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Copyright © 2009 by Pearson Prentice Hall. All rights reserved.

PowerPoint Slides to AccompanyCONTEMPORARY BUSINESS

ANDONLINE COMMERCE LAW

6th Editionby Henry R. Cheeseman

Chapter 19Warranties and Product Liability

Copyright © 2009 by Pearson Prentice Hall. All rights reserved. 19 - 2

Introduction (1 of 2)

Article 2 of the Uniform Commercial Code (UCC) establishes certain warrantieswarranties that apply to the sale of goods.

Article 2A of the UCC establishes warrantieswarranties that apply in lease transactions.

Consumers and others can sue to recover damages caused by breach of warranty.


Introduction (2 of 2)

WarrantyWarranty A buyer’s or lessee’s

assurance that the goods meet certain standards.

WarrantyWarranty A buyer’s or lessee’s

assurance that the goods meet certain standards.

Products LiabilityProducts Liability The liability of

manufacturers, sellers, and others for the injuries caused by defective products.

Products LiabilityProducts Liability The liability of

manufacturers, sellers, and others for the injuries caused by defective products.


Warranties of Quality

Seller’s or lessor’s assurance to buyer or lessee that the goods meet certain standards of quality.

If the goods fail to meet a warranty, the buyer or lessee can sue the seller or lessor for breach of warranty.

Warranties may be expressedexpressed or implied.implied.


Express Warranties (1 of 2)

Created when a seller or lessor makes an affirmation that the goods he or she is selling or leasing meet certain standards of quality, description, performance, or condition. [UCC 2-313(1); UCC 2A-210(1)]

It is not necessary to use formal words such as warrant or guarantee to create an express warranty. [UCC 2-313(2); UCC 2A-210 (2)]


Express Warranties (2 of 2)

Sellers and lessors are not required to make such warranties

Basis of the BargainBasis of the Bargain – buyers and lessees can recover for breach of an express warranty if the warranty was a contributing factor (not necessarily the sole factor) that induced the buyer to purchase the product or the lessee to lease the product [UCC 2-313(1); UCC 2A-210(1)]


Implied Warranty of Merchantability (1 of 2)

Unless properly disclosed, a warranty is implied when sold or leased goods are fit for the ordinary purpose for which they are sold or leased and other assurances. [UCC 2-314(1); UCC 2A-212(1)]

The implied warranty of merchantability does not apply to sales or leases by non-merchants or casual sales.


Implied Warranty of Merchantability:Standards That Must Be MetStandards That Must Be Met

The goods must be fit for the ordinary purposes for which they are used.

The goods must be adequately contained, packaged, and labeled.

The goods must be of an even kind, quality, and quantity within each unit.

The goods must conform to any promise or affirmation of fact made on the container or label.

The quality of the goods must pass without objection in the trade Fungible goods must meet a fair average or middle range of

quality.

The goods must be fit for the ordinary purposes for which they are used.

The goods must be adequately contained, packaged, and labeled.

The goods must be of an even kind, quality, and quantity within each unit.

The goods must conform to any promise or affirmation of fact made on the container or label.

The quality of the goods must pass without objection in the trade Fungible goods must meet a fair average or middle range of

quality.


Implied Warranty of Fitness for Human Consumption (1 of 2) A warranty that applies to food or drink

consumed on or off the premises of: Restaurants Grocery stores Fast-food outlets Vending machines


Implied Warranty of Fitness for Human Consumption (2 of 2)

Consumer Consumer Expectation TestExpectation Test

A test to determine merchantability based on what the average consumer would expect to find in food products.

Consumer Consumer Expectation TestExpectation Test

A test to determine merchantability based on what the average consumer would expect to find in food products.

Foreign Substance Foreign Substance TestTest

A test to determine merchantability based on foreign objects that are found in food.

Foreign Substance Foreign Substance TestTest

A test to determine merchantability based on foreign objects that are found in food.


Implied Warranty of Fitness for a Particular Purpose A warranty that arises where a seller or

lessor warrants that the goods will meet the buyer’s or lessee’s expressed needs.

The warranty is breached if the goods do not meet the buyer’s or lessee’s expressed needs.

The warranty applies to both merchant and non-merchant sellers and lessors.


Summary: Express and Implied Warranties of Quality (1 of 2)Type of Warranty How Created Description

Express warranty Made by the seller or lessor

Affirmation that the goods meet certain standards of quality, description, performance, or condition. [UCC 2-313(1); UCC 2A-210(1)]

Implied warranty for fitness for a particular purpose

Implied by law Implied that the goods are fit for the purpose for which the buyer or lessee acquires the goods. [UCC 2-315; UCC 2A-213]


Summary: Express and Implied Warranties of Quality (2 of 2)

Type of Warranty How Created Description

Implied warranty of merchantability

Implied by law if the seller or lessor is a merchant

Implied that the goods:1. Are fit for the ordinary purposes for

which they are used.2. Are adequately contained,

packaged, and labeled.3. Are of an even kind, quality, and

quantity within each unit.4. Conform to any promise or

affirmation of fact made on the container or label.

5. Pass without objection in the trade.6. Meet a fair average or middle range

of quality for fungible goods. [UCC 2-314(1); UCC 2A-212(1)]


Warranty Disclaimers

Warranties can be disclaimeddisclaimed or limited If an express warrantyexpress warranty is made, it can only

be limited if the disclaimer and the warranty can he reasonably construed with each other.

All implied warrantiesimplied warranties of quality may be disclaimed by expressions like as is, with all faults, or other language that makes it clear to the buyer that there are no implied warranties.


Conspicuous Display of Disclaimer Written disclaimers must be

conspicuously displayed to be valid.

ConspicuousConspicuous – construed by the courts as noticeable to a reasonable person. [UCC 2-316; UCC 2A-214]


Magnuson-Moss Warranty Act (1 of 2)

Federal statute that regulates express full and limited warranties made by sellers and lessors.

The Act does not require a seller or lessor to make express written warranties.

However, persons who do make such warranties are subject to the provisions of the Act.


Magnuson-Moss Warranty Act (2 of 2)

The Act does not create any implied warranties.

However, sellers or lessors who make express written warranties relating to consumer products are forbidden from disclaiming or modifying the implied warranties of merchantability and fitness for a particular purpose.


Product Liability Based on Fault:MisrepresentationMisrepresentation A buyer or lessee who is injured because a seller or

lessor fraudulently misrepresented the quality of a product can sue the seller under the tort of intentional intentional misrepresentation.misrepresentation.

Seller or lessor either: Affirmatively misrepresents the quality of a product; or Conceals a defect in it

Recovery is limited to persons who were injured because they relied on the misrepresentation.

A buyer or lessee who is injured because a seller or lessor fraudulently misrepresented the quality of a product can sue the seller under the tort of intentional intentional misrepresentation.misrepresentation.

Seller or lessor either: Affirmatively misrepresents the quality of a product; or Conceals a defect in it

Recovery is limited to persons who were injured because they relied on the misrepresentation.


Product Liability Based on Fault:NegligenceNegligence NegligenceNegligence – a tort related to defective products where

the defendant has breached a duty of care and caused harm to the plaintiff.

Failure to exercise due care includes: Failing to assemble the product carefully Negligent product design Negligent inspection or testing of the product Negligent packaging Failure to warn of the negligent propensities of the

product

NegligenceNegligence – a tort related to defective products where the defendant has breached a duty of care and caused harm to the plaintiff.

Failure to exercise due care includes: Failing to assemble the product carefully Negligent product design Negligent inspection or testing of the product Negligent packaging Failure to warn of the negligent propensities of the

product


Landmark Case:McPherson v. Buick Motor Company The court held that an injured consumer

could recover damages from the manufacturer of a product even though he or she was only in privity of contract with the retailer from whom he or she had purchased the product.


Other Warranty Issues

Overlapping and inconsistent warranties

Warranty disclaimers

Conspicuous display of disclaimer

Unconscionable disclaimers

Warranty disclaimers in software licenses

Third-party beneficiaries of warranties


Strict Liability

In Greenmun v. Yuba Power Products, Inc., the California Supreme Court adopted the doctrine of strict liability in tortdoctrine of strict liability in tort as a basis for product liability actions.

Most states have adopted this doctrine as the basis for product liability actions.

Removes many of the difficulties for the plaintiff associated with other theories of product liability.


Strict Liability: Chain of Distribution All parties in the chain of distributionchain of distribution of a

defective product are strictly liablestrictly liable for the injuries caused by that product.

All manufacturers, distributors, wholesalers, retailers, lessors, and subcomponent manufacturers may be sued under this doctrine (doctrine of strict doctrine of strict liability in tort.liability in tort.)


Strict Liability:Parties Who Can RecoverParties Who Can Recover Privity of contract is not required for a

plaintiff to sue for strict liability. The doctrine applies even if the injured

party had no contractual relations with the defendant.

The damages recoverable in a strict liability action vary by jurisdiction.


Strict Liability: Damages Damages RecoverableRecoverable Punitive damagesPunitive damages are often awarded in

strict liability lawsuits if the plaintiff proves that the defendant either: Intentionally injured him or her; or Acted with reckless disregard for his or her

safety

Copyright © 2009 by Pearson Prentice Hall. All rights reserved. 19 - 26Defective product causes injury

Negligence

lawsuit lawsuit

Strict liabilityConsumer

Retailer

Distributor

Manufacturer (negligent)

Defective product

DefendantDefendant

Defendant

Defendant

All in the chain of distribution are liable

Negligent party is liable

Doctrines of Negligence and Strict Liability Compared

Strict Liability Lawsuit

Negligence Lawsuit


The Concept of Defect

To recover for strict liability, the injured party must first show that the product that caused the injury was somehow defective.defective.

Plaintiffs can allege multiple product defects in one lawsuit.


1. Defects inManufacture

2. Defects inDesign

3. Defects inPackaging

4. Failure to Warn

Common Types of Defects


Crashworthiness Doctrine

The courts have held that automobile manufacturers are under a duty to design automobiles so they take into account the possibility of harm from a person’s body striking something inside the automobile in the case of a car accident.


Other Product Defects

Failure to provide adequate instructions Inadequate testing of products Inadequate selection of component parts

or materials Improper certification of the safety of a

product


Defenses to Product Liability1. Supervening event

2. Generally known dangers

3. Assumption of the risk

4. Government contractor defense

1. Supervening event

2. Generally known dangers

3. Assumption of the risk

4. Government contractor defense

5. Misuse of the product

6. Statute of limitations

7. Contributory and comparative negligence

5. Misuse of the product

6. Statute of limitations

7. Contributory and comparative negligence

cheeseman

Documents

express warranty

breach of warranty

implied warranty of

leased goods

tradefungible goods

sale of goods

metthe goods

product ucc