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1325 North Van Buren5/17/2005
Uniform Commercial Code. Contract law, the law of warranty and the Uniform Commercial Code are designed to allow the parties to allocate the risk of product failure." Id. at 920-21.
While defining economic loss is difficult, it is generally defined as "damages resulting from inadequate value because the product 'is inferior and does not work for the general purposes for which it was manufactured and sold.'" Daanen & Janssen, 216 Wis. 2d at 401 (citation omitted). Economic loss also includes both direct economic loss and consequential economic loss. Id. ("The former is loss in value of the product itself; the latter is all other economic losses attributable to the product defect."). The economic loss doctrine does not, however, bar recovery under tort for personal injury or damage to other property. Id. at 402.
"The significance of the economic loss doctrine is that 'it requires transacting parties in Wisconsin to pursue only their contractual remedies when asserting an economic loss claim, in order to preserve the distinction between contract and tort.'" Cease Elec., 276 Wis. 2d 361, (citation omitted). As tort law generally offers a "broader array of damages than contract[, t]he economic loss doctrine precludes parties under certain circumstances from eschewing the more limited contract remedies and seeking tort remedies." Id. This is a reasonable and unsurprising policy in light of the protections afforded by the U.C.C. See id., . That is,
rotection against damages caused by a defective product injuring itself is the purpose of express and implied warranties provided for in the U.C.C. When a product fails to operate as warranted or expected, the proper avenue for relief is a breach of warranty claim. Alternatively, customers can reject the product or revoke their acceptance and sue for breach of contract.
Id., (citations omitted). Moreover, the U.C.C. provides protections for manufacturers as well--manufacturers can limit their risks and exposure by disclaiming warranties or limited remedies. Id., . Thus, "if a commercial purchaser were allowed to sue in tort to recover solely economic loss, the U.C.C. provisions designed to govern such disputes could be circumvented entirely. In that event, the U.C.C. would be rendered meaningless and 'contract law would drown in a sea of tort.'" Id., (citation omitted).
This underlying rationale does not apply, however, when the dispute centers on a contract for services. See id., . As the supreme court concluded in Cease Electric:
Unlike contracts for products or goods, which enjoy the benefit of well-developed law under the U.C.C., no such benefit exists for contracts for services. This is because the U.C.C. does not apply to service contracts. As a result, the built-in warranty provisions that the U.C.C. may provide in a contract for the sale of products or goods would not apply to a contract for services.
Given the inapplicability of the U.C.C. to service contracts, we decline to extend the economic loss doctrine in this case. We note that we are not alone in this regard. See, e.g., Cargill, Inc. v. Boag Cold Storage Warehouse, 71 F.3d 545, 550 (6th Cir. 1995) (citing the U.C.C. and stating that the economic loss doctrine "is associated with 'transactions in goods,' and not with transactions in services"); McCarthy Well Co. v. St. Peter Creamery, Inc., 410 N.W.2d 312, 315 (Minn. 1987) (explaining that the rationale behind the economic loss rule is that "a recognition of tort actions in cases under the U.C.C. would upset the remedies contained in the U.C.C.; when the rationale is not applicable, i.e., when the U.C.C. does not apply, there is no reason for the [econom
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