Superwood Corp. v. Siempelkamp Corp.

Supreme Court of Minnesota · 1981 · Contracts

ContractsProducts liabilityEconomic lossU.C.C.economic losscommercial transactionsnegligencestrict products liability

Facts

Superwood purchased a hot plate press manufactured in 1954 by G. Siempelkamp. The press operated without problem until 1975, when the cylinder failed and could not be repaired. In 1979, Superwood sued in federal court alleging negligence, strict products liability, breach of warranty, and breach of contract, seeking damages for damage to the press and lost profits. The contract and warranty claims were dismissed, leaving the tort theories and the certified questions about recovery of economic loss arising from the commercial transaction.

Issue

Whether economic losses arising from a commercial sale of defective equipment are recoverable under negligence or strict products liability when the claimed losses consist of damage to the product itself and related business losses. More specifically, the court had to decide whether such tort remedies are available absent personal injury or damage to other property.

Rule

Economic losses that arise out of commercial transactions, except those involving personal injury or damage to other property, are not recoverable under the tort theories of negligence or strict products liability. In such commercial settings, the U.C.C. supplies the governing remedial framework for warranty and contract-based losses.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Granite Valley Milling, a grain processor in Wichita, bought an industrial conveyor from Prairie Forge Systems, a manufacturer. Two years later, an internal defect caused the conveyor to seize and ruin only the conveyor itself, forcing the mill to halt production for a week and lose expected profits.

If Granite Valley sues Prairie Forge in negligence and strict products liability for the cost of the conveyor and lost profits, what is the strongest argument for Prairie Forge under the governing rule?

Explanation. The majority held that economic losses arising out of commercial transactions are not recoverable in negligence or strict products liability unless the case involves personal injury or damage to other property. Here, the buyer is a commercial entity, the sale is commercial, and the claimed losses are damage to the product itself plus lost profits. Under that rule, the U.C.C. governs rather than tort.