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Posted: March 23, 2016

Delivery of Non-Conforming Goods Creates UCC Cause of Action

On March 15, 2016, the First Department issued a decision in BMW Group, LLC v. Castle Oil Corp., 2016 NY Slip Op. 01790, holding that delivery of nonconforming goods created a cause of action under the UCC.

In BMW Group, the plaintiffs paid the defendant for No. 4 or No. 6 heating oil but the defendant allegedly delivered “a mixture of those grades of fuel oil and waste oil or other types of inferior oil.” The trial court dismissed the plaintiffs’ complaint on the ground that the plaintiffs had not alleged

that any injury was caused to them by the use or the burning of this blended oil. The court reasoned that the claim that the delivered oil was less valuable than the product plaintiffs paid for was not sufficient to state a cause of action, relying on the proposition that a claim of economic damages based on nonconforming goods is insufficient in the absence of any demonstrable ill effect or negative impact on the product’s performance or utility.

The First Department reversed, explaining:

The issue is whether, as the motion court concluded, plaintiffs’ claims amount to merely “theoretical nonconformities” that do not justify a claim for breach of warranty or breach of contract because they did not cause economic loss.

The so-called “tendency to fail” or “no injury” latent defect cases on which the motion court relied are inapposite. Actions alleging latent design defects where no accident had been caused by the alleged defect, and no property damage or personal injury occurred, are in essence products liability cases. Their core allegation is essentially that the defendant produced or sold a defective product and/or failed to warn of the product’s dangers. Here, however, the claim is rooted in basic contract law. . . . The wrongful act in a no-injury products suit is the placing of a dangerous/defective product in the stream of commerce, whereas the wrongful act alleged [in a nonconforming goods suit] is the defendant’s failure to uphold its end of their bargain and to deliver what was promised.

. . . Even if the purchaser does not qualify as a “consumer” for purposes of consumer protection laws, if the goods that are delivered do not conform to the goods contemplated by the sale contract, the purchaser has a cause of action under the Uniform Commercial Code.

. . .

Under UCC 2-714(2), the measure of damages for breach of warranty is the difference between the value of the goods delivered and the value of the goods warranted. Since we must infer from the complaint that plaintiffs received nonconforming oil deliveries of lesser value than those they contracted and paid for, causes of action for breach of contract and breach of warranty — including plaintiffs’ damages — are stated in each action.

(Internal quotations and citations omitted).

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