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BEARD PLUMBING AND HEATING, INC. v. THOMPSON PLASTICS, INCORPORATED, ET AL. (59943)


BEARD PLUMBING AND
HEATING, INC.

v.

THOMPSON PLASTICS,
INCORPORATED, ET AL.


September 12, 1997
Record No. 970131

BEARD PLUMBING AND HEATING, INC.

v.

THOMPSON PLASTICS,
INCORPORATED, ET AL.

OPINION BY JUSTICE ELIZABETH B. LACY
UPON A QUESTION OF LAW CERTIFIED BY THE
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Present: Carrico, C.J., Compton, Stephenson,[1] Lacy,
Hassell, Keenan, and Koontz, JJ.


Pursuant to our Rule 5:42, the United States Court of Appeals
for the Fourth Circuit certified a question of Virginia law to
this Court which we accepted by order entered February 18, 1997.
The question involves the application of two sections of the
Uniform Commercial Code, Code ?? 8.1-101
through 8.11-108 (UCC), to a case in which consequential damages
are sought for breach of an implied warranty of merchantability
in the absence of privity.

The following facts are set forth in the Court of Appeals’
order of certification. Beard Plumbing and Heating, Inc. (Beard)
was the plumbing subcontractor in a condominium development in
Woodbridge, Virginia. Beard installed post-chlorinated polyvinyl
chloride plumbing fittings in the homes in the project. The
fittings were manufactured by Thompson Plastics, Inc. (Thompson)
and NIBCO, Inc. (NIBCO) and purchased from third-party suppliers.
There was no contract between the manufacturers and Beard. The
fittings cracked and subsequently leaked when hot water was used
in the system. The general contractor required Beard to replace
the fittings and to repair the damage to the homes and then
dismissed Beard from the job.

Beard filed suit against Thompson and NIBCO in the United
States District Court for the Eastern District of Virginia,
alleging both negligence and breach of warranty.[2] Beard
claimed the fittings were defective and that "certain
adapters failed when they attempted to shrink around
thermally-expanded metal fittings during cool-down." Beard
identified its damages as the uncompensated cost to repair the
homes, loss of the remainder of its contract with the general
contractor, revenue lost due to damage to business reputation,
$165,878.93 which it paid to settle a lawsuit filed against it by
the general contractor, and legal fees it incurred. NIBCO and
Thompson filed motions for summary judgment. The district court
granted the motions, holding that Beard’s damages were economic
loss damages which could not be recovered in the negligence claim
and that Beard failed to "meet the basic requirements"
for establishing its breach of warranty claim. Beard appealed
this ruling.

In its order of certification, the Court of Appeals determined
that the district court correctly held that Beard’s negligence
claim was barred as a matter of law because it sought only
economic damages. Finding that no Virginia case has construed ? 8.2-318 to determine
whether it abrogated the privity requirement for recovery of
economic loss damages in negligence cases, the Court of Appeals
nevertheless concluded that its own precedent and Virginia case
law, particularly Blake Construction Co. v. Alley, 233 Va.
31, 353 S.E.2d 724 (1987), and Sensenbrenner v. Rust, Orling
& Neale, Architects, Inc.
, 236 Va. 419, 374 S.E.2d 55
(1988), "strongly supports the conclusion that ? 8.2-318 has not
abrogated the privity requirement in negligence actions seeking
recovery for economic loss."[3] The Court of Appeals, however,
determined that the district court’s ruling addressed only
Beard’s claims for negligence and breach of the implied warranty
of fitness for a particular purpose and did not resolve Beard’s
claim that NIBCO and Thompson had also breached the implied
warranty of merchantability.

Before remanding the case to the district court for resolution
of Beard’s breach of the implied warranty of merchantability
claim, the Court of Appeals observed that Beard’s claim would be
barred, as a matter of law, if privity were required to recover
the damages claimed by Beard for breach of the warranty. The
Court of Appeals noted that, as in the case of negligence
actions, the effect of ? 8.2-318
on the privity requirement in breach of warranty actions seeking
economic loss damages has not been considered by this Court. The
Court of Appeals concluded, however, that unlike negligence
actions, Virginia precedent did not provide sufficient direction
for the construction of ? 8.2-318
as it relates to the damages sought in this case. To resolve this
issue, the Court of Appeals certified the following question to
us and stated that the answer would be determinative of the
proceeding pending before it:

Is privity required to recover economic loss under Va. Code ? 8.2-715(2) due to the
breach of the implied warranty of merchantability,
notwithstanding the language of Va. Code ? 8.2-318?

To answer this question, we must first determine whether ? 8.2-715(2) requires
the existence of a contract for the recovery of economic loss
damages in breach of warranty cases.[4]

Section 8.2-715(2) provides:

Consequential damages resulting from the seller’s breach
include

(a) any loss resulting from general or particular
requirements and needs of which the seller at the time of
contracting had reason to know and which could not
reasonably be prevented by cover or otherwise; and

(b) injury to person or property proximately resulting
from any breach of warranty.

This section does not address economic loss damages. However,
because the Court of Appeals directed its inquiry specifically to
this section, we assume that the Court of Appeals concluded that
the economic loss damages claimed by Beard were consequential
damages rather than direct damages.[5] We also limit our discussion to
subparagraph (a), since injury to persons or property is not
involved in this case.

Section 8.2-715(2)(a) is part of the UCC, a comprehensive
statutory scheme affecting commercial transactions. Although the
UCC is based on a uniform act now adopted by virtually every
state, we found no case interpreting the language of ? 8.2-715(2)(a) as it
relates to the requirement of a contractual relationship between
the parties.[6]

Nevertheless, the language of the section itself contains a
presumption that there is a contract between the parties. The
phrase "at the time of contracting" in subparagraph (a)
conveys the understanding of a contract between two parties. To
assert, as Beard did at oral argument, that the purpose of the
phrase is only to establish the historical moment for judging the
seller’s foreseeability, does not eliminate the connotation of
the existence of a contract inherent in the phrase. Beard’s
interpretation would require substituting the word
"sale" for the word "contracting," and we
decline the invitation to rewrite the statute. Therefore, we
conclude that ? 8.2-715(2)(a)
requires a contract between the parties for the recovery of
consequential economic loss damages incurred as a result of a
breach of warranty by the seller.

The second part of the certified question asks us to determine
whether the provisions of ? 8.2-318
supersede the contract requirement of ? 8.2-715(2)(a).
Section 8.2-318 provides in pertinent part:

Lack of privity between plaintiff and defendant shall be
no defense in any action brought against the manufacturer or
seller of goods to recover damages for breach of warranty,
express or implied, or for negligence, although the plaintiff
did not purchase the goods from the defendant, if the
plaintiff was a person whom the manufacturer or seller might
reasonably have expected to use, consume, or be affected by
the goods[.]

The provisions of this section appear to conflict with ? 8.2-715(2)(a)
regarding the requirement of a contract for the recovery of
consequential damages in a breach of warranty action. Rules of
statutory construction, however, resolve the apparent conflict.
In construing conflicting statutes, if one section addresses a
subject in a general way and the other section speaks to part of
the same subject in a more specific manner, the latter prevails. Dodson
v. Potomac Mack Sales & Service, Inc.
, 241 Va. 89, 94-95,
400 S.E.2d 178, 181 (1991). Applying this rule, we conclude that,
to the extent the two statues conflict, ? 8.2-715(2)(a)
prevails.

The general subject of ? 8.2-318
is the ability to raise the common law requirement of privity as
a defense. We have not previously construed ? 8.2-318; however, we
have referred to it as modifying the common law privity rule. Ward
v. Ernst & Young
, 246 Va. 317, 325-26, 435 S.E.2d 628,
632 (1993); Copenhaver v. Rogers, 238 Va. 361, 366, 384
S.E.2d 593, 595 (1989). Similarly, commentators have considered
the section and its predecessor as eliminating the common law
privity requirement in certain instances.[7] See, e.g.,
Time to Adopt the Uniform Commercial Code, Report of the
Virginia Advisory Legislative Council
, H. Doc. No. 5, at 113
(1963); and 1 James J. White and Robert S. Summers, Uniform
Commercial Code
? 11-3,
at 591 n.11 (4th ed. 1995).

The contract requirement of ? 8.2-715(2)(a),
however, is not a privity requirement imposed by the common law.
Part 7 of Title 8.2 of the UCC imposes a number of limitations
and conditions on the recovery of damages in a breach of warranty
claim. See, e.g., ?? 8.2-714(defining
measure of damages), -715(1)(identifying recoverable incidental
damages), and -719(b)(3)(ability to exclude consequential
damages). The contract requirement of ? 8.2-715(2)(a) is one
of those limitations. Section 8.2-715(2)(a) does not address the
general subject of the common law privity requirement’s effect on
the ability of a litigant to maintain an action for breach of
warranty. It is limited to that part of the litigation dealing
with the damages which may be recovered and imposes a contract
requirement only where recovery of consequential damages is
sought. Applying the rule of statutory construction recited
above, the limited contract requirement of ? 8.2-715(2) prevails
over the general provisions relating to common law privity in ? 8.2-318.

Accordingly, because ? 8.2-715(2)(a)
requires a contract between the parties for recovery of
consequential economic loss damages in a claim for breach of the
implied warranty of merchantability, we answer the certified
question in the affirmative.

Certified question answered in the affirmative.

 

FOOTNOTES:

[1] Justice Stephenson participated
in the hearing and decision of this case prior to the effective
date of his retirement on July 1, 1997.

[2] Beard also named a third-party
supplier as a defendant but was granted a voluntary dismissal as
to that defendant.

[3] The certified question does not
ask that we consider or comment on this issue.

[4] Although Beard asserts that its
damages went beyond economic loss, our consideration of the
certified question is premised on the Court of Appeals’
determination in the certification order that Beard’s damages are
solely economic loss damages.

[5] Consequential damages are not
defined in the UCC, but "are used in the sense given them by
the leading cases on the subject." ? 8.1-106 cmt. 3. Whether
damages are direct or consequential is a matter of law to be
determined by the court. R. K. Chevrolet, Inc. v. Hayden,
253 Va. 50, 56, 480 S.E.2d 477, 481 (1997).

[6] See, e.g., Beyond
the Garden Gate, Inc. v. Northstar Freeze-Dry Mfg., Inc.
, 526
N.W.2d 305, 309-10 (Iowa 1995)(remote nonprivity buyers cannot
recover consequential economic loss damages as a matter of
policy, citing reasons given in White and Summers, Uniform
Commercial Code
, ?
11-5, at 536 (3d. ed. 1988)); Horizons, Inc. v. Avco Corp.,
714 F.2d 862, 865-66 (8th Cir. 1983)(lost profits allowed because
seller, as a factual matter, had "reason to know"
business requirements of buyer); Sullivan Industries,
Inc. v. Double Seal Glass Co.
, 480 N.W.2d 623, 631-32 (Mich.
Ct. App. 1991)(economic loss damages disallowed because not
proved with reasonable certainty).

[7]
In 1964, former ?
8.654.3 was repealed and reenacted as ? 8.2-318 of the UCC without
change.

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