FARM BUREAU MUTUAL V COMBUSTION RESEARCH CORP
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STATE OF MICHIGAN
COURT OF APPEALS
FARM BUREAU MUTUAL,
FOR PUBLICATION
March 18, 2003
9:10 a.m.
Plaintiff-Appellant,
and
MIDWEST DIESEL, INC.,
Plaintiff,
v
COMBUSTION RESEARCH CORPORATION,
No. 234189
Oakland Circuit Court
LC No. 1998-010060-CZ
Defendant-Appellee,
and
DEE CRAMER, INC.,
Defendant.
MIDWEST DIESEL, INC.,
Plaintiff-Appellant,
and
S & S DIESEL, INC.,
Plaintiff,
v
COMBUSTION RESEARCH CORPORATION,
No. 235932
Oakland Circuit Court
LC No. 99-012583-CZ
Defendant-Appellee,
and
Updated Copy
May 9, 2003
DEE CRAMER, INC.,
Defendant.
Before: Cooper, P.J., and Murphy and Kelly, JJ.
-1-
PER CURIAM.
In these consolidated appeals, plaintiffs appeal by right from the circuit court's judgments
granting defendant Combustion Research Corporation summary disposition pursuant to MCR
2.116(C)(7).1 We reverse and remand.
These actions arise out of a fire at a business owned and operated by plaintiff Midwest
Diesel, Inc. (Midwest). Plaintiffs alleged that the fire was started when a heater, manufactured
by defendant, ignited a wall through which a portion of the heater referred to as a "fire tube"
passed. Plaintiff Farm Bureau Mutual Insurance Company (Farm Bureau) was the insurer of
Midwest and paid Midwest $406,995 as a result of the fire and pursuant to an insurance policy.
Upon this payment, and pursuant to the terms of the insurance policy, Farm Bureau became
subrogated, to the extent of its payment, to the rights of Midwest against defendant.
It is undisputed that defendant was the manufacturer of the radiant heater at issue, which
it sold to Michigan Infrared Heating Company (MIHC). MIHC was owned by Gilbert Ham.
The sale occurred on February 22, 1993. The unit was in turn sold to Midwest, and Ham
provided installation of the heater. Ham stated that a portion of the heater was installed outside
the building, requiring the fire tube to pass through a combustible wall. The record indicates that
shortly after its installation, the heater began to malfunction by "shorting out." The record also
reflects that Steven Spencer, president of Midwest, contacted Ham on a number of occasions in
an effort to remedy the problem. Spencer noted that on December 1, 1994, he noticed
smoldering inside the building and called defendant, who referred him to Dee Cramer, Inc.
(Cramer), a heater-repair firm.
Kevin Kelly, a technician for Cramer, testified at his deposition that on December 2,
1994, he went to Midwest and found the installation of the heater to be what he considered
atypical because the heater's fire tube passed through a combustible wall. According to Kelly,
because of the irregularity of the installation, he called defendant and asked that a representative
inspect the installation in order to determine its safety. Kelly's work invoice indicated that
defendant's employee, Craig Thornton, visited Midwest that same day. Specifically, the Cramer
invoice states that "customer had problems with installation" and that Kelly "called Craig
Thornton from Combustion Research. He met me here to check system. We repaired . . . and
checked operation and installation." According to Kelly, on the basis of this inspection,
Thornton approved the installation.
Thornton, however, denied telling Kelly that the installation was appropriate. Thornton
explained that Kelly had only been concerned about "water getting on a burner," and denied
being asked about the advisability of a fire tube passing through a combustible wall. Defendant
denied that it installed, serviced, repaired, or inspected the heater. Defendant now concedes that
Thornton did visit Midwest on the day in question, but alleges that Thornton did so only as a
1
For purposes of this opinion, further reference to "defendant" shall pertain to Combustion
Research unless otherwise indicated. The remaining defendants are not involved in these
appeals, and it appears that bankruptcy and settlement have disposed of claims related to those
defendants.
-2-
"public relations visit" and not to inspect the heater. Specifically, defendant argues that
Thornton went to Midwest in an attempt to mollify the dispute that had occurred between Steven
Spencer of Midwest and Gilbert Ham.
In December 2000, defendant filed motions for summary disposition pursuant to MCR
2.116(C)(7) and (10). According to defendant, plaintiffs' remaining claim arose from defendant's
manufacture and sale of the heater, and there was "no question that [it] did not install, service or
otherwise have anything to do with the placement of the heater." Accordingly, defendant argued
that plaintiffs' actions arose solely out of the sale of goods and were therefore governed by the
Uniform Commercial Code (UCC), MCL 440.1101 et seq., and Neibarger v Universal Coops,
Inc, 439 Mich 512, 534; 486 NW2d 612 (1992). Consequently, defendant argued that the claim
was barred by the UCC's four-year period of limitation, MCL 440.2725, and by the economicloss doctrine.2
In response to the motions, plaintiffs insisted that the only claim they were pursuing
against defendant was that defendant failed to properly inspect, discover, and disclose the
hazardous installation of the heater during Thornton's visit on December 2, 1994, emphasizing
that they were not claiming that there was a defect in the product itself. On this basis, plaintiffs
insisted that their claim was one based in tort, and not contract; therefore, the UCC's statute of
limitations was not applicable. Further, plaintiffs emphasized what they considered a conflict in
the evidence regarding whether defendant inspected the heater and its installation, and that this
conflict barred summary disposition.
The trial court granted defendant's motions on the ground that plaintiffs' cause of action
was barred by the UCC's statute of limitations and the economic-loss doctrine.
On appeal, plaintiffs argue that the trial court erred in relying on the economic-loss
doctrine and the UCC's four-year period of limitation in summarily disposing of their actions.
We agree.
This Court reviews de novo a trial court's decision on a motion for summary disposition
under MCR 2.116(C)(7). DiPonio Constr Co, Inc v Rosati Masonry Co, Inc, 246 Mich App 43,
46; 631 NW2d 59 (2001). In determining whether a party is entitled to judgment as a matter of
law pursuant to MCR 2.116(C)(7), a court must accept as true a plaintiff 's well-pleaded factual
allegations, affidavits, or other documentary evidence and construe them in the plaintiff 's favor.
Brennan v Edward D Jones & Co, 245 Mich App 156, 157; 626 NW2d 917 (2001). Where there
are no factual disputes and reasonable minds cannot differ on the legal effect of the facts, the
decision regarding whether a plaintiff 's claim is barred by the statute of limitations is a question
of law that this Court reviews de novo. Id.
2
In Neibarger, supra at 527-528, our Supreme Court formally adopted the "economic loss
doctrine," which provides that "where a plaintiff seeks to recover for economic loss caused by a
defective product purchased for commercial purposes, the exclusive remedy is provided by the
UCC, including its statute of limitations."
-3-
The statute of limitations involving transactions for the sale of goods is set forth in MCL
440.2725, which states, in pertinent part:
(1) An action for breach of any contract for sale must be commenced
within 4 years after the cause of action has accrued. By the original agreement the
parties may reduce the period of limitation to not less than 1 year but may not
extend it.
(2) A cause of action accrues when the breach occurs, regardless of the
aggrieved party's lack of knowledge of the breach. A breach of warranty occurs
when tender of delivery is made, except that where a warrant explicitly extends to
future performance of the goods and discovery of the breach must await the time
of such performance the cause of action accrues when the breach is or should
have been discovered.
However, an injury caused by a service does not arise out of a "transaction in goods" and is not
subject to the remedy provisions, including the statute of limitations, contained in the UCC.
Higgins v Lauritzen, 209 Mich App 266, 269; 530 NW2d 171 (1995).
Plaintiffs seek to avoid the time limits set forth in MCL 440.2725, and instead wish to
rely on statutes of limitations applicable to general tort actions. The only issue presented and
argued to us concerns whether the UCC's statute of limitations is applicable under the
circumstances of these cases; therefore, we shall not address whether plaintiffs' cause of action is
maintainable under statutes of limitations outside the UCC. Additionally, we shall not address
whether the UCC's statute of limitations, if applicable, was properly found to bar these actions,
where plaintiffs have not made that argument on appeal.
We are confronted with cases in which defendant did not sell the heater directly to
Midwest and did not install the unit, nor are plaintiffs seeking to hold defendant liable for selling
a defective product or for negligently installing the unit. Rather, plaintiffs seek to hold defendant
liable for an alleged service call occurring approximately twenty-two months after the sale of the
product based on a failure to recognize the allegedly improper installation completed by MIHC
and failure to warn Midwest of the danger. We find that the ultimate issue for us to determine is
whether the act by Thornton in visiting Midwest was sufficiently distinct from the sale of the
heating unit and any contractual obligations related to the sale so as to remove the cases from the
UCC, and we must simultaneously consider whether Thornton's actions could give rise to a
separate claim predicated on tort law for failure to warn or disclose.
In Neibarger, supra at 520-521, our Supreme Court stated:
The economic loss doctrine, simply stated, provides that "'[w]here a
purchaser's expectations in a sale are frustrated because the product he bought is
not working properly, his remedy is said to be in contract alone, for he has
suffered only "economic" losses.'" This doctrine hinges on a distinction drawn
between transactions involving the sale of goods for commercial purposes where
economic expectations are protected by commercial and contract law, and those
involving the sale of defective products to individual consumers who are injured
-4-
in a manner which has traditionally been remedied by resort to the law of torts.
[Alteration in original; citations omitted.]
The Neibarger Court noted that "[w]here a product proves to be faulty after the parties
have contracted for sale and the only losses are economic, the policy considerations supporting
products liability in tort fail to serve the purpose of encouraging the design and production of
safer products." Id. at 523.
Initially, we find that the lack of any contract between Midwest and defendant with
respect to the sale of the heater does not require removal of these cases from the confines of the
UCC; privity of contract is not required. Citizens Ins Co v Osmose Wood Preserving, Inc, 231
Mich App 40, 45; 585 NW2d 314 (1998).
Next, we address plaintiffs' contention that they never claimed that the heater itself was
defective, but instead claimed that their actions revolved around the improper installation of the
unit and subsequent inspection of the improperly installed heater. In Neibarger, supra at 537, a
case involving milking systems that did not operate properly resulting in illness and death to the
plaintiffs' dairy herds, the plaintiffs argued, in part, that "there was no defect in the product," but
instead the product was poorly installed. The Supreme Court rejected the argument stating that
"[a]t the heart of the complaints in these cases is the fact that the plaintiffs purchased products
which proved inadequate for their purposes, causing them lost profits and, perhaps,
consequential losses or property damage compensable in a timely suit under the provisions of the
UCC." Id. It is difficult to distinguish the argument made and rejected in Neibarger from the
argument presented by plaintiffs here.
The predominant nature or purpose of the underlying commercial transactions between
defendant and MIHC, and MIHC and Midwest, clearly concerned the sale of goods, the heater,
and not services. As stated by the Supreme Court in Neibarger, supra at 536-537:
It is difficult to imagine a commercial product which does not require
some type of service prior to its purchase, whether design, assembly, installation,
or manufacture. If a purchaser were able to avoid the UCC by pleading negligent
execution of one of the services required to produce the product, Article 2 could
be easily and effectively negated. A court faced with this issue should examine
the purpose of the dealings between the parties. If the purchaser's ultimate goal is
to acquire a product, the contract should be considered a transaction in goods,
even though service is incidentally required. Conversely, if the purchaser's
ultimate goal is to procure a service, the contract is not governed by the UCC,
even though goods are incidentally required in the provision of this service.
In these cases, the thrust or purpose of the plaintiffs' contracts with the
defendants was not the provision of defendants' design or installation services;
rather, the plaintiffs intended to acquire goods, i.e., milking systems that
incidentally required design and installation services.
The language in Neibarger suggests that the UCC would be applicable in the cases sub
judice even if plaintiffs' claim was predicated on the improper installation of the heater and on
-5-
services; however, we are confronted with a twist, i.e., services by defendant long after the sale,
that being Thornton's visit to Midwest, and not incidental services performed before or at the
time of the sale.
In Osmose, supra at 41-42, the plaintiff, as subrogee of a company that owned a
restaurant that was heavily damaged when the roof collapsed, alleged negligence against the
defendant, where wood trusses and roof decking treated with fire-retardant chemicals
manufactured by the defendant and installed by a builder caused the collapse. This Court,
addressing the question whether the UCC's statute of limitations was applicable, ruled:
The problem with plaintiff 's argument is that it misapprehends defendant's
role in the transactions at issue: defendant merely provided the chemicals and
accompanying instructions used by another company to treat the wood installed
in [the] restaurant. Importantly, we note that defendant is being sued only as a
manufacturer. . . . Because defendant provided only its wood-treatment product
that, in turn, was applied to the wood used in the trusses and roof decking, we
conclude that plaintiff 's causes of action against defendant are governed by the
UCC. [Id. at 45-46 (emphasis in original).]
Here, there are parallels to Osmose because defendant manufactured the heating unit and
sold it to another company, MIHC, who in turn sold the heater to Midwest and also installed the
unit for Midwest. However, defendant's role in the present cases was not solely as a
manufacturer who merely supplied the heater and accompanying installation instructions;3 rather,
the role also included follow-up after the sale when Thornton visited Midwest.
We find instructive this Court's decision in Home Ins Co v Detroit Fire Extinguisher Co,
Inc, 212 Mich App 522, 524; 538 NW2d 424 (1995), wherein the defendant contracted to supply
a fire-extinguisher system in a manufacturing plant owned by one of the plaintiffs, Crown Group,
Inc. The defendant installed the system pursuant to the contract; however, three months later, the
defendant had to return to adjust the system after it accidentally discharged following a routine
steam cleaning of the plant. Id. Subsequently, a fire occurred at the plant and the system failed
to activate. Id. Crown Group and its insurer filed suit, alleging, in part, negligence and gross
negligence "in the design, installation, inspection, and maintenance of the system[.]" Id. at 525.
The circuit court ruled that the case involved the sale of goods under the UCC, and, thus, the tort
claims were barred by the economic-loss doctrine. Id.
The Home Ins panel reversed and stated in pertinent part:
Plaintiffs also argue that the circuit court erred in granting summary
disposition to defendant arising out of defendant's postinstallation activities
(additional servicing, including during the November 1986 investigation into the
accidental discharge). Defendant counters that its actions were incidental to the
original purchase and installation contract and gave rise to no additional duties.
3
We note that plaintiffs argue that the installation was improper, in part, on the basis of the claim
that the installation was inconsistent with defendant's installation instructions.
-6-
We find that the circuit court incorrectly limited defendant's duty on the
basis of its findings that there was no oral or implied contract between defendant
and plaintiff Crown for work or for maintenance to be performed on the system
after its installation. An issue of material fact remains regarding whether
defendant owed Crown a duty of care upon which tort claims could be based.
* * *
When defendant serviced the system after installation was complete it
knew, or should have known, that plaintiff Crown was relying on defendant to
make the system operable upon completion of service. [Id. at 528-529.]
Here, we likewise find that there is an issue of fact regarding whether a duty to warn or
disclose, based in tort law and apart from the sale of the heating unit and any related contractual
obligations, arose out of Thornton's visit to Midwest. First, there is conflicting documentary
evidence regarding the nature and extent of Thornton's visit to Midwest; therefore, it is
appropriate for the trier of fact to resolve the factual conflict. Resolution of that underlying
factual issue is necessary to determine whether a duty to warn arose from the visit. If the trier of
fact determines that Thornton's visit was sufficient to support a finding that he knew, or should
have known, that the installation was improper and dangerous, there may be tort liability for a
failure to warn or disclose. Regardless, the UCC is not applicable. As defendant itself
maintains, defendant was not contractually obligated to perform any services with respect to
repairs or maintenance of the heating units it sold; defendant is purely a manufacturing company
that sells its products through independent distributors. "[C]ase law expressly provides that an
action in tort may not be maintained where a contractual agreement exists, unless a duty,
separate and distinct from the contractual obligation, is established." Sherman v Sea Ray Boats,
Inc, 251 Mich App 41, 52; 649 NW2d 783 (2002). Here, there was no contractual obligation or
duty on the part of defendant to install, inspect, and service the heating unit arising out of the sale
of the heater to Midwest. Therefore, no claim of failure to properly inspect and warn could have
arisen out of the contractual sale of the heater. However, a duty to properly inspect the heater
and warn of any dangers, a breach of which duty serving as the basis for a tort claim, may have
arisen solely from defendant's action in visiting Midwest. Moreover, the visit to Midwest by
Thornton twenty-two months after the sale cannot be deemed the rendition of services incidental
to the sale of the heating unit as envisioned by the Neibarger Court because the discussion in
Neibarger related to services rendered before or at the time of the sale. 4
4
It would appear to be ultimately irrelevant to these appeals whether an issue of fact exists
concerning Thornton's visit to Midwest because the trial court dismissed the action on the basis
of the UCC's statute of limitations and because no claim of failure to inspect and warn can be
predicated on the sale of the heater. In other words, even if plaintiffs did not establish an issue
of fact with respect to Thornton's visit, the UCC would not be implicated in light of the
circumstances and the claim made, and plaintiffs' tort claim was apparently not dismissed, in
general, for failure to state a claim or for failure to create a genuine issue of material fact.
However, to the extent that the judgments of dismissal could be read in such a manner, we hold
that an issue of fact does exist regarding Thornton's visit as discussed above.
-7-
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.5
/s/ Jessica R. Cooper
/s/ William B. Murphy
/s/ Kirsten Frank Kelly
5
In light of our decision, it is unnecessary to address plaintiffs' title-object argument.
-8-
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