Present: Carrico, C.J., Compton, Stephenson, 1 Lacy, Hassell,
Keenan, and Koontz, JJ.
BEARD PLUMBING AND HEATING, INC.
v. Record No. 970131 OPINION BY JUSTICE ELIZABETH B. LACY
September 12, 1997
THOMPSON PLASTICS,
INCORPORATED, ET AL.
UPON A QUESTION OF LAW CERTIFIED BY THE
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
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
1
Justice Stephenson participated in the hearing and
decision of this case prior to the effective date of his
retirement on July 1, 1997.
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
2
Beard also named a third-party supplier as a defendant
but was granted a voluntary dismissal as to that defendant.
2
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
3
loss." 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
3
The certified question does not ask that we consider or
comment on this issue.
3
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
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.
4
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
6
contractual relationship between the parties.
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.
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).
5
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
6
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 -
7
In 1964, former § 8.654.3 was repealed and reenacted as
§ 8.2-318 of the UCC without change.
7
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.
8