1. UT-Austin Edinburgh Summer Program 2002 Product Liability When goods cause injury, there is a question of product liability. There are three main issues related to product liability cases: –Negligence – unreasonable conduct by the defendant. –Strict Liability – policy which holds the defendant liable regardless of his behavior. –Warranty -- a contractual assurance that goods will meet certain standards.

2. UT-Austin Edinburgh Summer Program 2002 HYPOTHETICAL Mr. Jones buys an Acme Drill and a 6-foot Acme stepladder from Smith Hardware While Mr. Jones is drilling a hole in a pvc (plastic) pipe, the casing that holds the drill bit in place breaks apart, causing pieces of metal to fly into Mr. Jones’ face, injuring him. Mr. Jones lends his ladder to Mr. White. While digging a french drain (ditch) in his back yard, Mr. White uses the stepladder as a bridge over the ditch. While walking on the ladder over the ditch, the ladder breaks, causing Mr. White to sprain his ankle. Who can Mr. Jones sue? What theories of liability might apply?

3. UT-Austin Edinburgh Summer Program 2002 Negligence Must prove 5 elements Plaintiffs most often raise one or more of these claims: –Negligent design Rollerblade Barbie –Negligent manufacture Mr. Jones’ power drill –Failure to warn Of latent defects Can Mr. Jones and Mr. White sue Acme for negligence? Smith Hardware?

4. UT-Austin Edinburgh Summer Program 2002 Strict Liability Need not prove that the defendant’s conduct was unreasonable. Vs. seller or manufacturer Greenman v. Yuga Power Products Inc. Embs v. Pepsi-Cola Bottling Co.

5. UT-Austin Edinburgh Summer Program 2002 Strict Liability 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. –Mr. White vs. Smith Hardware? vs. Acme? Mr. Jones vs. Smith Hardware? vs. Acme? vs. Mr. White? Strict liability may be imposed EVEN if: –The seller exercised all reasonable care. –There is no contractual relationship.

6. UT-Austin Edinburgh Summer Program 2002 Express Warranties: A Contract Right An express warranty is one that the seller creates with his words or actions. Any affirmation of fact--or any promise--can create an express warranty. –This drill will cut through pvc pipe –This drill will cut through just about anything Any description of the goods can create an express warranty. –Demonstration video in store Any sample or model can create an express warranty.

7. UT-Austin Edinburgh Summer Program 2002 Express Warranties (cont’d) The seller’s conduct must have been part of the basis of the bargain. –I don’t care if the drill cuts through kryptonite, I just want to drill holes in wood –Puffing vs. assertions of fact Must buyer have relied on statement? Courts are split.

8. UT-Austin Edinburgh Summer Program 2002 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. –Merchantable = fit for ordinary purpose –Did Smith breach warranty with respect to the power drill? The ladder?

9. UT-Austin Edinburgh Summer Program 2002 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. –“I would like to buy a power drill to drill holes in pvc pipe. What do you have?”

10. UT-Austin Edinburgh Summer Program 2002 Disclaimers and Defenses Disclaimer: a statement that a particular warranty does not apply. –Oral Express Warranties – may be disclaimed, even if contrary to salesperson’s statements. –Written Express Warranties – may NOT be disclaimed. –Implied Warranties of Merchantability – may disclaim, but must use word “merchantability” and the disclaimer must be conspicuous

11. UT-Austin Edinburgh Summer Program 2002 Disclaimers & Defenses (cont’d) General rule – may disclaim all implied warranties by using the terms “as-is” or “with all faults.” –Creates caveat emptor –Some states prohibit disclaimer of implied warranties Remedy Limitations

12. UT-Austin Edinburgh Summer Program 2002 Defenses (cont’d) Assumption of Risk Contributory/comparative negligence

13. UT-Austin Edinburgh Summer Program 2002 Other Factors That Limit the Seller’s Responsibility Buyer’s Misconduct –Misuse of the product by the buyer will generally preclude a warranty claim. –Mr. White’s use of the ladder Statute of Limitations and Notice of Breach –The Code prescribes a four-year statute of limitations. –The UCC requires that a buyer notify the seller of defects within a reasonable time.

14. UT-Austin Edinburgh Summer Program 2002 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.

15. UT-Austin Edinburgh Summer Program 2002 “This product is being sold to you “as is”. Manufacturer/Seller disclaims all warranties in the sale of this product, including (1) any oral or written express warranties, and (2) any and all implied warranties, made in connection with the sale of this product to you. Read all instructions before using this product. This product is not intended for, nor is it safe for, use by extremely stupid people.”