# Petition — Two Rivers Co. v. Curtiss Breeding Service

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1981
- **Citation:** 450 U.S. 920

## Text

le teem

te ee |
80-1 — QEC 9 1980

IN THE

MI

SUPREME COURT OF THE UNITED L RODAK, JR, CLERK

OCTOBER TERM, 1980

NO.

TWO RIVERS COMPANY,

Petitioner

versus

CURTISS BREEDING SERVICE, DIVISION OF
SEARLE AGRICULTURE, INC.,

Respondent

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

James N. Haltom
HUBBARD, PATTON, PEEK, HALTOM
& ROBERTS
700 Texarkana National Bank
Building - P. 0. Box 1928
Texarkana, Texas 75504
(214) 794-3341

Counsel for Petitioner

QUESTIONS PRESENTED

1. Whether the Court of Appeals’ holding
that, as a matter of public policy, Two Rivers
Company was precluded from recovering its damages
on a theory of strict liability in tort is in
conflict with applicable Texas law.

2. Whether the Court of Appeals’ holding
that Curtiss Breeding Service's disclaimer of
implied warranties was effective against Two Rivers
Company, which never saw such disclaimers or
learned of their existence until long after the
sale, is in conflict with applicable Texas law.

3. Whether the determination of the Court
of Appeals that, as a matter of law, the product
in question was not unreasonably dangerous con-
stitutes such a departure from the accepted and
usual course of judicial proccedings as to call
for an exercise of this Court's power of super-
vision.

TABLE OF CONTENTS

QUESTIONS PRESENTED . . . 2 «© 6 «© © © « « ]
AUTHORITIES CITED . . 1. 1 ow ew wo ww we gS
OPINIONS BELOW . . 26 0 «© 8's © 6 we @ 4
PUREE GLEOD. % Oe 6 ew 8 8 ee ae ee 4
STATUTES INVOLVED... «© ses cecveeens 4
STATEMENT OF THE CASE .. . © © e es ee 5
REASONS FOR GRANTING WRIT ....... . 6-18
CONCLUSION. . «© es eee BR est wwe se 18
RETA. 0 08 2 So Oke eee eee

1. Decision of the Court of Appeals . A-1l

2. Order Denying Petition for Re-Hearing
and Petition for Re-Hearing En Banc A-31l

AUTHORITIES CITED
CASES:

Borel v. Fibreboard Paper Products Corp.
493 F2d 1076 (Sth Cir. 1973) .... « «8a

Equitable Life Assurance Society of the
United States v. Fry, 386 F2d 239 .. 15

Erie R.R. Co. v. Tompkins, 304 US 64 (1938) 8

First National Bank of Fort Worth v.
Bullock, 584 SW2d 548 (Tex.Civ.App. 1979,
writ ref'd n. ree . 7 . 7 . . . . 7. . 13

Lavender v. Kurn, 327 U.S. 645 (1946). . 15

Manheim v. Ford Motor Co., 201 SW2d 77
(Fla. 1967). . . . . - . . . . . - . . 12

McKisson v. Sales Affiliates, Inc., 416 SW2d
Cs Raa AONE) 4S acca we hie, 0c, eS 7

Mid-Continent Aircraft Corp. v. Curry County
Spraying Service, Inc., 572 SW2d 77
(Tex. 1977) + ° . . . . © . . . ° ° - . cleGe?

Mueller & Co. v. Corley, 570 SW2d 140 (Tex.
Civ.App., 1978, writ ref'd n.r.e.) .«... 16

Nobility Homes of Texas, Inc. v. Shivers, 557
BWaG 71 Cees E97) 4 bo ee 6 a 6 oe ee 18,

Pioneer Hi-Bred International, Inc. v. Talley,
493 SW2d 602 (Tex.Civ.App. 1973, writ ref'd
n.r.e). . . . . +. . 2 . . . o . o . « . . 10

Reyes v. Wyeth Laboratories, 498 F2d 1076,
(5th Cit. 1973) . . . * . . . . + © . . . 15

Signal Oil & Gas Co. v. Universal Oil Products,
Fo ge ) Eee. eo: 5 re re Py 8

Sugarland Industries, Inc. v. Falco, 360 SW2d
806 (Tex.Civ.App. 1962, writ ref'd n.r.e) 13

Truck Insurance Exchange v. Cartmill, 385 SW2d
277 (Tex.Civ.App. 1964, writ ref'd n.r.e.) 13

W. D. Haden Co. v. Ryman, 362 SW2d 133 (Tex.
Civ App. 1962 weit ret*@).. 2 «se wes 13

STATUTES :

Texas Business and Commerce Code §2-316 (1967) ..
7 . . . . . 7 7 . . 7 + . . . . . . . 11,12,14

Texas Business and Commerce Code §1-201(10)
(1967) . . . . . . . . . . . . . . - . - ll

SECONDARY AUTHORITIES:

Restatement (Second) of Torts §402 A (1967). . 9

Two Rivers Company prays that a Writ of
Certiorari issue to review the judgment of the
United States Court of Appeals for the Fifth
Circuit entered in the above-entitled case on
August 25, 1980 (Court of Appeals Opinion, infra,
p. A-l).

OPINIONS BELOW

The judgment of the United States District
Court for the Eastern District of Texas was not
supported by written opinion. The opinion of the
Court of Appeals is included in the Appendix
beginning at A-1l. A Petition for Re-hearing and
a Petition for Re-hearing En Banc were filed by
Petitioner herein on or about September 19, 1980,
and both were denied by Order of the Court of
Appeals on October 6, 1980.

JURISDICTION
The judgment of the Court of Appeals was
entered on August 25, 1980. The jurisdiction of
this Court rests upon 28 USC Section 1254(1) (1966).
STATUTES INVOLVED

Texas Business and Commerce Code §2-316
(1967)

Texas Business and Commerce Code §1-201
(10) (1967)

5
STATEMENT OF THE CASE

1. Statement of Facts

This is a products liability case involving
the artificial insemination branch of the cattle
industry. In the years 1973 and 1974, Two Rivers
Company, an Arkansas Corporation engaged in cattle
breeding, purchased over one hundred one-half blood
Chianina heifers, which Two Rivers intended to
develop, through artificial breeding of successive
generations, into a "pure bred” line of Chianina
cattle. In 1974, Two Rivers contracted with Tony
Hall, a local rancher trained in artificial insemi-
nation procedures, for Mr. Hall to select and
purchase the semen of a reputable Chianina bull,
and therewith to artificially inseminate Two Rivers’
one-half blood heifers.

Mr. Hall then visited Hi-Pro Feeds, Inc., a
distributor of semen marketed by Curtiss Breeding
Service, a division of Searle Agriculture, Inc.,
and, after discussing the matter with Hi-Pro
employees, and consulting with the 1974 Curtiss
Beef Breeding Guide (an advertisement brochure
put out by Curtiss Breeding Service), selected and
purchased for Two Rivers’ herd the semen of the
Curtiss Breeding Service bull "Farro”. The 1974
Curtiss Beef Breeding Guide contained language of
disclaimer of warranty. Mr. Hall then began
artificially inseminating Two Rivers’ one-half
blood Chianina heifers with the semen of the bull
"Farro", which had been purchased by Hi-Pro Feeds,
Inc., from Curtiss Breeding Service.

After Mr. Hall had artificially inseminated
sixty-four of Two Rivers' heifers with Farro semen,
Curtiss notified its distributors that Farro was
very possibly a carrier of the recessive gene
for a genetic abnormality known as syndactylism,
or "mule footedness", and removed Farro'’s semen
from the market. Subsequently, of the sixty-four

6

heifers which were artificially inseminated with
Farro semen, twenty-six calved; of the twenty-

six calves, four (all stillborn) exhibited syndac-
tylsm. Moreover, the value of the sixty-eight
"healthy" Chianina calves born to Two Rivers in
1975 (twenty-two of which were Farro calves) and
the thirty "healthy" Chianina calves born to Two
Rivers in 1976, was adversely affected by the stigma
of being part of a herd of which over thirty cows
were unquestionably carriers of the genetic abnor-
mality syndactylism.

2. Course of Prodeedings

Two Rivers instituted this action in February
of 1976 seeking recovery from Curtiss Breeding
Service and Hi-Pro Feeds, Inc., for recovery of
two elements of damage, namely the loss of the
four stillborn syndactyl calves and the reduction
in market value of the ninety-eight "healthy"
Chianina calves which were alive and on the ground
at the time of trial; Federal jurisdiction was
based upon diversity of citizenship. Trial com-
menced October 20, 1977 in the United States
District Court for the Eastern District of Texas,
and the case was submitted to the jury on alter-
native theories of strict liability in tort and
breach of implied warranty. Verdict was rendered
on October 24, 1977 in favor of Two Rivers and
against Curtiss Breeding Service in the amount
prayed for, namely $52,900.00; Judgment was entered
upon the verdict.

Curtiss Breeding Service subsequently appealed
to the United States Court of Appeals for the
Fifth Circuit, which, over a vigorous dissent re-
versed the judgment of the trial court.

REASONS FOR GRANTING THE WRIT

The questions presented by the parties in this
case are questions of extreme importance in Texas

product liability jurisprudence. First of all,
this case presents an important state question,
with which the Supreme Court of Texas has
wrestled numerous times in the past three years,
with regard to under what circumstances a seller
of a defective and unreasonably dangerous product
will be held strictly liable for damages other
than personal injuries. Secondly, the case
presents an equally important state question,
which the Supreme Court of Texas has yet to
directly confront, of whether a purported dis-
claimer of warranties can be "conspicuous", so

as to be effective against a user of the product
sold, when it has never been seen by or brought
to the attention of such user. Moreover, the case
presents an important question of federal law,
namely the appropriate scope of review by a

Court of Appeals of a jury finding. For these
reasons, as will be more fully developed herein-
after, the Writ should issue.

I.

According to three recent decisions of the
Texas Supreme Court, in Texas products liability
jurisprudence the availability of a remedy under
the doctrine of strict liability in tort depends
upon the type (or types) of harm which an indivi-
dual or entity has suffered. Nobility Homes of
Texas, Inc. v. Shivers, 557 SW2d 77 (Tex. 1977),
Mid-Continent Aircraft Corporation v. Curry County
Spraying Service, Inc., 572 SW2d 308 (Tex. 1978),
Signal Oil & Gas Co. v. Universal Oil Products,
572 SW2d 320 (Tex. 1978).

Clearly under Section 402A of the Restatement
(Second) of Torts (adopted in Texas in McKisson
v. Sales Affiliates, Inc., 416 SW2d 787 (Tex. 1967)),
physical harm to the person or property of the
ultimate user or consumer is within the purview of
the doctrine of strict liability; Just as clearly
under Texas Supreme Court decisions, mere ‘'economic

8

loss" in the form of diminished product value
(Nobility Homes of Texas, Inc. v. Shivers, supra),
or damage which the product causes solely to itself
(Mid-Continent Aircraft Corporation v. Curry County
Spraying Service, Inc., supra), is without the pur-
view of the doctrine of the Restatement, and is
governed instead by the Uniform Commercial Code.
Where the product causes physical injury to other
property of the ultimate user as well as economic
loss, however, strict liability applies (Signal

Oil and Gas Co. v. Universal Oil Products, supra).

The Texas Supreme Court has thus developed a
workable, objective standard by which to test
product liability actions fer the applicability
of Section 402A.

The majority opinion of the Court of Appeals,
however, in apparent disregard of Erie Railroad
Company v. Towpkins, 304 US 64 (1938), concludes
that the tests as promulgated by the Texas Supreme
Court are "helpful" only, and not dispositive,
because the cases in which those tests were announced
did not specifically deal with the situation where
one product is biologically combined with another
to form, by a natural process, a continuation of
those products. The majority further reasons that
unlike the defective crankshaft gear bolt lock
plate in Mid-Continent Aircraft Corporation, supra,
or the Isomax reactor charge heater in Signal Oil
and Gas Company, supra, which each might have been
replaced by the defendant to cure the defect in
the whole product, the semen provided by Curtiss
has been irrevocably incorporated into another
"product", a calf, by the process of fertilization.

It takes very little logic, however, to see
that the distinction drawn by the majority opinion
of the Court of Appeals does not hold water. Surely
the majority recognizes that many industrial pro-
cesses, especially those chemical in nature, like
mammalian reproduction create one product from the

9

merger of two or more, in such a manner as to
irrevocably prohibit replacement of a component
part to result in a satisfactory whole. To draw
a distinction between products on the basis of

the ability of the producer to switch-out the
component parts simply makes no sense. A seller's
liability on a strict liability theory must be
measured at the time the product is sold, having
in mind foreseeable union with other products---
not after such union has taken place.

Likewise, there is no rational basis for
ignoring the clear mandate of the Texas Supreme
Court merely because the product here in question
is involved in the biological process of mammalian
reproduction. Many products (the most notable being
contraceptives) are involved with the reproductive
process and other biological processes. The act
of placing into the stream of commerce an un-
reasonably dangerous and defective product, of
whatever nature and variety, and whatever may
be its forseeable uses, should precipitate strict
tort liability. Restatement (Second) of Tort,
Section 402A (1967).

Having thus refused to apply the objective
tests set out by the Texas Supreme Court, the
majority opinion of the Court of Appeals proceeded
to embark on the vary sort of general, subjective
analysis which the Texas Supreme Court had attemp-
ted to avoid in Mid-Continent Aircraft Corporation
and Signal Oil and Gas Company, supra, and in so
doing, concluded that as a matter of public policy
strict liability should not be applied. In
support of this position, the opinion first cites
certain Texas cases in what it deems the "analogous"
area involving the sale of seeds, which cases
supposedly indicate that the Texas Supreme Court
would not apply the doctrine of strict liability
in the case at bar. It is interesting, in this
regard, that of the eight cases here cited by the
opinion, seven were decided prior to 1967, when
the Texas Supreme Court first recognized the

10

doctrine of strict liability in tort, and that the
one case decided after the doctrine of strict
liability obtained judicial acceptance, Pioneer
Hi-Bred International, Inc. v. Talley, 493 SW2d
602 (Tex. Civ. App. 1973, writ refused n.re.),
was a case where the only injury alleged was
clearly "economic loss" in the form of a failure
of the product with respect to its own value; Here,
Two Rivers seeks to recover for, inter alia, phy-
sical injury to four calves born dead with
syndactylism, such that Pioneer is inapposite.

Had the four calves in question not conceived at
all, or had they merely been smaller in size and
thus less valuable than others, the loss could
well be characterized as "economic" only, under
the theory of Pioneer; Where instead they were not
only born dead but were so physicially deformed
that they had to be dismembered in order to be
removed from the mother's womb, however, there
exists "physical injury" not present in Pioneer or
the other cases cited by the majority opinion.

Beyond this, however, the Court of Appeals
concludes that "essentially, Two Rivers is complaining
as a purchaser of bull semen, that the product did
not fulfill its commercial expectations" (Opinion
8803), and characterizes Two Rivers as nothing more
than a disappointed buyer (id.). Simple logic
points out the flaw in this reasoning. First of
all, a "disappointed buyer" is one who complains
either that the product he bought did not do that
for which it was purchased, or did not do it as
well as expected. In this case, the product (the
semen) did exactly what it was purchased for, and
all too well! The problem was not non-performance,
or inadequate performance, but injurious side effects
of performance--namely, the causation of the deformity
and death of four calves. Two Rivers does not claim,
as did Mr. Talley in Pioneer, or Mr. Shivers in
Nobility Homes, that the product it purchased was
economically worthless; Two Rivers claims, as did
Signal Oil and Gas Company in its suit against
Universal Oil Products, that the product contained

11

an unreasonably dangerous defect which damaged
“other property" and caused economic loss.

Petitioner respectfully urges, therefore,
that the Court of Appeals incorrectly decided an
important state question concerning the scope of
the doctrine of strict products liability, in a
manner in conflict with the 1978 Texas Supreme
Court decision of Signal Oil and Gas Company v.
Universal Oil Products, supra.

II.

Texas Business and Commerce Code §2-316 (b)
specifically provides, inter alia, that:

...to exclude or modify the implied
warranty of merchantability or any
part of it the language must mention
merchantability and in case of a
writing must be conspicious....

Since the disclaimers relied upon by Curtiss
are written, they are unquestionably subject to
the statutory requirement of conspicuousness.

Texas Business and Commerce Code §1-201(10)
defines "conspicuous" as "so written that a
reasonable person against whom it is to operate
ought to have noticed it."

Obviously, in this action it is Two Rivers,
if anyone, against whom the disclaimer is to
operate. It is undisputed, moreover, that Two
Rivers had neither occasion nor opportunity to
read the disclaimer language. How then, could
the language in question be considered as so
written that Two Rivers, or a reasonable person in
its stead, ought to have noticed it?

Since not until 1977 did the Supreme Court of
Texas make it clear that the privity of contract

12

was no longer required for implied warranty
actions in Texas (Nobility Homes of Texas, Inc.,
supra), it is not suprising that Texas judicial
opinion has not to date addressed the important
issue of whether the requirement of conspicuousness
applies in favor of persons other than those with
whom the seller is in privity. The whole theory
behind §2-316 of the Uniform Commercial Code,
however, is to insure that no one is saddled with,
and precluded from a remedy by, a disclaimer or
exclusion of warranty unless he has unequivocally
"bargained" for same. Comment (1) to Texas
Business and Commerce Code, §2-316. Moreover,
authority from other jurisdictions indicates that
a disclaimer cannot be effective against an
ultimate user or consumer where it was not com-
municated to, or bargained for by, said person or
entity. Manheim v. Ford Motor Company, 201 So. 2d
440 (Fla. 1967).

Having in mind the foregoing, the logical
conclusion as to how the Texas Supreme Court would
decide the immediate issue is that the Texas court
would apply the conspicuousness requirement in
favor of remote purchasers like Two Rivers; the
only possible application of that requirement in
this case would, moreover, be that since the
disclaimer language was neither communicated to
nor in any way bargained for by Two Rivers, a
reasonable person in Two Rivers’ position could
not be expected to notice same. As to Two Rivers,
then, the disclaimer would be inconspicuous, and
thus, ineffective.

The Court of Appeals’ opinion dodges this
conclusion by holding that, conspicuousness aside,
the relationship between Tony Hall and Two Rivers
was such that disclaiming as to Hall was effective
as against Two Rivers. The only possible theory
on which this holding could be sustained is the
questionable proposition that Hall was an agent
of Two Rivers, whose knowledge should be imputed
to his principal. The Court of Appeals ‘does not

13

cite a preced«nt or authority to justify its
imputation. The only case it does cite, Sugarland
Industries, Inc. v. Falco, 360 SW 2d 806 (Tex.

Civ. App. 1962, writ ref'd n.r.e), stands (as

is recognized by the opinion's citation as (cf.
Sugarland Industries, Inc....(opinion, p. 8805))

in diametric opposition to the proposition advanced
by the majority. *.

Even if there were Texas authority for imputing
the knowledge of a disclaimer from an agent to a
principal, however, the fact is undeniable that Hall
was not an "agent", but was an ‘independent contrac-
tor" .of Two Rivers. In Texas, as elsewhere, the
test of whether an individual is an agent or an
independent contractor is whether the "employer"
has the right to control the means and details of
the accomplishment sought, or merely the right to
control the end result. The First National Bank
of Fort Worth v. Bullock, 584 SW 2d 548(Tex. Civ.
App. 1979, writ ref'd n.r.e), Truck Insurance
Exchange v. Cartmill, 385 SW 2d 277 (Tex. Civ.
App. 1964, writ ref‘d n.r.e), W. D. Haden Company
v. Ryman, 362 SW 2d 133 (Tex. Civ. App. 1962, writ
ref'd). The transcript of this case is replete
with evidence that Two Rivers had merely the right
to control the end result sought to be accomplished,
and that Tony Hall had the right to control the
means and details of accomplishment. For instance,
John Davenport, President of Two Rivers, testified
as follows:

Q. And in the artificial insemination
process you felt that you did not have
this: - sufficient expertise to do that,
that you needed to get a technician to
assist you?

A. Correct.

Q. And that's why you called Mr. Tony Hall?
A. Correct.

Q. And you relied upon his experience and

his training to perform this function
of impregnation or artificial insemi-
nation?

14

A. Correct.

Q. And you did not in any way attempt
to control the way he did it, you
simply asked him to do it and asked
for the end result, is that correct?

A. Correct. (Transcript at 92, 93)

And: Q. You did not request Mr. Hall to pur-
chase the semen of a particular bull,
did you sir?
A. No...
Q You didn't instruct him to get it from
Hi-Pro, did you?
A. No. (Transcript at 95, 96).

Tony Hall testified similarly: 7
Q. It is correct, is it not, that Mr.
Davenport did not tell you to buy
any particular bull semen, he didn't
specify he wanted you to --- "I want
you to utilize Farro semen or Diasetta...'
or anything of that nature?
No sir.
And you agree with me he did not
specify it?
A. That's correct, he didn't." (Transcript
at 379, 380).

oD >

In light of this testimony, Petitioner
earnestly contends that even if agency were the
true issue (as oppused to conspicuousness), Tony
Hall was not, as the Court of Appeals concludes,
an "agent" as a matter of law, but was an indepen-
dent contractor, whose knowledge of the disclaimer
language should not be imputed.

Petitioner respectfully urges, therefore, that
the Court of Appeals incorrectly decided an impor-
tant state question concerning the effectiveness
of unbargained for language of disclaimer, in a
manner in conflict with Texas Business and Commerce
Code §2-316 (b).

15
tit.
In Reyes v. Wyeth Laboratories, 498 F2d

1264, 1288 (5th Cir. 1974), the Court of Appeals
for the Fifth Circuit stated:

As an appellate court, our sole

function is to ascertain whether
there is a rational basis in the
record for the jury's verdict....

In Borel v. Fibreboard Paper Products Corporation,
493 F2d 1076, 1092 (5th Cir. 1973), the Fifth
Circuit stated:

An appellate court must, of course,
scrupulously avoid usurping the
function of the jury by weighing
conflicting evidence and inferences
or by judging the credibility of
witnesses and then arriving at

its own conclusion concerning the
merits of the parties’ contentions.

Furthermore, only where there is a complete

absence of probative facts to support a conclusion
does reversible error appear. Lavender v. Kurn,
327 US 645 (1946), Equitable Life Assurance Society
of the United States v. Fry, 386 F 2d 239 (5th
Circuit 1967).

In chis case, however, the Fifth Circuit Court
of Appeals felt constrained to overturn a presumed
jury finding of unreasonable dangerousness, con-
cluding that there was "no evidence” in the records
to support such a finding (Opinion at p. 8801). If
the Court of Appeals were correct, that there was
no evidence of unreasonable dangerousness, its
holding in this regard could not be challenged; as
will be demonstrated, however, the Court of Appeals
was not correct, and there was evidence which could
support a jury finding of unreasonable dangerousness.

16

In Texas, as the Court of Appeals points out,

unreasonable dangerousness is defined in terms of
a consumer expectation test; i.e., a product is
unreasonably dangerous if it is dangerous to an
extent beyond which would have been contemplated
by the ordinary user with the knowledge, common to

- the community as to the characteristics of the
product. Mueller & Co. v. Corley, 570 SW 2d 140
(Tex. Civ. App. 1978, writ ref'd n.r.e.). In

. this case, the jury had before it evidence that
fifteen percent of the calves sired by Farro were
syndactyl (Transcript at 489-491); that these
syndactyl calves were so deformed that normal
birth was impossible (Transcript at 38); that the
syndactyl calves were so deformed that each had
to be dismembered to be removed from the mothers
womb (Transcript at 37-48); that none of the
syndactyl calves survived birth (id.); and that
an unknown percentage of the calves that were
not deformed were made carriers of the recessive
gene, des.roying their value for anything besides
slaughter purposes. (Transcript at 489-491). As
the dissenting judge points out, this sort of
dramatic, fatal result could well be considered
by the jury to indicate that the semen was
dangerous to an extent beyond the contemplation of
the ordinary consumer. Opinion at 8806. Even
Hi-Pro Feeds, Inc.,'s expert witness, Dr. Lee
McKeller, testified on cross-examination as
follows:

Q. Have you heard of any instances as

high as fifteen percent of genetically

defective offspring?

Well, I don't know...

Pretty high, isn't it?

Yes.

- In fact, have you ever heard of any

higher than that?
A. Really, I haven't. (Transcript at 431).

DPA >

Considering this evidence (along with the other
evidence in the case) in the light and with all
reasonable inferences most favorable to Two Rivers

17

(as this court must do under Borel v. Fibreboard
Paper Products Corp., supra), it can scarcely be
denied that the jury could reasonably have concluded
that an ordinary cattleman would not have expected
fifteen percent of his calf "crop" to be deformed
and stillborn, and that, therefore, the semen of

the bull Farro as marketed by Curtiss, was unreason-
ably dangerous.

Likewise, the emphasis placed by the majority
opinion upon testimony to the effect that an ordinary
cattleman recognizes the possibility that a bull's
seman may contain recessive genes is misplaced.

The ordinary consumer of any product must certainly
recognize the "possibility" of an unreasonably
dangerous defect; if, therefore, the recognition

of such a "possibility" were the test of consumer
expectations, the doctrine of strict products
liability would never come into play. The test is
not, however, what "possibilities" the consumer might
recognize, but what the consumer might reasonably
expect; as Judge Tate, in dissent, accurately points
out, the sort of fatal result in question, and the
high incidence of deformity, were far beyond any
custom or consumer expectation (opinion at 8806).

Two Rivers therefore would argue that, contrary to
the holding of the majority in this case, "reason-
able and fair-minded men in the exercise of impartial
judgment" might reach the conclusion that the semen
was unreasonably dangerous (Borel, supra at p. 1092).

Two Rivers would also point out to the court
that Curtiss certainly did not feel that Farro's
semen met the reasonable expectations of its customers,
since Curtiss removed Farro's semen from the market
upon discovering that he carried syndactylism
(transcript at 155, 156).

In light of the foregoing, Petitioner would
submit that the Court of Appeals has not "scrupulously
avoid(ed) usurping the function of the jury" as
required by Borel, supra but instead has far

18

exceeded the permissible scope of appelate review.
This case thus presents a situation where a court
of appeals has so far departed from the accepted
and usual course of judicial proceedings as to
call for an exercise of this Court's power of
supervision.

CONCLUSION

It is submitted that Petitioner's construc-
tion of the applicable Texas and federal authori-
ties, and the facts of this case constitutes the
only rational, workable approach to a novel and
complicated products liability case such as the
present. For this and the other reasons herein
stated, this Petition for Certiorari should,

therefore, be granted.
Reapectfully ae

James\N. Haltom

BBARD, PATTON, PEEK,

HALTOM & ROBERTS

Attorneys at Law

700 Texarkana National
Bank Building

P. O. Box 1928

Texarkana, Texas 75504

(214) 794-3341

Attorneys for Petitioner

APPENDIX

TWO RIVERS COMPANY,
Plaintiff-Appellee,

Vv.

CURTISS BREEDING SERVICE,
Division of Searle Agriculture
Inc., Defendant~-Appellant,

Hi-Pro Feeds, Inc., Defendant.

United States Court of Appeals,
Fifth Circuit.

Aug. 25, 1980.

Purchaser of bull semen brought action
against seller to recover for losses sustained
when some of the artificially inseminated
cattle produced calves suffering from syndac-
tylism. The United States District Court for
the Eastern District of Texas, Joe J. Fisher,
Chief Judge, entered judgment on verdict in
favor of purchaser and seller appealed. The
Court of Appeals, Thornberry, Circuit Judge,
held that: (1) strict liability was not appli-
cable to loss resulting from damage to reputation
of the herd, reducing its saleability, as a
result of the fact that some of the herd might
be carriers of syndactylism; (2) loss suffered
as result of the fact that some of the calves
received the genes for syndactyl from the semen
was also governed by the rules of commerical
law rather than strict liability; (3) the bull
semen was not unreasonably dangerous; (4) dis-
claimer of warranty of merchantability was
effective against the buyer's agent; and (5)
the implied warranty was also effective against
the buyer.

Reversed.

A-2

Tate, Circuit Judge, filed a dissenting
opinion.

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. |

A-3

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 arti-
ficially inseminate thousands of cattle in its
lifetime while a bull in natural service can sire
no more that 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 pure-
bred 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 artifi-
cially 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

A-4

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 insemi-
nated 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 ex-
hibited 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

A-6

of the entire herd. 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.

TYPES OF LOSS

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 pro-
perty is subject to liability for phy-
sical harm thereby caused to the ultimate
user or consumer, or to his property, if
(a) the seller is engaged in the busi-
ness 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.

_ PREVIOUS PAGE WAS BLANK |

A-7

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

(a) the seller has exercised all possi-
ble 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 Affli-
ates, 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
(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

A-8

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.

(1) 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 Com-
mercial Code and the theory of common law neg-
ligence. Strict liability was not extended to
instances of economic loss because the distinc-
tion that exists between physical damage and
commercial loss had to be recognized. The Uni-
form 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 "eco-
nomic loss to the purchased product itself."
Mid Continent Aircraft Corp. v. Curry County
Spraying Service, 572 S.W.2d 308 (Tex.1978).

In Mid Continent Aircraft, plaintiff sought
damages for physical injury to an airplane
(damage to fuselage and wings) and for loss of
its use value when it made a forced landing be-
cause an individual negligently failed to install
a crankshaft gear bolt lock plate. Noting that
the explicit language of section 402A applied
only to physical harm to a person or his other
property, the court stated that in a commercial
sale, strict liability should not be extended
to cover a loss resulting from damage to the

A-9

product itself. The court stated that "when
no physical injury has occurred to persons or
other property, injury to the defective product
itself is an economic loss governed by the
Uniform Commercial Code." 572 S.W.2d at 313.
This is because the damage to the product is
merely a loss to the purchaser of the benefit
of the bargain with the seller.

(2) The fourth type of loss is a hybrid
involving physical harm to a plaintiff's other
property as well as to the product itself.

This fact pattern was presented in Signal Oil
where a defective isomax reactor charge heater
exploded. The explosion and ensuing fire at
Signal Oil's Houston refinery destroyed not only
the heater, but also a significant portion of
the refinery (other property). It is clear
that the damage to the refinery presents a strict
liability cause of action under section 402A
since a buyer is entitled to recover for damage
to his other property. But the court went even
further and held that:

(W)here such collateral property dam-

age exists in addition to damage to

the product itself, recovery for such

damages are recoverable under Section

402A of the Restatement (Second) of

Torts as damage to property or under

the Texas Business and Commerce Code,

Section 2.715, as consequential dam-

ages for a breach of an implied

warranty. To the extent that the

product itself has become part of

the accident risk or the tort by

causing collateral property damage,

it is properly considered as part of

the property damages, rather than as

economic loss.
572 S.W.2d at 325 (emphasis added). Therefore,
if both the product and other property are
damaged, a plaintiff has a cause of action
under strict liability and the U.C.C.

A-10

STRICT LIABILITY

Two Rivers asserts a cause of action based
on the doctrine of strict liability against
Curtiss, alleging that Curtiss sold a geneti-
cally defective product that was unreasonably
dangerous. Two Rivers sought damages for the
loss of the market value of the entire herd
and for the value of the four calves born with
syndactylism. In assesing Two Rivers' claim,
the herd of calves must be divided into two
groups: a group composed of those calves that
received a gene for syndactyl from Farro semen
(including the four syndactyl calves) and a
second group composed of those calves that were
not artificially inseminated with Farro semen.

Only 22 of the 98 calves born alive were
the product of Farro's semen. Two Rivers claims
that it is entitled to damages equal to the
reduction in the market value of the 76 non-
Farro calves (the second group) because of the
stigma caused by having as many as 22 carriers
in the herd.

(3) After an examination of the con-
trolling Texas case law, it is clear that Two
Rivers has not stated a cause of action under
Strict liability with respect to the second
group of calves. If anything, any damage in-
curred upon discovering and making publicly
known a latent physical defect in the herd of
one-half blood Chianina heifers purchased by
Two Rivers constitutes economic loss governed
by the rules of commercial law. A plaintiff
in Texas is precluded from recovering for
economic loss under strict liability.

First, it is obvious that this injury does
not come within either the first or fourth
category of loss, discussed supra, each of
which provides for recovery under the doctrine
of strict liability. There was obviously no
physical injury to any of the 76 calves merely

A-11

because the other 22 calves were artificially
inseminated with Farro semen. Second, a decrease
in market value can best be described as an
intangible commercial loss. Keeton, Private Law
Torts, 25 S.W.L.J. 1 (1971). The syndactyly gene
that some of these calves undoubtedly carry was
already present in Two Rivers’ original herd. The
crux of Two Rivers' complaint about the non-
Farro calves is that everyone now knows about
this potentially deleterious gene and that since
it is impossible to distinguish the carrier from
the non-carrier calves, the value of all the
calves is reduced. This loss in market value

due solely to the stigma of an accidentally
discovered defective gene is, if anything, a
commercial loss that is not cognizable in strict
liability.

With respect to the first group of calves
(artificially inseminated with Farro semen),
the question is much more difficult. These
calves were either born with a syndactyly gene
or were possible carriers of syndactylism. The
damage suffered by Two Rivers does not fit neat-
ly into any one of the four categories discussed
above.

On the one hand, it could be argued that
this case presents a situation merely involving
injury to the product itself. Therefore, it
would only involve economic loss governed by
Mid Continent and the U.C.C. At least some of
the product, Farro semen, carried the recessive
gene. This semen was used to fertilize ova
produced by Two Rivers’ herd, at least some of
which also carried the defective gene. As a
result, four of the calves born were syndactyl,
and some or perhaps all of the remaining
calves were carriers. Arguably, a calf is a
continuation of the product (bull semen) so
any damage was to the product itself and not to
any other property. Therefore this case would
be governed by Mid Continent and the U.C.C.

A-12

On the other hand, it could just as easily
be argued that the product (bull semen) is a
constituent part of a new product (the calf)
which is the other property. Because there is
damage to other property, Signal Oil would pro-
vide for recovery under the doctrine of strict
liability.

But Mid Continent and Signal Oil do not
fit the situation presented in this case. Both
of these cases deal with mechanical items in-
volving incorporation of parts into a whole.
They do not address the question presented in
this case where the product (bull semen) re-
acts with another product to create something
new through the biological process of mammalian
reproduction that is a continuation of both
products. In this case, once fertilization has
occurred, the products are inextricably inter-
woven. Unlike a defective crankshaft gear bolt
lock plate or isomax reactor charge heater that
may be replaced to cure the defect in the whole,
fertilization irrevocably prohibits replacement
of a component part to result in a satisfactory
whole. Mid Continent and Signal Oil are concerned
with mechanical items and the concept of a part
or a whole in a mechanical sense as opposed to
a biological sense. While they are helpful in
determining the reasoning of the Texas Supreme
Court, they are not dispositive of this case.

Because there are no Texas Supreme Court
cases on point dealing with the situation where
one product is biologically combined with
another to form, by a natural process, a con-
tinuation of those products, we must decide
whether the Texas Supreme Court would view this
case as one that should be governed by the
doctrine of strict liability or the rules of
commercial law. The theoretical bases and
policy rationale of contract law and strict
liability have been separated and firmly es-
tablished. Mid Continent, supra, 572 S.W.2d

A-13

at 311. The Texas Supreme Court noted the dis-
tinction in Nobility Homes when it quoted the
following language of Chief Justice Traynor:

The law of sales has been carefully arti-
culated to govern the economic relations
between suppliers and consumers of goods.
The history of the doctrine of strict
liability in tort indicates that it was
designed, not to undermine the warranty
provisions of the sales act or of the
Uniform Commercial Code but, rather, to
govern the distinct problem of physical
injuries.

AAKKKREKRK RK KK REAR KK

The distinction that the law has drawn
between tort recovery for physical in-
juries and warranty recovery for eco-
nomic loss is not arbitrary and does not
rest on the "luck" of one plaintiff in
having an accident causing physical in-
jury. The distinction rests, rather, on
an understanding of the nature of the
responsibility a manufacturer must under-
take in distributing his products. He
can appropriately be held liable for
physical injuries caused by defects by
requiring his goods to match a standard
of safety defined in terms of conditions
that create unreasonable risks of harm.
He cannot be held for the level of
performance of his products in the
consumer's business unless he agrees
that the product was designed to meet
the consumer's demands.

577 S.W.2d at 77, quoting Seely v. White Motor
Co., 63 Cal.2d9,15,45 Cal. Rptr. 17,23,403
P2d 145, 151 (1965).

(4) This case is governed by the rules of
commercial law for two reasons. First, even if
the bull semen is considered to be defective, it

A-14

is not unreasonably dangerous. Second, the
Texas case law indicates that the policy ratio-
nale of contract law is to govern this situation.

A. Unreasonably Dangerous

As noted earlier, strict liability in Texas
has been defined to cover personal injuries and
physical injuries to a consumer's other property
caused by an unreasonably dangerous product.

The test for determining what is unreasonably
dangerous is different depending on whether the
case involves a flaw in a product or a design
defect. This case presents a flaw in the pro-
duct in that it was not improperly designed,
but it arrived in a state which did not comport
with its expected condition. Ina flaw ease,
"unreasonably dangerous" is defined in terms of
a consumer expectation test. Comment, Special
Project Texas Tort Law in Transition, 57 Texas
L.Rev. 381, 470-71 (1979). A product is "“un-
reasonably dangerous" when it is in a "defective
condition rendering it unsafe for its intended
use."" Metal Window Production Co. v. Magnusen,
485 S.W.2d 355 (Tex.Civ.App.--Houston (14th
Dist.) 1972, writ ref'd n.r.e.). A product is
"unfit for its intended use" when it is "danger-
ous to an extent beyond that which would have
been contemplated by the ordinary user with the
knowledge available to him as to the character-
istics of the product."

C.A. Hoover & Son v. O.M. Franklin Serum Co.,
444 S§.W.2d 596,597 (Tex.1969); see also Signal
Oil, 572 S.W.2d at 324 n.5 ("To be unreasonably
dangerous’ a product must be dangerous to an
extent beyond that which would be expected by
the ordinary petroleum refiner...... with the
ordinary knowledge common to the community of
petroleum refiners as to the characteristics
of such heaters.") V. Mueller & Co. v. Corley
570 S.W.2d 140, 145 (Tex.Civ.App.--Houston
(lst Dist.)1978, writ ref'd n.r.e.) (dangerous

A-15

"to an extent beyond that which would be con-
templated by the ordinary user.").

(5,6) In a diversity case, a federal
rather than a state test is applied to deter-
mine whether there is fufficient evidence to
create a jury question as to whether a product
is unreasonably dangerous. Reyes v. Wyeth
Laboratories, 498 F.2d 1264 (5th Cir. 1974);
see also Boeing v. Shipman, 411 F.2d 365 (5th
Cir. 1969). A federal appeallate court will
avoid usurping the function of the jury by
weighing evidence and judging credibility; our
function is limited to determining whether
there is a conflict in substantial evidence
sufficient to create a jury question. Borel v.
Fireboard Paper Products Corporation, 493 F.2d
1076 (5th Cir. 1973).

(7,8) Despite this stringent standard, we
must still find that the bull semen was not
unreasonably dangerous as a matter of law.
There is no evidence supporting plaintiff's
claim that the product was unreasonably danger-
ous in the light of the proper "consumer expec-
tation" test. The evidence showed that all bull
semen has the possibility of carrying recessive
genes. Two Rivers, as a cattle breeder, knew
this. But most importantly, the evidence
indicates that the "ordinary" cattle breeder
with the ordinary knowledge common to the
community of cattle breeders expects that the
bull semen will carry some recessive genes.

The industry custom is only to guarantee that
(1) the semen is from the correct bull, (2)
the bull is fertile, and (3) the semen will
impregnate a heifer. The custom is that the
risk of a genetic defect falls on the owner
of the herd. This is especially true in the
case of exotic breeds such as the Chianina.
While custom is not dispositive, it is indi-
cative of an ordinary consumer's expectations.

A-16

The evidence indicates that the presence
of recessive genes in bull semen is contem-
plated by the ordinary consumer with knowledge
of the product. All breeds possess genetic
defects and all bulls possess some recessive
genes. The testimony reveals that a cattle
breeder accepts the risk of any unknown genetic
defects and undiscovered abnormalities turning
up in the offspring. The evidence indicates
that the recessive gene carried by Farro was an
unknown and undiscovered genetic defect. As
soon as it was discovered, the Farro semen was
taken off the market.

(9) The evidence also revealed that
several calves exhibiting syndactylism were
stillborn. Each of the calves was the product
of Farro bull semen. Therefore, it can be
said that the evidence revealed the presence of
a genetic defect in the Farro semen. But this
is not evidence that the product is unreasonably
dangerous. It says nothing concerning the
contemplation of the ordinary consumer. It is
not enough to find a defect without also finding
that the defect is unreasonably dangerous. A
product that is dangerous or defective, but no
more dangerous than the ordinary consumer would
expect does not trigger liability under section
402A. Comment, Special Project at 465.

Two Rivers may not recover damages under
the doctrine of strict liability because the
bull semen, as a matter of law, was not un-
reasonably dangerous. Therefore, this case
must be governed by the doctrine of commercial
law. But even if the bull semen is deemed to
be unreasonably dangerous, this case is still
governed by the policy rationale of commercial
law.

B. Policy Rationale of Commercial Law

In Nobility Homes, the Texas Supreme Court

A-17

adopted the rule that economic loss resulting
from a product with defective workmanship and
materials only constituted a loss of value
caused by the failure of the product to perform
according to the contractual bargain. This re-
presented economic loss and was not recoverable
in strict liability. Strict liability was not
designed to govern every sale of a faulty pro-
duct. Mid Continent, 572 S.W.2d at 312. Com-
mercial law governs the case where the purchaser
has lost some of the benefit of his bargain.

This is clearly demonstrated in an anal-
ogous area involving the sale of seeds that are
of inferior quality and seeds that will not
germinate. Pyle v. Eastern Seed Co., 145 Tex,
385, 198 S.W.2d 562 1946; Burchfield v. Tanner,
142 Tex. 404, 178 S.W.2d 681 1944; Pioneer Hi-
Bred International, Inc. v. Talley, 493 S.W.2d
602 (Tex.Civ.App.--Amarillo 1973, no writ);
Asgrow Seed Co. v. Gulick, 420 S.W.2d 438 (Tex
Civ.App.--San Antonio 1967, writ ref'd n.r.e);
Hall v. Mosteller, 245 S.W.2d 338 (Tex.Civ.App.--
Austin 1951, writ ref'd n.r.e.); Dutch Mill
Gardens v. Grullemans & Sons, 238 S.W.2d 232
(Tex.Civ.App.--Galveston 1951, writ ref'd);
Texas Seed & Floral Co. v. Watson, 160 S.W.

659 (Tex.Civ.App.--Dallas 1913, no writ);
Browne v. Allen, 53 Tex.Civ.App. 458, 116 S.W.
133 (1909, no writ). Each of these cases in-
volving a natural process was decided on the
basis of commercial law. They indicate that
the Texas Supreme Court would apply commercial
law in this case that also involves a natural
process. In the seed cases a "defect" in the
seed resulted in a product that did not allow
the purchaser to receive all the benefits of
the bargain. The same can be said of this case
where the genetic defect in the semen meant
that Two Rivers did not receive all the benefits
of its bargain with Curtiss.

ae — Lee...
—

A-18

The seed case that most closely resembles
the fact situation presented here is Pioneer
Hi-Bred, supra. In Pioneer Hi-Bred, the plain-
tiff complained of defective corn seed. While
the "seeds planted well, came up to a good stand
and the corn grew until it was approximately
"knee-high,'" the plants then turned yellow and
failed to grow as uniformly as, or as tall as,
or to produce as much corn as the purchaser had
expected. The court stated that even if there
was sufficient evidence to show a causative
"defect" in the corn seed, any loss would be
regarded only as economic loss due to failure
of the product with respect to its own value.
While the seed was defective, the damage was to
the resulting corn plant. The same is true in
this case where the defect in the semen caused
injury to some of the resulting calves. The
court in Pioneer Hi-Bred found that the injury
to the corn was not "physical harm.....
caused to the ultimate user or consumer, or to
his property" within the language of section
402A. The same can be said in the case of the
injury to the calves. We choose to follow the
reasoning of the court in Pioneer Hi-Bred and
apply it to this case. The loss is deemed as
economic loss only. See also Texsun Feed Yards,
Inc. v. Ralston Purina Co., 447 F.2d 660 (5th
Cir. 1971) (this court applied the same rule to
cattle feed supplement where the defect caused
the supplement to be less effective than anti-
cipated).

The loss claimed by Two Rivers, represented
by the decrease in market value of the herd, can
best be described as an intangible commercial
loss. Keeton, Private Law Torts, 25 SW. L.J.

1 (1971). This description encompases (1) eco-
nomic losses generally measured by the cost of
repair or replacement, (2) losses measured by
the difference in market value of the product
without the defect and its value diminished by
its existing defective condition, (3) losses

rr ee ee oy

A-19

measured by the difference in value between what

is given and received, as well as (4) indirect or
consequential losses measured by a loss of profits.
Sales & Perdue, The Law of Strict Tort Liability in
Texas, 14 Hous.L.Rev. 1,144 (1977). Consistent
with this category of losses is a loss represented
by a reduction in the market value of a herd of
cattle caused by the stigma of a recessive gene.
This is a commercial loss that does not allow the
application of strict liability.

Essentially, Two Rivers is complaining, as
a purchaser of bull semen, that the product did
not fulfill its commercial expectations. Two
Rivers purchased the semen to artificially in-
seminate its half-blood heifers and to eventually
create a purebred Chianina herd. This goal can
still be achieved. The Farro semen had an accep-
table conception rate. The only problem is that
Two Rivers desired semen that was free of all
genetic abnormalities. The presence of the reces-
sive gene meant that the product did not fulfill
Two Rivers’ commercial expectations. The policy
reasons behind strict liability are simply not
compelling in the case of a disappointed buyer.
Id. at 149. Two Rivers’ case is even less com-
pelling than the situation presented in Nobility
Homes where the unfulfilled expectations made
the mobile home uninhabitable. At least in this
case, the semen performed according to the con-
tractual bargain. It merely possessed one un-
desirable characteristic that arguably caused a
loss of value.

The Farro bull semen satisfied Two Rivers'
business demands since it had a satisfactory
conception rate. It did not cause physical harm
to individuals or to Two Rivers’ dams or bulls.
Strict liability evolved to provide a remedy for
physical injuries. It was not designed to re-
place the U.C.C. in governing commercial trans-
actions. The damages claimed by Two Rivers are

A-20

not the type protected by the social policy of
Strict liability to protect consumers and dis-
tribute the costs to the consuming public. The
public need not be burdened with additional costs
because of a consumer's unfulfilled commercial
expectations. The socio-economic policy and
enterprise theory behind strict liability was
not designed to provide a remedy for a disap-
pointed buyer. Sales & Perdue, supra at 148-149.
This is a case of economic loss that must be
governed by commercial law.

IMPLIED WARRANTY

Because this case presents a situation
involving the principles of commercial law, the
provisions of the Uniform Commercial Code govern
the outcome. Nobility Homes, supra; Mid Con-
tinent, supra. The U.C.C. was designed to deal
with obligations imposed by law for commercial
losses and it provides both express and implied
warranties. Two Rivers does not claim that Cur-
tiss made an express warranty, but it does
contend that the judgment of the trial court may
be affirmed on the theory of breach of an implied
warranty.

(10,11) The U.C.C. provides for two
implied warranties including an implied war-
ranty of merchantability and an implied war-
ranty of fitness for a particular purpose.

An implied warranty of merchantability arises
from a merchant seller with respect to goods
of the kind that he normally sells. Tex.Bus.
& Comm. Code Ann. §2.314(Vernon 1968). For
goods to be merchantable, they must be fit for
the ordinary purposes for which the goods are
ordinarily used. Id § 2.314(b)(3). An implied
warranty of fitness for a particular purpose
arises when the seller, at the time of con-
tracting, has reason to know any particular
purpose for which the goods are required and

A-21

that the buyer is relying on the seller's
skill or judgment to select or furnish suit-
able goods. Tex.Bus.& Comm. Code Ann. § 2.315
(Vernon 1968).

(12) Because Curtiss is a merchant seller
dealing in buss semen, it impliedly warranted
that its goods would be fit for the ordinary
purposes for which they are ordinarily used.
After Nobility Homes, it is clear that this
warranty extends to Two Rivers despite the
absence of privity of contract between Curtiss
and Two Rivers. But Curtiss did not impliedly
warrant the fitness of the bull semen for a
particular purpose. Two Rivers did not rely on
Curtiss to select the particular semen involved
but relied on Tony Hall. Therefore, Two Rivers
must rely on the implied warranty of merchant-
ability to support a recovery of damages for
economic loss.

(13) Two Rivers pleaded and the trial
court found that Curtiss breached its implied
warranty of merchantability to Two Rivers by
distributing a product that was not fit for
the purpose of artificially inseminating cattle.
Without addressing the validity of this conclu-
sion, we find that this case may be decided on
the issue of disclaimer of warranty. To dis-
claim an implied warranty of merchantability,
the disclaimer must (1) mention the word mer-
chantability and (2) in the case of a writing,
must be conspicuous.

(14) Each sale from Curtiss to Hi-Pro
included a disclaimer of all warranties, ex-
press or implied, using the following language:

Notwithstanding the fact that artifi-
cial insemination is successfully em-
ployed in the breeding of livestock on
a worldwide basis and Curtiss customers

-,

A-22

for many years have achieved satisfac-
tory results, Curtiss Breeding Service,
a division of Searle Agriculture, Inc.,
and its agents or employees cannot
guarantee the conception rate, quality
or productivity to be obtained in con-
nection with the use of its products or
recommended techniques. Curtiss does
warrant that all semen sold will be
processed according to standards rec-
commended by the American Veterinary
Medical Association and adopted by the
National Association of Animal Breeders.
IT MAKES NO OTHER WARRANTY OF ANY KIND
AND HEREBY DISCLAIMS ALL WARRANTIES,
BOTH EXPRESS AND IMPLIED, OF MERCHANT-
ABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.

Further, neither Curtiss Breeding
Service, nor any of its agents or em-
ployees, shall be responsible for any
injury or damage caused to persons,
animals or property through the negli-
gent use or handling of its’ products,
or for any damages or loss due to any
defects in the containers used in con-
nection therewith.

This language appeared in large type on the
back of each invoice Hi-Pro received from
Curtiss when it purchased bull semen. This
disclaimer was also conveyed from Curtiss,
through Hi-Pro, to Tony Hall when he purchased
the Farro semen. The same language was printed
on page two of the "1974 Curtiss Beef Breeding
Guide." The record indicated that Hall ex-
amined page two of the Guide and noticed the
conspicuous disclaimer of warranty.

(15) The only remaining question is
whether the disclaimer that was effective

against Hi-Pro and Hall could be extended to
Two Rivers. While Hall purchased the semen on

A-23

his own account, he did so for the benefit of
Two Rivers. Hall can not be considered a seller
of bull semen. The testimony reveals that Hall
merely had the semen billed to his account and
that he was later reimbursed by Two Rivers in

an amount equal to his cost. At least to this
extent, Hall was an agent of Two Rivers. Hall
also charged Two Rivers a nominal fee for the
services he performed. We hold that the relation-
ship between Hall and Two Rivers requires a
finding that the disclaimer effective against
Hi-Pro and Hall was also effective as to Two
Rivers. Cf. Sugarland Industries, Inc. v.
Falco, 360 S.W.2d 806 (Tex.Civ.App.--Waco 1962,
writ ref'd n.r.e.). Therefore, the implied
warranty of merchantability was properly dis-
claimed and Two Rivers is not entitled to
recover any damages.

We find additional support for the manner
in which Texas courts have analyzed this problem
from the Supreme Court of Oregon in Brown v.
Western Farmers Ass'n, 268 Or. 470,521 P.2d 537
(1974). In Brown, plaintiff sought to recover
damages based on strict liability for the loss
of eggs caused to taste bad, for loss of chic-
kens caused to become valueless and which had
to be replaced, for the cost of defective feed,
and for lost profits against a retailer of
chicken feed because the feed was defective.
While the Oregon Supreme Court did not reach the
question of economic loss, it held that an action
for damages by the purchaser of defective goods
brought on a theory of strict liability is
proper only when the defective goods are un-
reasonably dangerous to the user or his other
property. There was no showing that the feed
was unreasonably dangerous. As in this case,
strict liability could not be relied upon to
recover for a decrease in the value of property
or for other forms of economic loss.

In summary, in Texas the type of loss
presented in this case is governed by the U.C.C

A-24

and the law of warranty. But Curtiss success-
fully disclaimed any and all implied warranties
in this case. Therefore, the district court
incorrectly allowed Two Rivers to receive damages
based on the theories of strict liability and
breach of an implied warranty of merchantability.

REVERSED.
TATE, Circuit Judge, dissenting:
I respectfully dissent.

The majority's persuasive opinion is thought-
ful and scholarly. However, like the district
judge whom we reverse, my Erie guess is that, in
the particular configuration of facts before us,
the Texas courts would hold that strict liability
recovery is allowable.

As acknowledged by the majority, the chief
difficulty in the present legal characterization
of the "product," the "defect," and the "econo-
mic loss" arises from the nature of the present
product and its defect, unique in jurisprudence
to date concerning strict liability for product
defects. The "product" is commercially sold
semen, here used for artificial insemination of
the heifers in a fine heard of one hundred breeding
cattle. The "defect" in this product was a
recessive gene of syndactylism, a genetic abnor-
mality that results in the birth of deformed or
stillborn calves (when both dam and sire have
the recessive genes). All the calves sired by
Farro suffered damage from this recessive gene,
four dying stillborn and twenty-two becoming
carriers of the syndactylism gene. In my view,
my brothers of the majority improperly disallow
this damage as being purely an "economic loss,"
a loss of market value of the "product."

The damage to these calves, though partially
measured in terms of ‘toss of market value, is
not an "economic loss" in the technical sense

A-25

used in the Texas products liability cases. Tort-
recovery for physical damage to an automobile
caused by a third person's negligence could
similarly be described as an “economic loss,"
because such damage can be measured by the dif-
ference between the automobile's market value
before and after the tort-caused damage. More-
over, aside from any technical conceptual char-
acterization based solely on the measure of
damage, the judicial determination of strict
liability in tort should be based upon the nature
of the loss and upon whether recovery is appro-
priate in the light of the purposes of strict
liability for defective products. In my view, the
damage here suffered is appropriately recovered
under strict liability.

The majority valiantly struggles with the
three most recent Texas cases discussing strict
liability recovery for "economic loss" resulting
from a product's defect, Signal Oil and Gas. Co.
v. Universal Products, 572 S.W.2d 320 (Tex.1978);
Mid Continent Aircraft Corp. v. Curry County
Spraying Service, Inc., 572 S.W.2d 308 (Tex.1978);
Nobility Homes of Texas, Inc. v. Shivers, 557
S.W.2d 77 (Tex.1977), and admits that none of
these cases control the present circumstances.
However, my brothers of the majority conclude
that strict liability is not appropriate in
this case because they believe that the semen
was not unreasonably dangerous and that the
facts of this case do not fall within the policy
rationale of strict liability and the economic
loss cases. It is with these two conclusions
that I respectfully disagree.

To begin with, I believe that the majority
errs in determining that, as a matter of law,
the semen in this case was not unreasonably
dangerous. As stated in Reyes v. Wyeth Labora-
tories, 498 F.2d 1264, 1288 (5th Cir. 1974)
(italics ours), "As an appellate court, our
sole function is to ascertain whether there
is a rational basis in the record for the jury's
verdict, we are forbidden to usurp the function

A-26

of the jury by weighing the conflicting evidence
and inferences and then reaching our own conclu-
sion." I believe that the conclusion reached by
the jury has a rational basis.

Although the evidence indicates that pur-
chasers of bull semen are aware that there may be
some recessive genes, the jury was not compelled
to excuse the distributor from liability for
damage directly resulting from a defective gene
that essentially destroyed the value of the
calves for which the semen had been purchased.
Four of the calves died in their mothers' wombs,
and the calves that became carriers of the de-
fective gene lost all value except for purposes
of slaughter. |! This sort of fatal result is far
beyond any custom or consumer expectation. I
think that the majority errs in holding that
the jury was not, as a matter of law, entitled
to conclude that a genetic defect of this magni-
tude was unreasonably dangerous.

With respect to whether the damage suffered
by the calves in this case is recoverable under
strict liability as opposed to being simply an
"economic loss," I think that the most applicable
cases are Signal Oil and Gas Co. v. Universal
Products, Inc. 572 S.W.2d 320 (Tex.1978), and
C.A. Hoover and Son v. O. M. Franklin Serum
Company, 444 S.W.2d 596 (Tex. 1969). In Signal
Oil a defective heater (the product) exploded,
causing damage not only to itself but also to
the rest of the refinery (other property). There,
in upholding a products liability cause of action
for all damages thereby sustained, the Texas court
held that preducts liability recovery is avail-
able where "collateral property damage exists in
addition to damage to the product itself," 572
S.W.2d at 320. In my opinion, the semen should
be classified as the "product" and the defective
calves as "other property" that was damaged.
(Only by conceptualizing the "product" as both
the semen sold and the calves thereafter con-

A-27

ceived and nurtured in the heifers' wombs until
born months later, may the present facts be forced
into the Mid Continent formula so as to deny
recovery.)

Unlike the majority, I believe that analo-
gizing to the Signal Oil decision reaches a
result that is consistent with the policy behind
strict liability and the cases that have distin-
guished purely "economic loss" from other types
of damage. In the seed cases relied on by the
majority, the product simply failed to perform
as expected. In the instant case, however, as
in Signal Oil and C.A. Hoover, the defect in
the product has caused physical injury to the
other property of the purchaser. In the instant
case the injury is no less a "physical injury"
because produced by the injection of recessive
genes than if, instead, permanent injury to the
calves has been caused by the injection of
defective serum, as in C. A. Hoover.

The real issue, as the majority remarks in
closing, is whether this type of damage should
be borne by the consumer (as merely his un-
fulfilled commercial expectation), or should
instead be borne by the distributor of a product
presenting an unreasonably dangerous risk of
injury to the property of others (in order to
protect individual consumers from unwarranted
loss and to spread the risk among the consuming
public). The issue is close, but in my view
the Texas Supreme court, more likely than not,
would allow products liability recovery in this
case, and hold that the distributor of this
defective semen is strictly liable for the damages
it caused.

Therefore, I would allow products liability
recovery at least che damages resulting from
(a) the loss of the four calves stillborn due
to Farro's unreasonably dangerous semen and (b)

A-28

the loss in value of the 22 calves due to their
being born afflicted by the defect resulting
from such semen. Accordingly, I respectfully
dissent.

A-29

FOOTNOTES

John Davenport, owner of Two Rivers, testi-
fied that the difference in the value between
a heifer used for breeding ($750) and one

sold for slaughter ($125) is approximately
$625. In the case of a bull, the difference
is approximately $375 ($500 for breeding

less $125 for slaughter). Two Rivers claims
that it is entitled to damages for calves born
in the first crop as well as in the second
crop, even though no calves were born with
syndactylism in the second crop, because they
claim that the stigma of syndactylism attaches
to the entire herd. The total amount sought
as damages of $52,900 is computed as follows:

FIRST CROP
Healthy Caives
Heifers (38 x $625) $23,750
Bulls (30 x $375) 11,250
Syndactyl Calves
Heifers (3 x $750) 2,250
Bulls (1 x $500) 500

SECOND CROP
Healthy Calves

Heifers (16 x $625) 10,.000

Bulls (14 x $375) 5,250
53,000

MATHEMATICAL ERROR (100)
TOTAL DAMAGES SOUGHT $52,900

It is significant to note that only 22 of

the 98 calves born alive were sired by Farro,
but Two Rivers seeks damages for loss of
value to the entire herd, arguing that the
stigma of syndactylism attaches to the
entire herd.

. The Texas Supreme Court in Nobility Homes
adonted in a footnote the following defi-

Dl.

D2.

D3.

of economic loss:

Direct economic loss may be said to
encompass damage based on insufficient
product value, thus, direct economic
loss may be "out of pocket"--the differ-
ence in value between what is given and
received--or "loss of bargain''--the
difference between the value of what is
received and its value as represented.
Direct economic loss also may be measured
by costs of replacement and repair.
Consequential economic loss includes
all indirect loss, such as loss of
profits resulting from inability to make
use of the defective product.

577 S.W.2d at 78,n.1 quoting Note, Economic
Loss in Products Liability Jurisprudence,
66 Colum L.Rev. 917 (1966).

The district court in this case defined unrea-
sonably dangerous to mean "some feature of

the product threatens harm to the property of
the users to the extent that such product would
not be placed in the channels of commerce by

a prudent seller or distributor aware of the
risk involved in its use or to the extent that
the product would not meet the reasonable

expectations of the ordinary user as to safety

to the users property." This dual standard
encompasses not only the consumer expectations
test but also the prudent manufacturer test.

As noted in footnote 1 of the majority opinion,
the value of the female calves that became
carriers was reduced from $725 to $125.

In C.A. Hoover strict liability tort recovery
was allowed when impure serum caused death and
permanent injuries to calves.

See note 2, supra.

A-3]

United States Court of Appeals
Fifth Circuit
Office of the Clerk
October 6, 1980

TO ALL PARTIES LISTED BELOW:

NO. 78-1014 - TWO RIVERS CO. V. CURTISS
BREEDING SERVICE, ETC., ET AL.

Dear Counsel:

This is to advise that an order has this day been
entered denying the petition( ) for rehearing, and
no member of the panel nor Judge in regular active
service on the Court having requested that the
Court be polled on rehearing en banc (Rule 35,
Federal Rules of Appellate Procedure; Local Fifth
Circuit Rule 16) the petition( ) for rehearing

en banc has also been denied.

See Rule 41, Federal Rules of Appellate Procedure
for issuance and stay of the mandate.

Very truly yours,
GILBERT F. GANUCHEAU, Clerk

By Sally Hayward
Deputy Clerk

' ec: Mr. David S. Kidder

Mr. George L. McWilliams

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1043%3A1. Public record. Not legal advice.