WERBER v. MERCEDES BENZ OF NORTH AMERICA INC (1984)

Appellant, Victor Werber (Werber), appeals from an order of dismissal entered following the sustaining of respondent, Mercedes-Benz of North America, Inc.'s (Mercedes-Benz) demurrer without leave to amend to his class action for negligence (count I), strict liability (count III), breach of implied and express warranties (count II) and for equitable relief (count IV).   Werber's complaint, brought on behalf of himself and all other owners of Mercedes-Benz 450 SL or 450 SLC vehicles registered in the state of California, alleges that a design or manufacturing defect in the automobiles has produced latent defects in the sub-frame assembly.   Specifically, in answer to respondent's interrogatory, Werber states that his vehicle “developed a fracture at or near the location where the ‘A’ arms and/or control arms on the front of my vehicle attach and/or intersect the sub-frame assembly.”

We agree with the trial court that Werber cannot state a cause of action in negligence or strict liability, or for the requested equitable relief.   However, we find that he has stated a cause of action for breach of the implied warranty of merchantability.   Accordingly, we reverse the order of dismissal.

APPELLANT HAS FAILED TO STATE CAUSES OF ACTION IN NEGLIGENCE AND STRICT LIABILITY

 A cause of action for negligence must allege physical injury to the person and/or to his property.   The same rule applies to a cause of action for strict liability.  (Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18–19, 45 Cal.Rptr. 17, 403 P.2d 145;  Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 446–447, 102 Cal.Rptr. 113.)   Werber attempts to demonstrate that he has suffered property damage by analogizing his situation to that of the plaintiff in Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 55 Cal.Rptr. 94.   There, a fire of unknown origin in the engine compartment of an automobile caused extensive damage to plaintiff's vehicle.   The court held that the resultant property damage supported plaintiff's cause of action in strict liability.

 Here, however, Werber does not claim that the defective sub-frame caused damage to other parts of the car.   Appellant states only that the defective part itself is damaged.   Were we to accept his claim of “property damage,” every action for breach of warranty would also become an action in negligence and strict liability.   The rules of warranty are intended to operate in a commercial setting and are based upon those representations which the manufacturer has chosen to make and upon other representations which the law has implied.   The doctrine of strict liability in tort was not designed to undermine the warranty provisions of the Sales Act.   Rather, it came into being “to govern the distinct problem of physical injuries.”  (Seely v. White Motor Co., supra, 63 Cal.2d 9, 15, 45 Cal.Rptr. 17, 403 P.2d 45.)   The same is true of actions in negligence.

In Seely, Justice Traynor clarified the two distinct concepts.   He discussed Santor v. A & M Karagheusian, Inc. (1965) 44 N.J. 52, 207 A.2d 305, an action for strict liability in tort, in which the court imposed liability upon a manufacturer for the difference between the price paid for a defective carpet and its actual market value.   In disagreeing with the application of the doctrine, Traynor said, “We are of the opinion, however, that it was inappropriate to impose liability on that basis in the Santor case, for it would result in imposing liability without regard to what representations of quality the manufacturer made.   It was only because the defendant in that case marketed the rug as Grade # 1 that the court was justified in holding that the rug was defective.   Had the manufacturer not so described the rug, but sold it ‘as is,’ or sold it disclaiming any guarantee of quality, there would have been no basis for recovery in that case.   Only if someone had been injured because the rug was unsafe for use would there have been any basis for imposing strict liability in tort.”   (Id., at pp. 17–18, 45 Cal.Rptr. 17, 403 P.2d 145.)

APPELLANT HAS STATED A CAUSE OF ACTION FOR BREACH OF THE IMPLIED WARRANTY OF MERCHANTABILITY

Respondent's demurrer to appellants' breach of warranty count was sustained, as stated in the court's minute order of September 27, 1982, when the court took notice of the date of purchase of Werber's automobile (approximately eight years before the commencement of this action) and found that the breach of warranty count was barred by the statute of limitations.   In addition, the court indicated, in its earlier minute order of July 1, 1982, that appellant lacked the necessary privity of contract to bring suit in implied warranty because he had leased the vehicle from Beverly Hills, Ltd. on or about September 1, 1973, and purchased the vehicle on September 1, 1977, from Beverly Hills, Ltd. and not directly from Mercedes-Benz or one of its dealerships.

 Privity.

 Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.  (Cal.U.Com.Code § 2314.)   While privity of contract appears to remain a requirement for actions based upon an implied warranty (Hauter v. Zogarts (1975) 14 Cal.3d 104, 114, fn. 8, 120 Cal.Rptr. 681, 534 P.2d 377), exceptions to the privity rule have been made when the product sold was foodstuffs or drugs (Klein v. Duchess Sandwich Co., Ltd. (1939) 14 Cal.2d 272, 93 P.2d 799;  Gottsdanker v. Cutter Laboratories (1960) 182 Cal.App.2d 602, 6 Cal.Rptr. 320), when plaintiff was a member of the purchaser's family (Hauter v. Zogarts, supra, 14 Cal.3d 104, 114, fn. 8, 120 Cal.Rptr. 681, 534 P.2d 377) and when the plaintiff was an employee of the purchaser (Peterson v. Lamb Rubber Co. (1960) 54 Cal.2d 339, 347–348, 5 Cal.Rptr. 863, 353 P.2d 575).  “The privity requirement has been strongly attacked, and a legislative and judicial trend away from it is apparent.”  (2 Witkin, Summary of Cal.Law (8th ed. 1973) Sales, § 88, p. 1153.   For illustrative out-of-state cases where privity has been dispensed with for purely commercial loss flowing from product deficiency see Lang v. General Motors Corp. (N.D.1965) 136 N.W.2d 805 and Spence v. Three Rivers Builders and Masonry Supply, Inc. (1958) 353 Mich. 120, 90 N.W.2d 87.)

In Burr v. Sherwin Williams Co. (1954) 42 Cal.2d 682, 695–696, 268 P.2d 1041, our Supreme Court reaffirmed the general rule that privity is required to enforce an implied warranty.   However, it also stated that “we need not consider at this time whether plaintiffs ․ can come within some exception to the rule.”  (Id., at p. 697, 268 P.2d 1041, emphasis added.)   In its later decision in Peterson v. Lamb Rubber Co., supra, 54 Cal.2d 339, 344, 5 Cal.Rptr. 863, 353 P.2d 575, the court commented that the Burr court's reference to “some exception” was “clearly intended to guard against closing the door to the development of other exceptions as law and justice and changing economic conditions might require.”

 The instant case presents a situation where changing economic conditions, and justice as well, dictate the appropriateness of an exception to the privity rule.   The subject vehicle was chosen by Werber.   He took possession of the auto when it was new and retained possession for the life of the vehicle—in short, he was, in substance, the owner of the vehicle from 1973 onward, even though he took legal title 48 months later.   The leasing company here functioned much as a finance company would otherwise have functioned, while appellant, at all times, was the intended user of the vehicle.   Werber satisfies the privity requirement because the vehicle was under his control from the time it was first put into use by a consumer.   To rule otherwise, would exalt form over substance.  (See King v. Central Bank (1977) 18 Cal.3d 840, 847, 135 Cal.Rptr. 771, 558 P.2d 857;  Glaire v. La Lanne-Paris Health Spa, Inc. (1974) 12 Cal.3d 915, 924, 117 Cal.Rptr. 541, 528 P.2d 357;  Thomas v. Wright (1971) 21 Cal.App.3d 921, 924–925, 98 Cal.Rptr. 874.) ¹

 The Statute of Limitations and Application of the Delayed Discovery Rule.

The applicable statute of limitations here is found in both California Code of Civil Procedure section 337 and California Uniform Commercial Code section 2725.  Commercial Code section 2725, subdivision (2) states that a cause of action accrues when tender of delivery is made, but “where a warranty 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.”   Subdivision (4) of that section states that the section does not alter the law on tolling of the statute of limitations.   The Uniform Commercial Code Comment to subdivision (4) declares:  “Subsection (4) makes it clear that this Article does not purport to alter or modify in any respect the law on tolling of the Statute of Limitations as it now prevails in the various jurisdictions.”

 Thus, while a reading of subdivision (2) by itself suggests that Werber could not invoke the delayed discovery rule absent a showing of an express warranty by Mercedez-Benz, subdivision (4) makes clear that the delayed discovery rule, as it has been traditionally applied under Code of Civil Procedure section 337 to sales under an implied warranty,² is equally applicable to the California Uniform Commercial Code.

Werber argues that he could not, by the exercise of reasonable diligence, have become aware of the latent defect in his vehicle before December 1, 1981, and that he filed suit shortly thereafter.

In Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal.3d 624, 147 Cal.Rptr. 486, 581 P.2d 197, the California Supreme Court reaffirmed that the delayed discovery rule applies to warranty actions.   Plaintiff, the owner of an apartment project, had alleged that portions of the project's balconies and the structural members supporting them were beginning to deteriorate because of dry rot.   Defendants invoked the bar of Code of Civil Procedure section 337.15, which imposes a ten-year statute of limitations on actions against persons who develop real property.   The court said, “[I]n the absence of section 337.15 the statute of limitations would not begin to run against plaintiff's action until the plaintiff discovered or would in the exercise of reasonable diligence discover the defect in the buildings.”   Whether plaintiff's action against the contractor rested on a breach of a prospective warranty of work or materials furnished under a contract or upon a theory of negligent injury to realty, “under the allegations of plaintiff's complaint the period begins with the discovery of the defect.”  (Id., at p. 630, 147 Cal.Rptr. 486, 581 P.2d 197.)   The Regents court cited with approval its earlier holding to the same effect in Aced v. Hobbs-Sesack Plumbing Co., supra, 55 Cal.2d 573, 12 Cal.Rptr. 257, 360 P.2d 897.

In Aced, a contractor sued a subcontractor, alleging that the tubing the subcontractor had used in a radiant heating system developed leaks necessitating the replacement of the entire system, and therefore an implied warranty of merchantability was breached.   The court determined that the subject contract was one for labor and materials rather than for a sale of tangible chattels, but that an implied warranty of merchantability might be found in either case.  “With respect to sales, merchantability requires among other things that the substance sold be reasonably suitable for the ordinary uses it was manufactured to meet.  [Citations.]  The defect of which Aced complains is that the tubing was not reasonably suitable for its ordinary use, and his cause of action may properly be considered as one for breach of a warranty of merchantability.”  (Id., at pp. 582–583, 12 Cal.Rptr. 257, 360 P.2d 897.)

The court, in Aced, next discussed the application of the delayed discovery rule to warranty actions, concluding that “this is a case which could properly be found to come within the operation of the principle that, if a warranty relates to a future event before which the defect cannot be discovered by the exercise of reasonable diligence, the warranty, though accompanied by a representation as to present condition, is prospective in character and the statute of limitations begins to run as of the time of that event.”   The court cited numerous cases to illustrate the variety of factual situations where the delayed discovery rule applied, and concluded “․ the principle in question has been followed with respect to implied as well as express warranties, and it has long been recognized in this state that the time when the statute of limitations begins to run is the same whether a warranty is express or implied.”  (Id., at pp. 583–584, 12 Cal.Rptr. 257, 360 P.2d 897.)   The same conclusion was reached in Kaiser Cement & Gypsum Corp. v. Allis-Chalmers Mfg. Co. (1973) 35 Cal.App.3d 948, 960, 111 Cal.Rptr. 210.   There, the court held that the statute of limitations begins to run “at the time the breach of the product to fulfill the standard could be reasonably discoverable by the purchaser.”

 We believe that fairness requires that Werber be given the opportunity to prove that Mercedes-Benz breached an implied warranty of merchantability—reasonable suitability of the vehicle for its ordinary use.   Respondent complains that in so doing appellant would be allowed to create a “perpetual warranty” guaranteeing the product forever “against wear or any other malfunction.”   That is not the purpose of the delayed discovery rule.   Application of the rule only allows appellant to convince the trier of fact that the sub-frame of the subject vehicles manifested a defect within an unreasonable period of time.   As the court said in Aced v. Hobbs-Sesack Plumbing Co., supra, at page 584, 12 Cal.Rptr. 257, 360 P.2d 897:  “A warranty that the tubing was of a quality reasonably permitting its use in a radiant heating system would include a prospective warranty that the tubing would not, within a reasonable period of time, corrode and leak.”  (Emphasis added.)

EQUITABLE REMEDIES

 In addition to his prayer for the cost of property damage to the subject vehicles, appellant, in his fourth cause of action, contends that the vehicles are defective, dangerous and unsafe, are capable of developing fractures where the “A” arms attach to the sub-frame assembly, and should be replaced by Mercedes-Benz with sub-frame assemblies which will not develop such fractures, through a recall by Mercedes-Benz of all 450 SL and 450 SLC vehicles.   He also seeks damages to compensate for costs already incurred by those plaintiffs who have replaced a sub-frame assembly on their vehicles.

The trial court sustained Mercedes-Benz's demurrer to this fourth cause of action.   It took judicial notice of existing federal regulations governing the establishment of automobile safety standards and concluded that Werber's action was barred by his failure to exhaust available federal administrative remedies.

Congress has adopted a comprehensive plan to establish motor vehicle safety standards which has been codified as title 15, sections 1381 through 1420 of the United States Code.   The Secretary of Transportation was given authority to establish federal motor vehicle safety standards.   However, the plan does not mandate exclusive federal control over motor vehicle standards.   “Whenever a Federal motor vehicle safety standard established under this subchapter is in effect, no State or political subdivision of a State shall have any authority either to establish, or to continue in effect, with respect to any motor vehicle or item of motor vehicle equipment any safety standard applicable to the same aspect of performance of such vehicle or item of equipment which is not identical to the Federal standard.”  (15 U.S.C. § 1392(d), emphasis added.)   States were specifically given authority to inspect used vehicles and enforce safety standards by section 1397(b)(1).

Regulations to implement these laws are found in Title 49, Chapter V of the Code of Federal Regulations.   Under these regulations, any interested person may file with the National Highway Traffic Safety Administrator a petition requesting him to commence a proceeding respecting the issuance of a motor vehicle safety standard.  (§ 552.3.)   Section 571.101 et seq. lists established standards for various items of motor vehicle equipment.   No federal standards have been promulgated for sub-frame assemblies.   We have discovered no applicable state standards either.

Werber asks for a judicially ordered recall of all Mercedes-Benz 450 SL and 450 SLC vehicles registered in the State of California.   However, it is manifest that this cannot be accomplished prior to the promulgation of standards for evaluation and construction of suitable sub-frame assemblies.   The establishment of such technical standards is ordinarily the responsibility of the executive branch of government, not the judiciary.   Moreover, Werber has named no official, either state or federal, as a party to this action.   Since no such party was before the trial court, that court had no authority and no means by which to order the establishment of such standards, a necessary prerequisite to imposition of a product recall.  “The rendition of a valid personal judgment against a defendant requires that he be a member of the class subject to its power and that he have proper notification of the action, with an opportunity to appear therein.”  (Allen v. Superior Court (1953) 41 Cal.2d 306, 309, 259 P.2d 905.)

Here, a comprehensive plan to establish safety standards has been developed by the federal government.   While the federal plan has not been made exclusive, we do not believe a California trial court should use its equitable powers to order state officials to develop a plan to establish sub-frame assembly standards, and subsequently effect a vehicle recall if the questioned parts prove defective, in the absence of a showing that the federal scheme is inadequate.   Should a vehicle recall be necessary, a recall on a national level, rather than on a state-by-state piecemeal basis, would be the preferable remedy.   It would be in the best interests of the public and would obviate duplication of effort.

Werber has not attempted to exercise his available federal administrative remedy.   The trial court correctly sustained Mercedez-Benz's demurrer to his fourth cause of action without leave to amend.

The order of dismissal is reversed, and this matter is remanded to the trial court for further proceedings in accordance with the views expressed herein.

FOOTNOTES

1.   In Thomas v. Wright, supra, 21 Cal.App.3d 921, 924–925, 98 Cal.Rptr. 874, the court determined that an open-ended “automobile leasing contract” amounted to a conditional sales contract as defined in Civil Code section 2981, and a deed of trust taken as additional security therewith was therefore invalid under Civil Code section 2984.2.

2.   It has long been recognized in California that the time when the statute of limitations begins to run is the same whether a warranty is express or implied.  (Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573, 584, 12 Cal.Rptr. 257, 360 P.2d 897;  Gross v. Kierski (1871) 41 Cal. 111, 114.)

FEINERMAN, Presiding Justice.

STEPHENS and HASTINGS, JJ., concur.