Case Title: Gerald Grams v. Milk Products, Inc

Citation: 2005 WI 112

Docket Number: 2003AP000801

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2005-07-08T00:00:00Z

Document:
2005 WI 112 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2003AP801 
COMPLETE TITLE: 
 
 
Gerald Grams and Joliene Grams,  
          Plaintiffs-Appellants-Petitioners, 
     v. 
Milk Products, Incorporated,  
          Defendant-Respondent, 
Cargill, Incorporated,  
          Defendant. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at: 275 Wis. 2d 877, 685 N.W.2d 172 
(Ct. App. 2004-Unpublished) 
 
 
OPINION FILED: 
July 8, 2005   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
March 3, 2005   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Rock   
 
JUDGE: 
John W. Roethe   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
ABRAHAMSON, C.J., dissents (opinion filed). 
BUTLER, JR., J., joins the dissent.   
 
NOT PARTICIPATING: BRADLEY, J., did not participate.   
 
 
 
ATTORNEYS: 
 
For the plaintiffs-appellants-petitioners there were briefs 
by Christopher J. Rogers and Rogers & Westrick, Fort Atkinson, 
and Brice A. Tondre, Denver, CO, and oral argument by Brice A. 
Tondre. 
 
For the defendant-respondent there was a brief by Mark S. 
Henkel and First Law Group S.C., Stevens Point, and oral 
argument by Mark S. Henkel. 
 
An amicus curiae brief was filed by E. Campion Kersten and 
Kersten & McKinnon, S.C., Milwaukee, and William C. Gleisner, 
III, and Law Offices of William Gleisner, Milwaukee, on behalf 
of the Wisconsin Academy of Trial Lawyers. 
 
2005 WI 112 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2003AP801   
(L.C. No. 
01 CV 1380) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Gerald Grams and Joliene Grams,  
 
          Plaintiffs-Appellants- 
          Petitioners, 
 
     v. 
 
Milk Products, Incorporated,  
 
          Defendant-Respondent, 
 
Cargill, Incorporated,  
 
          Defendant. 
 
FILED 
 
JUL 8, 2005 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
DAVID T. PROSSER, J.  Petitioners Gerald and Joliene 
Grams (the Grams) seek review of an unpublished court of appeals 
decision1 affirming a grant of summary judgment to Milk Products, 
Inc. (Milk Products) by the circuit court for Rock County, John 
W. Roethe, Judge.  The court of appeals affirmed the circuit 
court’s determination that the economic loss doctrine barred the 
                                                 
1 Grams v. Milk Prods., Inc., No. 2003AP801, unpublished 
slip op. (Wis. Ct. App. June 17, 2004). 
No 2003AP801 
2 
 
Grams’ tort claims against Milk Products and Cargill, Inc. 
(Cargill). 
¶2 
The economic loss doctrine is a judicial doctrine 
intended 
to 
preserve 
the 
fundamental 
distinction 
between 
contract and tort.  Ins. Co. of N. Am. v. Cease Elec., Inc., 
2004 WI 139, ¶15, 276 Wis. 2d 361, 688 N.W.2d 462.  It works to 
prevent a party to a contract from employing tort remedies to 
compensate the party for purely economic losses arising from the 
contract.  There are exceptions.  For instance, we noted several 
years ago that "The economic loss doctrine does not preclude a 
product purchaser's claims of personal injury or damage to 
property other than the product itself."  Wausau Tile, Inc. v. 
County Concrete Corp., 226 Wis. 2d 235, 247, 593 N.W.2d 445 
(1999) (emphasis added).  Over time, however, the parameters of 
this "other property" exception have proved elusive.  In this 
case, we must decide whether the Grams' claimed damages fall 
within the scope of the "other property" exception.   
¶3 
We hold that if claimed damages are the result of 
disappointed 
expectations 
of 
a 
bargained-for 
product's 
performance, the economic loss doctrine applies to bar the 
plaintiff's tort claims and the plaintiff must rely upon 
contractual remedies alone.  In this case, the Grams allege in 
tort that the object of the contract, a "milk replacer" intended 
for livestock nourishment, did not adequately nourish their 
calves and that some died.  Because we find that this tort claim 
is, at bottom, based on disappointed performance expectations, 
we hold that it does not fit within the "other property" 
No 2003AP801 
3 
 
exception and is therefore barred by the economic loss doctrine.  
Accordingly, we affirm the decision of the court of appeals. 
I. FACTS AND PROCEDURAL POSTURE 
¶4 
Because this case is before us on the defendants' 
motion for summary judgment, we take the Grams' version of the 
facts as true.   
¶5 
Gerald and Joliene Grams have specialized in raising 
calves since 1992.  The Grams acquire the calves when they are 
between three and five days old and raise them until they are 
approximately four months old, at which time they resell them.  
At 
the 
time 
of 
this 
dispute, 
the 
Grams 
were 
raising 
approximately 6000 calves each year. 
¶6 
For the first few weeks of their lives, the calves are 
fed a milk substitute which, in farming parlance, is called a 
"milk replacer."  The Grams used a Cargill milk replacer known 
as "Half-Time."  This product included medications designed to 
keep the calves healthy during the first few weeks of their 
lives, a critical time in which the calves' immune systems are 
developing.  The "Half-Time" milk replacer was manufactured for 
Cargill by Milk Products, Inc. 
¶7 
In 
November 
2000, 
the 
Grams 
asked 
a 
Cargill 
representative about obtaining a less expensive milk replacer.  
The representative told the Grams that they could purchase 
"Half-Time" milk replacer without medication at a lower price 
than the medicated version.  The Grams began using this non-
medicated version in January 2001.  As with the medicated "Half-
No 2003AP801 
4 
 
Time," the non-medicated version was sold by Cargill and 
manufactured by Milk Products. 
¶8 
Soon after they began using the non-medicated "Half-
Time," the Grams noticed certain problems developing in their 
calves.  Specifically, the calves were not gaining weight 
properly and appeared gaunt and hungry.  In addition, the 
mortality rate of the calves tripled, from an average of 9 
percent before the new replacer was used to a high of 34 percent 
after the new replacer was introduced.  By June 2001, after 
making several attempts to remedy these problems with Cargill 
and later with Milk Products, the Grams discontinued using the 
non-medicated "Half-Time."  The Grams believed that poor 
nutritional content in the non-medicated replacer had damaged 
the calves' immune systems, which in turn caused the poor growth 
of the calves and their higher mortality rate.  
¶9 
The Grams filed suit against Cargill and Milk Products 
on October 22, 2001.  They alleged five causes of action, one in 
contract and four in tort: (1) breach of implied warranty; (2) 
strict 
liability 
tort; 
(3) 
negligence; 
(4) 
intentional 
misrepresentation; 
and 
(5) 
strict 
responsibility 
misrepresentation.  The Grams alleged all five causes of action 
"jointly and severally" against the two defendants. 
¶10 The circuit court granted summary judgment to both 
Cargill and Milk Products on all four tort claims, finding that 
those claims were barred by the economic loss doctrine.  The 
circuit court also granted summary judgment to Milk Products on 
the Grams' contract claim because there was no privity between 
No 2003AP801 
5 
 
the Grams and Milk Products, and it dismissed Milk Products from 
the case.  This left only the Grams' contract claim against 
Cargill.  
¶11 The Grams appealed, alleging that the circuit court 
erred in dismissing their contract claim against Milk Products 
as well as all their tort claims.  The court of appeals affirmed 
on both issues.  Grams v. Milk Prods., Inc., No. 2003AP801, 
unpublished slip op. (Wis. Ct. App. June 17, 2004).  We granted 
review to determine whether the Grams' tort claims are barred by 
the economic loss doctrine.2  
II. STANDARD OF REVIEW 
¶12 This court reviews motions for summary judgment de 
novo, using the same methodology as the circuit court.  Town of 
Delafield v. Winkelman, 2004 WI 17, ¶15, 269 Wis. 2d 109, 675 
N.W.2d 470. 
 
Summary 
judgment 
is 
appropriate 
when 
"the 
pleadings, 
depositions, 
answers 
to 
interrogatories, 
and 
admissions on file, together with the affidavits, if any, show 
that there is no genuine issue as to any material fact and that 
the moving party is entitled to a judgment as a matter of law."  
Wis. Stat. § 802.08(2) (2001-02).3  The interpretation of the 
economic loss doctrine is a question of law that this court 
reviews de novo.  Sunnyslope Grading, Inc. v. Miller, Bradford & 
Risberg, Inc., 148 Wis. 2d 910, 915, 437 N.W.2d 213 (1989). 
                                                 
2 The circuit court's dismissal of the Grams' contract claim 
against Milk Products is not before us. 
3 All subsequent references to the Wisconsin Statutes are to 
the 2001-02 version unless otherwise indicated. 
No 2003AP801 
6 
 
III. ANALYSIS 
A. 
The Economic Loss Doctrine 
¶13 The economic loss doctrine is a judicially created 
doctrine intended to preserve the boundary between tort and 
contract.  To illustrate, the commercial purchaser of a product 
may 
not 
recover 
from 
the 
manufacturer 
or 
seller, 
under 
negligence or strict liability theories, for solely economic 
losses arising from that product.  This is especially true when 
a warranty given by the manufacturer specifically precludes the 
recovery of such damages.  Van Lare v. Vogt, Inc., 2004 WI 110, 
¶18, 274 Wis. 2d 631, 683 N.W.2d 46.  In Wisconsin, the economic 
loss doctrine is based on three fundamental premises. It seeks 
"(1) to maintain the fundamental distinction between tort law 
and contract law; (2) to protect commercial parties' freedom to 
allocate economic risk by contract; and (3) to encourage the 
party best situated to assess the risk of economic loss, [that 
is,] the commercial purchaser, to assume, allocate, or insure 
against that risk."  Id., ¶17 (quoting Daanen & Janssen, Inc. v. 
Cedarapids, Inc., 216 Wis. 2d 395, 403, 573 N.W.2d 842 (1998)). 
¶14 Tort law generally offers a "broader array" of damages 
than contract.4  Cease Elec., 276 Wis. 2d. 361, ¶24.  As a 
                                                 
4 For example, punitive damages and attorney fees are 
sometimes available in tort actions, but generally cannot be had 
in breach of contract claims.  Contracts give the parties an 
opportunity to limit the scope and amount of liability.  
Further, the nature of a claim, tort or contract, may affect 
whether a particular person or entity is eligible as a defendant 
and whether a particular claim is covered by insurance. 
No 2003AP801 
7 
 
result, many products liability plaintiffs would prefer to sue 
in tort.  It has been said that without a boundary maintaining 
the distinction between the two, "contract law would drown in a 
sea of tort."  State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 
225 Wis. 2d 305, 320, 592 N.W.2d 201 (1999) (quoting E. River 
S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 
(1986)).  
¶15 Wisconsin has recognized the superior ability of 
contract law, and in particular the Uniform Commercial Code 
(UCC), to deal with certain kinds of disputes.  Cease Elec., 276 
Wis. 2d 361, ¶33.  In Cease Electric, however, we declined to 
apply the economic loss doctrine to contracts for services.  
Id., ¶2.  Central to our decision was the fact that no body of 
law similar to the UCC applies to contracts for services.  We 
recognized that the UCC provides a "comprehensive system for 
compensating consumers for economic loss arising from the 
purchase of defective products."  Id., ¶28 (citing State Farm, 
225 Wis. 2d at 342.)  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.  Id., ¶29.  See also Wis. Stat. §§ 402.313 
(express warranties), 402.314, 402.315 (implied warranties), 
402.602 (rejection), 402.608 (revoking acceptance). 
¶16 Concern about duplicating or overriding UCC provisions 
was an important reason this court chose to adopt the economic 
loss doctrine in the first place.  Sunnyslope, 148 Wis. 2d at 
916.  In that case, we refused to allow the plaintiff to 
No 2003AP801 
8 
 
circumvent a warranty through a tort claim, reasoning that the 
"protections granted by the [UCC] are not to be buttressed by 
tort 
principles 
and 
recovery." 
 
Id. 
(internal 
citations 
omitted).  
¶17 In 
addition, 
contract 
law 
and 
tort 
law 
embody 
distinctly different approaches to risk sharing.  The UCC 
provides a structure that encourages parties to a contract to 
allocate the economic risks of a given transaction between or 
among themselves.  Daanen & Janssen, 216 Wis. 2d at 407.  This 
is especially true when a manufacturer produces a part or 
component that can be used in a variety of ways.  In that case, 
a party down the supply chain——often the ultimate purchaser——may 
be best situated to assess the risk and guard against it by 
securing a warranty, buying insurance, or allocating risk in 
other ways.  Id. at 411.  
¶18 Tort law, unlike contract, does not permit risk 
sharing.  It imposes obligations.  Tort law is designed to 
"protect society against the unreasonable risk of harm from 
accidental 
and 
unexpected 
injury." 
 
Cease 
Elec., 
276 
Wis. 2d 361, ¶39.  When a product poses these types of risks to 
society, "public policy demands that responsibility be fixed 
wherever it will most effectively reduce the hazards to life and 
health inherent in defective products that reach the market."  
E. River, 476 U.S. at 866 (internal citations omitted).  When a 
manufacturer designs or produces a product that poses such a 
risk, responsibility for the resulting injuries will redound to 
the manufacturer.  
No 2003AP801 
9 
 
¶19 This tort rationale breaks down when a loss is purely 
economic.  When parties of roughly equal bargaining power 
allocate risks of loss through negotiation, society has no 
special interest in overturning that allocation.  Id. at 873.  
If buyers could recover purely economic losses through tort 
suits, manufacturers could never rely on the risk allocations 
they negotiated through contract.  Instead, end users could 
circumvent unfavorable warranties simply by suing a manufacturer 
up the production chain, or negotiate for no warranty at all and 
rely on tort law as their insurer.  Daanen & Janssen, 216 Wis. 
2d at 408.  This would be contrary to the public policy embodied 
in the UCC, which lays out a carefully constructed framework of 
warranties to allow manufacturers to negotiate limits on their 
risk.  See id. at 407-408 (citing Wis. Stat. § 402.719(3) 
(seller 
can 
limit 
consequential 
damages 
as 
long 
as 
the 
limitation is not unconscionable)).  Tort recovery for purely 
economic losses would also be contrary to sound economic policy.  
If a manufacturer must always insure its products against 
economic loss, all manufacturers will be transformed "into 
insurers with seemingly unlimited tort liability."  Id. at 412.  
With no ability to share their risk with commercial users of the 
product, manufacturers would understandably be reluctant to 
produce certain products.  Id. at 408.  They also would be 
prevented from providing lower cost products to parties willing 
to assume the risk of certain losses.  
¶20 The economic loss doctrine, therefore, differentiates 
between economic losses, for which risk sharing is encouraged, 
No 2003AP801 
10 
 
and other losses, such as personal injury losses, where risk 
sharing is undesirable as a matter of public policy.  
B. 
The "Other Property" Exception to the Economic Loss 
Doctrine 
¶21 The economic loss doctrine has been traced to a 
landmark decision by the California Supreme Court, Seely v. 
White Motor Co., 403 P.2d 145 (Cal. 1965), involving a defective 
truck.  The court allowed recovery for breach of an express 
warranty but refused to allow recovery on the basis of strict 
product liability.  The court said that a manufacturer can 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."  Id. at 151. 
¶22 The law following Seely was summarized by Professor 
William K. Jones of Columbia University School of Law in 1990: 
 
If a product fails to function properly, the 
buyer 
usually 
incurs 
expenses 
in 
repairing 
or 
replacing the product.  In addition, the buyer's 
business may be disrupted, resulting in lost profits.  
Such "economic losses" generally cannot be recovered 
in tort actions alleging negligence or strict product 
liability.  If, however, the defect in the product 
causes physical injury to property, tort remedies are 
available.  The distinction is easy to apply in some 
cases, but it poses severe difficulties in others. 
No 2003AP801 
11 
 
William K. Jones, Product Defects Causing Commercial Loss: The 
Ascendancy of Contract over Tort, 44 U. Miami L. Rev. 731, 747-
48 (1990) (emphasis added). 
¶23 In the East River case, the Supreme Court embraced the 
economic loss doctrine but expanded it, indicating that physical 
damage to the product itself was covered by the doctrine.  The 
Court stated: 
We realize that the damage [to the defective product] 
may 
be 
qualitative, 
occurring 
through 
gradual 
deterioration or internal breakage.  Or it may be 
calamitous.  But either way, since by definition no 
person or other property is damaged, the resulting 
loss is purely economic.  Even when the harm to the 
product itself occurs through an abrupt, accident-like 
event, the resulting loss due to repair costs, 
decreased value, and lost profits is essentially the 
failure of the purchaser to receive the benefit of its 
bargain——traditionally the core concern of contract 
law. 
Id. at 870 (emphasis added). 
 
¶24 This 
court 
has 
recognized 
the 
"other 
property" 
exception in Wisconsin.  Daanen & Janssen, 216 Wis. 2d at 402 
("The economic loss doctrine . . . does not bar a commercial 
purchaser's claims based on personal injury or damage to 
property other than the product, or economic loss claims that 
are alleged in combination with noneconomic losses.") (citing 
cases).  It has also acknowledged, as Professor Jones did, that 
"distinguishing between economic loss and physical harm to 
property other than the product itself is often a difficult 
task . . . ."  Northridge Co. v. W.R. Grace & Co., 162 
Wis. 2d 918, 932, 471 N.W.2d 179 (1991).   
No 2003AP801 
12 
 
 
¶25 The economic loss doctrine has been approved in the 
majority 
of 
jurisdictions 
throughout 
the 
United 
States.  
Consequently, there is a substantial body of law showing how 
various states have defined and dealt with the "other property" 
exception.  Minnesota presents an interesting case study.  See 
Jacquelyn K. Brunmeier, Death by Footnote: The Life and Times of 
Minnesota's Economic Loss Doctrine, 19 Wm. Mitchell L. Rev. 871 
(1993).  Minnesota adopted the economic loss doctrine in 1981 in 
Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn. 
1981).  The court stated: "[W]e hold that economic losses that 
arise out of commercial transactions, except those involving 
personal injury or damage to other property, are not recoverable 
under the tort theories of negligence or strict products 
liability."  Superwood, 311 N.W.2d at 162 (emphasis added).  
Less 
than 
a 
decade 
later, 
however, 
the 
court 
overruled 
Superwood, concluding that the UCC exclusively controls claims 
alleging only property damage in a commercial transaction.  
Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn. 1990).  The case, 
which involved diseased seed potatoes, effectively eliminated 
the "other property" exception in Minnesota.5 
                                                 
5 A struggle to define the scope of the doctrine ensued 
between the Minnesota Legislature and the Minnesota Supreme 
Court.  See Minn. Stat. § 604.10 (created by 1991 Minn. Laws c. 
352) 
(statutorily 
reversing 
Hapka 
v. 
Paquin 
Farms, 
458 
N.W.2d 683 (Minn. 1990)); Lloyd F. Smith Co. v. Den-Tal-Ez, 
Inc., 491 N.W.2d 11 (Minn. 1992) (discussing scope of economic 
loss doctrine and relying on Hapka rather than Minn. Stat. 
§ 604.10); Minn. Stat. § 604.10 (as revised by 1993 Minn. Laws 
c. 91); Minn. Stat. § 604.101 (created by 2000 Minn. Laws c. 
358) ("A buyer may not bring a product defect tort claim against 
a seller for compensatory damages unless a defect in the goods 
No 2003AP801 
13 
 
 
¶26 Two years later, when Michigan adopted the economic 
loss doctrine in Neibarger v. Universal Coops, Inc., 486 
N.W.2d 612 (Mich. 1992), the Michigan Supreme Court rejected the 
approach this court took in Sunnyslope and instead embraced 
Minnesota's approach in Hapka.  The Michigan court stated: 
"Where damage to other property was caused by the failure of a 
product 
purchased 
for 
commercial 
purposes 
to 
perform 
as 
expected, and this damage was within the contemplation of the 
parties to the agreement, the occurrence of such damage could 
have been the subject of negotiations between the parties."  
Neibarger, 486 N.W.2d at 620.  See Christian W. Fabian, Case 
Note, 70 
U. 
Det. 
Mercy 
L. 
Rev. 
513 
(1993) 
(discussing 
Neibarger). 
 
¶27 In this state, the evolution of the economic loss 
doctrine has been slower than in Minnesota and Michigan; our 
appellate decisions have repeatedly used techniques to limit the 
scope of the "other property" exception without eliminating it.  
Like many other states, we have incorporated the concept of an 
"integrated system."  If the "product" at issue is a defective 
component in a larger "system," the other components are not 
regarded as "other property" in a legal sense, even if they are 
different property in a literal sense.   
                                                                                                                                                             
sold or leased caused harm to the buyer's tangible personal 
property other than the goods . . . ."). 
We cite Hapka merely as an example of the potentially broad 
scope of the economic loss doctrine. 
No 2003AP801 
14 
 
¶28 This principle was stated in Wausau Tile: "Damage by a 
defective component of an integrated system to either the system 
as a whole or other system components is not damage to 'other 
property' which precludes the application of the economic loss 
doctrine."  Wausau Tile, 226 Wis. 2d at 249.6  Thus, a 
manufacturer of concrete pavers was not permitted to sue two of 
its suppliers in tort for supplying allegedly defective cement 
and aggregate.  The cement and aggregate were deemed components 
of a more complete product, or "integrated system."  The court 
explained that when harm results from a defective component of a 
product, the product itself is deemed to have caused the harm.  
Id. at 250 (citing Saratoga Fishing Co. v. J.M. Martinac & Co., 
520 U.S. 875, 883 (1997)).7 
 
¶29 The court of appeals applied the integrated system 
principle to building construction in Bay Breeze Condominium 
Ass'n v. Norco Windows, Inc., 2002 WI App 205, 257 Wis. 2d 511, 
651 N.W.2d 738, a case involving windows that were installed in 
a condominium complex.  The condominium association sued the 
window manufacturer claiming numerous problems related to the 
                                                 
6 See also E. River S.S. Corp. v. Transamerica Delaval, 
Inc., 476 U.S. 858, 867-68 (1986); Midwest Helicopters Airways, 
Inc. v. Sikorsky Aircraft, 849 F. Supp. 666, 671-72 (E.D. Wis. 
1994); Cincinnati Ins. Co. v. Am. Int'l, 224 Wis. 2d 456, 463, 
591 N.W.2d 869 (Ct. App. 1999); Midwhey Powder Co. v. Clayton 
Indus., 157 Wis. 2d 585, 590-91, 460 N.W.2d 426 (Ct. App. 1990). 
7 See also Casa Clara Condominium Ass'n v. Charley Toppino & 
Sons, Inc., 620 So. 2d 1244, 1247 (Fla. 1993); Trans States 
Airlines v. Pratt & Whitney Canada, Inc., 682 N.E.2d 45, 58 
(Ill. 1997). 
No 2003AP801 
15 
 
windows including leakage into the units and walls around the 
windows and rotting and deterioration of wood window casements 
and frames.  The circuit court dismissed the association's tort 
claims even though the association could prove damage to 
property other than the windows.   
¶30 When the court of appeals affirmed, it acknowledged 
that the economic loss doctrine "does not apply . . . if the 
damage is to property other than the defective product itself."  
Id., ¶13.  However, the court concluded that the economic loss 
doctrine applies to building construction defects when the 
defective product is a component part of an integrated structure 
or finished product.  "The law of Casa Clara [Condominium 
Association v. Charley Toppino & Sons, Inc., 620 So. 2d 1244 
(Fla. 1993)] is consistent with Wisconsin precedent addressing 
component parts that cause damage to an integrated product, 
which results in only economic loss."  Id., ¶26.  "Because of 
the integral relationship between the windows, the casements and 
the surrounding walls, the windows are simply a part of a single 
system or structure, having no function apart from the buildings 
for which they were manufactured."  Bay Breeze, 257 Wis. 2d 511, 
¶27. 
 
¶31 The "integrated system" concept does not translate 
well to all situations involving property damage to which the 
economic loss doctrine logically applies.  To address situations 
in which a different explanation is needed for delimiting the 
other property exception, the court of appeals adopted the 
"disappointed expectations" concept which entails a different 
No 2003AP801 
16 
 
analysis.  This concept governs situations in which a commercial 
product causes property damage but the damage was within the 
scope of bargaining, or as the Michigan Supreme Court reasoned, 
"the occurrence of such damage could have been the subject of 
negotiations between the parties."  Neibarger, 486 N.W.2d at 
620.8 
                                                 
8 Contrary to the dissent's assertion that we "fabricate" 
the 
disappointed 
expectations 
concept, 
Chief 
Justice 
Abrahamson's dissent, ¶62, the concept has existed for more than 
twenty years, and has been adopted by numerous other courts.  As 
the United States District Court for South Carolina observed: 
[A] rule appears to be emerging that in a commercial 
transaction 
between 
two 
equal 
parties, 
loss 
to 
property belonging to the plaintiff flowing from a 
product . . . within the contract's contemplation and 
reasonably 
foreseeable 
as 
a 
result 
should 
the 
product . . . prove 
defective 
will 
not 
support 
recovery in tort because injury to such property is 
contemplated, or should have been, by the parties to 
the agreement. As a corollary therefore, the term 
"other 
property" 
appears 
to 
be 
subject 
to 
the 
construction that it is property belonging to the 
plaintiff the risk to which is outside the reasonable 
contemplation of the contract. 
Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F. Supp. 
1027, 1060 (D.S.C. 1993); see also Moorman Mfg. Co. v. Nat'l 
Tank Co., 435 N.E.2d 443, 451-52 (Ill. 1982); John J. Laubmeier, 
Comment, Demystifying Wisconsin's Economic Loss Doctrine, 2005 
Wis. L. Rev. 225, 227 ("The idea behind the economic loss 
doctrine is that if someone purchases something that fails to 
meet his or her expectations, the purchaser's sole remedy should 
be the 
remedy bargained 
for by 
the 
parties, 
which was 
theoretically a factor taken into account in the purchase 
price."); Fox & Loftus, Riding the Choppy Waters of East River: 
Economic Loss Doctrine Ten Years Later, 64 Def. Couns. J. 260, 
265-66 (1997). 
No 2003AP801 
17 
 
¶32 The "disappointed expectations" concept is grounded in 
contract principles of bargaining and risk sharing, not on a 
redefinition of "other property."  The determination of whether 
particular damage qualifies as damage to "other property" turns 
on the parties' expectations of the function of the bargained-
for product.  See Rich Prods. Corp. v. Kemutec, Inc., 66 F. 
Supp. 2d 937, 972 (E.D. Wis. 1999) (citing Dakota Gasification 
Co. v. Pascoe Bldg. Sys., 91 F.3d 1094 (8th Cir. 1996)). 
¶33 The "disappointed expectations" concept is illustrated 
in two cases from the court of appeals.  In D’Huyvetter v. A.O. 
Smith Harvestore Products, 164 Wis. 2d 306, 317, 475 N.W.2d 587 
(Ct. App. 1990), the plaintiff purchased a "Harvestore" grain 
silo system from the defendant.  According to D’Huyvetter, the 
silo failed to operate properly because it did not protect the 
integrity of the stored feed.  The compromised feed caused 
damage 
to 
D’Huyvetter’s 
livestock 
including 
reduced 
milk 
production, loss of profits from sale of cattle, and the death 
and illness of some of the livestock.  Id. at 326. 
                                                                                                                                                             
Even in Wisconsin, the concept dates back to the late 1980s.  In 
his petition for review in Tony Spychalla Farms, Inc. v. Hopkins 
Agricultural Chemical Company, 151 Wis. 2d 431, 444 N.W.2d 743 
(Ct. App. 1989), Attorney Russell T. Golla asked this court to 
decline to apply the other property exception "if the . . . lost 
profits[] result from the plaintiff's failed expectations in 
purchasing the product."  Attorney Golla cited the Third 
Circuit's decision in King v. Hilton-Davis, 855 F.2d 1047 (3d 
Cir. 1988) (cert. denied, 488 U.S. 1030 (Jan. 17, 1989)).  In 
King, the Third Circuit barred a tort claim nearly identical to 
the one made in Spychalla on the grounds that "The Kings lost 
the expected performance of the seed potatoes, no more and no 
less."  King, 855 F.2d at 1052. 
No 2003AP801 
18 
 
¶34 The 
court 
of 
appeals 
held 
that 
the 
damage 
to 
D’Huyvetter’s livestock did not come within the "other property" 
exception to the economic loss doctrine.  The court reasoned 
that "[t]he expected function of the Harvestore was to enrich 
the feed, providing enhanced nutrition for the cows.  The 
damages stem from the failure of the Harvestore to perform 'as 
expected.'"  Id. at 328.9 
¶35 The court of appeals applied a similar "disappointed 
expectations" test in Selzer v. Brunsell Brothers, Ltd., 2002 WI 
App 232, 257 Wis. 2d 809, 652 N.W.2d 806.  In Selzer, the 
plaintiff bought windows that the defendant warranted to be 
"deep-treated to permanently protect against rot and decay."  
Id., ¶5.  Seven years after the windows were installed, the 
plaintiff noticed that the windows were rotting, and that the 
rot had spread to the siding around the windows.  Id., ¶6.  
Selzer argued that the rot in the siding was damage to "other 
property" and thus the economic loss doctrine would not bar his 
tort claim. 
¶36 The court of appeals disagreed.  It observed that this 
was a loss that "at bottom, [involved] disappointed performance 
expectations."  Id., ¶36.  Selzer bought the windows expecting 
                                                 
9 See also Agristor Leasing v. Guggisberg, 617 F. Supp. 902, 
908 (D. Minn. 1985) ("[We] conclude [ ] as a matter of law that 
the alleged damage to the alfalfa feed and the Holstein cows is 
non-recoverable 
economic 
loss. 
 
The 
Harvestore 
structure . . . was purchased for the purpose of storing feed 
for the Guggisbergs' dairy operation, a commercial venture.  The 
essence of their complaint is that the Harvestore failed to 
perform as expected . . . "). 
No 2003AP801 
19 
 
that they would resist rot.  They failed to do so.  The court 
reasoned that the rot in the surrounding wood was a direct 
consequence of the rot in the windows themselves.  Id., ¶37.  
The 
collateral 
rot 
was 
part 
of 
Selzer's 
disappointed 
expectations.  The court said that because Selzer did not prove 
any harm beyond disappointed expectations, he was precluded from 
pursuing a recovery in tort.  The court added: "Had the windows 
resisted rot but spontaneously shattered, spewing shards of 
glass into an adjacent Picasso, Selzer might well argue that the 
defective 
windows 
damaged 
his 
painting 
in 
an 
entirely 
unanticipated manner, going well beyond a failure to perform as 
expected and entitling him to pursue a tort remedy."  Id.  
¶37 The court's picturesque hypothetical was designed to 
show the corollary of the disappointed expectations concept, 
namely, a situation in which the damage to "other property" and 
the risk of that damage was entirely unanticipated. 
¶38 The 1989 case of Tony Spychalla Farms, Inc. v. Hopkins 
Agricultural Chemical Company, 151 Wis. 2d 431, 444 N.W.2d 743 
(Ct. App. 1989), is often cited as the prime example of the 
corollary principle . . . the "flip side" of D'Huyvetter.  See 
Rich Prods., 66 F. Supp. 2d at 975.  In Spychalla, the plaintiff 
treated his potato seed with a chemical dust designed to prevent 
rot.  The chemical correctly performed that function, but it 
also petrified Spychalla’s seed, resulting in a significantly 
reduced crop.  151 Wis. 2d at 435.  Spychalla filed suit against 
the manufacturer of the chemical dust under a theory of strict 
liability tort, alleging that the chemical was unreasonably 
No 2003AP801 
20 
 
dangerous to the seed.  Id.  The jury found for Spychalla on his 
tort claim and awarded him more than $225,000 in damages.  
Spychalla, 151 Wis. 2d at 434. 
¶39 The court of appeals affirmed, concluding that the 
economic loss doctrine did not bar the plaintiff's tort claim.  
The court asserted that the chemical dust that Spychalla 
purchased was a dangerous product.  Spychalla had expected the 
chemical to protect his crop by preventing rot, and it had done 
its work in that regard.  Id. at 438.  However, it inflicted 
damage in an unanticipated manner.  This unanticipated damage to 
"other property," id. at 439, was deemed outside the economic 
loss doctrine.  
¶40 Accepting the facts in Spychalla as reported, the 
court's decision is not wholly incompatible with the economic 
loss doctrine.  Nonetheless, it must be remembered that the 
trial in that case occurred on June 15, 1987, almost two years 
before Wisconsin formally adopted the economic loss doctrine.  
There is a chance that a similar case would be decided 
differently today, realizing that a similar transaction would be 
subject to the UCC, and that it would not be unreasonable for 
the parties to anticipate a risk that the chemical dust could 
damage potato seed.  In a new case, the result could turn on the 
purpose for purchasing the product, the reasonableness of 
anticipating a risk of the product's failed performance, the 
availability of warranties or risk sharing mechanisms, and the 
extremity of the facts. 
No 2003AP801 
21 
 
¶41 In Seely, 40 years ago, the California court said that 
a defendant "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."  Seely, 
403 P.2d at 151.  "Level of performance" should now be 
understood to include failed performance.  Today in a commercial 
setting, a sophisticated buyer must anticipate the risk that a 
purchased product will disappoint in its performance or fail 
entirely, and protect himself accordingly against economic loss.   
¶42 The test adopted in Selzer——whether at bottom, the 
claim involves disappointed performance expectations——is an 
appropriate analytic tool to determine whether the other 
property exception applies.  Selzer, 257 Wis. 2d 809, ¶36.  This 
test certainly includes consideration of the purpose or thrust 
of the bargain and the contractual expectations of the parties. 
¶43 In exploring the parameters of the "other property" 
exception to the economic loss doctrine, we will incorporate 
this concept of "disappointed expectations" into our analysis, 
as well as the integrated system concept.  This does not mean 
that contract principles will envelop all damages foreseeable 
"in a remote or general sense."  Rich Prods., 66 F. Supp. 2d at 
975.  Rather, the economic loss doctrine will apply when 
"prevention of the subject risk was one of the contractual 
expectations motivating the purchase of the defective product."  
Id.   
¶44 The Grams urge this court to resolve the "other 
property" conundrum by adopting a new "bright line rule," that 
No 2003AP801 
22 
 
physical damage to anything other than the product itself would 
be considered damage to "other property" and therefore subject 
to suit in tort, and this argument attracts the dissent.  See 
Chief Justice Abrahamson's dissent, ¶¶74, 80.  The Grams concede 
that this proposal would obliterate the distinction between 
literal "other property" and legal "other property" discussed in 
the case law.  Suits in tort would be allowed whenever damage 
extends beyond the physical dimensions of the purchased product.  
If such a rule were applied to this case, the Grams' tort claims 
could proceed because the calves were property different from 
the replacer.  
¶45 We decline to adopt such a rule.  The proposed rule 
would reject inquiry into the scope of the bargain and replace 
it with an overly formalistic distinction based on the kind of 
property harmed.  Such a distinction would inevitably cause the 
erosion of the UCC.  The "fundamental distinction" between 
contract and tort espoused in our cases would be lost.10 
¶46 Under the UCC, product warranties are important and 
necessary vehicles for limiting a manufacturer’s liability for 
                                                 
10 The dissent relies heavily on Saratoga Fishing Co. v. 
J.M. Martinac & Co., 520 U.S. 875 (1997), but that case is 
distinguishable.  In Saratoga, products added to a ship after it 
was manufactured (e.g. a skiff, a net, and communications and 
navigational electronics) were destroyed along with the ship 
when the ship's hydraulic system failed.  A divided Court held 
that the added products were "other property" and that the loss 
of the "other property" could be sued for in tort.  That is 
simply a different case.  The Grams bargained for a non-
medicated milk replacer, paid a lower price for it, and should 
not have been surprised that it did not perform as well as the 
more expensive medicated product. 
No 2003AP801 
23 
 
risks associated with the possible uses of a product, not just 
diminution in value of the product itself.  When a product is 
intended to be used as part of an integrated system, the 
integrated system rule allows the manufacturer to share the risk 
that its product will damage the rest of the system.  See Wausau 
Tile, 226 Wis. 2d at 258-59.  In adopting the integrated system 
concept, we recognized that "[s]ince all but the very simplest 
of machines have component parts, a holding that a component of 
a machine was 'other property' would require a finding of 
'property damage' in virtually every case where a product 
damages itself.  Such a holding would eliminate the distinction 
between warranty and strict products liability."  Id. at 250 
(quoting Saratoga Fishing Co., 520 U.S. at 883).  
¶47 The same rationale applies here.  If a product is 
expected and intended to interact with other products and 
property, it naturally follows that the product could adversely 
affect and even damage that property.  A rule that allows tort 
recovery based on what is damaged, rather than whether the risk 
of that damage was within the scope of the bargain, would leave 
little room for contract.  
¶48 Accordingly, we decline to adopt the Grams' proposed 
rule, and proceed to the facts of this case using the 
disappointed expectations test. 
IV. APPLICATION 
¶49 The Grams claim that the non-medicated milk replacer 
they bought from Cargill damaged their calves' immune systems, 
leading to poor growth and higher mortality.  Consistent with 
No 2003AP801 
24 
 
the foregoing analysis, we ask whether, at bottom, this claim 
involves disappointment in the milk replacer's performance and 
failure of the product to fulfill the Grams' contractual 
expectations. 
¶50 The first step in our inquiry is to determine what 
those expectations were.  This necessitates an inquiry into the 
substance and the purpose of the transaction.  The record shows 
that the expected function of the milk replacer was to provide 
sustenance for the Grams' calves.  The Grams expected that the 
"Half-Time" non-medicated replacer would properly nourish the 
calves, much as the old replacer had, so that the calves would 
grow.  This bargain was not about milk replacer per se; it was 
about a product that would foster the healthy development and 
growth of young calves. 
¶51 The next step is to inquire whether the Grams' claim 
is about disappointment with those expectations.  In this case, 
the milk replacer did not properly nourish the calves.  Poor 
nourishment led to a number of consequences for the calves, 
including weakened immune systems and for some, even death.  The 
replacer did not do what the parties expected it to do, and this 
caused the exact result the Grams sought to avoid.  It is 
difficult 
to 
think 
of 
a 
better 
example 
of 
disappointed 
expectations than a product that is expected to nourish animals 
but leaves them malnourished.  The Grams' expectations were 
disappointed; the fact that they were severely disappointed does 
not change the analysis.  
No 2003AP801 
25 
 
¶52 The Grams argue that this case is like Spychalla; that 
the damage caused by the replacer was worse than failed 
expectations.  The replacer not only stunted the calves' growth, 
it killed some of them.  The Grams argue that when the replacer 
killed 
some 
of 
the 
calves, 
the 
result 
was 
entirely 
unanticipated, similar to the petrification of the seed in 
Spychalla. 
¶53 This argument ignores the intertwined nature of calf 
health, nutrition, and mortality.  The Grams bargained for a 
replacer that would nourish the calves and make them grow.  Even 
with high quality medicated milk replacer, the mortality rate of 
the Grams' calves ran about 9 percent.  A reasonable farmer 
would know that switching to an unmedicated milk replacer could 
cause some increase in calf mortality.  The only question was 
how much.  Obviously, the Grams expected a lower increase in 
calf mortality than actually occurred, but that does not change 
the 
fact 
that 
the 
calves' 
nutrition——or, 
unfortunately, 
malnutrition——was at the heart of the bargain the Grams made.  
We think this is consistent with the teaching of Spychalla.   
¶54 We acknowledge that determining whether a case is one 
of disappointed performance expectations will not always be as 
simple 
as 
it 
is 
here. 
 
It 
will 
necessarily 
require 
interpretation of the purpose of a transaction and the expected 
uses of a product.  While courts undertaking this inquiry should 
be mindful to prevent "contract from drowning in a sea of tort," 
they should also prevent tort from drowning in a sea of 
No 2003AP801 
26 
 
contract.11  See R. Thomas Cane & Sheila Sullivan, The future of 
the economic loss doctrine in Wisconsin, Wisconsin Lawyer, May 
2005, at 14.  We believe the disappointed expectations concept 
will prove useful in striking an appropriate balance. 
V. CONCLUSION 
¶55 The Grams have a contractually rooted claim against 
Cargill for breach of implied warranty that remains to be 
resolved at the circuit court.12  Because their tort claims are, 
at bottom, based on their disappointment with the performance of 
the non-medicated milk replacer, their contract claim is the 
proper vehicle for resolving this dispute.  We therefore affirm 
the court of appeals. 
 
                                                 
11 The dissent's conclusions that the economic loss doctrine 
would 
bar 
certain 
hypothetical 
tort 
claims, 
or 
that 
it 
"threatens the strict products liability doctrine," see Chief 
Justice Abrahamson's dissent, ¶¶63, 76-79, give the doctrine a 
far more expansive reading than is warranted by this opinion.  
12 Both of the Grams alleged that a Cargill representative 
told them to "compute our losses, submit them to Cargill and 
Cargill would take care of us."  On remand, the Grams will have 
a chance to pursue such contractual remedies.   
The dissent laments the fact that "[the Grams] cannot sue 
Milk Products at all."  Chief Justice Abrahamson's dissent, ¶64.  
The dissent gives no reason, however, that the Grams cannot be 
fully compensated through their contract claim against Cargill.  
In turn, Cargill may choose to sue Milk Products.  Thus, the 
Grams are not prevented from recovery and Milk Products is not 
protected from liability.  The Grams are prevented, however, 
from making an "end run" around their contract with Cargill.  
This is exactly the purpose for which the economic loss doctrine 
was designed.  See Daanen & Janssen, Inc. v. Cedarapids, Inc., 
216 Wis. 2d 395, 407, 573 N.W.2d 842 (1998).   
No 2003AP801 
27 
 
By the Court.—The decision of the court of appeals is 
affirmed. 
¶56 ANN WALSH BRADLEY, J., withdrew from participation. 
 
No.  2003AP801.ssa 
 
1 
 
¶57 SHIRLEY S. ABRAHAMSON, C.J.   (dissenting). "[T]he 
most 
quickly 
and 
confoundingly 
expanding 
legal 
doctrine 
is . . . the economic loss rule."13  Like the ever-expanding, 
all-consuming alien life form portrayed in the 1958 B-movie 
classic The Blob, the economic loss doctrine seems to be a 
swelling 
globule 
on 
the 
legal 
landscape 
of 
this 
state.  
According to one commentator, the economic loss doctrine has 
been an issue in the Wisconsin court of appeals and supreme 
court 47 times during 2000-2004.14  At the current pace, the 
economic loss doctrine may consume much of tort law if left 
unchecked.15 
¶58 Courtesy of this majority opinion and other opinions 
of this court, this legal doctrine with modest, or even 
"obscure"16 beginnings, is fast growing.17  Taking a further step 
                                                 
13 Paul J. Schwiep, The Economic Loss Rule Outbreak: The 
Monster That Ate Commercial Torts, Fla. B.J., Nov. 1995, at 34. 
14 John J. Laubmeier, Comment, Demystifying Wisconsin's 
Economic Loss Doctrine, 2005 Wis. L. Rev. 225, 225 n.3. 
15 See Schwiep, supra note 13, at 40 ("[W]hat is needed is 
critical analysis of the rule's place and application, rather 
than the trivial invocation of the rule to stem the tide of 
commercial tort litigation, in an apparent attempt at judicial 
tort reform."). 
16 Laubmeier, supra note 14, at 225. 
No.  2003AP801.ssa 
 
2 
 
in increasing the scope of the economic loss doctrine, the 
majority in the instant case delivers a significant blow to the 
vitality of the "other property" exception to the economic loss 
doctrine. 
¶59 The economic loss doctrine bars recovery in tort for 
economic damage "to a product itself or monetary loss caused by 
the defective product, which does not cause personal injury or 
damage to other property."18  Although simple to state, the 
                                                                                                                                                             
17 The 
economic 
loss 
doctrine 
can 
be 
traced to the 
California Supreme Court's reasoning in Seely v. White Motor 
Co., 403 P.2d 145 (Cal. 1965).  The United States Supreme Court 
adopted the California court's reasoning in East River S.S. 
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871 (1986), 
and this court adopted the East River reasoning in Sunnyslope 
Grading, 
Inc. 
v. 
Miller, 
Bradford 
& 
Risberg, 
Inc., 
148 
Wis. 2d 910, 437 N.W.2d 213 (1989), expressly limiting tort 
liability for defective products to injury caused to persons or 
damage caused to property other than the defective product 
itself. 
18 Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 
235, 247, 593 N.W.2d 445 (1999) (quoted source omitted).   
Restatement (Third) of Torts § 21 (1998) provides as 
follows: 
Sec. 21. For purposes of this Restatement, harm to 
persons or property includes economic loss if caused 
by harm to: 
(a) the plaintiff's person; 
(b) the person of another when harm to the other 
interferes with a legally protected interest of 
the plaintiff protected by tort law; or 
(c) the plaintiff's property other than the defective 
product itself. 
No.  2003AP801.ssa 
 
3 
 
doctrine's meaning and application are confounding litigants, 
their lawyers, and the courts.19  
¶60 It is the "other property" exception to the economic 
loss doctrine that is at issue in the instant case.  "'[O]ther 
property' is a legal term of art."20     
¶61 The majority opinion takes two actions with respect to 
the "other property" exception.  First, it reaffirms this 
court's endorsement and use of the "integrated system" concept 
when evaluating whether a claimed loss is damage to "other 
property."21  This proposition is not controversial; the court 
unanimously adopted this concept.  In Wausau Tile, Inc. v. 
County Concrete Corp.22 we said that "[d]amage by a defective 
component of an integrated system to either the system as a 
whole or other system components is not damage to 'other 
property' which precludes the application of the economic loss 
doctrine."23   
¶62 Second, because "[t]he 'integrated system' concept 
does not translate well to all situations involving property 
                                                 
19 "The economic loss rule has become a confusing morass." 
Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 
544 (Fla. 2004) (Cantero, J., concurring). 
20 Fireman's Fund McGee Marine Underwriters v. A & B Welding 
& Mfg., Inc., 2005 WL 568055, at *3 (W.D. Wis. Mar. 8, 2005). 
21 Majority op., ¶28. 
22 Wausau 
Tile, 
Inc. 
v. 
County 
Concrete 
Corp., 
226 
Wis. 2d 235, 249, 593 N.W.2d 445 (1999). 
23 Wausau Tile, 226 Wis. 2d at 249 (citing E. River S.S. 
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867-68 (1986) 
and other cases). 
No.  2003AP801.ssa 
 
4 
 
damage to which the economic loss doctrine logically applies,"24 
the majority has to fabricate another theory for broadening the 
definition of "other property" to fit the present case.  The 
majority 
joins 
other 
courts 
in 
adopting 
"reasonable 
foreseeability,"25 a fundamental principle of contract damages, 
and adapting it as the "disappointed expectations" rule to 
define "other property" in economic loss cases.26  
¶63 I 
dissent 
for 
three 
reasons: 
(1) 
the 
policies 
motivating the creation of the economic loss doctrine are not 
furthered by dismissing the Grams' tort action against Milk 
Products (the manufacturer of milk replacer that killed and 
injured their calves), with whom the Grams have no contractual 
relationship; 
(2) 
the 
majority 
opinion's 
use 
of 
the 
"disappointed expectations" concept to define "other property" 
is so broad that the economic loss doctrine threatens the strict 
products liability doctrine; and (3) even under the majority 
opinion's standard for "other property," summary judgment was 
inappropriate in the instant case.  
I 
¶64 The majority opinion bars the Grams from suing Milk 
Products either in contract or in tort.  Milk Products sold the 
milk replacer to Cargill, which sold the product to the Grams. 
The Grams and Milk Products have no contractual relationship, 
                                                 
24 Majority op., ¶31. 
25 See Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 
(1854). 
26 Majority op., ¶43. 
No.  2003AP801.ssa 
 
5 
 
and the Grams did not object to the dismissal of the contract 
action.  Therefore, if the Grams cannot bring a tort suit 
against Milk Products, they cannot sue Milk Products at all.  
Allowing the Grams to sue Milk Products is not an "end run" 
around the contract, but rather would allow them to assert an 
action for a distinct legal wrong against the tortfeasor, Milk 
Products.       
¶65 The Grams' tort action against Milk Products is, in my 
opinion, analogous to the tort action in the Linden v. Cascade 
Stone Co. case against the subcontractor.27  In Linden, the court 
expanded the economic loss doctrine to bar a homeowner from 
suing a subcontractor for defective work, even though the 
homeowner had no contract with the subcontractor.   
¶66 As Justice Bradley explained in her dissent in Linden, 
the economic loss doctrine is a judicially created doctrine 
whose 
existence 
is 
premised 
upon 
three 
oft-repeated 
justifications: "(1) to maintain the fundamental distinction 
between tort law and contract law; (2) to protect commercial 
parties' freedom to allocate economic risk by contract; and (3) 
to encourage the party best situated to assess the risk of 
economic loss, the commercial purchaser, to assume, allocate, or 
insure against that risk."28   
                                                 
27 Linden 
v. 
Cascade 
Stone 
Co., 
2005 
WI 
113, 
___ 
Wis. 2d ___, ___ N.W.2d ___. 
28 Linden, ___ Wis. 2d ___, ¶40 (Bradley, J., dissenting) 
(quoting Ins. Co. of N. Am. v. Cease Elec., 2004 WI 139, ¶38, 
276 Wis. 2d 361, 688 N.W.2d 462).  See also Van Lare v. Vogt, 
Inc., 2004 WI 110, ¶17, 274 Wis. 2d 631, 683 N.W.2d 46. 
No.  2003AP801.ssa 
 
6 
 
¶67 In the instant case, as in Linden, the doctrine's 
policies are not furthered by application of the economic loss 
doctrine to deny an innocent purchaser a cause of action against  
the defendant-manufacturer who knew or should have known the 
purchaser's 
property 
would 
be 
injured 
by 
the 
defendant-
manufacturer's tortious conduct.29 
II 
¶68 The economic loss doctrine is of recent origin.  The 
scope of the doctrine is still evolving.  "[B]ecause there has 
been much confusion about the scope of this doctrine, it is 
important to review its legal underpinnings."30  
¶69 For commercial parties in contractual privity, the 
economic loss doctrine's disallowing tort damages for purely 
economic loss (except injury to person or other property) 
                                                 
29 Damages available against Cargill under contract law are 
not necessarily the same as damages recoverable against Milk 
Products under tort law.  Restatement (Second) of Contract § 351 
cmt a. at 136 (1979).  Damages for breach of warranty against 
Cargill are covered by Wis. Stat. § 402.714, relating to 
accepted goods, and § 402.715(2)(b), relating to consequential 
damages available for any "[i]njury to person or property 
proximately resulting from any breach of warranty."  
 
We do not know the scope of the damages for which Cargill 
may be liable because Cargill is not a party and the contract 
action is not before us.  There may also be contractual 
limitations on the Grams' right to recover against Cargill.  As 
the majority notes, "Contracts give the parties an opportunity 
to limit the scope and amount of liability."  Majority op., ¶14 
n.3.  The majority cannot know, see majority op., ¶55 n.12, 
before proceedings against Cargill are completed whether the 
Grams will be compensated fully in contract for the allegedly 
defective product. 
 
30 Indemnity Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 
So. 2d 532, 536 (Fla. 2004). 
No.  2003AP801.ssa 
 
7 
 
protects the integrity of the contract.  We have permitted a 
tort action in privity of contract situations, however, for 
certain frauds.31   
¶70 For those not in contractual privity, strict products 
liability allows a purchaser to sue a manufacturer for physical 
injury to person or property as a result of the defective 
product.  The strict products liability doctrine was designed to 
govern the problem of physical injuries to person or property 
caused by defective products.  The economic loss doctrine was 
developed 
for 
a 
different 
purpose, 
namely, 
to 
protect 
manufacturers from liability for "economic loss," that is, non-
physical injury to person or property caused by a defective 
product beyond those damages compensated through the law of 
warranties.  The purpose of the economic loss doctrine in the 
product liability arena is to protect the manufacturer from 
liability for losses to subsequent purchasers resulting from the 
failure of its product to perform according to the warranty.32 
Warranty law thus prevents liability of unknown and unlimited 
scope.33           
¶71 What constitutes economic loss is not self-evident, 
because "'[e]conomic loss' is not a self-defining term, and it 
does not literally mean all monetary losses."34  In Northridge 
                                                 
31 See Kaloti Enters. v. Kellogg Sales Co., 2005 WI 111, ___ 
Wis. 2d ___, ___ N.W.2d ___. 
32 Seely v. White Motor Co., 403 P.2d 145, 150 (Cal. 1965).  
33 Seely, 403 P.2d at 150. 
34 Fireman's Fund McGee Marine Underwriters v. A & B Welding 
& Mfg., Inc., 2005 WL 568055, at *3 (W.D. Wis. March 8, 2005). 
No.  2003AP801.ssa 
 
8 
 
Co. v. W.R. Grace & Co.35 our court explained the distinction 
between economic loss (to be recovered in a contract action) and 
physical harm to property (to be recovered in a tort action) as 
follows: 
The plaintiffs' strict products liability claim is not 
barred, however, simply because the plaintiffs seek 
damages for repair costs, replacement costs, decreased 
value, and lost profits in the sale of the centers.  
While economic loss is measured by repair costs, 
replacement costs, loss of profits, or diminution of 
value, the measure of damages does not determine 
whether the complaint is for physical harm [to 
property] or economic loss.  City of Manchester v. 
National Gypsum Co., 637 F. Supp. 646, 651 (D.R.I. 
1986).  In other words, the fact that the measure of 
the plaintiffs' damages is economic does not transform 
the nature of its injury [to property] into a solely 
economic loss.  Town of Hooksett School Dt. v. W.R. 
Grace & Co., 617 F. Supp. 126, 131 (D.N.H. 1984).36  
¶72 "Economic loss" has been described as that loss 
"resulting from the failure of the product to perform to the 
level expected by the buyer and commonly has been measured by 
the cost of repairing or replacing the product and the 
consequent loss of profits, or by the diminution in value of the 
product because it does not work for the general purposes for 
which it was manufactured and sold."37     
                                                 
35 Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 471 
N.W.2d 179 (1991). 
36 Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 931-
32, 471 N.W.2d 179 (1991).  
37 Agristor Leasing v. Guggisberg, 617 F. Supp. 902, 907-08 
(D. Minn. 1985) (emphasis added) (quoting Minneapolis Soc'y of 
Fine Arts v. Parker-Klein Assocs. Architects, 354 N.W.2d 816, 
820-21 (Minn. 1984) (overruled by Hapka v. Paquin Farms, 458 
N.W.2d 683 (Minn. 1990))).   
No.  2003AP801.ssa 
 
9 
 
¶73 Here the Grams alleged that the product, the milk 
replacer, was defective in that it did not contain the 
nutritional value expected.  The Grams expected the non- 
medicated milk replacer to provide nutrition for the calves.  
The Grams claim they were told that there was no significant 
difference between the two milk replacers other than medication.  
The feed did not live up to expectations.  The defective feed 
resulted in the calves not gaining sufficient weight and in a 
large number of calves dying.  We know that the lack of 
medication was not the cause of the deaths because the calves 
ceased to die when the Grams substituted real, non-medicated 
milk for the non-medicated milk replacer.   
¶74 The damages the Grams seek in the instant case are 
measured in terms of money, but they are not the costs of 
replacing or repairing the milk replacer or the diminution in 
the value of the product.  Certainly, the Grams' contract claim 
for breach of implied warranty is premised on the notion that 
the non-medicated milk replacer disappointed their expectations.  
However, the tort claims (strict liability, negligence, and 
intentional misrepresentation) allege that the milk replacer 
caused tangible physical injury to property.  "[C]laims which 
allege economic loss in combination with non-economic loss are 
not barred by the [economic loss] doctrine."38   
¶75 The question the majority opinion presents is whether 
dead calves are "disappointed expectations" or are "other 
property" that has been damaged.  The majority opinion treats 
                                                 
38 Wausau Tile, 226 Wis. 2d at 247. 
No.  2003AP801.ssa 
 
10 
 
the two as mutually exclusive, concludes that the dead calves 
are "disappointed expectations," and holds for the defendant.  
The majority's interpretation of the "other property" exception 
is so narrow that it is unworkable; almost nothing will qualify 
for the exception.  If applied literally, the majority's 
articulation of the "other property" exception might completely 
eliminate the exception to the economic loss doctrine. 
¶76 To my mind, "disappointed expectations" and "other 
property" are not mutually exclusive principles.  Take, for 
example, a car dealer's defective car that spontaneously lurches 
backwards even though the motor has been properly turned off.  
The defective car driving in reverse destroys the garage door.  
Since the expectation is that the car will operate only when 
engaged, will not be self-operating in reverse, and will not 
spontaneously destroy anything behind it, the majority opinion's 
disappointed expectations rule would, if applied literally, bar 
recovery in tort for damage to the garage door. 
¶77 Or, for example, a real estate developer buys a house 
from a builder for resale.  The developer keeps the house for a 
period.  The house as built has a garage that is equipped with 
an automatic garage door opener.  One day the garage door 
closes, without prompting, onto the front of the developer's 
jeep, destroying the jeep.  The occupants of the jeep are not 
injured.  Applying literally the "disappointed expectations" 
standard announced by the majority opinion in the instant case, 
the developer would not be able to sue the garage door opener 
manufacturer because the garage door opener merely failed to 
No.  2003AP801.ssa 
 
11 
 
perform as expected.  According to the majority opinion: "'Level 
of performance' should now be understood to include failed 
performance,"39 regardless of the harm done to "other property." 
¶78 Despite the purchaser's "disappointed expectations" 
with the car that goes in reverse and the garage door that slams 
shut, I am confident that the majority would hold that the 
trailer and the jeep are "other property" and the manufacturer 
is liable under strict products liability.40 
¶79 Even assuming that "disappointed expectations" might 
entail the calves' malnourishment, disappointed expectations 
cannot include the death of the calves at triple the normal rate 
any more than it is simply "disappointed expectations" when a 
pet dog dies as a result of eating dog food that is not as 
nutritious or as fat-free as advertised.  To say dead animals 
are disappointed expectations suggests that there is no harm to 
person or property that would not qualify as disappointed 
expectations.  Anytime a defective product fails and then 
injures 
someone 
or 
something, 
its 
owner 
is 
obviously 
disappointed with that product's performance.    
¶80 Both disappointed expectations and "other property" 
coexist in these examples and in the instant case.  Which of the 
two should be the governing principle?  As I see it, a defendant 
is liable when he or she places in commerce a defective product 
                                                 
39 Majority op., ¶41. 
40 "Such damage [to other property] is considered so akin to 
personal injury that the two are treated alike."  E. River S.S. 
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867 (1986). 
No.  2003AP801.ssa 
 
12 
 
that creates an unreasonable risk of injury to property other 
than the product sold and that injury occurs.  The purchaser 
should not bear this risk of injury.  The Grams should have an 
opportunity to prove that the milk replacer was a defective 
product that created an unreasonable risk of injury to the 
calves and that injury occurred.  
¶81 The California Supreme Court explained the principle 
governing damage to other property as follows: 
The distinction that the law has drawn between tort 
recovery for physical injuries and warranty recovery 
for economic loss is not arbitrary and does not rest 
on the "luck" of one plaintiff in having an accident 
causing physical injury.  The distinction rests, 
rather, on an understanding of the nature of the 
responsibility 
a 
manufacturer 
must 
undertake 
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.  A consumer 
should not be charged at the will of the manufacturer 
with bearing the risk of physical injury when he buys 
a product on the market.  He can, however, be fairly 
charged with the risk that the product will not match 
his economic expectations unless the manufacturer 
agrees that it will.  Even in actions for negligence, 
a manufacturer's liability is limited to damages for 
physical injuries and there is no recovery for 
economic loss alone.41 
¶82 The U.S. Supreme Court most recently addressed the 
issue of "other property" in 1997 in Saratoga Fishing Co. v. 
                                                 
41 Seely, 403 P.2d at 151 (emphasis added). 
No.  2003AP801.ssa 
 
13 
 
J.M. Martinac & Co.42  In Saratoga Fishing, J.M. Martinac & Co. 
manufactured a ship and sold it new to Joseph Madruga.43  
Madruga, in turn, added equipment such as netting, a skiff, and 
other parts so that the ship could be used to fish for tuna.44  A 
few years later Madruga sold the ship to Saratoga Fishing.  
Thirteen years of tuna fishing later, the ship caught fire as a 
result of a defectively designed hydraulic system that was part 
of the ship as originally built by J.M. Martinac.  Saratoga sued 
J.M. Martinac in tort for damage to the parts and equipment 
added by Madruga. 
¶83 In reversing the Ninth Circuit Court of Appeals, the 
United States Supreme Court held that the ship was the "product 
itself" and that all the items added to the ship by Madruga were 
"other property."  Accordingly, ruled the U.S. Supreme Court, 
Saratoga's 
tort 
suit 
could 
proceed 
against 
the 
original 
manufacturer, J.M. Martinac. 
¶84 Saratoga Fishing presents a striking contrast to the 
majority opinion in the instant case.  In rebuking the Ninth 
Circuit for "creat[ing] a tort damage immunity beyond that set 
by 
any 
relevant 
tort 
precedent . . . ," 
the 
Court 
cited 
approvingly three cases in which courts determined the harmed 
                                                 
42 Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875 
(1997). 
43 Id. at 877. 
44 Id. 
No.  2003AP801.ssa 
 
14 
 
objects were "other property"45 and that therefore remedy could 
be had in tort. 
¶85 In one case cited, A.J. Decoster Co. v. Westinghouse 
Electric Corp.,46 the Maryland high court found that 140,000 
chickens killed when a ventilation system for the chicken house 
malfunctioned were "other property."  The second case the Court 
cited was United Air Lines, Inc. v. CEI Industries of Illinois, 
Inc.,47 in which "[a] warehouse owner recovered for damage to a 
building caused by a defective roof."48  Finally, the Court cited 
a case similar to Saratoga Fishing in which damage to added 
seismic equipment on a ship resulting from an engine fire was 
actionable in tort.49   
¶86 The Court emphasized that "[o]ne important purpose of 
defective-product tort law is to encourage the manufacture of 
safer products."50  The manufacturer should not be immunized from 
liability for foreseeable physical damage.51  To allow the ship's 
manufacturer to escape liability in Saratoga Fishing, the Court 
                                                 
45 Id. at 880-81. 
46 A.J. Decoster Co. v. Westinghouse Elec. Corp., 634 A.2d 
1330 (Md. 1994). 
47 United Air Lines, Inc. v. CEI Indus. of Ill., Inc., 499 
N.E.2d 558 (Ill. Ct. App. 1986). 
48 Saratoga Fishing, 520 U.S. at 880. 
49 Nicor Supply Ships Assocs. v. Gen. Motors Corp., 876 F.2d 
501 (5th Cir. 1989). 
50 Saratoga Fishing, 520 U.S. at 881. 
51 Id. 
No.  2003AP801.ssa 
 
15 
 
asserted, 
defied 
"the 
ordinary 
rules 
governing 
the 
manufacturer's tort liability."52     
¶87 The Court did note that the intermediate seller could 
have included a warranty, but "[n]o court has thought that the 
mere possibility of such a contract term precluded tort recovery 
for damage to [a purchaser's] other property."53   
¶88 The U.S. Supreme Court went on to reject the argument 
that contract law, if warranties were available, should supplant 
tort law.  The Court wrote that "respondents have not explained 
why the ordinary rules governing the manufacturer's tort 
liability should be supplanted merely because the [intermediate 
seller] may in theory incur an overlapping liability in 
contract."54   
¶89 Finally, the Court also rejected the argument that 
manufacturers and distributors would be besieged with tort 
liability.  The Court explained that there are "a host of other 
tort principles, such as foreseeability, proximate cause, and 
the 'economic loss' doctrine" that already substantially limit 
tort liability.55 
¶90 In contrast with Saratoga Fishing, under the majority 
opinion's standard in the instant case, tort suits in all three 
of the cited cases would be barred by the economic loss doctrine 
                                                 
52 Id. at 882-83. 
53 Id. at 882. 
54 Id. at 882-83. 
55 Id. at 884. 
No.  2003AP801.ssa 
 
16 
 
if "other property" were redefined as being everything resulting 
from "disappointed expectations."  The damage in all three cases 
was easily within the purchasers' "disappointed expectations." 
¶91 Because I would follow the rule set forth in the 
Saratoga Fishing case, the cases cited therein, and Wausau Tile, 
I do not join the majority opinion.   
III 
¶92 The facts of this case lead me to conclude that under 
the majority's new rule, summary judgment was improperly granted 
here.  The majority opinion acknowledges that determining 
whether a case is one of disappointed performance expectations 
is not easy.56 
¶93 This case reaches us because the circuit court granted 
summary judgment in favor of Milk Products.57  Summary judgment 
is properly granted when there are no issues of material fact, 
only questions of law upon which the moving party is entitled to 
judgment.58 
¶94 The 
majority 
opinion 
candidly 
admits 
that 
the 
application of its newly adopted "within-the-contemplation-of-
the-parties" standard, that is, the disappointed performance 
expectations standard, is fact-intensive: "[Application of the 
rule] will necessarily require the interpretation of the purpose 
                                                 
56 Majority op., ¶54. 
57 Majority op., ¶1. 
58 Badger State Bank v. Taylor, 2004 WI 128, ¶12, 276 
Wis. 2d 312, 688 N.W.2d 439. 
No.  2003AP801.ssa 
 
17 
 
of [the] transaction and the expected uses of [the] product."59  
In short, the court must know what the parties' expectations 
were in order to apply the doctrine correctly.  If the majority 
really means what it says, summary judgment was inappropriate in 
this case. 
¶95 Taking the facts in the light most favorable to the 
Grams, as we must, we know from the record that the Grams 
expected to get a milk replacer of the same nutritional quality 
as the one they had successfully used for three years, but non-
medicated. 
We 
know 
from 
Mr. 
Grams' 
affidavit 
that 
a 
representative from Cargill told him that Half-Time non-
medicated milk replacer had the same nutritional value as the 
milk replacer the Grams had bought from Cargill for years.  The 
Grams did not expect the mortality rate of their calves to 
triple. 
 
They 
did 
not 
expect 
their 
calves 
to 
become 
undernourished on a milk replacer affirmatively represented as 
being of the same nutritional quality as a product with which 
they were familiar and had used with success.60  
¶96 Paragraph 53 of the majority opinion deserves special 
attention.  Every sentence in ¶53 not only lacks a citation 
(except the last sentence) but also lacks support in the record.  
In fact, the record directly contradicts the linchpin of the 
whole paragraph.  According to the majority opinion: "A 
reasonable farmer would know that switching to an unmedicated 
                                                 
59 Majority op., ¶54. 
60 See majority op., ¶¶50-51. 
No.  2003AP801.ssa 
 
18 
 
milk replacer could cause some increase in calf mortality."61  
Does "some increase" in mortality equal one-third of the calves?  
How does this court know, without testimony, what a reasonable 
farmer would expect under these circumstances?  We know from the 
record that at least one expert stated that removal of 
antibiotics would not affect the calves' mortality rate.  We can 
infer from the record that the lack of medication was not the 
cause of the deaths because calves ceased to die when the Grams 
substituted real, non-medicated milk for the non-medicated milk 
replacer.  In short, according to the record, the Grams (and 
probably any reasonable farmer) would not have contemplated that 
the lack of medication would kill their calves at triple the 
normal rate.   
¶97 The record in this case does not indicate that dead 
calves were an outcome contemplated by either party or by any 
reasonable farmer, thus making summary judgment inappropriate 
here.  
¶98 For the foregoing reasons, I dissent. 
¶99 I am authorized to state that Justice LOUIS B. BUTLER, 
JR. joins this opinion. 
 
                                                 
61 Majority op., ¶53. 
No.  2003AP801.ssa 
 
 
 
1