chapter 19 warranties and product liability

CHAPTER 19CHAPTER 19WARRANTIES AND WARRANTIES AND PRODUCT LIABILITYPRODUCT LIABILITY

DAVIDSON, KNOWLES & FORSYTHE DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles Business Law: Cases and Principles

in the Legal Environmentin the Legal Environment (8 (8thth Ed.) Ed.)

2© 2004 West Legal Studies in Business© 2004 West Legal Studies in BusinessA Division of Thomson LearningA Division of Thomson Learning

BUSINESS LAW: BUSINESS LAW: Cases & PrinciplesCases & PrinciplesDavidson Davidson • Knowles • Forsythe 8• Knowles • Forsythe 8 thth Ed. Ed.

INTRODUCTIONINTRODUCTION A Warranty is “a promise that a

proposition of fact is true.”A Warranty is a promise that becomes part

of the contract.Warranty is often the best protection buyer

has on a sale.



INTRODUCTIONINTRODUCTIONTypes of warranties:

– Express warranty.– Implied warranty.– Statutory warranty.



EXPRESS WARRANTIESEXPRESS WARRANTIES Actually stated or communicated from one party

to another. Given only by the seller. By UCC is part of the “basis of the bargain.” Seller creates warranty in one of three ways:

– 1) Seller affirms a material fact.– 2) Seller describes the goods.– 3) Seller provides a sample or model of goods.



EXPRESS WARRANTIESEXPRESS WARRANTIESNo need to show intent or reliance.Reliance is presumed.Seller must disprove the existence of an

express warranty.Focuses on facts.Statement quantifiable it is treated as a fact.Advertisements that claim certain

characteristics for a product.



EXPRESS WARRANTIESEXPRESS WARRANTIESThe Code considers timing of the statement

or conduct from the buyer’s perspective.A modification of a sales contract is valid

without consideration.Sellers should remember:

– If they know a fact, state it honestly.– If they do not know a fact, do not speculate.



IMPLIED WARRANTIESIMPLIED WARRANTIESNot created by seller, imposed by operation

of law.Automatically present in contract unless they

are voluntarily surrendered by buyer or properly excluded by seller.



IMPLIED WARRANTIESIMPLIED WARRANTIESFour types of implied warranties:

– Warranty of title.– Warranty against infringement.– Warranty of merchantability.– Warranty of fitness for a particular

purpose.



WARRANTY OF TITLEWARRANTY OF TITLEWarranty of Title.

– Guarantees title.– Ensures the buyer of the following:

1) Transfer of the goods by the seller is proper.

2) Buyer is receiving good title.3) Goods are free of hidden security

interests, encumbrances, or liens.



INFRINGEMENTINFRINGEMENTWarranty Against Infringement.

– Can be given by either the buyer or seller.– The infringement protected against is the

rightful claim of any third person concerning the goods.

– Seller must be a merchant who regularly deals in the type of goods involved.

– Buyer does not need to be a merchant.



MERCHANTABILITYMERCHANTABILITYWarranty of Merchantability.

– Given whenever a merchant of goods makes a sale.

– Designed to assure buyers that purchased goods are suitable for normal or intended use.



MERCHANTABILITYMERCHANTABILITY Criteria: goods are merchantable and warranty has been

breached:– Goods must be able to pass without objection in the trade.– If goods are fungible, must be of fair average quality within the

description.– Goods must be suitable for their ordinary purpose and use.– Goods must be of even kind, quality, and quantity.– Goods must be adequately contained, packaged, and labeled as

required under agreement.– Goods must conform to the promise and facts contained on the

label.



FITNESS FOR A PARTICULAR FITNESS FOR A PARTICULAR PURPOSEPURPOSE

Warranty of Fitness for a Particular Purpose– May be given by merchant or non-merchant.– To exist all conditions must be present:

1) Seller must know that the buyer is contemplating a particular use for the goods.

2) Seller must know that the buyer is relying on the seller’s skill, judgement or knowledge in selecting proper goods.

3) Buyer must not restrict the seller’s range of choices to a particular brand or price range or limit the scope of the seller’s judgement.



WARRANTY EXCLUSIONSWARRANTY EXCLUSIONSSeller can modify or exclude warranties.Simplest way to exclude an express

warranty is not to give one.Seller can attempt to exclude an express

warranty in writing.Not easy to exclude or modify implied

warranties.



WARRANTY EXCLUSIONSWARRANTY EXCLUSIONSThree sets of circumstances to exclude all

implied warranties:– 1) Language must be used properly so buyer is

duly informed no implied warranties are given.– 2) Buyer has examined goods or refused to

examine them before sale, no implied warranty is given for defects that examination should have revealed.

– 3) Under course of dealings, performance, or usage of trade, implied warranties not given.



SCOPE OF WARRANTY SCOPE OF WARRANTY PROTECTIONPROTECTION

Warranties extend to any member of buyer’s family or household or any guest.

Warranties extend to any natural person who could reasonably be expected to use/consume the goods.

Warranties extend to any person (corporation) who could reasonably be expected to use/consume the goods.



STATUTORY WARRANTY STATUTORY WARRANTY PROVISIONSPROVISIONS

Consumer Product Warranty Act of 1975:– Manufacturer must provide presale warranty

information.– Created informal settlement procedures to

benefit consumer. – Manufacturer not required to give any express

warranties.– But if manufacturer does give an express

warranty, must designate it as full or limited.



STATUTORY WARRANTY STATUTORY WARRANTY PROVISIONSPROVISIONS

Full Warranty must meet four requirements:– Defects of goods will be remedied within a

reasonable time.– Exclusions/limitations must be conspicuously

displayed of consequential damages.– Implied warranty must not be limited in time.– If seller attempts to remedy defect fails,

consumer allowed to select either a refund or replacement.



PRODUCT LIABILITYPRODUCT LIABILITYBreach of warranty claims do not extent to

injury suffered from use of product.Injured party may be able to assert

negligence against the manufacturer.May be able to establish strict tort liability

against the manufacturer or seller of the goods.



PRODUCT LIABILITY: PRODUCT LIABILITY: NEGLIGENCENEGLIGENCE

Under common law negligence can be used in only two circumstances:– Buyer can argue breach of duties by privity of

the contract. – Goods are innately dangerous, so that privity of

contract is not necessary to establish the liability of the seller or manufacturer.

To establish tort negligence injured party must prove duty, breach of duty, harm, and proximate cause.



STRICT PRODUCT LIABILITYSTRICT PRODUCT LIABILITYApplies only to a merchant.Merchant must sell a “defective” product

that is “unreasonably” dangerous to the consumer.

Product must reach the consumer without any substantial change in its condition.



LEASESLEASESWhen goods are leased, the lessee receives

certain warranties.Lessee receives express warranties on the

same basis as a buyer of goods does.Lessee receives four implied warranties:

– Warranty against interference.– Warranty against infringement.– Warranty of merchantability.– Warranty of fitness for a particular purpose.

chapter 19 warranties and product liability

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