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Town of Alma v. Azco Construction9/18/2000
ts ยง 97, at 690 (5th ed. 1984) [hereinafter Prosser and Keeton]. The use of the implied warranty theory, however, generated numerous difficulties as courts struggled to apply contract rules to implied warranty cases. Courts proceeded on the assumption that contract rules must apply because these were "warranty" actions, though there was often no contract involved. See id. at 690-91.
In response to the difficulties of attempting to apply contract rules to products liability cases in the absence of a contract, courts moved away from the implied warranty theory of recovery and adopted a strict liability in tort theory. A tort theory based on the dangerousness of conduct was considered more appropriate and more adaptable than a contract theory because the policy reasons courts were supplying to justify the imposition of strict liability go far beyond any conventional contract notions. See id. at 692. The California Supreme Court led the way with its decision in Greenman v. Yuba Power Products, Inc., 377 P.2d 897, 900 (Cal. 1963)(holding a manufacturer strictly liable in tort for injury to plaintiff caused by defective power tool), and the American Law Institute followed with the final adoption of section 402A of the Second Restatement of Torts the following year. See id. at 694.
As courts made the shift to employing tort law for these products liability cases, a need developed to prevent tort law from "swallowing" the law of contracts. After paving the road to allow tort theories to proceed in products liability cases, the California Supreme Court, in Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965), was the first to adopt the economic loss rule and to recognize the importance of limiting the use of tort theories. In Seely, the plaintiff purchased a truck manufactured by White Motor Company ("White") for use in his business and the truck subsequently overturned when the brakes failed. The plaintiff was not injured but he sued White for damages for the repair of the truck as well as damages to recover the purchase price and the lost profits in his business. The California Supreme Court refused to allow the plaintiff to use a strict liability in tort theory to recover damages for the purchase price and for the profits lost in his business. See id. at 151-52. The court explained the rationale for limiting tort recovery in these situations:
The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the "luck" of one plaintiff in having an accident causing physical injury . The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety in terms of conditions that create unreasonable risks of harm. He cannot be held liable for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone. Seely, 403 P.2d at 151 (emphasis added). From this final statement, the economic loss rule was born.
We adopted section 402A's strict liability in tort theory in H
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