South-Western Legal Studies in Business

UCC Contracts Do Not Allow Tort Claims
Description Wisconsin high court held that a contract governed by the UCC allows for possible damages for breach of contract or warranty, but it does not allow for tort claims. Were tort claims allowed, parties would have little ability or incentive to construct bargains that allocate risk..
Topic Sales
Key Words Defects; Warranty; Risk Allocation
C A S E   S U M M A R Y
Facts A commercial calf-raising operation run by the Grams used a milk substitute made by Cargill and sold by Milk Products. They asked a Cargill about a cheaper milk substitute and were told they could buy a product that did not provide medications for the calves. When they used that product, the mortality rate of calves rose from 9 to 34 percent. The Grams sued Milk Products and Cargill, claiming that the product damages the calves’ immune systems, causing the higher mortality rate. They made various claims for breach of warranty and sued in tort. The trial court dismissed the suit and the appeals court affirmed. The Grams appealed.
Decision

Affirmed. When a product proves to be defective, the UCC allows the aggrieved buyer to sue for breach of warranty, or, under certain circumstances, to return the goods and sue for breach of contract. The UCC provides a structure that encourages the parties to a contract to allocate the economic risks of a given transaction between themselves. When a manufacturer produces a product that can be used in a variety of ways, a party down the supply chain may be best suited to assess the risk and guard against it by securing a warranty, buying insurance, or allocating risk in other ways. Under the UCC, warranties are important for limiting a producer’s liability for the risks associated with the possible uses of a product. Under the UCC, recovery in tort is not allowed because there would be little room for contract and the right to determine the scope of the bargain.

Citation Grams v. Milk Products, Inc., 699 N.W.2d 167 (Sup. Ct., Wisc., 2005)

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