DocketNumber： 79-3556
Judges： Engel, Keith, Kennedy
Filed Date： 2/3/1982
Status： Precedential
Modified Date： 11/4/2024
This is a direct appeal of a judgment involving a breach of expressed and implied warranty under Ky.Rev.Stat. §§ 355.2-313, 2-314, brought pursuant to the district court’s diversity jurisdiction 28 U.S.C. § 1332.
Defendant-appellant Norden Laboratories, Inc. (“Norden”) appeals from a judgment of $40,500.00, awarded in favor of plaintiff-appellee Dr. Luel P. Overstreet, a Kentucky veterinarian and horse owner.
On appeal Norden alleges that the failure to instruct the jury on the requirement that the plaintiff must have relied on the express warranty was error. We agree. Reliance is an element of a cause of action for express warranty under Ky.Rev.Stat. § 355.2-313(1)(a). We therefore vacate the judgment entered below and remand for proceedings consistent with this opinion.
FACTS
Dr. Overstreet is a practicing veterinarian and operator of a standard bred horse farm in Henderson County, Kentucky. Equine rhinopneumonitis is a virus which causes horses to exhibit symptoms which generally resemble a common cold. In pregnant mares, however, the virus will cause abortions. Norden Laboratories, Inc., a Nebraska corporation, manufactures and markets various drugs to veterinarians. Rhinomune, one of the drugs manufactured by Norden, is a vaccine designed to inoculate horses against equine rhinopneumoni-tis.
Rhinomune was first marketed by Nor-den in the spring of 1973. Norden’s marketing program for the new, unique drug utilized magazine advertisements, brochures and sales persons. In the spring of 1973, about the time Norden began marketing Rhinomune, two mares on Dr. Overstreet’s farm aborted their foals. Dr. Overstreet became concerned about a possible outbreak of equine rhinopneumonitis virus among his breeding horses. It was later determined that an equine rhinopneumonitis virus caused the abortions.
A Norden sales representative called on Dr. Overstreet’s office and spoke with an associate of the doctor’s concerning rhino-mune. Dr. Overstreet became interested in the drug and allegedly read rhinomune promotional literature. Dr. Overstreet asserts that he then ordered a quantity of rhino-mune, because of the representations contained in Norden’s advertisements.
The rhinomune vaccine was administered to a number of Dr. Overstreet’s horses during the three months prior to November, 1973. Six of the inoculated mares on Dr. Overstreet’s farm aborted their foals during the spring of 1974.
Dr. Overstreet instituted this breach of warranty action under Ky.Rev.Stat. §§ 355.2-313, 2-314 against Norden to recover losses resulting from the aborted foals. At trial, Dr. Overstreet alleged that Norden breached expressed and implied warranties which Norden made concerning its rhinomune vaccine. A jury returned a
Norden made motions for judgment n.o.v. and, in the alternative, for a new trial. Both motions were denied. Defendant Norden perfected this appeal. Norden assigns as error jury instructions on the issue of its liability under Ky.Rev.Stat. §§ 355.2-313, 2-314. Norden argues that the trial court should have instructed the jury that in order to recover, plaintiff must establish that he relied on any warranty which Norden made. Appellant’s challenge is well founded, but imprecise. As Norden contends, reliance is an element of a breach of an expressed warranty action under Kentucky law, and the jury should have been instructed accordingly. However, the implied warranty of merchantability Ky.Rev. Stat. § 355.2-314 is a duty imposed by Kentucky law and plaintiff’s reliance thereon is not a requisite to defendant’s liability for breach.
The verdict form allowed the jury to award a judgment against Norden without stating which warranty was breached, consequently we cannot determine under which theory appellant’s liability was imposed. We find these jury instructions were erroneous. Because the instructions were erroneous and, for the reasons set forth below, we reverse the trial court’s judgment and remand for proceedings consistent with this opinion.
A. Implied Warranty of Merchantability
The implied warranty of merchantability as set forth in the Ky.Rev.Stat. § 355.2-314 provides in pertinent part:
“(1) Unless excluded or modified (KRS 355.2-316), 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____”
To be merchantable, goods must, inter alia, “be fit for the ordinary purposes for which such goods are used.” Ky.Rev.Stat. § 355.-2-314(2)(c).
The implied warranty of merchantability arises by operation of law. As such, it does not require reliance as an element of a purchaser’s recovery. Consequently, Nor-den’s reliance argument, so far as it relates to the implied warranty of merchantability, is without merit. We find that Judge Gordon properly instructed the jury on the implied warranty theory. However, we hold that there is insufficient evidence on this record to sustain a finding that Norden breached its implied warrant of merchantability.
B. Express Warranty
Appellant contends that the jury instructions and verdict form
We appreciate the formidable task which confronts a trial judge in charging a jury. We must nevertheless remain loyal to the mandate of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which requires a federal court sitting in diversity to apply the substantive law of the state in which it sits. In the instant case, however, no Kentucky court has construed Ky.Rev.Stat. § 355.2-313.
Appellant noted above that the jury instructions did not include a charge that Dr. Overstreet must have relied on the express warranty. Moreover, the record before us does not reflect that the trial court properly ascertained whether reliance was an element of appellee’s recovery. Accordingly, we hold that these instructions were erroneous. We must now decide, as we think a Kentucky court would decide, the elements of an express warranty action.
Substantial compliance with the directions for the use of a product is a condition precedent to the existence of an express warranty. See, e.g., Elanco Products Co. v. Akin-Tunnell, 516 S.W.2d 726, 15 UCC Rep. 777, 783-84 (Tex.App.1974); Chatfield v. Sherwin-Williams Co., 266 N.W.2d 171, 24 UCC Rep. 285, 292 (Minn. 1978). The scope of a product warranty is limited to the product’s intended use. Use of a product contrary to its directions will preclude recovery for breach of an express warranty. See Elanco Products Co., supra, 15 UCC Rep. at 784.
An express warranty may be created by any affirmation of fact or promise made by a seller which relates to the goods. Ky. Rev.Stat.Ann. § 355.2-313(1)(a) (Baldwin). The language creating an express warranty need not contain special phrases or formal words such as guarantee or warranty. Ky. Rev.Stat. § 355.2-313(2). See Note, The Uniform Commercial Code and Greater Consumer Protection Under Warranty Law, 49 Ky.L.J. 240, 243 (1960) [hereinafter cited as Consumer Protection Under Warranty Law]. In fact, a seller need not have intended that the language create an express warranty. Ky.Rev.Stat.Ann. § 355.2-313(2) (Baldwin). Every statement made by a seller, however, does not create an express warranty. A seller may puff his wares and state his opinion on their value without creating an express warranty. Ky. Rev.Stat.Ann. § 355.2-313(2) (Baldwin). See, e.g, Royal Business Machines v. Lorraine Corp., 633 F.2d 34, 30 UCC Rep. 462, 468 (7th Cir. 1980).
The existence of an express warranty depends upon the particular circumstances in which the language is used and read. See, eg., Interco, Inc. v. Randustrial Corp., 533 S.W.2d 257, 19 UCC Rep. 464, 470 (Mo.App.1976); Sessa v. Riegle, 427 F.Supp. 760, 21 UCC Rep. 745, 752 (E.D.Pa.1977), aff’d without op., 568 F.2d 770 (3rd Cir. 1978). A catalog description or advertisement may create an express warranty in appropriate circumstances. See Interco, Inc., supra, 19 UCC Rep. at 470; McKnelly v. Sperry Corp., 642 F.2d 1101, 30 UCC Rep. 1533, 1540 n.10 (8th Cir. 1981). The trier of fact must determine whether the circumstances necessary to create an express warranty are present in a given case. See Sessa, supra, 21 UCC Rep. at 751-52; Janssen v. Hook, 1 Ill.App.3d 318, 272 N.E.2d 385, 388 (App.Ct.1971). The test is “wheth
The mere existence of a warranty is insufficient to sustain an action for breach of an express warranty. The warranty must be “part of the basis of the bargain” between the parties. Ky.Rev.Stat.Ann. § 355.2-313(1)(a) (Baldwin). A warranty is the basis of the bargain if it has been relied upon as one of the inducements for purchasing the product. See Ky.Rev.Stat.Ann. § 355.2-313(1)(a), Comment 1(C) (Baldwin);
A buyer is not under a duty to investigate the seller’s representations; he may accept them at face value. See Interco, supra, 19 UCC Rep. at 469; City Machine & Manufacturing Co. v. A. & A. Machinery Corp., 4 UCC Rep. 461, 465 (E.D.N.Y.1967). However, a buyer may not rely blindly on a statement or affirmation that he knows is incorrect. See City & Manufacturing Co., supra, at 465; Royal Business Machines, supra, 30 UCC Rep. at 472. A buyer does not disregard any special knowledge he possesses or his accumulated experience with a product in determining whether to enter the bargain. Id.; Jans-sen, supra, 272 N.E.2d at 488. Consequently, a statement known to be incorrect cannot be an inducement to enter a bargain. City Machine & Manufacturing Co., supra. An incorrect representation by the seller which is qualified in any manner may become the basis of a bargain to the extent it is believed and relied upon. For example, a seller represents in its advertising that its product is capable of lifting 100 pounds. The buyer is aware that the product cannot lift the weight claimed in its advertising. Nevertheless, he relies on his subjective belief that the product could lift 75 pounds and purchases the product. The product fails to lift 75 pounds. In an action for breach of express warranty against the seller, the buyer will prevail. The seller cannot complain because his product failed to perform at a level of proficiency lower than that originally claimed in its advertising.
We do not reach the issue of whether an expert may rely on the representations of another expert in his area of specialty. At a minimum, however, an expert may rely on the representations of a seller of a newly marketed, unique product. Butcher v. Garrett-Enumclaw Co., 20 Wash. App. 361, 581 P.2d 1352, 24 UCC Rep. 832, 843 (Ct.App.1978). In Butcher, the court held that an expert with many years of experience as a conventional saw mill operator and consultant could rely on the representations of the seller of a newly developed portable small log sawmill. Where the capabilities and properties of a unique, newly developed product are known only to the seller, the expert is in no better position to evaluate the representations of the seller than a layperson. Therefore, he is entitled to reply on representations concerning such a novel product. See Grinnell v. Charles Pfizer & Company, 274 Cal.App.2d 424, 79
C. Damages
Norden contends that the trial court improperly instructed the jury (1) on the issue of causation, and (2) as to the proper measure of damages. Although both Judges En-gel and Kennedy agree, I remain unpersuaded.
Causation
I cannot agree with my colleagues that causation was not established as a matter of law. Concurring opinion infra at 18. Although the trial court did not issue model instructions, they were adequate on the issue of causation as an element of Norden’s liability.
Since you have established liability in this case on the part of Norden Industries, you are not called upon to award such damages as you may believe from the evidence will fairly and reasonably compensate Dr. Overstreet for the loss of the aborted fetuses of his six mares in 1974 at the time of the abortions.
In arriving at the damages, if any, you will fix the damage as to each mare by what you find to be the difference between the fair market value of said mare with her foal and the fair market value of said mare after the loss of her foal at the point in time 1974 of the abortion, but in no event shall you award a total award in excess of $119,500, the amount claimed by Dr. Overstreet in his testimony. As I instructed you in the case of liability, the burden remains with Dr. Overstreet to prove his damage by a preponderance of the evidence. That is, the greater weight of the credible evidence. Trial Transcript at 144-145.
This instruction did not permit the jury to determine which of appellee’s losses were caused by appellant’s breach. In effect, it held as a matter of law that the measure of damages was the value of the aborted foals, leaving for the jury only the issue of what that value was. The instructions should have included causation language equivalent to that used to establish the breach.
The trial court relied on Schleicher v. Gentry, 554 S.W.2d 884 (Ky.App.1977), and instructed the jury that the proper measure of damages was “the difference between the fair and reasonable market value of each of the mares with foal and the fair and reasonable market without foal.” Trial transcript at 144.
Norden argues that plaintiff’s recovery is limited under Ky.Rev.Stat. § 355.3—714(2) to the cost of the vaccine. Norden reasons as follows. Norden’s vaccine did not cause the equine rhinopneumonitis in the mares, and plaintiff would not have used any other preventative. Therefore, the cost of the vaccine is the only loss plaintiff has suffered.
Norden relies heavily upon its contention that Dr. Overstreet made conflicting statements concerning whether he would have used another product.
Norden argues that to recover consequential damages plaintiff must establish that the vaccine or the breach caused the injury. The specific facts necessary to sustain an action for breach of warranty vary with each warranty made. Therefore, a determination of what exactly the defendant warranted is essential. A warrantor, by words or acts, establishes the conditions and circumstances which may give rise to his liability. Brown v. Globe Laboratories, Inc., 165 Neb. 138, 84 N.W.2d 151 (1957). In Brown, the plaintiff, a rancher, recovered losses from a vaccine manufacturer for the sickness and death of his sheep. The manufacturer warranted that the vaccine would prevent enterotoxemia, a disease which develops in sheep as a result of their diet. In Brown, plaintiff made no showing that the vaccine caused the disease. On the contrary the evidence indicated that the enter-otoxemia had developed independent of the vaccine used to prevent the disease. The court affirmed the manufacturer’s liability on the ground that the vaccine failed to perform as warranted.
ALTERNATIVE PRODUCT RULE
Judges Kennedy and Engel reason that Dr. Overstreet must establish that an equally effective alternative product was available and would have been used by Dr. Over-street before he can recover consequential damages for breach of Norden’s express warranty. I disagree. Therefore, I address this question separately. The alternative product rule announced today is not supported by the law or public policy.
First, the proposed rule would require plaintiff to prove that at the time the warranted product was purchased, he was aware that an available alternative product existed. Second, the proposed rule mini
An alternative product will be absent primarily in two situations: either when the product or the consumer is in some way unique. In either of these situations, the commercially available alternative product rule could lead to absurd results. Assume that consumers A and B purchase a particular product and in both instances the product fails to perform as warranted. Consumer B is allergic to all alternative products, while Consumer A has no such allergies. Consumer A recovers consequential damages because alternative products were available to him. Consumer B, however, could only have utilized the one product with success. According to the commercially available alternative rule, Consumer B could only recover incidental damages. I know of no principled basis for enabling manufacturers and other warrantors of products to receive this windfall. The recovery of consequential damages in an action based on an express warranty should not depend upon a mere fortuity, the uniqueness of the consumer.
The other circumstance in which the consumer will not be able to purchase commercially available alternative products will occur when the product itself is unique. A product is unique in two instances. The first occurs when the product allegedly is a new breakthrough. The rule announced today will allow manufacturers of new products to make unsupportable claims concerning product effectiveness; yet insulate the manufacturers from liability for consequential damages. In my view, this approach is tantamount to the licensing of placebos. Moreover, the relative cost of litigation will discourage consumers from initiating valid suits where as here only incidental damages may be recovered. For the foregoing reasons, I regard as unsound the available alternative product rule announced today.
At the second trial of this case, a jury may find: 1) that Norden warranted that the vaccine Rhinomune would prevent equine rhinopneumonitis, a disease which almost invariably induces abortions in mares; and 2) that Norden breached its warranty when six of Dr. Overstreet’s horses, properly inoculated with Rhinomune, contracted the disease and aborted. The essence of Norden’s warranty would be the representation that mares inoculated with Rhinomune would not contract equine rhi-nopneumonitis and abort. It therefore would be foreseeable that if the vaccine failed to perform as warranted, a purchaser would probably sustain losses due to aborted foals. In my view these losses are precisely the type of losses contemplated under Ky.Rev.Stat. § 355.2-714(3).
Norden’s liability arose because its product failed to prevent the disease as warranted, not because plaintiff’s mares aborted foals. Accordingly, I would allow plaintiff to recover without considering the alternate product rule.
Conclusion
We have analyzed the Kentucky cases involving express warranties which were decided prior to the enactment of Ky.Rev. Stat. 2-313(1)(a). Further, we sought guid-
For these reasons, and those noted above, we reverse and remand for proceedings consistent with this opinion. It is so ordered.
. Dr. Overstreet vaccinated a total of 23 mares from August 10, 1973 to November 9, 1973. In his initial complaint, the plaintiff stated that he vaccinated 19 mares, twelve aborted their foals, one foal died, two mares died and four mares were unable to conceive. However, upon review of the preliminary discovery materials, Judge Gordon granted a partial summary judgment giving the defendant judgment on some of plaintiff’s claims.
. Verdict of Jury on Issue of Liability: Questions:
1. Did Dr. Overstreet violate any duties owed by him as a buyer to the seller Norden in his use of the drug Rhinomune?
Yes No x
If your answer to the above question is “yes”, you will not answer question 2, but will return to the courtroom. If your answer to question 1 above is “no”, then answer question 2.
2. Did Norden violate any of its warranties of its product Rhinomune to Dr. Overstreet?
Yes x No See App. 28.
. Ky.Rev.Stat. § 355.2-313 provides:
Express Warranties By Affirmation, Promise, Description, Sample.
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
*1290 (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (1958 c 77, § 2-313. Eff. 7-1-60).
(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty (1958 c 77, § 2-313. Eff. 7-1-60).
. Where a federal court’s jurisdiction is based solely on diversity of citizenship, the difficulty of ascertaining what the state courts may thereafter determine the state law to be does not in itself afford a sufficient ground for declining to exercise its jurisdiction. Meredith v. Winter Haven, 320 U.S. 228, 234, 64 S.Ct. 7, 10, 88 L.Ed. 9 (1943).
. Comment 1(c) states in full:
Materiality of Affirmation, Promise, Description, Sample. Under the Code, the qualification that affirmations, etc. create a warranty if made “as the basis of’ the bargain, appears to be substantially the same as the “reliance” qualification in § 12 of the Uniform Sales Act, former KRS 361.120. Van Deren Hardware Co. v. Preston, 224 Ky. 170, 5 S.W.2d 1052 (1928).
. The trial court instructed the jury as follows:
[Njow, in this case Dr. Overstreet claims that the defendant breached its seller’s warranty of the drug Rhinomune in that said drug was not fit for the use for which it was sold and failed to perform as set forth in the advertised data furnished to persons practicing veterinary medicine by the defendant Norden in that when administered to the healthy animals as directed by the seller Nor-den, the drug failed to effectively immunize his mares from the disease of equine rhinop-neumonitis, all to his damage.
... It is further the law that if the seller makes any additional printed or oral statements in such form as imports special warranties of performance of the product then the product must perform generally to the extent so promised by the seller, provided it is used by the buyer in the manner prescribed by the seller for its effective use.
Thus, we see that if special warranties [express] are given by the seller, and if the buyer administers and uses the product to the extent and manner as required by the seller for the use of the product and the product fails to substantially perform as warranted and the buyer suffers damage directly resulting therefrom, then in those circumstances, under the law, the buyer would be entitled to be compensated for any damage suffered.
. . . The question here for your decision is not whether the drug so caused the abortion, as Dr. Overstreet does not make that contention. The question is whether or not when administered under the required recommendations of healthy animals, the product substantially met the standard of the warranties given, that is, to prevent the contracting of the disease and the resulting abortions, (emphasis supplied) Trial transcript at 85-86.
. See note 6.
. Excerpt from Dr. Overstreet’s deposition taken on January 31, 1977:
“Q. Doctor, if you had not have used Rhi-nomune, what would you have done” Would you have used anything?
A. No, I wouldn’t.
Q. You wouldn’t have used anything?
A. No, I wouldn’t.
Q. I believe you said you have never used Pnenumabort?
A. That’s right.
Q. Another product on the market?
A. That’s right.
Q. So, if you had not used Rhinomune, you would not have used anything?
A. That’s right.
Q. And so that—
A. I might have the second year after I had all these abortions, but I wouldn’t have the first year” (App., pp. 106-107).
Testimony of Dr. Overstreet at Trial:
“Q. Mr. Dorsey asked you a question to the effect that would you have used any other drug, vaccine besides Rhinomune. You stated you would not as he stated the question, or not as the facts were. Would you explain that?
A. Well, 1 stated — in answer to his question ‘the way the facts being.’
Me knowing that Rhinomune was going to be available, if there had not been any other vaccine and I’d known that this Rhinomune was not going to be available that year, we would have made the determination earlier in the year whether to vaccinate with the other vaccine Pneumabort. But, knowing that this vaccine was going to be made available, then I chose not to use Pneumabort.
Q. You made this decision based on the advertising and information you have ascertained as to the facts that Rhinomune would prevent equine rhinopneumonitis?
A. That’s right.” (App. pp. 65 and 66)
. Ky.Rev.Stat. § 355.2-715(2)(a) provides:
(2) 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.
However, we note with interest that the official comment (1) to Ky.Rev.Stat. § 355.2-715.-2(2) construes subsection (2)(a) as imposing on a buyer a requirement “to attempt to minimize damages by cover or otherwise” under appropriate circumstances. It does not, however, operate as a defense to an otherwise actionable breach.