DISSENTING OPINION BY QUINONEZ, J.
The economic loss rule is a double-edged sword; a sharpened blade which cuts both ways. It could just as well be referred to as the wall that segregates contract law from that of torts. From where it cuts deeply, the wall should be so impregnable. The history of this postulate traces back to the times when commerce trashed and turned for greater autonomy and the increasing complexity of commercial transactions put premium on privity and appreciable risk allocation platform.
The majority did not waver and proceeded to ignore the rule of separation. It went back to station zero and picked up the doctrine of bad faith denial of breach of contract when the same has already been consigned to the dustbin of two centuries past.
The majority should have deftly put the boundaries in place and should have gone back to the nuances of punitive and contract damages. Trade and commerce have become so complex and so complete in themselves that the law on strict liability can no longer be interfaced with. The tact of the majority in forcing the finding of punitive damages after contract damages have been awarded to the plaintiff-respondent, Robinson Helicopter, grossly disregards the modern inclination to insulate commercial parties from the chilling effect of tort exposure. The trend is not without reasonable and fair anchorage as it in fact recognizes the autonomy of the parties-in-negotiation and the value appended to predictable potential costs and risk assessment mechanisms in contract formation.
The motive of the defendant when the breach the contract has been put to the fore and it should have offered the majority a clear and eagle-eye view on how to properly treat the matter at hand. It may well be to restate that courts no longer look at coloring breaches favorably. The definitive ruling in many leading cases enunciates that there should be no scrutiny as to the breaching party’s motives and that a party that breaches a commercial contract must pay always and only contract damages. This has been the traditional approach and it has been the prevalent and persisting case law. Dana Corporation is liable for the breach, for delivering substandard products, but the breach may never be a bad faith breach as would subject the corporation for tort liability.
The economic loss rule is predicated on the space between contract and tort theories in a commercial context and the well-defined roles that they play—contract law enforced expectancy interests created by agreement between the parties in privity; tort law compensated people for physical harm to ones person or property caused by tortuous conduct, without regard to contract.
By negotiating contract terms, commercial parties could predictably allocate risk and limit potential liability to an agreed amount. Contract law limited recovery to expectation damages, which the parties reasonably expected to flow from the breach. On the other hand, tort law allowed all damages proximately resulting from tortious conduct, without any privity requirement or other limitations imposed under contract theory.
The economic loss rule developed in the products liability context. In Seely v. White Motor Co., the California Supreme Court held that the rule barred an action against a truck manufacturer. A brake failure damaged the plaintiffs truck, and the plaintiff sued the manufacturer to recover the purchase price and lost profits. The court rejected the plaintiffs strict liability claim, holding that the law of sales -- the Uniform Commercial Code (UCC) -- governed economic relationships among suppliers and consumers and that the law of strict liability was not meant to undermine the UCCs warranty provisions.
In another seminal case, East River Steamship Corp. v. Transamerica Delaval, Inc., the issue was whether the buyer of a ship could recover on both contract and tort claims against the seller when turbines on the ship malfunctioned, damaging the turbines. The U.S. Supreme Court held that no products claim lies in admiralty when the only injury is economic loss.
The Court reasoned that the distinction between tort and contract principles must be maintained, for when a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong. Using an apt metaphor, the Court stated its concern that if products liability claims were viable in such cases, contract law would drown in a sea of tort.
The underlying purpose of the economic loss rule is to preserve the distinction between contract and tort theories in circumstances where both theories could apply. Tort law should not be expanded to undermine basic contract principles. Contract law protects parties in the enforcement of their bargained-for promises, and it awards damages based on the loss of expectation. Tort law protects interests independent of any bargained-for agreement.
In Daanen & Janssen, Inc. v. Cedarapids, Inc., the Wisconsin Supreme Court articulated three policy considerations for the economic loss rule:
• maintain the distinct functions of tort and contract law
• protect commercial parties freedom to contract
• encourage the party who best understands the risk of economic loss the commercial purchaser to assume, allocate, or insure against the risk of loss caused by a defective product.
Such policy considerations and updated trends operate against the ruling of the majority. The breach is on the Dana’s failure to deliver clutches of warranted quality. The plaintiff-respondent’s damages consisted exclusively of the costs associated with identifying and replacing the defective products—all subsumed under the concept of economic loss. Indubitably, Dana should only be held liable for breach of contract and breach of warranty claims. By excluding tort recovery, the majority should have preserved the valuable distinction between tort and contract remedies and foreclose a situation where every routine breach will be taken as both a tort and contract claim.
The majority missed the note when it pursued the tact that Dana’s misrepresentation is an exception to the economic loss rule. The record shows that Dana’s misrepresentation involved matters for which risks and responsibilities were interwoven into the contract. Defendant’s misrepresentations concerned matters related to the performance of the contract and were not extraneous to the contractual dispute. Quite certainly, plaintiff in the case a quo can only recover for contract and not for tort damages.
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