1. Comprehensive Volume, 18 th Edition Chapter 27: Warranties and Other Product Liability Theories

2. Theories of Liability 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. Theories of product liability are not mutually exclusive. A given set of facts may give rise to liability under two or more theories.

3. Privity of Contract vs. Liability The idea of privity of contract (only the parties to the contract have warranty protection) has been widely rejected. The law usually allows any person harmed by an improper product to sue anyone who is in any way responsible. The buyer, user and even bystanders may become plaintiffs in an action. The seller, manufacturer, or distributor may become defendants in such actions.

4. Warranties 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.

5. Express Warranties 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.

6. Implied Warranties of Sellers A seller makes a warranty of good title (that the seller actually owns the item) unless such warranty is excluded. A warranty against encumbrances assures the buyer that the item does not have a lien against it. Warranty of fitness for a particular purpose is enforceable if the seller knew of the buyer’s intended use.

7. Implied Warranties of Merchants Unless otherwise agreed, merchant sellers warrant that the goods are free of patent, copyright or trademark infringement. A merchant seller warrants that the goods are fit for their normal use (warranty of merchantability). Other warranties apply in special orders, sales of used goods, and sales of food or drink.

8. Disclaimer of Warranty Warranties may be disclaimed by agreement 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 language like “as is,” must be used. Postsale disclaimers have no effect on warranties that arose at the time of the sale.

9. Name of Warranty Creation Restriction Disclaimer Warranties 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

10. Warranties Under CISG 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.

11. Negligence and Fraud If an injured person can show that the defendant was negligent in the manufacture or design of a product, he may prevail in an action. Negligence also includes the failure to provide adequate instructions for use or safety warnings. A person defrauded by a manufacturer or distributor’s false statements about a product can generally recover damages sustained because of the misrepresentations.

12. Strict Tort Liability A manufacturer or distributor of a defective product is liable to anyone injured by the product – buyer, user, innocent bystander. The 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 a known risk.

13. Cumulative Theories of Product Liability When goods are defective and cause harm or loss, the person harmed has a claim for product liability. Not Mutually Exclusive Guarantee Negligence Fraud Express Warranty Implied Warranty Strict Tort Liability