OPINION OF THE COURT
ADAMS, Circuit Judge.
This diversity case presents an interesting question regarding the interface between tort law and contract law. Specifically, we are asked to decide inter alia whether, under Illinois law, a purchaser of a product pursuant to a contract may recover damages under tort theories of liability for the failure of the property to perform satisfactorily. The district court, in declining to grant the defendant's motion for judgment notwithstanding the verdict, answered this question in the affirmative. As to this point, we reverse; in all other respects, we affirm the judgment of the district court.
In the early 1960s, the plaintiff, Jones & Laughlin Steel Corporation, developed plans to build a steel finishing plant on a 6,000 acre tract of land in Hennepin, Illinois. The roof of the building was of particular concern to Jones & Laughlin inasmuch as the size of the roof—1.3 million square feet—was extraordinarily large, and the weather in the Hennepin area is harsh— winds of high velocities are common and the temperature fluctuation is extreme. Both factors were expected to subject the roof to vigorous, and potentially destructive, wear-and-tear. In addition, it was anticipated that the plant would contain electrical equipment and finished steel products, valued at millions of dollars, that had to be protected from the elements. As a result of these concerns, Jones & Laughlin decided to retain Johns-Manville Sales Corporation, a well-known manufacturer and installer of roofing products, to recommend and supply suitable roofing materials. After being briefed on the design of the roof and informed of the weather conditions in the area surrounding Hennepin, a senior sales representative of Johns-Manville recommended a smooth-surfaced roof with a built-up asbestos felt membrane. The type of roof was chosen for its durability and ease of repair. The sales representative also suggested Fesco Board insulation because it could withstand the uplift caused
Jones & Laughlin reviewed Johns-Manville's recommendations and, on March 7, 1966, decided to include the Johns-Manville roofing system in the architectural plans for the plant. Construction of the roof began on November 14, 1966, and was completed on August 30, 1967. During this period, Johns-Manville supervised the installation work, which was performed by several roofing contractors.
Shortly after the roof was completed, several problems developed. The roof began to blister, wrinkle, and crack. The cracks permitted water to enter the steel mill, which in turn damaged some of the steel products under construction and caused electrical outages as well. Then, in December 1968, portions of the asbestos felt and Fesco Board began to tear away from the deck of the roof. Although the maximum wind speed recorded in the Hennepin area at the time in question was only eighty miles per hour, and the roof was designed to withstand winds in excess of one hundred-twenty miles per hour, fourteen portions of the roof, totaling 93,800 square feet, were blown off between January 1969 and December 1971. The remaining area of the roof continued to blister and crack.
Jones & Laughlin employed Edward T. Schreiber, a roofing consultant, to analyze the causes of the defects that developed in the roof. Schreiber subsequently testified at trial on behalf of Jones & Laughlin. He concluded that Fesco Board was not water resistant, but instead actually absorbed water and became spongy. According to Schreiber, Fesco Board also lacked internal strength and the absorption of moisture caused severe dimensional distortion in the board. He stated further that the glue recommended by Johns-Manville was sensitive to water vapor, which caused the glue to deteriorate and fail. This resulted, Schreiber asserted, in the cracking and tearing away of the roof. Schreiber recommended that the entire roof be removed and replaced. Jones & Laughlin declined to proceed with such a large undertaking, however, and instead repaired and replaced portions of the roof.
On August 7, 1972, Jones & Laughlin filed suit against Johns-Manville in the Court of Common Pleas of Allegheny County, Pennsylvania. The complaint was premised on a number of legal theories: (1) strict tort liability for defects in the roofing products; (2) strict tort liability for the faulty design of the roofing system; (3) strict tort liability for public misrepresentations regarding the roofing products; (4) fraudulent misrepresentation; (5) negligent misrepresentation; (6) negligent performance of an undertaking to render services; (7) breach of express and implied warranties; and (8) breach of contract. On September 14, 1972, Johns-Manville removed the case to the United States District Court for the Western District of Pennsylvania.
Accompanying its answer, Johns-Manville named as third-party defendants the general contractor, the roofing subcontractor responsible for installation of the roof, and the engineering firm that Jones & Laughlin retained as the architect for the plant. A number of cross-claims were filed among the original parties and the third-party defendants. Inasmuch as the claims involving the third-party defendants are not pertinent to the issues before us, and because the third-party defendants are not parties to these appeals, the cross-claims will not be discussed further.
On June 30, 1976, Johns-Manville moved for summary judgment. The district court
Trial before a jury commenced on November 27, 1978. At the close of the testimony, the district court denied a motion by Johns-Manville for a directed verdict on the tort claims. Johns-Manville had argued that, under Illinois law, a supplier of a product may not be held liable under tort principles for damages incurred as a result of the failure of the product to perform satisfactorily. Prior to the submission to the jury of the liability phase of the case, Jones & Laughlin withdrew its claim based on fraudulent misrepresentation.
In response to a series of special interrogatories, the jury found Johns-Manville liable on four of the remaining tort theories: (1) strict liability for defects in the roofing products; (2) strict liability for defects in the design of the roof; (3) strict liability for public misrepresentations regarding the roofing products; and (4) negligent performance of an undertaking to render services. In respect to one portion of the roof— the valleys—the jury attributed the injuries solely to the design defects and to Johns-Manville's negligence. No deterioration of the valleys was found to have been caused by the defective products or by Johns-Manville's public misrepresentations. The jury absolved Johns-Manville of liability for negligent misrepresentation and found that there was no breach of contract. In addition, the jury found Jones & Laughlin contributorily negligent in causing the injuries to the roof. In sum, the jury premised liability solely on Jones & Laughlin's tort claims, which were in turn predicated on strict liability, and rejected any contractual basis for recovery.
Trial then resumed on the question of damages. Jones & Laughlin claimed that it had expended over $1.7 million for repairs and would be required to spend between $2.9 million and $3.2 million to repair and replace defective portions of the roof. The company did not seek damages for any injuries that may have occurred to its steel products, electrical equipment, or any property other than the roof itself. Because the damage to the valleys of the roof was found to have been caused only as a result of the design defects and Johns-Manville's negligence, the jury was instructed to make separate findings regarding the cost of valley repairs. The jury set the cost of the valley repairs at $625,000, and returned a verdict in favor of Jones & Laughlin in the total amount of $2 million.
Following entry of judgment by the district court, Johns-Manville moved for judgment notwithstanding the verdict and, alternatively, for a new trial. The district court denied both motions. Johns-Manville filed a timely appeal on February 5, 1979, and on February 16, 1979, Jones & Laughlin filed a timely cross-appeal.
A. Choice of Law
A federal district court sitting pursuant to diversity jurisdiction must apply
B. Johns-Manville's Appeal
As it did in the district court, Johns-Manville urges here that there is no cause of action under Illinois tort law against the seller of a product for the failure of the product to perform as it was expected, as distinguished from injuries to persons or other property caused by a defect in the product. In support of this position, Johns-Manville relies primarily on two cases decided by the intermediate appellate courts of Illinois.
In Rhodes Pharmacal Co. v. Continental Can Co., 72 Ill.App.2d 362, 219 N.E.2d 726 (1966), the plaintiff sued an aerosol can manufacturer for damages that resulted from the leakage of cans in which the plaintiff's product was packaged. The appellate court concluded that liability could be based on the existence of an implied warranty of fitness, but held that the plaintiff had no cause of action for strict tort liability. The court stated simply "we are not persuaded that the doctrine of `strict tort liability' should be applied here." Id. at 368, 219 N.E.2d at 730.
More recently, in Alfred N. Koplin & Co. v. Chrysler Corp., 49 Ill.App.3d 194, 7 Ill.Dec. 113, 364 N.E.2d 100 (1977), the court extensively considered the justifications underlying the refusal to impose tort liability on a product manufacturer for the failure of its product to perform satisfactorily. The plaintiff had purchased two air conditioning units manufactured by Chrysler. When the units failed to work correctly, suit was brought against Chrysler for the costs of repairing and replacing the units. The jury found that (1) Chrysler had given the plaintiff an express warranty; (2) Chrysler negligently manufactured the products; and (3) the plaintiff was not contributorily negligent. After reviewing the record, the court concluded that Chrysler had expressly disclaimed any warranties of merchantability or fitness. It therefore reversed the verdict for the plaintiff based on the contract claim and turned to the question whether Illinois tort law provided a basis for recovery. Id. at 197, 7 Ill.Dec. at 116, 364 N.E.2d at 101-02. The court asserted that "this case falls within the narrow range of situations dividing tort theory from contract theory. This is so because the loss suffered by plaintiff in this case was `economic' loss ...." Id. at 199, 7 Ill.Dec. at 116, 364 N.E.2d at 103. "Economic loss" was defined by the court as "`damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits without any claim of personal injury or damage to other property.'" Id. (quoting Note, Economic Loss in Products Liability Jurisprudence, 66 Colum.L.Rev. 917, 918) (emphasis added).
Id. at 203, 7 Ill.Dec. at 120, 364 N.E.2d at 107. Accordingly, the judgment of the trial court was reversed in full.
As we observed just a short time ago, "the concept that a federal court must determine state law is somewhat misleading inasmuch as it implies the existence of a readily accessible and easily understood body of state law."
Inasmuch as the Supreme Court of Illinois has not addressed the question whether economic losses are recoverable under tort theories of liability, we cannot ascertain precisely the Illinois law on this subject. We are persuaded, however, that were the state supreme court to consider this question today, it would follow the decisions in Rhodes and Koplin, which find support in several well-reasoned discussions by other courts and commentators.
About fifteen years ago, the Supreme Courts of New Jersey and California handed down the two landmark opinions in this area. In Santor v. A and M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), the plaintiff purchased carpeting, that had been manufactured by the defendant, from a third-party seller. After several months, unsightly lines began to appear on the surface of the carpeting. The trial court determined that there was an implied warranty of fitness and concluded that the defendant breached the warranty. The Supreme Court of New Jersey affirmed and held that the plaintiff could maintain a breach of implied warranty claim directly against the
Id. at 64-65, 207 A.2d at 311-12.
Several months after Santor was decided, the California Supreme Court adopted a contrary position in Seely v. White Motor Co., 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17 (1965). There, Seely purchased a truck manufactured by the defendant. Upon taking possession, Seely discovered that the truck bounced violently. Nine months later, the truck overturned. Seely, who was not injured, had the damage repaired and ceased making his installment payments on the truck. The defendant subsequently repossessed the truck. Seely sued on theories of breach of express warranty and strict tort liability, and sought damages for the repair of the truck, for money paid on the purchase price, and for lost profits occasioned by the unsuitability of the truck for normal use. The trial court denied the claim for damages for the cost of repair because it found that the plaintiff failed to prove that the defect caused the accident, but awarded the plaintiff damages for money paid on the purchase price and for lost profits.
The California Supreme Court, holding that the manufacturer was liable on the basis of the express warranty, affirmed. It rejected strict liability, however, on the ground that the economic loss involved the failure of the product to perform to the level of the party's expectations—a concept that, for both traditional and practical reasons, is grounded essentially in the law of contracts, not the law of torts. Writing for the court, Chief Justice Traynor extensively analyzed the relationship between contract law and tort law:
Id. at 18, 403 P.2d at 151-52, 45 Cal.Rptr. at 23-24, quoted in Koplin, 49 Ill.App.3d at 200-02, 7 Ill.Dec. at 118, 364 N.E.2d at 105.
The position adopted in Koplin and Rhodes also has been more favorably received by the commentators than was the Santor analysis.
Disallowance of tort claims for economic losses accords with the provisions of the Restatement (Second) of Torts that discuss a manufacturer's liability for negligence and for strict liability. Section 323 of the Restatement (Second), for example, which defines the liability of one who negligently performs an undertaking to render services, provides that a manufacturer is liable to persons using its products for "physical harm" caused by its negligence. Neither
Policy considerations also support the view that the Illinois Supreme Court would follow the decisions in Rhodes and Koplin. Courts have adopted strict liability for cases involving injury to persons or other property in order to place the cost of such injuries on the manufacturer—the party best able to distribute the costs. Inasmuch as the defective product may well injure persons who have not purchased the product or in any way dealt with the manufacturer, there is no price mechanism by which to insure such persons against the risk of loss. As a consequence, there is no way effectively to internalize the product's true costs, which necessarily include the risk that some products will be defective and cause injury. The imposition on manufacturers of strict liability for defective products accomplishes the cost internalization that the price mechanism cannot achieve by placing the complete cost of the injuries on the manufacturer. In turn, the manufacturer can allocate a portion of that cost to the purchasers of its products in the form of higher prices.
The rationale behind strict liability in personal injury situations is not well-suited to claims alleging only economic loss. Economic loss results from the failure of the product to perform to the level expected by the buyer and the seller. Such loss is most frequently measured by the cost of repairing the infirmity or by the difference in the value of the product as it exists and the value it would have had if it performed as expected.
Finally, the extension of strict liability proposed here by Jones & Laughlin would appear to conflict with the decision by the Illinois Legislature to enact the sale provisions of the Uniform Commercial Code (UCC). Ill.Rev.Stat. ch. 26, §§ 2-101 to 2-725 (1973). Section 2-313 of the Code recognizes the existence of express warranties, and § 2-314 enacts an implied warranty of merchantability and fitness. Section 2-314 provides that "[u]nless excluded or modified ..., a warranty that the goods shall be merchantable is implied in a contract for their sale." Id. § 2-314(1). To be merchantable, the goods, inter alia, must be "fit for the ordinary purposes for which such goods are used." Id. § 2-314(2)(c). The Code also provides, however, that the parties to a sales contract may agree that the buyer possesses no warranty protection at all, or may limit any warranties in any reasonable manner. Id. § 2-316. The parties may even agree to exclude the implied warranty of merchantability and fitness if they do so in writing, and may modify the implied warranty by clear and conspicuous language. Id. § 2-316(2).
The extension of strict liability to cover economic losses in effect would make a manufacturer the guarantor that all of its products would continue to perform satisfactorily throughout their reasonably productive life. Inasmuch as the doctrine of strict liability does not permit a manufacturer to limit its liability through the use of a waiver or a limited warranty,
Consequently, we do not believe that the Illinois Supreme Court would extend its common law of tort liability in the manner suggested by Jones & Laughlin.
For the foregoing reasons, we predict that the Illinois Supreme Court would hold that economic losses are not recoverable under claims based on principles of tort law. The decisions of the intermediate Illinois appellate courts, the considered opinions of the vast majority of other courts and commentators who have addressed the matter, and reasons of public policy and judicial deference combine to support such a decision. Inasmuch as Illinois law does not permit a claim for economic loss to be premised on tort theories, we hold that Jones & Laughlin has not stated valid causes
C. Jones & Laughlin's Cross-Appeal
Jones & Laughlin has filed a cross-appeal that is conditional on our reversing the judgment in its favor. Inasmuch as we have reversed the judgment in its favor, we now turn to the claim by Jones & Laughlin that it is entitled to a new trial.
1. Jones & Laughlin's Breach of Warranty Claims Barred by the Illinois Statute of Limitations?
The district court granted Johns-Manville's motion for summary judgment on Jones & Laughlin's claim for breach of express warranty and implied warranty of merchantability and fitness as defined by the UCC. Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 453 F.Supp. 527, 535 (W.D.Pa.1978). See Ill.Rev.Stat. ch. 26 §§ 2-313 & 2-314 (1973). The court first decided that, under Illinois law, a contract for the construction of a roof is not a contract for the sale of goods as required by the UCC. It reasoned that because Johns-Manville was employed not merely to supply the roofing materials, but also to assist in the design of the roof and to supervise construction, its relationship to Jones & Laughlin extended substantially beyond the buyer-seller arrangement contemplated by the UCC. 453 F.Supp. at 535-36.
Even if the contract at issue were governed by the UCC, the district court went on to hold that Jones & Laughlin's UCC claims would be time-barred.
Jones & Laughlin concedes that delivery of the roof occurred more than five years prior to the filing of this lawsuit, but argues that the district court erred in holding that the contract between it and Johns-Manville did not explicitly extend any warranties to the future performance of the roof so that the cause of action accrued when the breach was or should have been
We are not persuaded by Jones & Laughlin's proffered interpretation of the sales literature distributed by Johns-Manville. The statements regarding the strength and wind resistance of Fesco Board, as well as the boast that many roofs supplied by Johns-Manville "are still performing satisfactorily after more than forty (40) years" of use, may not reasonably be relied on by Jones & Laughlin as explicit extensions of any warranty to cover the future performance of the product, as is required by § 2-725(2).
Under these circumstances, there is no occasion for us to address the alternative ground relied on by the district court in granting summary judgment in favor of Johns-Manville on the UCC claims—namely, that this was a construction contract which is not covered by the UCC.
2. Were the Jury's Answers to the Special Interrogatories Inconsistent?
At the conclusion of the trial, Jones & Laughlin moved for a new trial on its contract claims on the ground that it was inconsistent for the jury to conclude that Johns-Manville was negligent in its assistance in designing the roof and supervising construction, while also concluding that Johns-Manville did not breach its contractual duties in this regard. The district court denied this motion.
The interrogatories dealing with the negligence claim and the jury's answers read as follows:
13A If your answer to # 13 is Yes, did Johns-Manville's failure to exercise reasonable care consist of preparing, devising, or creating any part of the plans and specifications for the roof?
13B If your answer to # 13 is Yes, did Johns-Manville's failure to exercise reasonable care consist in review of approval of any portions of plans prepared by others, or in inspecting the works of others?
In interrogatory 13-B, the use of the disjunctive "or" means that the jury's affirmative answer logically may represent its determination that Johns-Manville's failure to exercise reasonable care related either to reviewing or approving the plans, or to inspecting the work of others. In other words, the use of the disjunctive means that the jury did not necessarily find that Johns-Manville was negligent in regard both to reviewing the plans and inspecting the work.
Interrogatories 17 and 18, dealing with the existence and breach of the contract, stated:
Again, the use of the disjunctive "and/or" in interrogatory 17 permitted the jury to answer in the affirmative, even if it determined that Johns-Manville had promised only to perform one of the duties listed.
Hence, the responsibilities found to exist in the negligence and contract interrogatories were not necessarily the same. For example, the jury could have determined in the answers to interrogatories 13A and 13B that Johns-Manville was negligent in preparing the plans for the roof and in reviewing or approving plans prepared by others, but did not negligently fail to exercise reasonable care in inspecting the construction work performed by others. At the same time, in response to interrogatory 17, the
If there exists "a view of the case that makes the jury's answers to special interrogatories consistent, they must be resolved that way." Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 364, 82 S.Ct. 780, 786, 7 L.Ed.2d 798 (1962). Since there is at least one way to explain the jury's answers to the interrogatories, we are bound to affirm them. Absent a challenge to the sufficiency of the evidence, any other result would be at odds with the Seventh Amendment. Id. Accordingly, the district court did nor err in denying Jones & Laughlin's motion for a new trial.
Although today's decision may appear to be somewhat harsh, we are confident that it is the result required by Illinois law. The record establishes that the roof purchased by Jones & Laughlin was unsuitable for the weather conditions to which it was subject. The unsuitability or the failure of the roof to perform as anticipated by the parties does not give rise to a cause of action based on Illinois tort law. While it would appear that Jones & Laughlin did have a colorable breach of warranty claim under the UCC (assuming arguendo that the contract involved the sale of goods), the company did not file such a claim within the time limits specified by the Illinois statute of limitation. And, for reasons known only to the jurors themselves, the jury rejected Jones & Laughlin's contract claims. Whatever the equities may be, under these circumstances Jones & Laughlin simply no longer has a legally actionable claim for relief.
Accordingly, the judgment of the district court denying Johns-Manville's motion for a judgment notwithstanding the verdict will be reversed, and in all other respects the judgment will be affirmed.
In Commissioner v. Estate of Bosch, 387 U.S. 456, 565, 87 S.Ct. 1776, 1782-1783, 18 L.Ed.2d 886 (1967), the Supreme Court summarized the manner in which federal courts should go about defining state law:
(citations deleted; emphasis in original).
12 Pa.Stat. § 39 (repeated effective June 27, 1978 by Act of July 9, 1976, P.L. 586, No. 142, § 25(b), reprinted in 42 Pa.Const.Stat.Ann. § 5521 rule).
Some years ago, this Court held that the so-called Pennsylvania borrowing statute defines the cause of an action as arising "where as well as when the final significant event that is essential to a suable claim occurs." Mack Trucks, Inc. v. Bendix-Westinghouse Auto A. B. Co., 372 F.2d 18 (3d Cir. 1966). The district court, referring to this passage from Mack Trucks, held that the case was governed by the Illinois statute of limitations because the "final significant event"—whether that be the construction of the roof or the occurrence or appearance of damage—happened in that state. 453 F.Supp. at 531.
Inasmuch as both Pennsylvania and Illinois have enacted in identical form the statute of limitations of § 2-725 of the UCC, there is no question on this appeal whether the district court correctly interpreted the Pennsylvania borrowing statute. See 12A Pa.Const.Stat. Ann. § 2-725 (Purdon Supp.1979); Ill.Rev.Stat. ch. 26, § 2-725 (1973).