CHAPTER 20
WARRANTIES AND PRODUCT LIABILITY
Outline
I. Introduction
Manufacturers and sellers are held much more accountable for the quality and safety for the goods they sell due to changes in society’s concept of who can best bear the responsibility for the quality of goods.
II.Warranties
A warranty is a contractual promise made by the seller regarding the quality, character, or suitability of the goods he has sold.
A. Express warranties
Express warranties arise when a seller makes a statement of fact or a promise concerning the goods that becomes a part of the bargain between the parties.
Example: Bobholz v. Banaszak: Statements made by the seller of a boat that the boat was in perfect and excellent condition, and that it had been properly maintained and winterized were held to be part of the basis of the bargain because the statements induced the buyer to purchase the boat.
B. Implied Warranties
Implied warranties are imposed under the UCC are the implied warranty of merchantability, the implied warranty of fitness for a particular purpose, and the implied warranty of valid title.
1. The implied warranty of merchantability requires that goods be fit for their ordinary purpose.
Example: In Denny v. Ford Motor Co., a Ford Bronco II that had a propensity to roll over on paved roads was not fit for use as an on-road vehicle and breached its implied warranty.
Example: Mexicali Rose v. Superior Court: A chicken bone in a chicken enchilada did not constitute breach of implied warranty of merchantability under the "foreign-natural" test of merchantability of food.
2. The implied warranty of fitness for a particular purpose arises when the sellers knows the particular purpose for which buyer is purchasing the goods and knows that the buyer is relying on the seller in making the purchase.
Example: Ram Head Outfitters, Ltd. V. Mecham: The court found that the seller made and breached a warranty for a particular purpose.
3. The implied warranty of title protects the buyer's ownership of goods purchased from seller.
II. Exclusion of Modification of Warranties
A.General Rules
Parties to a contract have, within certain limits, the right to agree to relieve the seller from all or part of the liability for express or implied warranties.
B.Limitation of Express Warranties
It is difficult, if not impossible, to make an express warranty and limit or disclaim it at the same time.
C. Exclusion of Implied Warranties
1. The UCC permits a seller to exclude the implied warranty of merchantability. The seller must mention the word merchantability and the disclaimer must be conspicuous.
Example: Baba v. Hewlett Packard Co.: The court found that a disclaimer was effective to relieve the seller of a defective computer from liability for breach of any implied warranty of merchantability.
2. The implied warranty of fitness for a particular purpose must be disclaimed in writing. It must be conspicuous.
D.Unconscionable Disclaimers
A disclaimer that is not conspicuous, or if there is great disparity of bargaining power, may be
unenforceable because it is unconscionable under the UCC.
E.Limitation of Warranties
A seller may also limit its liability for breach of warranty. If a limitation of liability is
unconscionable or fails of its essential purpose, it is unenforceable.
III.Who Benefits From a Warranty?
A. Purchaser
Under the UCC (2-318), a person who is not in privity with the seller (that is, who did not purchase the goods directly from the seller) may be unable to recover damages under a warranty theory. However, the consumer may still recover damages under a negligence or strict liability theory.
B.Privity of Contract
Today, most courts allow an injured purchaser to sue both the retailer and the manufacturer in the same suit.
C.Nonpurchasers
The Code extends some benefits of warranties to person who does not themselves purchase the particular defective good.
Example: Bryant v. Hoffman-LaRoche, Inc.: A patient receiving free samples of medicine from her doctor, who had received the samples from a manufacturer, was not entitled to the benefits of the implied warranties of merchantability or fitness because no privity existed between the patient and the manufacturer of the pharmaceuticals.
IV.Federal Trade Commission Warranty Rules
A.Magnuson-Moss Warranty Act
Under the Magnuson-Moss Warranty Act of 1975, if a seller of a consumer product that costs more than $5 gives the consumer a written warranty, certain requirements apply, and there are different provisions for a full or limited warranty.
B.Purpose of the Act
The act is intended to protect consumers and combat unscrupulous sellers.
C.Requirements of the Act
If the seller gives a warranty it must be contained in a single document and in simple and understandable language.
D.Full Warranties
The maker of the warranty must state whether the warranty is a full or limited warranty. A full warranty does not have to cover the whole product.
E.Limited Warranties
Any warranty that does not meet the requirements of a full warranty is a limited warranty.
F.Availability of Warranties
The seller is required to make the written warranty terms available to the buyer before the sale.
G.Enforcement
The Magnuson-Moss Warranty Act is enforced by the Federal Trade Commission.
V. Negligence
A.Product Liability in General
Two other legal bases for product liability are negligence and strict liability.
B.Negligence
Breach of a duty of care by a seller resulting in a foreseeable injury to the purchaser may constitute negligence.
1.Examples include inadequate inspection, negligent manufacturing processes, misrepresentation of fitness for a purpose, negligent product design, and negligent failure to warn.
Example: Weigl v. Quincy Specialties Company: A manufacturer of lab coats is liable for damages for defective design, negligent testing, failure to warn, and breach of warranty when a person was severely burned while wearing a lab coat.
C.Duties
The obviousness of the danger is merely one of the factors to be considered in determining liability. Middlemen did not have a duty to inspect new, prepackaged goods.
D.Privity and Disclaimers Do Not Apply
The manufacturer’s duty of care extends to all people who might foreseeably be injured by the good.
VI. Strict Liability
A. Reasons for Development of Strict Liability
It was often difficult for the plaintiff to prove negligence because the evidence was in the defendant’s control.
B.Elements of Strict Liability
A plaintiff may recover under this theory if the following elements are proven:
1. Product is sold in defective condition.
2.Seller is engaged in the business of selling such a product.
3.Product reaches consumer without substantial change in condition.
4.Physical harm or property damage is sustained as a result of the defective condition.
C.State of the Art
Issues arise in determining whether a product is unreasonably dangerous or defectively designed. Courts generally look to the "state of the art" at the time of manufacture.
Example: Uniroyal Goodrich Tire Co. v. Martinez: To establish a design defect under section 402A of the Restatement (Third) of torts, a claimant must establish that the defendant could have provided a safer alternative design. The design must be reasonable—it must be able to be implemented without destroying the utility of the product.
D.Defenses
Defenses include misuse of the product alteration of the product after manufacture, and assumption of the risk.
E.Industrywide Liability
"Industry-wide" liability is an outgrowth of strict product liability. Under this theory, a large number of people who were injured by defective products (for example, asbestos), may sue multiple manufacturers engaged in making that product. Liability is determined on a basis of market-share.
F.Possible Limitations on Strict Liability
Some manufacturers and insurance companies contend that product liability law now so favors the consumer that it is stifling the development of new products and putting unreasonable cost burdens on manufacturers.
G.Statutes of Repose
Statutes of Repose may limit the ability of an injured party to bring a tort-based suit to 10 years after the product was sold to the user. These statutes may be modified in the case of harms that are not discovered until years later, like DES.
Learning Objectives
1.You should note that "products liability" includes several different legal theories used by persons injured by defective products.
2.Each theory, whether negligence, warranty, or strict liability, has different requirements and, in some cases, different defenses.
3.The evolution of product liability law has not been smooth. Instead, it has evolved piecemeal as court recognized different theories and permitted expansions of doctrine and exceptions.
4.You should understand that a plaintiff may maintain an action based on several different theories, but will not be entitled to recover multiple damages if the seller/manufacturer is found liable under more than one theory.
5.You should know what an express warranty is and how an express warranty may be created.
6.You should know what the implied warranty of merchantability guarantees, as well as when that warranty arises.
7.You should know what the implied warranty of fitness for a particular purpose guarantees, as well as when that warranty arises.
8.You should know what the implied warranty of title is, as well as how it differs from the other warranties discussed in Chapter 18.
9.You should know how the seller may disclaim or exclude various warranties.
10.You should become familiar with the kinds of circumstances in which attempted disclaimers of warranties may be found unconscionable, and should know the standards provided by the Uniform Commercial Code for determining whether a limitation of warranty liability should be enforced.
11.You should know the persons, in addition to the purchaser of the product, who may be allowed to benefit from a warranty.
12.You should become familiar with the major provisions of the Magnuson-Moss Warranty Act.
13.You should know the kinds of circumstances in which a seller may be held liable in a negligence-based product liability action.
14.You should know the basic elements of strict liability, as well as how strict liability is different from liability for negligence and liability for breach of warranty.
15.You should know the defenses available in a strict liability action.
16.You should know what the industry-wide liability doctrine is and how it applies.
Learning Hints
1.Breach of warranty actions are most like contract actions, and the remedies generally include contract-like damages. For example, a person who proves breach of express or implied warranty against the seller should be able to recover "expectation damages" or "basis of the bargain damages," which generally is the difference between the value of the product, as warranted, and its actual value as a result of the defect.
2.In breach of warranty cases, however, the consumer may also recover other contract damages. These may include "consequential damages," which are damages that are foreseeable as a result of the breach. In some cases, a consumer who is injured by a defective product may recover damages for personal injury in the form of "consequential" damages under a breach of warranty theory.
3.Most consumers who suffer physical injury as a result of a defective product will sue under a "strict liability" or "negligence" theory. Under this theory, the consumer does not have to establish privity of contract (which may be required in some states under a warranty theory). Disclaimers of liability by sellers are unenforceable under this theory.
4.A strict liability theory dispenses with the requirement that the consumer prove the seller was negligent in manufacturing, designing, packaging or distributing the product. All the purchaser must prove is that the product was "defective" and "unreasonably dangerous," and that this resulted in physical injury or property damage to the purchaser.
5.Product misuse, alteration and assumption of the risk are defenses to an action under strict liability; these defenses, as well as contributory or comparative negligence, are also permitted in negligence actions. However, product misuse that is foreseeable may not relieve a seller of liability.
6.No formal language or written guarantee is necessary for a seller to make an express warranty. If the seller describes the goods, makes a statement of purported fact or a promise concerning the goods, or displays a sample or model of the goods to the buyer, an express warranty may be created. Where an express warranty is created, the goods must measure up to the description, statement of purported fact, promise, sample, or model. If the goods do not measure up, there is a breach of warranty. Be aware, however, that a seller's mere commendation of the goods or a seller's generalized opinion concerning value of the goods does not ordinarily rise to the level of an express warranty. Instead, such statements are considered to be only "sales talk" or "puffing."
7.Remember that even if a statement or other act by the seller appears at first glance to be an express warranty, there is actually no express warranty (and hence no liability for breach of express warranty) unless the seller's statement or other act became part of the bargain. This generally means that what the seller said or did must at least have been a contributing factor in the buyer's decision to purchase the goods. Obviously, the part of the bargain test cannot be satisfied in a situation in which the buyer did not know about the seller's statement until after the buyer had purchased the goods.
8.Express warranties may be made through the seller's advertising material.
9.It is exceedingly difficult, if not virtually impossible, for a seller to make a fully effective disclaimer of liability for an express warranty once the seller has made an express warranty. A Seller can, however, limit his liability for breach of express warranty by putting a clause in the contract that provides for an exclusive or limited remedy in the event of a breach of warranty. For example, such a clause could provide that the remedy for breach of warranty is limited to repair or replacement of the defective goods. Courts uphold these clauses unless they are unconscionable.
10.The implied warranty of merchantability is an automatic guarantee of reasonable quality in sales of goods made by merchants, unless, of course, the merchant has disclaimed the warranty properly. A merchant is one who is in the business of selling a particular type of goods. Do not forget that the implied warranty of merchantability arises only if the seller is a merchant when selling the particular goods being sold. For example, the implied warranty of merchantability is not created when a seller who is in the business of selling automobiles sells his neighbor a refrigerator from the seller's basement.
11.The implied warranty of fitness for a particular purpose is based on the seller's knowing or having reason to know: (a) the special, individual, or particular purpose for which the buyer wants the goods; and (b) that the buyer is relying on the seller to select goods suitable for fulfillment of that purpose. Note that if the basic elements of an implied warranty of fitness for a particular purpose are present, even a seller who is not a merchant may be found to have made this implied warranty. As with the implied warranty of merchantability, however, the seller may disclaim liability for breach of the implied warranty of fitness for a particular purpose.
12.Remember that the implied warranty of merchantability guarantees that the goods will be fit for the ordinary purposes to which such goods customarily are put, and that the implied warranty of fitness guarantees that the goods will be fit for the particular, individual purpose of the buyer. This means that in some cases, goods that are adequate enough to pass the merchantability test may fail the fitness for particular purpose test. In other cases, however, the goods may be such that both the implied warranty of merchantability and the implied warranty of fitness for a particular purpose are breached.
13.The implied warranties of merchantability and fitness for a particular purpose are fairly easy for sellers to exclude or disclaim, provided that the seller follows the disclaimer rules set out in the UCC Look closely at the disclaimer rules set out in your text and note that the rules differ somewhat, depending upon which implied warranty the seller is attempting to exclude.
14.Negligence law focuses on whether the seller failed to use reasonable care in connection with the designing, manufacturing, or marketing of its product. In other words, negligence is a fault-based legal theory that focuses on the conduct of the seller. Strict liability, on the other hand, is a legal theory that focuses on the condition of the product itself, rather than on the conduct of the seller. Strict liability is liability imposed without regard for whether the seller was somehow at fault in its conduct. This means that under strict liability, it is possible that a seller could be found liable for injuries caused by a defective, unreasonably dangerous product, even if the seller used all due care to prevent injuries. In a negligence suit, the seller would not be held liable if the seller exercised reasonable care, even though injuries nevertheless resulted.