Opinion ID: 381814
Heading Depth: 2
Heading Rank: 1

Heading: The Warranty

Text: 49 The District Judge held that the flour in each of the three shipments failed to meet the express warranty provisions of the contracts. ADM expressly warranted that the bagged flour would be of merchantable quality and that it would comply with all of the applicable provisions of the Federal Food, Drug and Cosmetic Act ('FDA'). The District Judge decided that the infested flour breached both warranties. We, however, pretermit analysis of the FDA warranty since it is difficult to interpret 19 and unnecessary to our resolution of this case. Instead we examine only ADM's warranty of merchantability. 50 The Code defines the minimum standards required of merchantable goods: 51 Goods to be merchantable must be at least such as 52 (a) pass without objection in the trade under the contract description; and 53 (b) in the case of fungible goods, are of fair average quality within the description; and 54 (c) are fit for the ordinary purposes for which such goods are used ; and 55 (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and 56 (e) are adequately contained, packaged, and labeled as the agreement may require; and 57 (f) conform to the promises or affirmations of fact made on the container or label if any. 58 UCC § 2-314(2) (emphasis supplied). Like the District Judge we consider only the subsection (c) portion of that definition, and do not reach the arguably applicable standards of subsections (a) and (b). 20 The question is therefore whether the flour at various critical points in time was fit for the ordinary purposes for which such goods are used. 59 Official Comments 2 and 8 provide helpful clues to divining the parties' intent (emphasis supplied): 60 2. The question when the warranty is imposed turns basically on the meaning of the terms of the agreement as recognized in the trade. Goods delivered under an agreement made by a merchant in a given line of trade must be of a quality comparable to that generally acceptable in that line of trade under the description or other designation of the goods used in the agreement. 61 8. Fitness for the ordinary purposes for which goods of the type are used is a fundamental concept of the present section and is covered in paragraph (c). As stated above, merchantability is also a part of the obligation owing to the purchaser for use. Correspondingly, protection, under this aspect of the warranty, of the person buying for resale to the ultimate consumer is equally necessary, and merchantable goods must therefore be honestly resalable in the normal course of business because they are what they purport to be. 62 These comments amplify what is implicit in the statute: fit for ordinary purposes merchantability is an ambiguous phrase which has little meaning unless trade usage and other extrinsic evidence is considered. A substantial amount of extrinsic evidence was accordingly admitted and considered by the District Judge in evaluating ADM's warranty of merchantability. 21 63 Before reviewing the facts, we observe that finding what the parties meant by merchantability requires some evaluation of standards in the commercial market and the state of the art in flour manufacturing. 22 The merchantability of infested flour to be sold to consumers is a question of degree and kind. We have often recognized that no food is completely pure. 23 The FDA has long permitted very small amounts of insect fragments and other dead infestation in food products. 24 To declare that any contamination of flour - even by small amounts of insect fragments, renders the flour unmerchantable would no doubt be out of step with commercial reality and would wreak havoc on food manufacturers and distributors while affording little or no additional protection to the consumer. What this case involves, however, is significant amounts of live infestation, by flour beetle eggs, larvae, pupae, and adults. Here the question is: How much live infestation renders consumer-destined flour unfit for the ordinary purposes for which it is used? 64 The record in this case contains a number of relatively undisputed facts that shed light on the meaning of merchantable flour. First, flour beetle infestation in flour mills is an ever present and difficult to eliminate problem. Some flour buyers, such as the United States Government, have however been able to keep infestation problems in their flour to a bare minimum by using their own inspectors to test the flour during its manufacture and at various points thereafter. Also, the relatively stringent precautions taken in ADM-operated mills have reduced infestation problems in their flour to a very great degree. The record further shows that flour containing live infestation, though possibly not dead remains, must be completely fumigated before it can be sold to consumers. Such fumigation is, however, not a normal preparation undertaken by flour buyers. In this context, the fact that the flour involved in the instant case had to be fumigated takes on great significance. Cf. UCC § 1-205(1). As the District Judge stated, Clearly, if wheat flour found to be infested with beetles would have passed the above (merchantable quality) test . . ., there would have been no need for the flour to have been fumigated. . . . 449 F.Supp. at 126. We believe that the District Judge's observation closely tracks the Official Comments' statement that goods intended for resale to consumers, as here, are not merchantable unless  'honestly' resalable in the normal course of business. 25 The evidence in sum indicates that consumer-intended flour containing substantial amounts of live infestation is not merchantable under prevailing standards. 65 We are not aware of any precedent, in Illinois or elsewhere, which considers the issue of merchantability under circumstances similar to the instant case. 26 Several factually distinguishable cases do tend to support our conclusion, however. A provocative example is Cunningham v. MacNeal Memorial Hospital, 47 Ill.2d 443, 266 N.E.2d 897 (1970), in which the Illinois Supreme Court held that hepatitis present in transfused blood breached a warranty of merchantability, even though the disease was impossible for the manufacturer or hospital to detect and eliminate. 27 In contrast, it is clear that with large numbers of inspections live infestation can be detected in and eliminated from flour. Also distinguishable but supporting our conclusion is the decision of a Michigan Court that applesauce that tastes or smells bad but is nonetheless fit for human consumption is under some circumstances unmerchantable. Martel v. Duffy-Mott Corp., 15 Mich.App. 67, 166 N.W.2d 541 (1968). Under Missouri law, cheese containing bacteria capable of  producing a harmful condition was found unmerchantable since it was not suitable for the ordinary purpose for which it is used; namely, for consumption by the consumer. Safeway Stores, Inc. v. L. D. Schreiber Cheese Co., 326 F.Supp. 504, 508 n.10 (W.D. Mo. 1971). Moreover, in dictum adopted by our Court en banc, we have observed that in cases . . . where the product contained mice, flys, slime, mud, bugs, roaches and worms, . . . (l)ittle doubt exists that the presence of such articles in a product intended for human consumption renders said product . . . unmerchantable as a matter of law, Green v. American Tobacco Co., 391 F.2d 97, 106, 112 (5th Cir. 1968) (Fla.) (dissenting opinion), adopted as the opinion of the Court en banc, 409 F.2d 1166 (1969). 66 Judicial interpretation, trade usage, and course of dealing point to but one conclusion as to flour infested with significant amounts of live flour beetles: although the flour may be fit for human consumption in the sense that it can be eaten without causing sickness, it is nonetheless not of merchantable quality. Such flour is not what is normally expected in the trade. It is not what ADM agreed to supply to Bolivia. Our holding is a narrow one. We do not say, for example, that one live beetle egg in a batch of 10,000 bags of flour renders that flour unmerchantable. Nor do we decide the merchantability of flour containing dead infestation in large or small amounts. Furthermore, we construe only the merchantability standard for flour which will be resold to consumers, not for flour sold directly to consumers. Finally, we emphasize that merchantability is an evolving standard, so that what is unmerchantable at one time and on one record may not be so in another case. In sum, we conclude that the District Judge was not erroneous in finding that the infested flour was not in conformity with ADM's warranty of merchantability.