Chapter 26 Warranties and Other Product Liability Theories Twomey, Business Law and the Regulatory Environment (14th Ed.)

(c) 2000 West Legal Studies Chapter 262 Cumulative Theories of Product Liability [26-1] When goods are defective and cause harm or loss, the person harmed has a claim for product liability. Guarantee Negligence Fraud Express Warranty Implied Warranty Strict Tort Liability Not Mutually Exclusive

(c) 2000 West Legal Studies Chapter 263 Warranties [26-2] Affirmation of fact or promise of performance (includes samples, models, descriptions) Given in every sale of goods by a merchant (“fit or ordinary purposes”) Seller knows of buyer’s reliance for a particular use (buyer is ignorant) Given in every sale Only a consumer product of $15 or more Must be part of the basis of the margin Only given by merchants Seller must have knowledge Buyer must rely Does not apply in circumstances where apparent warranty is not given Must label “Full” or “Limited” Cannot make a disclaimer inconsistent with an express warranty (1) Must use “merchantability” or general disclaimer of “as is” or “with all faults” (2) If written, must be conspicuous (1) Must be in writing (2) Must be conspicuous (3) Also disclaimed with “as is” or “with all faults” Must say, “There is no warranty of title” Express Implied Warranty of Merchantability Implied Warranty of Fitness for a Particular Purpose Title Magnuson-Moss (Federal Consumer Product Warranty Law) Type CreationRestriction Disclaimer

(c) 2000 West Legal Studies Chapter 264 Chapter 26 Summary There are five theories to protect parties from loss caused by nonconforming goods. They are (1) express warranty, (2) implied warranty, (3) negligence, (4) fraud, and (5) strict tort liability.

(c) 2000 West Legal Studies Chapter 265 Theories of product liability are not mutually exclusive. A given set of facts may give rise to liability under two or more theories. Chapter 26 Summary [2]

(c) 2000 West Legal Studies Chapter 266 The requirement of privity of contract (that is, the parties to the sales contract for warranty liability) has been widely rejected. The law is moving toward the conclusion that persons harmed because of an improper product may recover from anyone who is in any way responsible. Chapter 26 Summary [3]

(c) 2000 West Legal Studies Chapter 267 The requirement of privity has been abolished by most states in cases where the plaintiff is a member of the buyer’s family or household or is a guest in the buyer’s home and has sustained personal injury because of the product. Chapter 26 Summary [4]

(c) 2000 West Legal Studies Chapter 268 Warranties may be express or implied. Both have the same effect and operate as though the defendant had made an express guarantee. A warranty made after a sale does not require consideration. It is regarded as a modification of the sales contract. Chapter 26 Summary [5]

(c) 2000 West Legal Studies Chapter 269 Express warranties are regulated by federal statute and the FTC. These warranties must be labeled as full or limited warranties and must conform to certain standards. A distinction is made between a merchant seller and a casual seller. A merchant seller is responsible for a greater range of warranties. Chapter 26 Summary [6]

(c) 2000 West Legal Studies Chapter 2610 A seller makes a warranty of good title unless such warranty is excluded. Any description, sample, or model made part of the basis of the bargain creates an express warranty that the goods will conform to the description, sample, or model. Warranties of fitness for a particular purpose and merchantability are implied warranties. Chapter 26 Summary [7]

(c) 2000 West Legal Studies Chapter 2611 Warranties may be disclaimed by agreement of the parties provided the disclaimer is not unconscionable. A written disclaimer to exclude warranties must be conspicuous. To disclaim the implied warranty of merchantability, the term merchantability or appropriate language, such as “as is,” must be used. Post-sale disclaimers have no effect on warranties that arose at the time of the sale. Chapter 26 Summary [8]

(c) 2000 West Legal Studies Chapter 2612 The warranties of merchantability and fitness exist under the CISG. However, disclaimers under the CISG need not mention merchantability, nor must the disclaimer be conspicuous. Chapter 26 Summary [9]

(c) 2000 West Legal Studies Chapter 2613 The strict tort liability plaintiff must show there was a defect in the product at the time it left the control of the defendant. No negligence need be established on the part of the defendant, nor is the plaintiff’s contributory negligence a defense. The defendant may show that the injured party assumed the risk. Chapter 26 Summary [10]