Dr. Luel P. Overstreet v. Norden Laboratories, Inc.
669 F.2d 1286, 33 U.C.C. Rep. Serv. (West) 174, 1982 U.S. App. LEXIS 22121 (1982)
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Rule of Law:
Under Kentucky law, a claim for breach of an express warranty requires the plaintiff to prove that the seller's affirmation of fact or promise was part of the basis of the bargain, which necessitates a showing that the buyer relied on that warranty.
Facts:
- Dr. Luel P. Overstreet, a veterinarian, operated a standardbred horse farm in Kentucky.
- Equine rhinopneumonitis is a virus that can cause pregnant mares to abort their foals.
- Norden Laboratories, Inc. manufactured and marketed Rhinomune, a new vaccine designed to inoculate horses against this virus.
- In the spring of 1973, two of Dr. Overstreet's mares aborted their foals due to the equine rhinopneumonitis virus, causing him concern about a potential outbreak.
- A Norden sales representative visited Dr. Overstreet's office, and Dr. Overstreet also allegedly read promotional literature and advertisements for Rhinomune.
- Dr. Overstreet asserted that he ordered Rhinomune because of the representations Norden made in its advertisements.
- Dr. Overstreet administered the Rhinomune vaccine to a number of his pregnant mares.
- In the spring of 1974, six of the mares that had been inoculated with Rhinomune aborted their foals.
Procedural Posture:
- Dr. Luel P. Overstreet filed a lawsuit against Norden Laboratories, Inc. in the United States District Court based on diversity jurisdiction, alleging breach of express and implied warranties.
- Following a trial, a jury returned a verdict in favor of Dr. Overstreet, awarding him $40,500.00.
- Norden filed motions for a judgment notwithstanding the verdict (j.n.o.v.) and for a new trial.
- The district court denied both of Norden's motions.
- Norden Laboratories, Inc., as the appellant, appealed the judgment to the United States Court of Appeals for the Sixth Circuit; Dr. Overstreet was the appellee.
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Issue:
Does a claim for breach of an express warranty under Kentucky's adoption of the Uniform Commercial Code (Ky.Rev.Stat. § 355.2-313) require the plaintiff to prove they relied on the seller's warranty?
Opinions:
Majority - Keith, J.
Yes, a claim for breach of express warranty requires the plaintiff to prove reliance on the warranty. The court, interpreting Kentucky law in the absence of a direct ruling from the state's highest court, held that the statutory requirement that a warranty be 'part of the basis of the bargain' is substantially the same as the reliance requirement under prior law. While an implied warranty of merchantability arises by operation of law and does not require reliance, an express warranty is created by the seller's specific representations. For those representations to become part of the bargain, the buyer must have relied upon them as an inducement to purchase the product. The trial court's failure to instruct the jury on the element of reliance for the express warranty claim was therefore a reversible error.
Concurring - Engel and Kennedy, JJ.
Yes, reliance is a necessary element of an express warranty claim. However, the concurrence writes separately to address the issue of damages, arguing the trial court's instructions were also erroneous on this point. To recover consequential damages, such as the value of the lost foals, the plaintiff must prove that the breach of warranty was the cause of the loss. If no available product could have prevented the abortions, then the failure of Rhinomune did not cause the loss, even if its ineffectiveness was a breach of warranty. Causation for consequential damages requires a plaintiff to show that they forewent an effective alternative in reliance on the warranty, or that the breach otherwise directly led to the specific loss claimed.
Analysis:
This decision clarifies that under the UCC's 'basis of the bargain' language, as interpreted in Kentucky, buyer reliance remains a key element for a breach of express warranty claim. It solidifies the distinction between express warranties, which are bargained-for promises, and implied warranties, which are imposed by law without regard to reliance. The influential concurrence introduces a stringent causation analysis for consequential damages, suggesting that a plaintiff must prove the loss was a direct result of the breach, often by showing a viable, effective alternative was foregone. This 'alternative product' reasoning can significantly limit recovery in cases where a product fails to perform a function that no product could have performed.
