Farmer can bring tort case, but not UCC claim

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In an unusual twist, a dairy farmer may pursue tort remedies against the seller of diseased cattle, but not contract remedies.

The Wisconsin Court of Appeals held on May 20 that the farmer’s failure to timely notify the seller of the breach foreclosed his remedies under the Uniform Commercial Code (UCC), but not his misrepresentation claims.

In August 2001, Michael and Marcia Wilson bought 50 dairy cows from Robert Tuxen.

In June 2002, the Wilsons discovered that some of the cows were infected with Johne’s disease, a fatal, contagious disease typically acquired during the first six months of a cow’s life. Such cows must be slaughtered.

In September 2002, the Wilsons filed suit against Tuxen, alleging five contract claims, six tort claims, and breach of implied warrant under sec. 95.195.

Because the Wilsons did not give notice of breach within a reasonable time, as required by sec. 402.607, the circuit court dismissed the contract claims and the claim for breach of implied warranty under sec. 95.195.

The Wilsons then moved to amend the complaint to add five claims under sec. 95.19(2).

The circuit court permitted only two of the claims to be added — for selling infected livestock — but not the three claims alleging misrepresentation that the livestock were not diseased.

On motion for summary judgment, the court held that the tort claims were barred by the economic loss doctrine, and that the sec. 95.19 claims did not create a claim apart from the underlying tort, and thus, were also barred.

The Wilsons appealed, and the Court of Appeals affirmed in part, and reversed in part, in a decision by Judge Gregory A. Peterson.

Tort Claims

The court first held that the economic loss doctrine bars the Wilsons from recovering in tort for the cows purchased from Tuxen. Such losses are “loss in value of the product” — a direct economic loss, rather than damage to other property.

However, the court held they could recover in tort for infecting one of the Wilsons’ other calves.

The court reasoned, “Unlike the cows Tuxen sold the Wilsons, the calf was purchased elsewhere and therefore is literally ‘property other than the product itself.’”

The court reversed the grant of summary judgment on this claim.

The court next held that the statutory claims under sec. 95.19 are not barred by the economic loss doctrine.

That statute provides remedies specifically for the sale of diseased livestock, and provides, “A person who violates [sec. 95.19] is liable to any person injured for damages sustained as a result of the violation.”

As a general rule, statutory claims are separate from tort claims, and are not subject to the doctrine.

The court thus reversed the grant of summary judgment to Tuxen on these claims as well.

Motion to Amend

Third, the court held that the court improperly denied the Wilsons’ motion to add claims for misrepresentation under sec. 95.19.

The trial court had disallowed the claims, because the Wilsons presented no evidence that Tuxen knowingly concealed or misrepresented the cow’s diseased status.

However, the Court of Appeals concluded that the circuit court improperly applied a summary judgment standard in doing so, rather than the lower standard for sufficiency of a complaint, and reversed on those claims as well.

Contract Claims

Fourth, the court affirmed the dismissal of the contract claims.

Section 402.607 provides that when a buyer accepts goods, he “must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of breach or be barred from any remedy.”

In Schroeder v Drees, 1 wi.2d 106, 109, 83 N.W.2d 707 (1957), the Wisconsin Supreme Court held that seven months was too long for the buyer to wait, before notifying the seller that the pigs he sold were infected with cholera.

Here, the Wilsons waited 10 months before giving Tuxen notice of the breach. Thus, as in Schroeder, the notice was untimely, and the contract claims barred.

Implied Warranty Claim

Finally, the court affirmed the dismissal of the sec. 95.195 implied warranty claim.

The court concluded that the notice provision in sec. 402.607 applies to this claim, as well as the contract claims.

The court reasoned, “We are satisfied the Legislature intended Wis. Stat. sec. 95.195 as an implied warranty in addition to the implied warranties found in Wis. Stat. secs. 402.314 and 402.315, not as a stand-alone provision. As a result, the provisions of Article 2, including the notice of breach requirement in Wis. Stat. sec. 402.607(3)(a), apply to the Wilsons’ claim for breach of the sec. 95.195 warranty.”

Because the Wilsons did not give notice of breach within a reasonable time, the court held the sec. 95.195 claim is barred along with their other contract claims.

Case analysis

This case is an excellent candidate for review and partial reversal in the Wisconsin Supreme Court.

Each of the court’s discussions of the numerous issues in this case is reasonable, read alone. Read together, however, there is a glaring inconsistency the Court of Appeals does not attempt to reconcile.

First, the court concluded that the failure to give notice of breach to the seller bars the sec. 95.195 claim.

However, the court does not address whether the sec. 95.19 claims should be barred for the same reason.

In its sec. 95.195 analysis, the court wrote, “Wisconsin Stat. sec. 95.195 makes little sense except as a supplement to those Article 2 provisions [including sec. 402.607]. …

We see no way to read sec. 95.195 except as a provision intended to operate in conjunction with existing Article 2 rules governing implied warranties.”

However, the same thing can be said regarding sec. 95.19.

Perhaps sec. 402.607 should apply to both statutes; and perhaps it should apply to neither. But there is no apparent reason why it should apply to one, but not the other.

A second unaddressed issue is the conflict between precedent and the statutes.

In Schaefer v. Weber, 265 Wis. 160, 60 N.W.2d 696, 699 (1953), the Wisconsin Supreme Court held that while the predecessor to sec. 402.607 barred untimely contract claims, it did not bar recovery in tort for misrepresentation.

The Court of Appeals’ decision is entirely consistent with this precedent.

However, the relevant statute in 1953 provided, “But, if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach of any promise or warranty within a reasonable time after the buyer knows, or ought to know, of such breach, the seller shall not be liable therefor.” Id., 60 N.W.2d at 697.

Secti
on 402.607(3)(a) now provides, “The buyer must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of breach or be barred from any remedy (emphasis added).”

On its face, the plain language of the statute bars all the tort remedies and statutory claims that the court of appeals allowed to proceed.

Thus, whether Schaefer v. Weber remains valid law, or whether the plain language of sec. 402.607(3)(a) overrules it, is another important issue that the Court of Appeals’ opinion does not address, and which warrants review in the Supreme Court.