PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6th Edition by Henry R.

Cheeseman

Chapter 19 Warranties and Product Liability

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

Introduction (1 of 2)
Article 2 of the Uniform Commercial Code

(UCC) establishes certain warranties that apply to the sale of goods. Article 2A of the UCC establishes warranties that apply in lease transactions. Consumers and others can sue to recover damages caused by breach of warranty.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 2

Introduction (2 of 2)
Warranty A buyers or lessees assurance that the goods meet certain standards. Products Liability The liability of manufacturers, sellers, and others for the injuries caused by defective products.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 3

Warranties of Quality
Sellers or lessors 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 expressed or implied.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 4

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)]
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 5

Express Warranties (2 of 2)
Sellers and lessors are not required to

make such warranties Basis 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 2313(1); UCC 2A-210(1)]
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 6

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 nonmerchants or casual sales.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 7

Implied Warranty of Merchantability:

Standards 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.
19 - 8

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

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

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 9

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

Consumer Foreign Substance Expectation Test Test A test to determine A test to determine merchantability based merchantability based on what the average on foreign objects consumer would that are found in food. expect to find in food products.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 10

Implied Warranty of Fitness for a Particular Purpose

A warranty that arises where a seller or

lessor warrants that the goods will meet the buyers or lessees expressed needs. The warranty is breached if the goods do not meet the buyers or lessees expressed needs. The warranty applies to both merchant and non-merchant sellers and lessors.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 11

Summary: Express and Implied Warranties of Quality (1 of 2)

Type of Warranty How Created Express warranty Made by the seller or lessor Description Affirmation that the goods meet certain standards of quality, description, performance, or condition. [UCC 2-313(1); UCC 2A210(1)]

Implied warranty Implied by law for fitness for a particular purpose

Implied that the goods are fit for the purpose for which the buyer or lessee acquires the goods. [UCC 2315; UCC 2A-213]

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 12

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

Type of Warranty How Created Description 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)]
19 - 13

Implied warranty of Implied by law if the merchantability seller or lessor is a merchant

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

Warranty Disclaimers
Warranties can be disclaimed or limited If an express warranty is made, it can only

be limited if the disclaimer and the warranty can he reasonably construed with each other. All implied 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.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 14

Conspicuous Display of Disclaimer

Written disclaimers must be

conspicuously displayed to be valid.

Conspicuous construed by the courts

as noticeable to a reasonable person. [UCC 2-316; UCC 2A-214]

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 15

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.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 16

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.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 17

Product Liability Based on Fault:

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 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.

Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 18

Product Liability Based on Fault:

Negligence
Negligence 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

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

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.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 20

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

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 21

Strict Liability
In Greenmun v. Yuba Power Products,

Inc., the California Supreme Court adopted the doctrine 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.
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 22

Strict Liability: Chain of Distribution

All parties in the chain of distribution of a

defective product are strictly 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 liability in tort.)
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 23

Strict Liability:

Parties 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.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 24

Strict Liability: Damages Recoverable

Punitive 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 - 25

Doctrines of Negligence and Strict Liability Compared

Negligence Lawsuit Defendant Manufacturer (negligent) Defendant Strict Liability Lawsuit
Defective product

Distributor Negligent party is liable Retailer

Defendant All in the chain of distribution are liable

Defendant

Negligence lawsuit

Consumer

Strict liability lawsuit

19 - 26

Defective product causes injury

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

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.
Plaintiffs can allege multiple product

defects in one lawsuit.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 27

Common Types of Defects

1. Defects in Manufacture

2. Defects in Design

3. Defects in Packaging
Copyright 2009 by Pearson Prentice Hall. All rights reserved.

4. Failure to Warn

19 - 28

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 persons body striking something inside the automobile in the case of a car accident.

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 29

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

Copyright 2009 by Pearson Prentice Hall. All rights reserved.

19 - 30

Defenses to Product Liability

1. Supervening event 2. Generally known dangers 3. Assumption of the risk 4. Government contractor defense
Copyright 2009 by Pearson Prentice Hall. All rights reserved. 19 - 31

5. Misuse of the product 6. Statute of limitations 7. Contributory and comparative negligence