Chapter 15: Warranties and Product Liability

1. Chapter 15: Warranties andProduct Liability

2. Learning Objectives • What factors determine whether a Seller’s or Lessor’s statement constitutes an express warranty or mere puffery? • What implied warranties under the UCC?

3. 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? • What defenses to liability can be raised in a product liability lawsuit?

4. Warranties • A warranty is an assurance or guarantee by the seller of certain facts concerning the goods being sold or leased. • If seller breaches a warranty, buyer can recover damages, or rescind the contract.

5. Warranties • Warranties automatically arise in most commercial sales transactions. • Normally warranties can be disclaimed or modified with specific language in the contract. 

6. Warranties • Warranties of Title. • Under the UCC, three types of warranties arise in sales and lease contracts: • Good Title. • No Liens. • No Infringements.

7. Warranties • Express Warranties. • Seller can create warranty by making representations about quality, condition, or performance of good, by: • Any Affirmation or Promise. • Any Description. • Any Sample or Model.

8. Warranties • Express Warranties. • Seller does not have to use the words “guarantee” or “warranty.” • Basis of the Bargain. • Reasonable buyer must only believe warranty was ‘basis of the bargain.’ • Buyer must rely on warranty when he enters into contract. 

9. Warranties • Express Warranties. • Statements of Opinion and Value. • Only statements of fact create express warranties. • Exception for Statements of Opinion by Experts. • Puffery versus Express Warranties.

10. Warranties • Implied Warranties. • Implied Warranty of Merchantability: Automatically arises from sale of goods by merchants which are “reasonably fit for ordinary purposes for which such goods are sold.” • Conform to promises on label. • Adequately packaged and labeled.

11. Warranties • Implied Warranties. • Implied Warranty of Merchantability: • Merchantable Goods: fit for ordinary purposes for which such goods are used. • Merchantable Food: fit to eat. • CASE 15.1 Webster v. Blue Ship Tea Room, Inc. (1964). Does a patron assume the risk of a fishbone in fresh fish soup?

12. Warranties • Implied Warranties. • 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. 

13. Warranties • Implied Warranties. • Implied Warranty of Fitness for a Particular Purpose. • Ordinary vs. Particular Purpose: Goods can be merchantable but unfit for a particular purpose. • Knowledge and Reliance Requirements.

14. Warranties • Implied Warranties. • 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.

15. Warranties • Overlapping Warranties. • Warranty Disclaimers: depends on type of warranty. • Express Warranties can be disclaimed: • If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED). 

16. Warranties • Warranty Disclaimers: depends on type of warranty. • Implied Warranties. Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults. 

17. Warranties • Warranty Disclaimers: depends on type of warranty. • 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.

18. Warranties • Magnuson-Moss Warranty Act. • Federal law to prevent deception in warranties by making them easier to understand. • Enforced by Federal Trade Commission. • Full Warranty (free repair/replacement). • Limited Warranty. • Implied Warranties arise under UCC -- not Magnuson-Moss.

19. Lemon Laws • Coverage of Lemon Laws. • Applies primarily to automobiles. • Give consumer remedies for automobiles under warranty that cannot be fixed with a certain number of attempts. • Buyer is entitled to new car, replacement of defective parts or return of payment. • Arbitration is typical Procedure.

20. Product Liability • Product Liability is not a new tort. • Liability can be based on: • Negligence;  • Misrepresentation;  • Strict Liability;  • Warranty Theory. 

21. 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. 

22. Product Liability • Negligence. • 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.

23. 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.

24. Product Liability • Strict Product Liability. • Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care. 

25. Strict Product Liability • Strict Product 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. 

26. Strict Product Liability • Strict Product Liability and Public Policy. • CASE 15.2 Bruesewitz v. Wyeth, LLC (2011). What do you think about the ethical or moral implications of this decision? 

27. 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. 

28. Strict Product Liability • Requirements for Strict Liability: • Plaintiff must be physically harmed • Defective condition must be proximate cause of injury. • Goods are in substantially same condition.

29. Strict Product Liability • Requirements for Strict Liability: • 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. 

30. Strict Product Liability • Requirements for Strict Liability: • Unreasonably Dangerous Products. • The product was dangerous beyond the expectation of the ordinary consumer. • A less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it.

31. Strict Product Liability • Product Defects – Restatement (Third of Torts). • Manufacturing Defects.  • Design Defects.  • Warning Defects. 

32. Strict Product Liability • Product Defects – Restatement (Third of Torts). • 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.”

33. Strict Product Liability • Product Defects – Restatement (Third of Torts). • Design Defects. • Product is manufactured correctly, but defect is based on design. Test: plaintiff must show defendant’s failure to use a “reasonable alternative design” rendered the product not reasonably safe. 

34. Strict Product Liability • Strict Product Liability. • Design Defects. • Factors to be Considered. • Magnitude and probability of foreseeable risks. • Relative advantages and disadvantages of product. • Most courts use “risk-utility” analysis.

35. Strict Product Liability • Product Defects – Restatement (Third of Torts). • 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. 

36. Strict Product Liability • Product Defects – Restatement (Third of Torts). • Inadequate Warnings. • Obvious Risks. No duty to warn. • Foreseeable Misuses. Seller must warn about foreseeable misuse.

37. 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.

38. Defenses to Product Liability • Assumption of Risk. • CASE 15.3 Boles v. Sun Ergoline, Inc. (2010). Why wasn’t assumption of risk a valid defense in this case? • Product Misuse. • Plaintiff does not know the product is dangerous for a particular use. 

39. Defenses to Product Liability • Comparative Negligence. • Defendants may be able to limit damages by apportioning fault. • Commonly Known Dangers. • Knowledgeable User.