Calloway v. Manion

Decision Date08 May 1978
Docket NumberNo. 76-3047,76-3047
Parties23 UCC Rep.Serv. 1143 R. W. CALLOWAY, Plaintiff-Appellant, v. Tommy MANION, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

John H. McElhaney, Dallas, Tex., for plaintiff-appellant.

Tom Thomas, James W. Massie, III, James W. Lee, III, Dallas, Tex., Felson Bowman, Indianapolis, Ind., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before THORNBERRY, AINSWORTH and MORGAN, Circuit Judges.

THORNBERRY, Circuit Judge:

This diversity suit concerns a horse trade gone lame. Plaintiff-appellant Calloway traded Red Rose Ray, a gelding, to defendant-appellee Manion in exchange for Our Candy Barett, a mare. At the time of the trade, Manion, a professional horse dealer, pointed out some degree of swelling around Our Candy Barett's hock. 1 Calloway testified that Manion stated the swelling was "not a problem". After the exchange, the swelling did not improve and Calloway discovered that Our Candy Barett had an incipient ovary condition that caused her to kick repeatedly and to injure her hock. Alleging that Our Candy Barett was unfit, Calloway sued Manion, seeking recision and monetary damages, on three theories breach of express warranty, breach of implied warranty and misrepresentation.

The jurors before whom the case was tried found all the necessary elements of a breach of express warranty, but they additionally found that Calloway had contractually limited his remedy to a new trade for a higher priced horse. They found all the elements for breach of implied warranty, but accepted Manion's defenses to that action. 2 The district court, relying on these jury findings, ruled that Calloway could not recover for breach of express warranty because he had not pursued his agreed-to sole remedy 3 nor had he urged that the remedy had failed of its essential purpose. 4 The district court also ruled that the jury findings on implied warranty and the defenses thereto effectively cancelled each other. Turning to the third theory of recovery, the district court held that pre-Code Texas case law, which permitted an action for innocent misrepresentation, had been altered by the Code's passage and that the limitation of remedy provision of Tex.Bus. & Comm.Code § 1.103 applied to innocent misrepresentation as illustrated in the case before it. Judgment was rendered for defendant Manion and plaintiff Calloway brought this appeal.

On appeal Calloway argues that the sections of the Tex.Bus. & Comm.Code which authorize contractual restrictions of remedies, 5 do not preclude a remedy of recision based on misrepresentation, that Tex.Bus. & Comm.Code §§ 1.103 and 2.721 expressly preserve that remedy, and that there was no evidence that the purported contractual restriction of remedies was either express or agreed to be the sole remedy. Defendant Manion counters that there were no misrepresentations, that Calloway is barred from recovery by his refusal to conduct a veterinarian examination, and that Calloway was not entitled to equitable relief since the horse he traded, Red Rose Ray, had its own defects.

The parties agreed that their transaction was controlled by the Uniform Commercial Code as enacted in Texas, Tex.Bus. & Comm.Code, Art. 2. We first address two preliminary questions in that regard. The exchange of the animals took place in Springfield, Illinois. Plaintiff Calloway then trailered Our Candy Barett back to his home state of Texas. Apparently defendant Manion, a citizen of Illinois, remained with his horse in that state. When sitting in its diversity jurisdiction, this court is bound to apply the law of the state in which it sits, including the choice of law rules of that state. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Tex.Bus. & Comm.Code § 1.105 states that:

(a) Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this title applies to transactions bearing an appropriate relation to this state.

We think that generally this section of the Code refers to pre-dispute agreements. Nevertheless, we see no reason to question the parties' stipulation. The statutory comments to Section 1.105 note that the only restrictions on the parties' choice of law are the limits of Section 1.105(b), not here applicable, and the rule that a chosen state must bear a reasonable relation to the transaction. See Three-Seventy Leasing Corp. v. Ampex Corp., 528 F.2d 993, 997 and n.5 (5 Cir. 1976). A second question is whether this transaction is a sale. Prior to the enactment of the Tex.Bus. & Comm.Code Texas courts distinguished between an exchange of property and a sale. Griswold v. Tucker, 216 S.W.2d 276 (Tex.Civ.App. Ft. Worth 1949, no writ) (transfer of properties without an agreed value is an exchange; transfer at agreed or market value is a sale). Tex.Bus. & Comm.Code § 2.106 defines a sale as the passing of title from seller to buyer for a price. Section 2.304 tells us that a price may be payable in goods or otherwise. We need not reach the issue whether Section 2.304 should be interpreted to retain the pre-Code distinction because the record indicates that the horses were traded at agreed values. (Record at 44).

Appellant Calloway sought, in the trial court, to recover for breach of an express warranty. As a general rule in a sale of goods there is an express warranty that the goods conform to an affirmation of fact, promise or a description of the goods made by the seller to the buyer if the affirmation or description is part of the basis of the bargain. General Supply & Equipment Co., Inc. v. Phillips, 490 S.W.2d 913 (Tex.Civ.App. Tyler 1972, writ ref'd n. r. e.). 6 See Weintraub, Disclaimer of Warranties and Limitation of Damages for Breach of Warranty Under the UCC, 53 Texas L.Rev. 60 (1974). The jury found in response to special issue number one that Manion informed Calloway that Our Candy Barett was suitable for use as a show horse. 7 Although defendant Manion objected to the submission of that special issue in the trial court the record contains no alternative requested by him and he made no objection to the issue on appeal. We must, therefore, assume, as the trial court did, that all elements of express warranty were established.

That assumption alone will not permit recovery. The jury's answer to special issue number fourteen found that Manion and Calloway had agreed that in the event that Our Candy Barett was not suitable, Calloway's sole remedy would be to return the horse in exchange for ten thousand dollars credit on another, higher-priced horse. Tex.Bus. & Comm.Code § 2.719 provides:

(a) Subject to the provisions of Subsections (b) and (c) of this section and of the preceding section on liquidation and limitation of damages,

(1) the agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyers' remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and

(2) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

As the section comments point out, Subsection (a)(2) creates a presumption that clauses prescribing remedies are cumulative rather than exclusive. If the parties intend the term to describe the sole remedy under the contract, this must be clearly expressed. Tex.Bus. & Comm.Code § 2.719, Comment 2.

The jury's finding was based on testimony by the defendant Manion:

Q: Now, at the time that you made your trade with Mr. Calloway, was there any conversation about Mr. Calloway being able to trade Our Candy Barett back in for any credit at any time in the future?

A: Yes, sir, there was.

Q: What was the substance of that agreement as you recall it?

A: We got back to the barn. His daughter had ridden both horses, we discussed them. We walked back to the barn, the mare was being unsaddled and her blanket was being placed on her and she was being put back in the stall.

Mr. Calloway said, "Tommy, this horse really doesn't suit me. If a better horse comes along would you take this mare back in on trade?

I said, "yes", I would.

He said, "At the $10,000 figure?" which is what I had priced the mare at on the phone, and I said, "Yes, I would."

The question of whether a jury finding may be set aside for insufficient evidence is one of federal rather than state law. Har-Pen Truck Lines, Inc. v. Mills, 378 F.2d 705 (5 Cir. 1967); Shirey v. Louisville & Nashville R. Co., 327 F.2d 549, 552 (5 Cir. 1964). In reviewing the sufficiency of evidence to support a jury finding, the Court of Appeals must view that evidence in the light most favorable to the party prevailing below. Jig the Third Corp. v. Puritan Marine Ins. Underwriters Corp., 519 F.2d 171 (5 Cir.), cert. denied sub nom. Atlantic Marine Inc. v. Jig the Third Corp., 424 U.S. 954, 96 S.Ct. 1429, 47 L.Ed.2d 360 (1976). This review requires that a court indulge in all permissible inferences for a prevailing party. Pletz v. Christian Herald Ass'n Inc., 486 F.2d 94 (5 Cir. 1973), and a jury finding is not to be lightly overturned. Pugh v. S. C. Hutchinson Co., Inc., 565 F.2d 375 (5 Cir. 1978).

We cannot say that it was impermissible for the jury to infer that, in the context of an oral agreement between two persons knowledgeable in the field, 8 this was not a sufficiently express limitation of remedy. Although a seller attempting to limit his buyer's remedies should do so in the most specific...

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