Chapter 21 Warranties and Product Liability

1. Chapter 21 Warranties and Product 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 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.

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?  © 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. Lemon Laws • Coverage of Lemon Laws. • 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.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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.

35. 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.

36. 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.

37. 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.

38. 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.

39. 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.

40. 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.

41. 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.