Chapter 21 Warranties and Product Liability

Learning Objectives What factors determine whether a seller’s or lessor’s statement constitutes an express warranty or mere puffery? What implied warranties arise under the UCC?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product? What are the elements of a cause of action in strict product liability?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives What defenses to liability can be raised in a product liability lawsuit? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Overview A warranty is an assurance or guarantee by the seller or lessor of certain facts concerning the goods being sold or leased. If seller breaches a warranty, buyer can recover damages, or rescind the contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranties automatically arise in most commercial sales transactions. Normally warranties can be disclaimed or modified with specific language in the contract.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranties of Title. UCC-312 can creates three express warranties at sale: Good Title. No Liens. No Infringements. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Express Warranties. Representations concerning quality, condition, description, or performance potential of goods. Can be created by: Any Affirmation or Promise. Any Description. Any Sample or Model. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Express Warranties (cont’d). Basis of the Bargain. Seller does not have to use the words “guarantee” or “warranty.” Buyer must rely on warranty when he enters into contract.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Express Warranties (cont’d). Statements of Opinion and Value. Only statements of fact create express warranties. Exception for Statements of Opinion by Experts. Puffery versus Express Warranties. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties. Inferred at law based on the circumstances or nature of the transaction. Implied Warranty of Merchantability. Automatically arises from merchants.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties (cont’d). Implied Warranty of Merchantability. Merchantable Goods: Goods are of average, fair, or medium-grade. Adequately packaged and labeled. Conform to promises on label. Have a consistent quality and quantity among the commercial units. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties (cont’d). Implied Warranty of Merchantability. Knowledge of Defect Not Required: warranty can be breached even if merchant did not know or could not have discovered product was defective. Merchantable Food. CASE 21.1 Webster v. Blue Ship Tea Room, Inc. (1964). Was the soup fit to eat on the basis of consumer expectations? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties (cont’d). 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties (cont’d). Implied Warranty of Fitness for a Particular Purpose. Particular vs. Ordinary Purpose: Differs from ordinary purpose of merchantability. Goods can be merchantable but unfit for a particular purpose. Knowledge and Reliance Requirements: seller must have reason to know purpose, and buyer must have relied on the recommendation. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Implied Warranties (cont’d). Implied Warranty From Prior Dealings or Trade Custom. Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Overlapping Warranties. Occurs when two or more warranties are made in a single transaction: When Warranties are Consistent. When Warranties are Inconsistent: (1) Implied warrant of fitness for a particular purpose. (2) Samples take precedence over inconsistent descriptions. (3) Exact or technical specifications displace inconsistent samples or descriptions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties 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). © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranty Disclaimers. Implied Warranties. Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults.”  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranty Disclaimers (cont’d). Implied Warranties. Disclaimer of the Implied Warranty of Merchantability: must use the word merchantability. Disclaimer of the Implied Warranty of Fitness: must be in writing and conspicuous. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranty Disclaimers (cont’d). Implied Warranties. Buyer’s Examination or Refusal to Inspect. Warranties are disclaimed as to defects that could reasonably be found on examination. Warranty Disclaimers and Unconscionability. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Warranty Disclaimers (cont’d). Magnuson-Moss Warranty Act. Modifies UCC for consumer sales. Does not require a warranty. Only applies when written warranties are made by Seller (including a service contract). If goods > $25label “full” or “limited.” Full warranty provides free repair or replacement. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Lemon Laws Coverage of Lemon Laws. Arbitration is Typical Procedure. Generally manufacturer is given limited number opportunities (usually four) to remedy the defect. If manufacturer fails, buyer is entitled to new car, replacement of defective parts, or return of all consideration. Arbitration is Typical Procedure. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Liability Product Liability is not a new tort. Liability can be based on: Negligence;  Misrepresentation;  Strict Liability;  Warranty Theory.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Liability Negligence. Based on a manufacturer’s breach of the reasonable standard of care and failing to make a product safe. Due Care Must Be Exercised in: design, selection of materials, using appropriate production process, assembling and testing, adequate warnings, inspection, and testing.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Liability Negligence (cont’d). Privity of Contract Not Required. No privity of contract required between Plaintiff and Manufacturer. Liability extends to any person’s injuries caused by a negligently made (defective) product. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Strict Liability and Public Policy. Consumers should be protected from unsafe products; Manufacturers and distributors should be liable to any user of the product; Manufacturers, sellers and distributors can bear the costs of injuries. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Requirements for Strict Liability: Product must be in defective condition when sold. Defendant is in the business of selling the product. Product must be unreasonably dangerous.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Requirements for Strict Liability: 4. Plaintiff must be physically harmed 5. Defective condition must be proximate cause of injury. 6. Goods are in substantially same condition. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Requirements for Strict Liability (cont’d). Proving a Defective Condition. Plaintiff does not need to show product or in what manner the product become defective. But plaintiff must show product was defective and “unreasonably dangerous” to the user.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects. Three types of product defects: Manufacturing Defects.  Design Defects.  Warning Defects.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects (cont’d). 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.” © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects (cont’d). Design Defects. Product is manufactured correctly, but defect is based on design. Test for Design Defects: plaintiff must show defendant’s failure to use a reasonable alternative design rendered the product not reasonably safe. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects (cont’d). Design Defects. Factors to be Considered. Magnitude and probability of foreseeable risks. Relative advantages and disadvantages of product. Most courts use “risk-utility” analysis. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects (cont’d). Inadequate Warnings. 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability Product Defects (cont’d). Inadequate Warnings. Obvious Risks. No duty to warn. Foreseeable Misuses. Seller must warn about foreseeable misuse. CASE 21.2 Wyeth v. Levin (2009). Federal law did not preempt state claim for inadequate warning. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strict Product Liability 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. Other Applications: to bystanders. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Defenses to Product Liability Assumption of Risk. CASE 21.3 Boles v. Sun Ergoline, Inc. (2010). Why did court find the exculpatory clause unenforceable? Product Misuse. Plaintiff does not know the product is dangerous for a particular use.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Defenses to Product Liability Comparative Negligence (Fault). Defendants may be able to limit damages by apportioning fault. Commonly Known Dangers. Knowledgeable User. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.