Sun Refining & Marketing Co. v. Crosby Valve & Gage Co. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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Sun Refining and Marketing Company v. Crosby Valve and Gage
Company.
[Cite as Sun Refining & Marketing Co. v. Crosby Valve & Gage
Co. (1994), -- Ohio St.3d ---.]
Statutes of limitations -- Statute of limitations that applies
to parties to a contract when plaintiff sues for property
damage.
(No. 93-739 -- Submitted September 29, 1993 -- Decided
March 2, 1994.)
When a sophisticated commercial buyer sues for property damage
caused by an allegedly defective product, claims relating
to property other than the defective product itself are
controlled by the statute of limitations contained in R.C.
2305.10 for personal property and R.C. 2305.09(D) for real
property.
On Order from the United States District Court for the
Northern District of Ohio, Certifying a Question of State Law,
No. 3:89CV7588.
On November 12, 1985, an explosion occurred at respondent
Sun Refining and Marketing Company's ("Sun") oil refinery in
Toledo. Two Sun employees were seriously injured and the
facility was extensively damaged. On October 19, 1989, Sun
filed a four-count complaint alleging that a rupture disc which
Sun had purchased from petitioner Crosby Valve & Gage Company
("Crosby") had malfunctioned and caused the explosion. It is
undisputed that Count II of Sun's complaint states a
breach-of-warranty claim for $441,000 for damage to its real
estate and fixtures.
Crosby had delivered the disc to Sun on October 18, 1985,
four years and one day before the filing of Sun's complaint.
Crosby argues that Sun's breach-of-warranty claim is
time-barred since the applicable statute of limitations is the
four-year statute of limitations set forth in R.C. 1302.98 (UCC
2-725), which begins to run upon "tender of delivery."
Sun asserts that the appropriate statute of limitations is
the four-year "catch all" provision for tort claims contained
in R.C. 2305.09. The statute of limitations for tort claims
begins to run no earlier than upon the occurrence of the event

producing the loss. Since Sun's complaint was filed within
four years after the date of the explosion, it would be timely
filed under that statute.
Specifically, the district court seeks our guidance
regarding which statute of limitations to apply to Sun's
breach-of-warranty claim. The court certifies to us the
following question, pursuant to S. Ct. Prac. R. XVI:
"[W]hich statute of limitations applies to parties to a
contract when the plaintiff is suing for property damage."

Jones & Scheich, Martin B. Morrissey and Christopher F.
Jones, for respondent.
Robison, Curphey & O'Connell, Jack Zouhary and Thomas J.
Antonini, for petitioner.

Pfeifer, J. Our response to the district court's
certified question is as follows: When a sophisticated
commercial buyer sues for property damage caused by an
allegedly defective product, claims relating to property other
than the defective product itself are controlled by the statute
of limitations contained in R.C. 2305.10 for personal property
and R.C. 2305.09(D) for real property. Our rationale is set
forth below.
In Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co.
(1989) 42 Ohio St.3d 40, 537 N.E.2d 624, this court made it
clear that in a commercial setting, a buyer's proper remedy for
recovery of economic losses resulting from damage to a
defective product itself is through a contract action for
breach of warranty under the UCC. This court held that the
buyer could not recover for economic losses premised on tort
theories "in the absence of injury to persons or damage to
other property." Id. at 51, 537 N.E.2d at 635. The court's
definition of "economic loss" was as follows:
"'Economic loss' is described as either direct or
indirect. 'Direct' economic loss includes the loss
attributable to the decreased value of the property itself.
Generally, this type of damages encompasses 'the difference
between the actual value of the defective product and the value
it would have had had it not been defective.' * * * It may
also be described as 'the loss of the benefit of the bargain *
* *.' *** 'Indirect' economic loss includes the consequential
losses sustained by the purchaser of the defective product,
which may include the value of production time lost and the
resulting lost profits." Chemtrol at 43-44, 537 N.E.2d at 629.
The court implied that commercial parties are not limited
to contractual causes of action when a defective product causes
tort damages, i.e., damage to persons or property other than
the product itself.
This court directly recognized that a commercial buyer may
recover damages based upon tort theories of liability in
Lawyers Cooperative Publishing Co. v. Meuthing (1992), 65 Ohio
St.3d 273, 603 N.E.2d 969. In Lawyers Cooperative, the
counterclaimant attorney sought damages for humiliation, loss
of reputation, and damage to his law practice due to the
counterclaim defendant's alleged negligence in publishing
faulty information in law books the lawyer had purchased. The
defendant publisher claimed that those causes of action should

be controlled by the statute of limitations contained in Ohio's
UCC provisions.
This court found that the lawyer had the option of filing
a contract claim under Ohio's UCC, but was not limited to that
claim due to the nature of his damages. The court found that
the lawyer did not merely seek recovery for economic loss --
his allegations of humiliation and loss of reputation were
allegations of personal injury and his allegation of injury to
his law practice was an allegation of property damage. This
court held that Chemtrol, which precluded recovery of economic
losses on tort theories of liability, did not so preclude the
lawyer's recovery of tort damages.
The character of the loss determines whether a commercial
party may recover in tort. If the loss is an economic one, a
cause of action will lie only in contract.
In the present case, for example, Sun does not seek
recovery for damage to the disc nor for loss of profits due to
the failure of the disc or other such consequential damages.
It seeks recovery for damage to its real estate and fixtures.
The damages it seeks are not economic, and are therefore
recoverable under a tort theory of liability. For parties like
Sun who suffer such injuries, the tort theory of breach of
implied warranty is available. Lonzrick v. Republic Steel
Corp. (1966), 6 Ohio St.2d 227, 229-230, 35 O.O.2d 404,
405-406, 218 N.E.2d 185, 188.
This line of decisions does not infringe upon Ohio's UCC
provisions. The underlying purpose of the UCC is, in part, to
clarify and make uniform commercial law. R.C. 1301.02(B)(1) and
(3). That is, the UCC lends predictability to commercial
transactions. It governs the bargain. If the product is
faulty, inefficient, or breaks, resulting in diminished
economic returns, the proper remedy is through the contract and
the relevant UCC provisions. When the benefit of the bargain
is diminished or lost, the contract and the UCC control the
parties' rights.
When persons or property outside the original bargain are
damaged, the terms of the bargain no longer control. In such
an instance, when there is more than a loss of the benefit of
the bargain, when the damages fall outside the definition of
"economic loss," a duty outside the contract has been
breached. That breach of duty is governed by tort law.
A sales contract does not govern the entire relationship
between commercial parties -- it governs only the sale of the
product. A seller still owes to the buyer the same
noncontractual duty that he owes to everyone else -- that the
seller's product will not cause the destruction of another's
property.
Therefore, in a products-liability action between
sophisticated commercial parties, the character of the loss
determines the applicable statute of limitations. Losses due
to a diminishing of the expected benefit of the bargain fall
under the statute of limitations set forth in R.C. 1302.98 (UCC
2-725). Causes of action for losses resulting from damage to
property outside the original bargain are controlled by the
statute of limitations in either R.C. 2305.10 or 2305.09(D).
A.W. Sweeney and Douglas, JJ., concur.
Resnick, J., concurs in the syllabus and judgment only.

F.E. Sweeney, J., concurs in judgment only.
Moyer, C.J., and Wright, J., dissent.
Wright, J., dissenting. On October 18, 1985, Crosby
Valve & Gage Company shipped to Sun Refining and Marketing
Company a pressure release disc manufactured precisely to Sun
Refining's specifications. The purchase involved an
arm's-length commercial transaction between two sophisticated
parties that were dealing in privity. Included in the contract
were terms negotiated by Sun Refining and Crosby Valve
concerning risk of loss from defects in the product.
Less than a month later, on November 12, 1985, a Sun
Refining employee released some built-up pressure into a
concrete sewer which exploded, injuring two employees and
causing some property damage.1 Alleging that the disc had
malfunctioned, Sun Refining filed this cause of action in
federal court on October 19, 1989 -- one day after the
four-year statute of limitations period for causes of action
filed under the UCC had expired.
Because Sun Refining is time-barred from bringing its
breach of contract action against Crosby Valve, its only
alternative is to seek recovery in tort. The general tort
statute of limitations is also four years, but would not have
begun to run until the explosion. In its complaint, therefore,
Sun Refining seeks to recover under strict liability, breach of
warranty, and negligence.
Crosby Valve maintains that breach of warranty claims are
governed by the UCC, while Sun Refining asserts that its breach
of warranty claim sounds in tort.
The narrow issue facing this court is whether Count II,
the breach of warranty claim, is time-barred by R.C. 1302.98
(UCC 2-725). The federal district court posed the question as:
"[W]hich statute of limitations applies to parties to a
contract when the plaintiff is suing for property damage[?]"
The majority concludes with no supporting authority that
it is the character of the loss and not the relationship of the
parties that determines whether a commercial party in privity
may recover on a theory of implied breach of warranty. Because
I believe that this case is wholly governed by the UCC, and
that the majority's decision lacks sound reasoning, is a
departure from Ohio law, and is bad policy, I must dissent.
The law of tort products liability evolved for several
reasons: a lack of contractual privity between the
manufacturer and the ultimate consumer, the uneven bargaining
power between buyer and seller, the difficulty of proving
negligence by the manufacturer when the consumer is several
steps down the chain of distribution, and the deterrent value
of placing the risk of loss on the manufacturer because it is
better able to correct the defects. In other words, the law of
products liability arose because traditional sales warranties
with their requirement of privity failed to give injured
persons who are not in privity with the manufacturer adequate
protection. Ohio recognized this problem in Lonzrick v.
Republic Steel Corp. (1966), 6 Ohio St.2d 227, 35 O.O.2d 404,
218 N.E.2d 185, and thus permitted a plaintiff who was not in
privity to bring an action based upon implied warranty in tort.
However, neither Lonzrick nor the other two cases cited by
the majority support the majority's position.

In Lonzrick, this court in dicta prefaced its argument
with the statement that in products liability cases the
plaintiff may pursue either an action in tort grounded in
negligence, a cause of action based on the contract, or an
implied warranty in tort. Because Lonzrick did not allege
negligence and because there was no privity between him and the
defendant, the court examined the implied warranty in tort
argument. Citing many of the reasons for the rise of products
liability claims that I have listed above, the court went on to
hold that there need be no contractual relationship between a
plaintiff and a defendant in order to bring a breach of
warranty action in tort. Thus, Lonzrick stands for the
proposition that parties who are not in privity are now
permitted to bring an action for an implied breach of
warranty. It does not suggest that those who are already in
privity may avail themselves of that remedy and thus circumvent
an existing contractual agreement.
Moreover, the fact that the Lonzrick court stated in dicta
that a plaintiff may pursue a products liability action in tort
grounded upon negligence is of no assistance in this case.
Even though Sun Refining seeks recovery in negligence in Count
III of its complaint, that is not the issue before this court.
Rather, the question is whether the UCC statute of limitations
or the general tort statute of limitations applies to Sun
Refining's breach of warranty action. Lonzrick provides no
authority for the majority.
Likewise, Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins.
Co. (1989), 42 Ohio St.3d 40, 537 N.E.2d 624, and Lawyers
Cooperative Publishing Co. v. Muething (1992), 65 Ohio St.3d
273, 603 N.E.2d 969, are readily distinguishable from this
case. In Chemtrol, we permitted "[a] commercial buyer seeking
recovery from the seller for economic losses resulting from
damage to the defective product itself [to] maintain a contract
action for breach of warranty under the Uniform Commercial Code
***." Chemtrol, paragraph two of the syllabus. The majority
today correctly points that out. However, the majority
misstates the second part of that syllabus paragraph in
Chemtrol by asserting "the buyer could not recover for economic
losses premised on tort theories 'in absence of injury to
persons or damage to other property [emphasis added],'" thus
implying that all tort remedies are available to a commercial
buyer in the case of injury to person or damage to property. A
close reading of the language in Chemtrol reveals the
majority's error. The complete statement in Chemtrol actually
reads that "in absence of injury to persons or damage to other
property, the commercial buyer may not recover for economic
losses premised on tort theories of strict liability or
negligence." (Emphasis added.) Chemtrol, paragraph two of the
syllabus. While this may imply that an action for negligence
or strict liability may lie if there is injury to persons or
property, it in no way suggests that in such a case an action
for breach of warranty would lie. Thus, Chemtrol is no support
for the majority either.
Finally, the majority cites Muething for the principle
that this court has "directly recognized that a commercial
buyer may recover damages based upon tort theories of
liability." This is true to the extent that we permitted

Muething to maintain a tort cause of action in negligence even
though he was a commercial buyer with privity. This holding is
perfectly consistent with the syllabus paragraph in Chemtrol
which implies that a commercial buyer in privity may bring a
tort cause of action in negligence or strict liability for
injury to persons or damage to property. But the Meuthing
court did not address the issue of whether a commercial buyer
in privity may sustain a tort cause of action for breach of
warranty. Indeed, in my judgment that issue is foreclosed by
our holding in Chemtrol.
Furthermore, the Muething and Chemtrol decisions neither
suggest nor support the majority's assertion that "[t]he
character of the loss determines whether a commercial party may
recover in tort." Significantly, the majority offers no
authority for this bold statement.
The proper law governing this case is the UCC. R.C.
1302.98 (UCC 2-725) states in relevant part:
"(A) An action for breach of any contract for sale must
be commenced within four years after the cause of action has
accrued.***
"(B) 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 ***."
Moreover, R.C. 1302.89 (UCC 2-715) states in part:
"(B) Consequential damages resulting from the seller's
breach include:
"***
"(2) injury to person or property proximately resulting
from any breach of warranty." (Emphasis added.)
The import of these two code sections should be apparent.
When commercial parties are bargaining in privity at
arm's-length, a cause of action for property damage resulting
from a breach of warranty is subject to the UCC. That cause of
action must be filed within four years of the breach, which
occurs upon tender of delivery.
The Official Comment to UCC 2-725 states the policy
reasons behind the statute of limitations: [The purposes of
this section are to] introduce a uniform statute of limitations
for sales contracts, thus eliminating the jurisdictional
variations and providing needed relief from concerns doing
business on a nationwide scale whose contracts have heretofore
been governed by several different periods of limitation ***.
This Chapter takes sales contracts out of the general laws
limiting the time for commencing contractual actions and
selects a four year period as the most appropriate to modern
business practice."
We indicated our support for this position in Chemtrol
when, by quoting the Eighth District Court of Appeals:
"'Application of the doctrine of implied warranty in tort
to all products liability cases would render useless many, if
not all, of the Uniform Commercial Code provisions involving
products liability. For example, *** whenever the doctrine of
implied warranty in tort is applicable, the provision of the
Uniform Commercial Code permitting the parties to contractually
modify or exclude warranties, and to modify or limit remedies
are of no avail. Stated another way, where implied warranty in

tort applies, the parties are not free to determine by contract
the quality of goods which the seller is bound to deliver or
the remedies available to the buyer in the event that the goods
do not measure up to the agreed quality. It is clear, then,
that the doctrine of implied warranty in tort must be limited
in its applicability. Otherwise, unlimited application would
emasculate the Uniform Commercial Code provisions dealing with
products liability.'" Chemtrol at 50, 537 N.E.2d at 634,
quoting Avenell v. Westinghouse Elec. Corp. (1974), 41 Ohio
App.2d 150, 157-158, 70 O.O.2d 316, 321, 324 N.E.2d 583, 588.
In my judgment, the relationship between Crosby Valve and
Sun Refining falls squarely within the policy reasons
established by the drafters of the UCC and sanctioned by this
court. The parties made an arm's-length transaction and were
free to negotiate the terms of the contract. Thus, their
transaction, including remedies, is governed by the UCC. It is
unfortunate that Sun Refining delayed filing its cause of
action for so long, but in my opinion the policy behind the UCC
is sound and, considering the circumstances, presented Sun
Refining with a sufficient remedy. Because I believe that
where sophisticated commercial parties deal in privity a cause
of action for property damage resulting from a breach of
warranty is subject to the UCC statute of limitations, I must
respectfully dissent.
Moyer, C.J., concurs in the foregoing dissenting opinion.

FOOTNOTE:
1 Only the property damage is at issue here. The
personal injury claims of the two employees were settled in
1989.