1. CHAPTER 22
Warranties
and Product
Liability

2. Quote of the Day
“Still one thing more, fellow citizens -- a wise and frugal government, which shall restrain men from injuring one another [and] which shall leave them otherwise free to regulate their own pursuits of industry and improvement.”
Thomas Jefferson,
American president, in his first inaugural address

3. Product Liability
When goods cause injury, there is a question of product liability.
There are three main issues related to product liability cases:
Warranty -- a contractual assurance that goods will meet certain standards.
Negligence – unreasonable conduct by the defendant.
Strict Liability – policy which holds the defendant liable regardless of his behavior.

4. Express Warranties
An express warranty is one that the seller creates with his words or actions.
Any affirmation of fact--or any promise--can create an express warranty.
Any description of the goods can create an express warranty.
Any sample or model can create an express warranty.
The seller’s conduct must have been part of the basis of the bargain.

5. Implied Warranties
Are created by the Code itself, not by any act or statement of the seller.
Implied Warranty of Merchantability
Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale, if the seller is a merchant of goods of that kind.

6. Implied Warranties (cont’d)
Implied Warranty of Fitness for a Particular Purpose
When the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller’s skill and judgement, there is (unless excluded or modified) an implied warranty that the goods shall be fit for such purpose.

7. Two Last Warranties
The seller of goods warrants that her title is valid and that the goods are free of any security interest that the buyer knows nothing about, unless the seller has clearly excluded or modified this warranty.
Unless otherwise agreed, a merchant warrants that the goods are free of any rightful claim of copyright, patent, or trademark infringement.

8. Disclaimers and Defenses
Disclaimer: a statement that a particular warranty does not apply.
Oral Express Warranties – may be disclaimed.
Written Express Warranties – may NOT be disclaimed.
Implied Warranties of Merchantability – may disclaim, but must use word “merchantability” and the disclaimer must be conspicuous. ***NOTE: Many states prohibit a seller from disclaiming implied warranties in the sale of consumer goods.

9. Disclaimers & Defenses (cont’d)
General rule – may disclaim all implied warranties by using the terms “as-is” or “with all faults.”
Remedy Limitations
A limitation of remedy clause, by which the parties may limit or exclude the normal remedies, is permitted under the Code.
Consequential Damages
An exclusion of consequential damages is void if it is unconscionable.

10. Privity
When two parties contract, they are in privity. In the past, injured parties could only sue the party with whom he had privity. This has changed.
In cases of personal injury, the injured party may sue any responsible party, regardless of privity.
In cases of economic loss, the injured party may be required to have privity with the defendant.

11. Factors That Limit the Seller’s Responsibility
Buyer’s Misconduct
Misuse of the product by the buyer will generally preclude a warranty claim.
Statute of Limitations and Notice of Breach
The Code prescribes a four-year statute of limitations. (Proposed revisions would extend this time limit to five years.)
The UCC requires that a buyer notify the seller of defects within a reasonable time.

12. Negligence
In negligence cases, plaintiffs most often raise one or more of these claims:
Negligent design
Negligent manufacture
Failure to warn
Where a sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.

13. Strict Liability
Need not prove that the defendant’s conduct was unreasonable.
Strict liability may be imposed if:
The defective condition is unreasonably dangerous to the user.
Seller is in business to sell this product.
The product reaches the user without substantial change.
Strict liability may be imposed EVEN if:
The seller exercised all reasonable care.
There is no contractual relationship.

14. Contemporary Trends
Strict liability may be imposed based on design, manufacture or failure to warn.
Tests to measure design and warning cases include:
Consumer expectation: if the design causes the product to be less safe than expected
Risk-utility tests: weigh the value of the product, gravity and likelihood of the danger, feasibility of a safer design, and adverse consequences of a safer design.

15. Tort Reform Movement
About two-thirds of the states have passed at least some limits on damages in tort actions.
Opponents consider tort reform dangerous to society. They argue that the real goal of the so-called reform is to free irresponsible corporations from any potential liability, enabling them to save money while injuring innocent people.

16. Time Limits: Tort vs. Contract
Statutes of Limitations in Tort
Economic loss doctrine: when an injury is purely economic, and arises from a contract made by two businesses, the injured party may only sue under the UCC.
The four-year statute of limitations will apply in all cases of economic loss.
A Final Issue: Statutes of Repose
A statute of repose places an absolute limit on when a lawsuit may be filed, regardless of when the defect is discovered.

17. Other Legislation Lemon Laws Consumer Protection Laws
Entitle buyers of cars to return them for a refund after a reasonable time if the car has substantial defects.
Consumer Protection Laws
Focus on a merchant’s bad faith or deceit.
Magnuson-Moss Warranty Act
Protects purchasers of household goods by ensuring fairness in warranties.

18. “Products can hurt people and the law provides many possible remedies for the injured.”