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Product Liability
◙ When goods cause injury, there is a
question of product liability.
◙ There are three main issues related to
product liability cases:
• Warranty -- a contractual assurance that
goods will meet certain standards.
• Negligence – unreasonable conduct by the
defendant.
• Strict Liability – policy which holds the
defendant liable regardless of his behavior.
Express Warranties
◙ An express warranty is one that the
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seller creates with his words or actions.
Any affirmation of fact--or any promise-can create an express warranty.
Any description of the goods can create
an express warranty.
Any sample or model can create an
express warranty.
The seller’s conduct must have been
part of the basis of the bargain.
Implied Warranties
◙ Are created by the Code itself, not by
any act or statement of the seller.
◙ Implied Warranty of Merchantability
• Unless excluded or modified, a warranty
that the goods shall be merchantable is
implied in a contract for their sale, if the
seller is a merchant of goods of that kind.
Implied Warranties (cont’d)
◙ Implied Warranty of Fitness for a
Particular Purpose
• When the seller at the time of contracting
knows about a particular purpose for which
the buyer wants the goods, and knows that
the buyer is relying on the seller’s skill and
judgement, there is (unless excluded or
modified) an implied warranty that the
goods shall be fit for such purpose.
Two Last Warranties
◙ The seller of goods warrants that her title
is valid and that the goods are free of
any security interest that the buyer
knows nothing about, unless the seller
has clearly excluded or modified this
warranty.
◙ Unless otherwise agreed, a merchant
warrants that the goods are free of any
rightful claim of copyright, patent, or
trademark infringement.
Disclaimers and Defenses
◙ Disclaimer: a statement that a particular
warranty does not apply.
• Oral Express Warranties – may be disclaimed.
• Written Express Warranties – may NOT be
disclaimed.
• Implied Warranties of Merchantability – may
disclaim, but must use word “merchantability”
and the disclaimer must be conspicuous.
***NOTE: Many states prohibit a seller from
disclaiming implied warranties in the sale of
consumer goods.
Proposed Article 2 Revisions
◙ Warranty coverage would extend beyond
the direct buyer, to also include remote
purchasers, such as one who buys from a
retailer. Any warranties made to the direct
buyer would be enforceable by the remote
buyer.
◙ Sellers attempting to limit warranties
would be required to use very explicit
language, conspicuously placed.
Disclaimers & Defenses (cont’d)
◙ General rule – may disclaim all implied
warranties by using the terms “as-is” or
“with all faults.”
◙ Remedy Limitations
• A limitation of remedy clause, by which the
parties may limit or exclude the normal
remedies, is permitted under the Code.
◙ Consequential Damages
• An exclusion of consequential damages is
void if it is unconscionable.
Privity
◙ When two parties contract, they are in
privity. In the past, injured parties could
only sue the party with whom he had
privity. This has changed.
• In cases of personal injury, the injured party
may sue any responsible party, regardless
of privity.
• In cases of economic loss, the injured party
may be required to have privity with the
defendant.
Factors That Limit the
Seller’s Responsibility
◙ Buyer’s Misconduct
• Misuse of the product by the buyer will
generally preclude a warranty claim.
◙ Statute of Limitations and Notice of
Breach
• The Code prescribes a four-year statute of
limitations. (Proposed revisions would
extend this time limit to five years.)
• The UCC requires that a buyer notify the
seller of defects within a reasonable time.
Negligence
◙ In negligence cases, plaintiffs most often
raise one or more of these claims:
• Negligent design
• Negligent manufacture
• Failure to warn
◙ Where a sales contract includes proper
disclaimers or remedy limitations, a
buyer barred from a negligence case
may have no remedy at all.
Strict Liability
◙ Need not prove that the defendant’s
conduct was unreasonable.
◙ Strict liability may be imposed if:
• The defective condition is unreasonably
dangerous to the user.
• Seller is in business to sell this product.
• The product reaches the user without
substantial change.
◙ Strict liability may be imposed EVEN if:
• The seller exercised all reasonable care.
• There is no contractual relationship.
Contemporary Trends
◙ Strict liability may be imposed based on
design, manufacture or failure to warn.
◙ Tests to measure design and warning
cases include:
• Consumer expectation: if the design causes
the product to be less safe than expected
• Risk-utility tests: weigh the value of the
product, gravity and likelihood of the danger,
feasibility of a safer design, and adverse
consequences of a safer design.
Time Limits: Tort vs. Contract
◙ Statutes of Limitations in Tort
• Economic loss doctrine: when an injury is
purely economic, and arises from a contract
made by two businesses, the injured party
may only sue under the UCC.
• The four-year statute of limitations will apply
in all cases of economic loss.
◙ A Final Issue: Statutes of Repose
• A statute of repose places an absolute limit
on when a lawsuit may be filed, regardless
of when the defect is discovered.
Other Legislation
◙ Lemon Laws
• Entitle buyers of cars to return them for a
refund after a reasonable time if the car has
substantial defects.
◙ Consumer Protection Laws
• Focus on a merchant’s bad faith or deceit.
◙ Magnuson-Moss Warranty Act
• Protects purchasers of household goods by
ensuring fairness in warranties.