Business Law (BMGT 380) - Chapter 20

Caveat Emptor

Let the Buyer Beware

Caveat Venditor

Let the Seller Beware

Two Kinds of Contract or Warranty Theories

1. Express warranties

2. Implied warranties

How Are Express Warranties Created

1. If an affirmation of fact or promise becomes part of the basis of bargain

2. Any description of the goods that become part of the basis of the bargain

3. If you are shown a sample or model of the good and it becomes a basis of the bargain

Statements of value, opinion, or sales talk...

do NOT create an express warranty

Multiple Warranties Rules

If multiple express warranties conflict, try to figure out the parties true intent

1. Specifications trump samples and models as well as general descriptions

2. Samples or models trump general descriptions

Implied Warranties of Merchantability

This is implied in a contract for the sale of the product if the seller is a merchant of the goods sold (used car salesman)

Conditions that must be met for a good to be "merchantable"

1. Are the goods fit for the ordinary purpose for which they are used?

2. Does the product function as a reasonable consumer would expect it to function

Implied Warranties of Fitness for a Particular Purpose

1. Seller has reason to know a particular purpose for which buyer is buying the product

2. Seller has reason to know that buyer is relying on sellers skill or judgement in selecting suitable goods

3. Buyer actually DOES rely on sellers skill or judgement in purchasing particular goods

Four Tort Theories

1. Negligent Manufacture of the Goods

2. Negligent Inspection

3. Negligence in Duty to Warn

4. Negligent Design

Negligent Manufacture of the Goods

refers to the negligent selection of the manufacturing materials, negligent packaging, and negligence in assembly of the materials

Negligent Inspection

1. Manufacturer has the responsibility to inspect the goods he's selling for defects that could create a foreseeable risk of harm

2. Retailer has the duty to inspect the goods ONLY IF they have the knowledge of a defect or there was something obviously wrong with the product

Negligence in Duty to Warn

Everyone in the chain of distribution has a duty to warn if products have a foreseeable risk to harm.

HOWEVER, there is no duty to warn if the danger is open and obvious

Negligent Design

Manufacturers have a duty to design products as to avoid a reasonably foreseeable risk of harm

How to determine whether a risk was reasonably foreseeable

1. Analyze industry practices at the time the industry was producing

2. The state of the existing scientific and technical knowledge at the time the product was being manufactured

3. To what extent did the company comply with government regulations

4. The defectiveness and cost of alternative designs

Strict Liability Tort Theories

Applies to everyone in the chain of distribution (manufacturer, distributor, retailer)

Four components in order for strict liability to apply

1. The seller has to be engages in the business of selling the product that harmed the plaintiff

2. The product has to be in a defective condition when it is sold and it has to be unreasonably dangerous as a result of the defect

3. There is no strict liability for plaintiffs who substantially alter the product

4. Plaintiff has to be injured

Statues of Limitations

Applied to both warranty and tort cases

Damages

1. Consequential (compensatory) damages; personal, property, economic, non-economic

2. Punitive

Defenses

1. No-privity defense (a person does not have to have a direct contractual relationship with the person who sold the product)

2. Product misuse

3. Assumption of the risk

4. Contributory Negligence

5. Comparative Negligence

Disclaimer

the seller or manufacturer attempts to eliminate liability by adding a clause in the sales contract where they say they have no liablity

Disclaimer for Express Warranty

It is virtually impossible to disclaim a liability under an express warranty

Disclaimer for Implied Warranty of Merchantability

Seller or manufacturer can disclaim liability if you use an oral or written disclaimer and use the term "merchantability" The writing has to be conspicuous

Disclaimer for Implied Warranty of Fitness for a Particular Purpose

Has to be in writing and it has to be conspicuous

Disclaimer for Tort Theories

A disclaimer is ineffective if the purchaser is an ordinary consumer. If a business is selling to another business, both businesses have to be of equal bargaining power and the business have to have negotiated and agreed on the disclaimer

Remedy Limitation

the seller tries to limit the damages a person could receive