BUS 2060 Warranties & Product Liability

WARRANTIES

  • Definition of Warranty:

    • An assurance by one party of the existence of a fact on which the other party can rely.

    • Examples:

    • Warranty of Habitability: In a lease, the landlord warrants the location is habitable (includes heating, running water, etc.).

    • Warranty on a vehicle: Guarantees that it will be free of defects for a specific period or the company will repair/replace it.

PRODUCT LIABILITY

  • Definition of Product Liability:

    • Concerns who has legal responsibility to consumers, users, and bystanders for physical harm and property damage caused by a good.

    • Example: A Coca-Cola bottle manufactured incorrectly, exploding and causing injury upon opening.

KINDS OF WARRANTIES UNDER THE U.C.C. FOR SALES AND LEASES OF GOODS

  • Types of Warranties:

    1. Warranty of Title

    2. Express Warranties

    3. Implied Warranties

WARRANTY OF TITLE

  • General Characteristics:

    • Usually automatic. Guarantees a seller can transfer only the rights they have.

Key Components of Good Title:

  1. Good Title: Seller must warrant they possess good title to the good sold.

    • Buyer can only obtain rights the seller has.

    • If good title is lacking, buyer can sue for breach of warranty.

    • Example: In the case of stolen goods, the rightful owner can reclaim them, leading to a breach against the seller.

  2. No Liens:

    • Definition: A lien is an encumbrance on property to secure a claim for payment.

    • Examples:

      • Lien on real property to secure payment of a debt after obtaining a judgment.

      • Filing a UCC lien to claim against personal property, e.g. liens on vehicles before full payment.

  3. No Infringements:

    • Concerns trademarks and copyrights. If someone else uses these without permission, it leads to infringement.

    • A merchant warrants that goods are free of third-party claims to copyright, trademark, or patent.

    • Notification Requirement: Buyer must notify seller of any pending lawsuits promptly.

DISCLAIMER OF WARRANTY OF TITLE

  • Warranty can be disclaimed by clear and specific language in the contract.

    • For instance, stating that only the rights the seller holds are being transferred.

  • Example: Properties sold "as is" at auction, indicating no representations as to their condition.

EXPRESS WARRANTIES

  • Definition: A promise included in an agreement assuring the quality, description, or performance of goods.

  • Types of Express Promises:

    • Affirmations or Promises: E.g., "This machine will cut cooking time in half!"

    • Descriptions: E.g., “Box contains one blender with cover.”

    • Samples or Models: Representations must conform to what is shown.

  • Basis of the Bargain Concept:

    • Not explicitly defined; relies on facts of the case. Representations must induce the buyer into the contract.

PUFFERY IN WARRANTIES

  • Definition: Sales puffery refers to exaggerated claims that do not constitute warranties.

    • Example: Claiming a car’s handling is better than any sports car without substantiation.

EXPERT OPINIONS

  • Seller or lessor's expertise can create a warranty.

    • Example: Expert appraising a book as a first edition warrants accuracy.

REASONABLENESS

  • Concept: Buyers cannot rely on unreasonable claims; realism and feasibility must be part of warranty descriptions.

    • Example: "This product will never break" is an improbable claim.

IMPLIED WARRANTIES

  • Definition: A warranty that the law implies from situations or types of transactions.

KINDS OF IMPLIED WARRANTIES:

  1. Implied Warranty of Merchantability:

    • Implies goods sold are fit for their ordinary purpose.

    • Example: A chair sold by a merchant is expected to hold weight.

  2. Implied Warranty of Fitness for a Particular Purpose:

    • Arises when a seller understands a buyer's specific purpose and reliance on seller's expertise.

    • Example: Selling an oil filter when an air filter is needed could breach this warranty if the seller knew the buyer's intent.

  3. Course of Dealing:

    • Pattern of conduct between parties establishing mutual understanding, raising expectations on transactions.

  4. Course of Performance:

    • Behavior under a specific agreement indicating parties' intentions.

  5. Usage of Trade:

    • Practices so regular that they can be expected to apply in transactions unless stated otherwise.

DISCLAIMERS OF WARRANTIES

  • Express Warranties: Must use clear language to exclude or limit them.

  • Implied Warranties: Can be disclaimed through phrases like "as is" but must be understood by both parties.

  • Inspection Rights: A buyer's refusal to inspect purchases may limit implied warranties, but latent defects remain the seller's liability unless the defect would have been revealed during a reasonable inspection.

LIMITED WARRANTIES

  • Concept established by Magnuson-Moss Warranty Act of 1975 regarding warranty clarity and consumer protection.

    • Must include the warrantor's name, what is warranted, enforcement procedures, and limitations.

    • Full Warranty: Often no time limit, free repair/replacement, consequences stated.

    • Limited Warranty: Lacks at least one aspect of a full warranty.

PRODUCT LIABILITY

  • Can arise from negligence, misrepresentation, or strict liability.

    • Negligence: Failure to take reasonable care; anyone harmed can sue without privity of contract.

    • Misrepresentation: False claims leading to reliance and resulting injury can lead to liability.

    • Strict Liability: Liability without consideration of intent, especially in inherently dangerous activities.

STRICT LIABILITY TEST

  • Must meet a 6-factor test to establish a case:

    1. Product must be defective when sold.

    2. Defendant regularly sells that product.

    3. Product must be unreasonably dangerous due to a defect.

    4. Plaintiff suffers harm from product use.

    5. Defect must be proximate cause of harm.

    6. Product unchanged from sale to injury.

TYPES OF DEFECTIVE CONDITIONS

  1. Manufacturing Defect: Departs from intended design despite care.

    • Example: Defective soda bottle.

  2. Design Defect: Product conforms to design but is inherently flawed; need alternative designs.

    • Example: Ford Pinto's fatal design leading to explosions.

  3. Inadequate Warnings: Missing warnings that would prevent foreseeable risks from harm.

LIABILITY OF SUPPLIERS AND END MANUFACTURERS

  • Both parties may hold liability for injuries resulting from defective components included in a product by a manufacturer.

DEFENSES IN PRODUCT LIABILITY CASES

  1. Assumption of the Risk: Plaintiff's voluntary engagement acknowledging potential danger.

  2. Product Misuse: Using the product in a non-intended manner, limited to unforeseeable uses.

  3. Contributory/Comparative Negligence: Plaintiff's negligence considered in their compensation; New York applies pure comparative negligence.

  4. Commonly Known Dangers: Items known to pose danger might not require warnings; the defendant must prove commonality of the danger.