructed in a skillful manner, free from material defects. A standard merger clause does not negate this implied warranty regarding latent defects.

    Court’s Reasoning

    The court reasoned that the traditional doctrine of caveat emptor (buyer beware) is outdated in the context of modern home construction. Purchasers of new homes often lack the expertise to inspect for latent defects and must rely on the builder-vendor’s skill and expertise. “When a buyer signs a contract prior to construction of a house, inspection of premises is an impossibility, especially and obviously with respect to latent defects. Thus, the purchaser has no meaningful choice but to rely on the builder-vendor to deliver what was bargained for—a house reasonably fit for the purpose for which it was intended.” The court noted a national trend toward recognizing an implied warranty of skillful construction. Placing the responsibility on the builder-vendor is justified because they are in the best position to prevent and bear the loss from such defects. The court stated that this implied warranty is consistent with the parties’ reasonable expectations: “Common sense dictates that the purchasers were entitled to expect, without necessarily expressly stating the obvious in this contract, that the house being purchased was to be a habitable place. The law ought to fulfill that commonsense expectation.” The court also emphasized its role in adapting common-law principles to reflect changing societal norms, quoting Cardozo: “If judges have wofully misinterpreted the mores of their day, or if the mores of their day are no longer those of ours, they ought not to tie, in helpless submission, the hands of their successors.”

  • Heller v. U.S. Suzuki Motor Corp., 64 N.Y.2d 407 (1985): Accrual of Implied Warranty Claims Against Remote Manufacturers

    Heller v. U.S. Suzuki Motor Corp., 64 N.Y.2d 407 (1985)

    For breach of implied warranty claims under UCC § 2-725 against a remote manufacturer or distributor, the cause of action accrues on the date the remote party tenders delivery of the product, not on the date of the retail sale to the plaintiff.

    Summary

    Heller sued U.S. Suzuki for injuries from a motorcycle accident, alleging breach of implied warranty. The suit was filed more than four years after Suzuki (the distributor) sold the motorcycle to a retailer but less than four years after the retailer sold it to Heller. The New York Court of Appeals addressed whether the statute of limitations began running from the date Suzuki sold the motorcycle to the retailer or from the date the retailer sold it to Heller. The Court held that the cause of action against the distributor accrued when the distributor tendered delivery to its immediate purchaser, making the suit time-barred. The decision emphasizes adherence to the UCC’s tender of delivery rule and the policy of repose underlying statutes of limitations.

    Facts

    Plaintiff Heller was injured in a motorcycle accident on July 7, 1979.
    The motorcycle was manufactured by a Japanese company and distributed in the U.S. by U.S. Suzuki Motor Corp.
    Jim Moroney’s Harley-Davidson Sales, Inc. was the retailer who sold the motorcycle to Heller.
    U.S. Suzuki sold the motorcycle to Bakers Recreational Equipment, Inc., who then sold it to Jim Moroney’s Harley-Davidson Sales, Inc. on March 30, 1978.
    Heller purchased the motorcycle from Jim Moroney’s Harley-Davidson Sales, Inc. on April 21, 1979.
    Heller filed suit against U.S. Suzuki on February 15, 1983, alleging breach of implied warranty.

    Procedural History

    Heller sued U.S. Suzuki in New York State court.
    Special Term denied Suzuki’s motion for summary judgment, holding that the cause of action accrued when the retailer sold the motorcycle to Heller.
    The Appellate Division reversed, dismissing the complaint, holding that the cause of action accrued when Suzuki tendered delivery to its immediate purchaser.
    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, for an implied warranty claim under UCC § 2-725 against a remote distributor, the cause of action accrues on the date the distributor tenders delivery to its immediate purchaser or on the date of the retail sale to the plaintiff.

    Holding

    No, because UCC § 2-725 states that a cause of action accrues when the breach occurs, and a breach occurs when tender of delivery is made by the party being sued. The elimination of privity requirements in New York does not alter the accrual date.

    Court’s Reasoning

    The Court applied UCC § 2-725, which provides a four-year statute of limitations for breach of contract for sale, accruing upon tender of delivery, unless a warranty explicitly extends to future performance.
    The Court acknowledged that implied warranty actions were initially rooted in contract law, requiring privity between the plaintiff and defendant. However, New York eliminated the privity requirement for personal injury actions based on implied warranty with the adoption of a new section 2-318 of the Uniform Commercial Code (L 1975, ch 774).
    Despite the elimination of privity, the Court emphasized that the Legislature did not amend the limitations period in UCC § 2-725. The Court reasoned that the cause of action against a manufacturer or distributor still accrues on the date the party charged tenders delivery of the product, not when a third party sells it to the plaintiff.
    The Court rejected the argument that eliminating privity implicitly changed the accrual date, stating that the Legislature would have explicitly amended § 2-725 if that were the intent. “[I]nasmuch as it did not amend section 2-725 to alter the existing rules on the subject we assume it intended no change”.
    The Court highlighted the purpose of uniform acts and statutes of limitations: to eliminate jurisdictional variations and provide repose. Allowing the cause of action to accrue at the date of retail sale would create unpredictability in the period of exposure to liability.
    The Court stated, “A major purpose of the uniform acts, and for the Statutes of Limitation they contain, is to eliminate jurisdictional variations so that concerns doing business nationwide will not be governed by different periods of limitation.”
    The Court also addressed the concern that this interpretation could foreclose a plaintiff’s remedy before the cause of action accrues, noting that the plaintiff in this case waited almost four years after the injury before filing suit. The Court emphasized that a consumer who acts within three years of the accident or four years from the date of sale can still maintain actions based on warranty, negligence, or strict products liability. “[T]here is no need or occasion for us to reinterpret section 2-725 in a manner contrary to its language and past usage.”

  • Sears, Roebuck & Co. v. Enco Associates, 43 N.Y.2d 389 (1977): Statute of Limitations in Architect Malpractice Claims

    Sears, Roebuck & Co. v. Enco Associates, 43 N.Y.2d 389 (1977)

    In cases involving claims against architects for defective design or supervision, the applicable statute of limitations is determined by the remedy sought (contract or tort damages) rather than the theory of liability (tort or contract), and the six-year contract statute of limitations applies to actions arising from the contractual relationship, but the available damages may be limited by the three-year tort statute of limitations if the action was not timely filed under tort law.

    Summary

    Sears sued Enco, architects, for negligently designing and supervising the construction of a defective ramp system. The ramps developed cracks due to improper design of snow-melting pipes. Sears alleged causes of action in negligence, breach of implied warranty, and breach of contract. The action was commenced more than three years after the ramp system’s completion. The court held that the six-year contract statute of limitations applied, but the available damages were limited to those recoverable under contract law because the action was filed outside the three-year statute of limitations for tort claims. The court further held that no claim existed for breach of implied warranty against an architect.

    Facts

    Sears, Roebuck contracted with Enco Associates in 1967 for the design and supervision of a ramp system construction for a parking deck. Enco designed and supervised the construction, completing it in spring 1968. In May 1970, cracks appeared in the ramps, allegedly due to improper design of the snow-melting pipes by Enco, specifically the failure to include expansion joints and the monolithic pouring of concrete.

    Procedural History

    Sears commenced an action against Enco in June 1972. Enco moved to dismiss the complaint, arguing it was barred by the three-year statute of limitations and that the implied warranty claim failed to state a cause of action. Special Term granted the motion, classifying the claims as professional malpractice and thus time-barred. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the claims against the architects were governed by the three-year statute of limitations for malpractice or the six-year statute of limitations for breach of contract.

    2. Whether an action lies against an architect for breach of implied warranty.

    Holding

    1. Yes, the six-year contract statute of limitations applies to claims arising from the contractual relationship between owner and architect, but because the action was filed more than three years after accrual, damages are limited to those recoverable for breach of contract.

    2. No, no action lies for breach of implied warranty against an architect.

    Court’s Reasoning

    The court reasoned that the choice of the applicable statute of limitations depends on the remedy sought rather than the theory of liability. Relying on Matter of Paver & Wildfoerster (Catholic High School Assn.), the court reaffirmed that claims by owners against architects arising from contractual obligations are governed by the six-year contract statute of limitations. The court emphasized that all obligations of the architects arose from the contractual relationship; without the contract, no services would have been performed, and no claims would exist. “[A]ll liability alleged in this complaint had its genesis in the contractual relationship of the parties.” The court held that Sears could present evidence to establish either a breach of a specific contract term or a failure to use due professional care. However, because the action was commenced more than three years after the claim accrued, Sears was limited to recovering damages admissible under contract law, potentially excluding consequential damages like lost profits, which are typically recoverable in tort but not in contract. The court also addressed the choice of law issue, noting the contract specified Michigan law. However, it concluded that even if Michigan law applied, including its borrowing statute, the applicable statute of limitations would still be that of New York. Finally, the court agreed with the lower courts that no action lies for breach of implied warranty against an architect, aligning with both New York and Michigan law on this point.

  • Codling v. Paglia, 32 N.Y.2d 330 (1973): Strict Products Liability Extends to Bystanders

    Codling v. Paglia, 32 N.Y.2d 330 (1973)

    The manufacturer of a defective product may be held liable under strict products liability to any person injured by the defect, including bystanders, if the defect was a substantial factor in causing the injury.

    Summary

    The New York Court of Appeals expanded the scope of products liability to include non-user bystanders injured by a defective product. Frank and Marcia Codling were injured when their car collided with a car driven by Christino Paglia. Paglia’s car crossed into their lane due to a defect in its power steering system. The jury found Chrysler, the manufacturer, liable for breach of implied warranty. The court held that manufacturers can be held strictly liable to anyone injured by a defect in their product, even if they are not the direct purchaser or user, provided the product was used as intended, the user could not have discovered the defect with reasonable care, and the injured party could not have prevented the injury with reasonable care.

    Facts

    On August 2, 1967, Christino Paglia was driving his Chrysler when it suddenly crossed a double line and collided with a car driven by Frank Codling, owned by Marcia Codling. Paglia had purchased the car four months prior and had not experienced any prior issues with steering. Paglia testified that he attempted to steer to the right but the steering system “locked on me or something.”

    Procedural History

    The Codlings sued Paglia and Chrysler for negligence and breach of warranty. Paglia cross-claimed against Chrysler. The Codlings settled with Paglia. Paglia also sued Chrysler for his own injuries and property damage. The jury found Chrysler not negligent but liable for breach of warranty, awarding damages to the Codlings and Paglia. The Appellate Division affirmed the Codling’s verdicts but reversed Paglia’s cross-claim. Both Paglia and Chrysler appealed.

    Issue(s)

    1. Whether a manufacturer’s liability for breach of implied warranty extends to non-user innocent bystanders injured by the defective product?
    2. Whether contributory negligence is a defense to a claim for strict products liability in New York?

    Holding

    1. Yes, because the policy of protecting the public from injury resulting from misrepresentations outweighs outdated rules of law. The manufacturer is in the best position to ensure product safety and should bear the cost of injuries caused by defects.
    2. Yes, because a plaintiff’s contributory fault is a defense to an action for strict products liability.

    Court’s Reasoning

    The court acknowledged the erosion of the privity requirement in products liability law, citing cases like Greenberg v. Lorenz and Goldberg v. Kollsman Instrument Corp. The court stated, “[T]he ultimate purpose in widening the scope of the warranty is to cast the burden on the manufacturer who put his product in the marketplace.” It noted that bystanders have less opportunity to detect defects than users. The court emphasized the complex nature of modern products, making it difficult for consumers to detect defects. The court reasoned that manufacturers are best positioned to ensure product safety and should bear the economic burden of injuries. The court established limitations to strict products liability, including proper intended use, the user’s ability to discover the defect, and the injured party’s ability to avert the damages with reasonable care.

    The Court also determined that contributory negligence is a defense to strict products liability claims. The court reasoned that a plaintiff’s failure to exercise reasonable care, independent of the product defect, should be considered. The court remanded Paglia’s claim for a new trial to determine if his actions contributed to his injuries, separate from the defective steering mechanism.