Chapter 17 Warranties and Product Liability 2002 by

Overview § A warranty is an assurance of fact upon which a party may rely. – Warranty of Title. – Express Warranty. – Implied Warranty of Merchantability. – Implied Warranty of Fitness for a Particular Purpose. – Implied warranty arising from the course of dealing or trade usage. © 2002 by West Legal Studies in Business A Division of Thomson Learning 2

Warranties of Title § Automatically arises in most commercial sales transactions. § UCC-312 creates 3 warranties: – Good Title. – No Liens. – No Infringements. © 2002 by West Legal Studies in Business A Division of Thomson Learning 3

Disclaimer of Title Warranty § Title warranty can generally be disclaimed only with specific language in contract. § Circumstances may be obvious to clearly indicate disclaimer of title, such as a sheriff’s sale. © 2002 by West Legal Studies in Business A Division of Thomson Learning 4

Express Warranties § Can be oral or written-don’t have to use the words “warrant” or “guarantee. ” – Any Affirmation or Promise. – Any Description. – Any Sample or Model. © 2002 by West Legal Studies in Business A Division of Thomson Learning 5

Express Warranties § To create an express warranty, the affirmation of fact must become the “basis of the bargain. ” § And Buyer must rely on warranty when he enters into contract. § Case 17. 1 Felley v. Singleton (1999). © 2002 by West Legal Studies in Business A Division of Thomson Learning 6

Express Warranties § Statements of Opinion and Value. – Generally excludes “puffing” – “Best car in town”, not an express warranty. – However, expert opinion is not puffery. © 2002 by West Legal Studies in Business A Division of Thomson Learning 7

Implied Warranties § Warranty inferred at law based on § the circumstances or nature of the transaction. Under the UCC, merchants warrant the goods they sell are “merchantable”, i. e. , fit for ordinary purpose for which such goods are sold. § Case 17. 2 Webster v. Blue Ship (1964). © 2002 by West Legal Studies in Business A Division of Thomson Learning 8

Implied Warranty of Merchantability § Automatically arises from merchants. § Goods are of average, fair, or mediumgrade. § Adequately packaged and labeled. § Conform to promises on label. § Have a consistent quality and quantity among the commercial units. © 2002 by West Legal Studies in Business A Division of Thomson Learning 9

Implied Warranty of Fitness for a Particular Purpose § Arises by any Seller who: – Knows the particular purpose for which the goods are being bought; and – Knows the buyer is relying on seller’s skill and judgment to select suitable goods. © 2002 by West Legal Studies in Business A Division of Thomson Learning 10

Overlapping Warranties § Occurs when two or more warranties made in a single transaction: – If warranties are consistent, they are construed as cumulative. – If inconsistent: • First: implied warrant of fitness for a particular purpose. • Then: express. © 2002 by West Legal Studies in Business A Division of Thomson Learning 11

Third Party Beneficiaries of Warranties § At common law only the Buyer could sue the Seller because she is the one in privity of contract with the Seller. § UCC 2 -318 provides 3 alternatives from which the states may choose. © 2002 by West Legal Studies in Business A Division of Thomson Learning 12

Warranty Disclaimers § Express Warranties can be disclaimed: – If they were never made (evidentiary matter). – If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED). © 2002 by West Legal Studies in Business A Division of Thomson Learning 13

Warranty Disclaimers § Implied Warranties: – Merchantability: “As Is, ” “With All Faults. ” – Fitness for a Particular Purpose: must be in writing and conspicuous. – If Buyer has the right to fully inspect and either: does so or refuses to do so, warranties are disclaimed as to defects that could reasonably be found. – 17. 3 Borden v. Advent Ink (1997). © 2002 by West Legal Studies in Business A Division of Thomson Learning 14

Magnuson-Moss Warranty Act § FTC enforces; Attorney general or consumer can bring action. § Modifies UCC for consumer sales. § Only applies when written warranties are made by Seller (including a service contract). – If goods > $10 label “full” or “limited. ” – If goods > $15 Seller must additional disclosures. © 2002 by West Legal Studies in Business A Division of Thomson Learning 15

Magnuson-Moss § Full Warranty: Seller must repair or replace. § Limited Warranty must be conspicuous. – If limit of time only must say, e. g. , “full twelvemonth warranty. ” § UCC Implied Warranties: – May not be disclaimed, but can be limited, but must correspond with time of express warranty. © 2002 by West Legal Studies in Business A Division of Thomson Learning 16

Product Liability § Product Liability is not a new tort. § Liability can be based on: – Negligence; – Misrepresentation; or – Strict Liability; – Warranty Theory. © 2002 by West Legal Studies in Business A Division of Thomson Learning 17

Product Liability— Negligence-based product liability is based on a manufacturer’s breach of the reasonable standard of care and failing to make a product safe. © 2002 by West Legal Studies in Business A Division of Thomson Learning 18

Product Liability— Negligence § Manufacturer must exercise “due care” in: – Designing products; – Manufacturing and Assembling Products; – Inspecting and Testing Products; and – Placing adequate warning labels. © 2002 by West Legal Studies in Business A Division of Thomson Learning 19

Product Liability— Negligence § Manufacturers who violates state or federal law in the manufacture or labeling of a product, may be negligent per se. § No privity of contract required between Plaintiff and Manufacturer. Liability extends to any person’s injuries caused by a negligently made (defective) product. © 2002 by West Legal Studies in Business A Division of Thomson Learning 20

Product Liability (Misrepresentation) § Occurs when fraud committed against consumer or user of product. § Fraud must have been made knowingly or with reckless disregard for safety. § Plaintiff does not have to show product was defective. © 2002 by West Legal Studies in Business A Division of Thomson Learning 21

Strict Product Liability § Manufacturers liable without regard to fault based on public policy: – Consumers must be protected from unsafe products; – Manufacturers should be liable to any user of the product; – Manufacturers, sellers and distributors can bear the costs of injuries. © 2002 by West Legal Studies in Business A Division of Thomson Learning 22

Strict Product Liability § Requirements for strict liability: – Product is unreasonably dangerous when sold Defendant sells the product; – Plaintiff injured by use or consumption of product and defective condition is the proximate cause of injury. § Case 17. 4 Greenman v. Yuba Power Products (1962). © 2002 by West Legal Studies in Business A Division of Thomson Learning 23

Strict Product Liability Plaintiff must show product was so “defective” it was “unreasonably dangerous”: – Product was dangerous beyond ordinary consumer expectations; OR – A less dangerous alternative was economically feasible but rejected. © 2002 by West Legal Studies in Business A Division of Thomson Learning 24

Market Share Liability § Theory of liability when multiple Defendants contributed to manufacture of defective product. § Liability of each Defendant is proportionate to the share of the market held by each respective Defendant. © 2002 by West Legal Studies in Business A Division of Thomson Learning 25

Liability of Suppliers § Suppliers of Component Parts may be liable if: – Component is defective at the time of sale/distribution; – Supplier “substantially participates” in the design and integration of defective product. © 2002 by West Legal Studies in Business A Division of Thomson Learning 26

Liability of Suppliers § Manufacturers, distributors, suppliers, sellers liable to an injured bystander who did not purchase, use or consume the product. § Injuries to bystanders from defective products are reasonably foreseeable. © 2002 by West Legal Studies in Business A Division of Thomson Learning 27

Strict Liability— rd Restatement (3 ) of Torts § The terms “unreasonably dangerous” and “defective” are used interchangeably and subject to differing definitions by different courts. § Restatement defines three different types of defects: manufacturing, design and warning defects. © 2002 by West Legal Studies in Business A Division of Thomson Learning 28

Strict Liability: Manufacturing Defects § Occurs when a product “departs from its intended design even though all possible care was exercised in the preparation and marketing of the product. ” © 2002 by West Legal Studies in Business A Division of Thomson Learning 29

Strict Liability: Design Defects § Occurs when the “foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative. . . and the omission of the alternative design renders the product not reasonably safe. ” § Case 17. 5 Rogers v. Ingersoll-Rand Co. (1998). © 2002 by West Legal Studies in Business A Division of Thomson Learning 30

Strict Liability: Warning Defects § A product may be defective because of inadequate warnings or instructions. § Liability based on foreseeability that proper instructions/labels would have made the product safe to use. © 2002 by West Legal Studies in Business A Division of Thomson Learning 31

Warning Defects § There is no duty to warn about obvious or commonly known risks. § Seller must also warn about injury due to product misuse. Key is whether misuse was foreseeable. © 2002 by West Legal Studies in Business A Division of Thomson Learning 32

Defenses to Product Liability § Assumption of Risk. § Product Misuse (Plaintiff does not know the product is dangerous for a particular use). § Comparative Negligence. § Commonly known dangers. § Statutes of Limitation. © 2002 by West Legal Studies in Business A Division of Thomson Learning 33