Recently 60 Minutes aired an exposé on Lumber Liquidators’ sales of Chinese-made laminate flooring containing elevated levels of formaldehyde, a known carcinogen. Class action lawsuits against Lumber Liquidators in California and Florida quickly followed, alleging that the company knew or should have known that its laminate flooring products were mislabeled, improperly tested and unsafe.
The safety of a product purchased by a contractor is typically not something that the contractor worries about. If the product is sold on the open market, the contractor presumes it to be safe, essentially relying on the seller to make sure that it is. But to the homeowner, the contractor is the seller – and the homeowner usually indulges the exact same presumption. If a contractor buys and installs a dangerous product, is he liable to his customer for any resulting injury? The answer is far from clear.
In the context of a “transaction in goods,” the Uniform Commercial Code provides that all products sold by “a merchant with respect to goods of that kind” carry an implied warranty of “merchantability” promising, among other things, that the goods “are fit for the ordinary purposes for which such goods are used.” Dangerous products – at least those whose danger is not apparent -- typically are not considered fit for their ordinary purposes in the absence of a warning. Unless this implied warranty has been disclaimed by agreement of the parties (a rare event in the typical residential construction project) the contractor may be at risk―but only if he is both engaging in a “transaction in goods” and is a “merchant with respect to goods of that kind.”
Whether a contractor building a project is engaged in a sale of goods for purposes of the Uniform Commercial Code, or is simply furnishing a service, depends on which of two tests is applied: the “predominant factor” test, which asks “whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved,” or the “gravamen of the action” test, which asks “whether the underlying action is brought because of alleged defective goods or because of the quality of the service rendered.” In re Trailer and Plumbing Supplies, 133 N.H. 432, 436 (1990). While the “predominant factor” test was applied in that particular case (no claim of defective goods was made), the “gravamen of the action” test could well be applicable where defective installation is not at issue and the claim centers on a defect in the product itself―with the result that the contractor is more likely to be deemed a seller of goods under the Uniform Commercial Code. The answer must await a test case.
But is the contractor also a merchant who “deals in goods of the kind?” A singular sale of the offending product, standing alone, is not sufficient; such sales must be frequent enough to justify the conclusion that the contractor “deals” in them. The more such sales it makes, the more likely the contractor is to pass this second test as well.
Apart from the Uniform Commercial Code, ordinary tort law sometimes renders a seller strictly liable for “unreasonably” dangerous products, i.e., where “the magnitude of the danger outweighs the utility of the product,” Vautour v. Body Masters Sports Industries, Inc., 147 N.H. 150, 154 (2001). Fortunately for contractors, our Supreme Court has rejected strict liability for contractors, at least as to the structure as a whole: “Although a building contractor supplies a structure to the owner, ‘[t]he generally accepted view has not been to impose strict liability, either on a warranty or tort theory, to the building contractor who is regarded as being engaged primarily in the rendition of a service, i.e., the construction of a building on land owned by another pursuant to plans and specifications provided by the owner.’” Bruzga v. PMR Architects, P.C., 141 N.H. 756, 762 (1997). Whether the case will immunize contractors from liability for a particular defective component of a structure remains to be seen, but this language certainly bodes well for contractors. And the Court’s mention of a “warranty” theory within the scope of the general rule of nonliability may have promising implications for claims under the Uniform Commercial Code as well.
The safety of a product purchased by a contractor is typically not something that the contractor worries about. If the product is sold on the open market, the contractor presumes it to be safe, essentially relying on the seller to make sure that it is. But to the homeowner, the contractor is the seller – and the homeowner usually indulges the exact same presumption. If a contractor buys and installs a dangerous product, is he liable to his customer for any resulting injury? The answer is far from clear.
In the context of a “transaction in goods,” the Uniform Commercial Code provides that all products sold by “a merchant with respect to goods of that kind” carry an implied warranty of “merchantability” promising, among other things, that the goods “are fit for the ordinary purposes for which such goods are used.” Dangerous products – at least those whose danger is not apparent -- typically are not considered fit for their ordinary purposes in the absence of a warning. Unless this implied warranty has been disclaimed by agreement of the parties (a rare event in the typical residential construction project) the contractor may be at risk―but only if he is both engaging in a “transaction in goods” and is a “merchant with respect to goods of that kind.”
Whether a contractor building a project is engaged in a sale of goods for purposes of the Uniform Commercial Code, or is simply furnishing a service, depends on which of two tests is applied: the “predominant factor” test, which asks “whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved,” or the “gravamen of the action” test, which asks “whether the underlying action is brought because of alleged defective goods or because of the quality of the service rendered.” In re Trailer and Plumbing Supplies, 133 N.H. 432, 436 (1990). While the “predominant factor” test was applied in that particular case (no claim of defective goods was made), the “gravamen of the action” test could well be applicable where defective installation is not at issue and the claim centers on a defect in the product itself―with the result that the contractor is more likely to be deemed a seller of goods under the Uniform Commercial Code. The answer must await a test case.
But is the contractor also a merchant who “deals in goods of the kind?” A singular sale of the offending product, standing alone, is not sufficient; such sales must be frequent enough to justify the conclusion that the contractor “deals” in them. The more such sales it makes, the more likely the contractor is to pass this second test as well.
Apart from the Uniform Commercial Code, ordinary tort law sometimes renders a seller strictly liable for “unreasonably” dangerous products, i.e., where “the magnitude of the danger outweighs the utility of the product,” Vautour v. Body Masters Sports Industries, Inc., 147 N.H. 150, 154 (2001). Fortunately for contractors, our Supreme Court has rejected strict liability for contractors, at least as to the structure as a whole: “Although a building contractor supplies a structure to the owner, ‘[t]he generally accepted view has not been to impose strict liability, either on a warranty or tort theory, to the building contractor who is regarded as being engaged primarily in the rendition of a service, i.e., the construction of a building on land owned by another pursuant to plans and specifications provided by the owner.’” Bruzga v. PMR Architects, P.C., 141 N.H. 756, 762 (1997). Whether the case will immunize contractors from liability for a particular defective component of a structure remains to be seen, but this language certainly bodes well for contractors. And the Court’s mention of a “warranty” theory within the scope of the general rule of nonliability may have promising implications for claims under the Uniform Commercial Code as well.
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