Two Rivers Co. v. Curtiss Breeding Service, 78-1014

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation624 F.2d 1242
Docket NumberNo. 78-1014,78-1014
Parties29 UCC Rep.Serv. 1169 TWO RIVERS COMPANY, Plaintiff-Appellee, v. CURTISS BREEDING SERVICE, Division of Searle Agriculture Inc., Defendant- Appellant, Hi-Pro Feeds, Inc., Defendant.
Decision Date25 August 1980

David S. Kidder, Timothy R. McCormick, Dallas, Tex., for defendant-appellant.

Hubbard, Patton, Peek, Haltom & Roberts, George L. McWilliams, Texarkana, Tex., for plaintiff-appellee.

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

Before THORNBERRY, GODBOLD, and TATE, Circuit Judges.

THORNBERRY, Circuit Judge:

This action was brought by Two Rivers Company (Two Rivers), alleging that it purchased from Hi-Pro Feeds, Inc. (Hi-Pro) semen used for artificial insemination of its cattle, and that the semen caused syndactylism in the offspring of its cattle. The semen was marketed by Curtiss Breeding Service, Division of Searle Agriculture, Inc. (Curtiss). Two Rivers' claim for damages against Curtiss and Hi-Pro is based on the doctrines of strict liability and implied warranty.

This appeal arises from a jury verdict in favor of Two Rivers. The jury apparently found that Curtiss was strictly liable for the sale of defective semen and that Curtiss breached its implied warranty of merchantability. The jury also found that Two Rivers was entitled to damages in the sum of $52,900.00. This amount represents the damage to the reputation of Two Rivers' herd of cattle as computed by the loss of the prospective market value of the cattle. The court entered judgment for plaintiff in the amount found by the jury and denied Curtiss's motion for judgment notwithstanding the verdict. We hold that, under Texas law, the district court erred in that Two Rivers is not entitled to a recovery of damages based on either strict liability or implied warranty.

Curtiss markets semen around the world that is used to artificially inseminate cattle. Because federal regulations prohibit direct importation of certain bulls into the United States, Curtiss maintains its bulls in other countries and imports semen into the United States. The process of artificial insemination allows one sire to artificially inseminate thousands of cattle in its lifetime while a bull in natural service can sire no more than 125-150 offspring in the same span of time. These techniques allow a breeder access to many different bulls without incurring the cost of maintaining a large number of bulls.

Curtiss markets the semen of many different breeds of cattle, including the Chianina breed. In 1972, Curtiss entered into an agreement with a Canadian firm to market in the United States the semen from a Chianina bull known as Farro AC-35. Before entering into this agreement, Curtiss conducted an examination of Farro's pedigree and of the Chianina breed.

In 1973 and 1974, Two Rivers purchased over one hundred registered one-half blood Chianina heifers with the intention of developing a purebred line of Chianina cattle by artificially breeding successive generations. To accomplish this goal, Two Rivers contracted with Mr. Tony Hall in 1974 to obtain quality semen and artificially inseminate the herd of one-half blood Chianina heifers.

Hall is a Texarkana dairyman who also artificially inseminates cattle as a part-time job. Hall successfully completed a two-week course in 1957, where he learned how to artificially inseminate cattle, and he has since continued in this business as a technician.

Hall, as an agent of Two Rivers, was given the responsibility of selecting the bull and the semen supplier. He purchased on his own account the Farro semen, which was marketed by Curtiss through Hi-Pro Feeds, Inc., that was used to breed the Two Rivers cattle. When purchasing the semen, he examined a pamphlet entitled the "1974 Curtiss Beef Breeding Guide" which contained a conspicuous disclaimer of any express or implied warranties. After consummating the purchase, Hall transported the semen to Two Rivers and inseminated the cattle. Hall charged Two Rivers a certain amount for each heifer he inseminated.

On July 24, 1974, Curtiss determined that Farro had sired offspring which might have exhibited the genetic abnormality known as syndactylism. Curtiss immediately notified its distributors and informed them that they were recalling the semen. At that time, Two Rivers had already inseminated 64 of the heifers with Farro semen. While some ranchers continued to use Farro semen, Two Rivers decided to switch to another bull. Of the 64 heifers that were artificially inseminated with Farro semen, 22 calves were born alive. Four of the Farro calves were stillborn and exhibited the genetic abnormality known as syndactylism.

Syndactylism is a genetic abnormality that can only appear when both the sire and the dam are carriers of the recessive gene. Therefore, Farro, as well as several of the heifers purchased by Two Rivers, were carriers. Syndactylism is exhibited by the fusion or nondivision of the functional digits of one or more feet of a cow. It is a hereditary genetic trait traced to the recessive gene. It is virtually impossible to detect the existence of a recessive genetic

trait such as syndactylism until it is manifested by the union of two carriers of this recessive gene

Two Rivers commenced this lawsuit on February 26, 1976, seeking two elements of damages in the amount of $52,900.00. This included the loss of the value of the stillborn calves and loss of the prospective market value of the entire herd. 1 The trial commenced on October 20, 1977, in the United States District Court for the Eastern District of Texas. On October 24, 1977, a verdict was entered in favor of Two Rivers assessing damages of $52,900.00 against Curtiss. Curtiss now appeals claiming that (1) the law of strict liability cannot be applied to this fact situation which involves a claim for economic loss and (2) any implied warranties were properly disclaimed. We agree with Curtiss and accordingly reverse the decision of the district court.


The critical question presented in this case is whether Two Rivers is entitled to an award of damages pursuant to section 402A of the Restatement (Second) of Torts, the implied warranties of the Uniform Commercial Code, or under both theories. To analyze this issue, it is necessary to distinguish the four types of property loss which are recognized in Texas. A different legal analysis attaches to each type of loss.

The first type of loss involves personal injury to the user (or consumer) or physical injury to the property of the user (or consumer). It is specifically covered by the language of section 402A of the Restatement (Second) of Torts which states that:

(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if

(a) the seller is engaged in the business of selling such a product, and

(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.

(2) The rule stated in Subsection (1) applies although

(a) the seller has exercised all possible care in the preparation and sale of his product, and

(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.

Restatement (Second) of Torts § 402A (1965) (emphasis added). Texas courts adopted the language of section 402A in 1967 and have applied strict liability to the case of personal injuries resulting from unreasonably dangerous products, Turner v. General Motors Corp., 584 S.W.2d 844 (Tex.1979); Bristol-Myers Company v. Gonzales, 561 S.W.2d 801 (Tex.1978); General Motors Corp. v. Hopkins, 548 S.W.2d 344 (Tex.1977); Rourke v. Garza, 530 S.W.2d 794 (Tex.1975); Crocker v. Winthrop Laboratories, Inc., 514 S.W.2d 429 (Tex.1974); Darryl v. Ford Motor Company, 440 S.W.2d 630

(Tex.1969); McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.1967); Shamrock Fuel & Oil Sales Co. v. Tunks, 416 S.W.2d 779 (Tex.1967), as well as to physical injuries to a consumer's property other than the product caused by a defective product. Signal Oil and Gas Co. v. Universal Oil Products, 572 S.W.2d 320 (Tex.1978); O. M. Franklin Serum Co. v. C. A. Hoover & Son, 418 S.W.2d 482 (Tex.1967); Tide Products, Inc. v. Browning, 493 S.W.2d 654 (Tex.Civ.App. Amarillo 1973, no writ); FMC Corp. v. Burns, 444 S.W.2d 315 (Tex.Civ.App. San Antonio 1969, no writ)

The second type of loss, on the complete opposite end of the spectrum, can be classified as economic loss resulting from a product with defective workmanship or materials. This category of loss was examined in Nobility Homes of Texas v. Shivers, 557 S.W.2d 77 (Tex.1977), where an individual who purchased a mobile home sought to recover damages for economic loss suffered as the result of defects in the product. The mobile home was negligently constructed and was not fit for the purposes for which it was sold. The consumer was awarded $8,750 as the difference between the purchase price and the market value of the mobile home for his economic loss. 2

The court held in Nobility Homes that an individual may not recover for economic loss under section 402A. The court stated that an individual must instead seek damages under the implied warranties of the Uniform Commercial Code and the theory of common law negligence. Strict liability was not extended to instances of economic loss because the distinction that exists between physical damage and commercial loss had to be recognized. The Uniform Commercial Code governs the case of a mere loss of value resulting from the failure of the product to perform according to the contractual bargain and the expectations of the consumer.

A third type of loss consists of "economic loss to the purchased product itself." Mid Continent Aircraft...

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