David P. Twomey - Boston College Marianne M. Jennings - Arizona State University David P. Twomey - Boston College Marianne M. Jennings - Arizona State University © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Liability: Warranties and Torts Chapter 25 Product Liability: Warranties and Torts Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. General Principles 1. Theories of Liability 2. Nature of Harm 3. Who is Liable in Product Liability Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. General Principles [LO.1-LO.2] Theories of Liability: Warranties are expressed or implied and can be found in the UCC. Many courts have created the additional concept of strict tort liability for defective goods. Five theories of product liability: express warranty, implied warranty, negligence, fraud, and strict tort liability. Nature of Harm: A defective product can cause harm to person, property, or economic interests. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. General Principles Who is Liable in Product Liability: (A) Who Can Recover Under UCC Warranties. The requirement of privity of contract has been widely rejected. A few states require privity when there is no personal injury or property damage. In most cases anyone harmed by a defective product may recover. (B) Who is Liable Under UCC Warranties. Injured parties may recover from the seller, manufacturer, or manufacturer of a component part. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Express Warranties 4. Definition of Express Warranty 5. Form of Express Warranty 6. Seller’s Opinion or Statement of Value 7. Warranty of Conformity to Description, Sample, or Model 8. Federal Regulation of Express Warranties 9. Effect of Breach of Express Warranty Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Express Warranties [LO.3 & LO.6] Definition of Express Warranty: An express warranty is a statement of fact or promise that becomes a basis of the buyer’s bargain. Form of Express Warranty: Sufficient that seller asserts a written or oral fact that becomes a basis of the bargain or transaction. Seller’s Opinion or Statement of Value: Seller is generally not liable for “sales talk” based on opinion, unless circumstances are such that a reasonable person would rely on such statements. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Express Warranties Warranty of Conformity to Description, Sample, or Model: When a contract is based in part of an understanding of conformity, the seller is bound by an express warranty of confirmation. Federal Regulation of Express Warranties: Written express warranties for products costing more than $10 most confirm to certain standards and regulations but warranties are not required. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Express Warranties Federal Regulation of Express Warranties: (A) Full Warranties. Seller is obligated to fix or replace a defective product without cost to the buyer. (B) Limited Warranties. Any warranty that is not a full warranty. Must be conspicuously described by seller. (C) International Product Safety Laws in U.S. The Consumer Product Safety Improvement Act sets product safety standards, mostly for children under 12. Effect of Breach of Express Warranty: If an express warranty is false there is a breach and the warrantor is liable.  La Trace v. Webster : Core description cannot be disclaimed by seller. Describing the lamps as “Tiffany” products was the basis of the bargain. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Implied Warranties 10. Definition of Implied Warranty 11. Implied Warranties of Sellers 12. Additional Implied Warranties of Merchant Sellers 13. Implied Warranties in Particular Sales 14. Necessity of Defect 15. Warranties in the International Sale of Goods Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Implied Warranties [LO.4-LO.5] Definition of Implied Warranty: An implied warranty is not expressly made but implied by law because a sale has been made. Implied Warranties of Sellers: (A) Warranty of Title. Implied that seller has the right to transfer the good title – may be disclaimed by words or circumstances. (B) Warranty Against Encumbrances. Goods will be delivered free of any security interest or lien. (C) Warranty of Fitness for Particular Purpose. Enforceable only if the seller knew of the intended use and the buyer relied on the seller’s expertise. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Implied Warranties Additional Implied Warranties of Merchant Sellers: (A) Warranty Against Infringement. Unless otherwise agreed, merchant sellers warrant that the goods are free of patent, copyright or trademark infringement. (B) Warranty of Merchantability or Fitness for Normal Use. A merchant seller makes an implied warranty of merchantability that goods are fit for the ordinary purpose for which they are sold.  Oheka Mgt., Inc. v. Home Theatre Interiors LLC: Home gave an implied warranty of merchantability for the system. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Implied Warranties Implied Warranties in Particular Sales: (A) Sale on Buyer’s Specifications. Same warranties as other sales except fitness for a particular purpose. (B) Sale of Secondhand or Used Goods. There is a warranty of merchantability in the sale of used goods unless it is specifically disclaimed. Lower standard for what is considered “fit for normal use.” (C) Sale of Food or Drink. Food must be of average quality and fit for human consumption. Mitchell v. T.G.I.Friday’s : One who eats clams can reasonably anticipate and guard against eating a piece of shell. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Implied Warranties Necessity of Defect: Buyer must show defective product caused harm. Products may be defective due to manufacturing, design, inadequate instructions, or inadequate warnings against product dangers. Smith v. Coleman Co: Breach not established. Statements on the package were warnings which Mr. Smith violated. Warranties in the International Sale of Goods: Warranties exist under the Convention on Contracts for the International Sale of Goods. Sellers can expressly disclaim the warranties. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Disclaimer of Warranties 16. Validity of Disclaimer 17. Particular Language for Disclaimers 18. Exclusion of Warranties by Examination of Goods 19. Post-sale Disclaimer Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Disclaimer of Warranties [LO.7] Validity of Disclaimer: (A) Conspicuousness. Provision needs to appear under a heading that indicates the exclusion. (B) Unconscionability and Public Policy. Exclusions made in the manner specified by the UCC are acceptable but in some states disclaimers are invalid. Particular Language for Disclaimers: To waive the warranty of merchantability & fitness for a particular purpose, specific language is required. In consumer contracts, use of “as in” can disclaim both warranties but the disclaimers must be conspicuously set forth in the record. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Disclaimer of Warranties [LO.7] Exclusion of Warranties by Examination of Goods: For an inspection of goods by the buyer to constitute a waiver, the seller must demand the inspection as part of the contracting process. Post-sale Disclaimer: Such disclaimers have no effect on warranties that arose at the time of the sale. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

E. Other Theories of Product Liability 20. Negligence 21. Fraud 22. Strict Tort Liability 23. Cumulative Theories of Liability Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

E. Other Theories of Product Liability Negligence: A person injured because of a defective product may be entitled to damages for negligence. Must show negligence in product manufacture or design or inadequate instructions or warnings. Action rests on common tort principles & does not require privity of contract. Fraud: A person defrauded by knowingly false statements about a product can generally recover damages sustained because of the misrepresentations. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

E. Other Theories of Product Liability Strict Tort Liability: Defect must exist when product left manufacturer’s or distributor’s control. Definition is the same negligence. Knowledge of the defect is not a requirement but assumption of risk is a defense. Patch v. Hillerich & Bradsby Co: Brandon assumed the risks inherent in baseball, but the risks with aluminum bats are much greater and required disclosure before that assumption could be assumed. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

E. Other Theories of Liability 23. Cumulative Theories of Liability: The theories of product liability are not mutually exclusive Guarantee Negligence Fraud Express Warranty Implied Warranty Strict Tort Liability Not Mutually Exclusive Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Warranties Name of Warranty Creation Restriction Disclaimer Express Affirmation of fact or promise of performance (includes samples, models, descriptions) Must be part of the basis of the margin Cannot make a disclaimer inconsistent with an express warranty Implied Warranty of Merchantability Given in every sale of goods by a merchant (“fit for ordinary purposes”) Only given by merchants (1) Must use “merchantability” or general disclaimer of “as is” or “with all faults” (2) If written, be conspicuous Implied Warranty of Fitness for a Particular Purpose Seller knows of buyer’s reliance for a particular use (buyer is ignorant) Seller must have Knowledge; Buyer must rely (1) Must be in writing (2) Must be conspicuous (3) Also disclaimed with “as is” or “with all faults” Title Given in every sale Does not apply when apparent warranty is not given Must say “There is no warranty of title” Magnuson-Moss (Federal Consumer Product Warranty Law) Only consumer product of $15 or more Must label “Full” or “Limited” None Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.