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BLRB22 - Business Law and the Regulation of Business...

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Unformatted text preview: Business Law and the Regulation of Business Regulation Chapter 22: Product Liability: Warranties and Strict Liability Warranties By Richard A. Mann & Barry S. Roberts Topics Covered in this Chapter Topics I. Warranties A. Types of Warranties B. Obstacles to Warranty Actions B. II. Strict Liability in Tort A. Requirements of Strict Liability A. in Tort in B. Obstacles to (3 ) of Torts C. Restatement Recovery Types of Warranties Definition of Warranty – an obligation of the seller to the buyer concerning title, quality, characteristics, or condition of goods. of s Warranty of Title – the obligation of a seller to convey the right to ownership without any lien (in a lease the warranty protects the lessee's right to possess and use the goods). and s Types of Warranties Express Warranty – an affirmation of fact or promise about the goods or a description, including a sample, of the goods that becomes part of the basis of the bargain. the s Implied Warranty – a contractual obligation, arising out of certain circumstances of the sale, imposed by operation of law and not found in the language of the sales contract. language s Implied Warranty Implied s s Merchantability – warranty by a merchant that goods are reasonably fit for the ordinary purpose for which they are manufactured or sold, pass without objection in the trade under the contract description, and are of fair, average quality. average Fitness for Particular Purpose – warranty by any seller that goods are reasonably fit for a particular purpose if, at the time of contracting, the seller had reason to know the buyer's particular purpose and that the buyer was relying on the seller's skill and judgment to furnish suitable goods. furnish Obstacles to Warranty Actions Disclaimers of Warranties – negations of warranties. of s Express Warranty – not usually possible to disclaim. possible s Warranty of Title – may be excluded or modified by specific language or by certain circumstances, including judicial sale or a sale by a sheriff, executor, or foreclosing lienor. foreclosing s Requirements for Disclaimers s s Implied Warranty of Merchantability – must mention “merchantability” and, in the case of a writing, must be conspicuous (in a lease the disclaimer must be in writing). disclaimer Implied Warranty of Fitness for a Particular Implied Purpose – must be in writing and conspicuous Purpose must – Other – may also be disclaimed (1)­by expressions like “as is,” “with all faults,” or other similar language; (2)­by course of dealing, course of performance, or usage of trade; or (3)­as to defects an examination ought to have revealed where the buyer has examined the goods or where the buyer has refused to examine the goods. to Federal Legislation s The Magnuson­Moss Warranty Act The Magnuson­Moss protects purchasers of consumer goods by providing that warranty information be clear and useful and that a seller who makes a written warranty cannot disclaim any implied warranty. disclaim Warranties Warranties Type of Warranty Title How Create d • Seller contracts to sell goods • • • • Affirmation of fact Promise Description Sample or model What is Warrante d • Good title • Rightful transfer • Not subject to lien • Conform to affirmation • Conform to promise • Conform to sample model, or description • Fit for ordinary purposes • Adequately contained, packaged, and labeled How Disclaimed • Specific language • Circumstances giving reason to know that seller does not claim title • Usually not possible Express Merchantability • Merchant sells goods • • • • • • • • • • Must mention “merchantability” If in writing must be conspicuous As-is sale Buyer examination Course of dealing, course of performance, usage of trade No specific words necessary In writing and conspicuous As-is sale Buyer examination Course of dealing, course of performance, usage of trade Fitness for a particular purpose • Seller knows buyer is relying on seller to select goods suitable for buyer’s particular purpose • Fit for particular purpose Privity of Contract Privity s s s A contractual relationship between parties contractual required by common law to maintain a lawsuit. lawsuit. Horizontal Privity – doctrine determining Horizontal who benefits from a warranty and who therefore may bring a cause of action; the Code provides three alternatives. Code Vertical Privity – doctrine determining who in Vertical the chain of distribution is liable for a breach of warranty; the Code has not adopted a position on this. position Plaintiff's Conduct Plaintiff's Contributory Negligence – is not a defense. defense. s Voluntary Assumption of the Risk – is a defense. is s Notice of Breach – if the buyer fails to notify the seller of any breach within a reasonable time, she is barred from any remedy against the seller. remedy s Strict Liability in Tort Strict s General Rule – imposes tort liability on merchant sellers for both personal injuries and property damage for selling a product in a defective condition unreasonably dangerous to the user or consumer. consumer. Manufacturing Defect Manufacturing s s s s By failing to meet its own manufacturing By specifications, the product is not properly made made Design Defect – the product, though made as designed, is dangerous because the design is inadequate. design Failure to Warn – failure to provide adequate Failure warnings of possible danger or to provide appropriate directions for use of a product. appropriate Unreasonably Dangerous – contains a Unreasonably danger beyond that which would be contemplated by the ordinary consumer. contemplated Obstacles to Recovery s Contractual Defenses – defenses such as privity, disclaimers, and notice generally do not apply to tort liability. generally Plaintiff's Conduct Plaintiff's Contributory Negligence – not a defense in the majority of States. defense s Comparative Negligence – most States have applied the rule of comparative negligence to strict liability in tort. in s Voluntary Assumption of the Risk – is a defense. is s Misuse or Abuse of the Product – is a defense. defense. s Plaintiff's Conduct Plaintiff's s s s Subsequent Alteration – liability exists only Subsequent if the product reaches the user or consumer without substantial change in the condition in which it is sold. which Statute of Repose – limits the time period for which a manufacturer is liable for injury caused by its product. caused Limitations on Damages – many States Limitations have limited the punitive damages that a plaintiff can collect in a product liability lawsuit. lawsuit. Restatement (Third) of Torts: Products liability Products s s s General Rule – One engaged in the business Rule of selling products who sells a defective product is subject to liability for harm to persons or property caused by the defect. persons Manufacturing Defect – seller is strictly liable when product departs from its intended liable design. design. Design Defect – a product is defective when the foreseeable risks of harm posed by it could have been reduced or avoided by the adoption of a reasonable alternative design. adoption Restatement (Third) of Torts: Restatement Products liability Products s Failure to Warn – a product is defective because of inadequate instructions or warnings when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings. instructions Product Liability Product Merchantability* Condition of Goods Creating Liability Type of Transaction Covered Disclaimer Not fit for ordinary purposes Sales; some courts apply to leases and bailments of goods Strict Liability in Tort Defective condition, unreasonably dangerous Sales, leases, and bailments of goods Must mention “merchantability.” If Not possible in consumer in writing, must be conspicuous. transactions; may be permitted in Must not be unconscionable. commercial transactions Subject to Magnuson-Moss Act. Required within reasonable time Required Not required Required Notice to Seller Causation Who May Sue In some states, buyer and the Any user or consumer of product; buyer’s family or guests in home; also, in most states, any bystander in other states, any person who may be expected to use, consume, or be affected by goods Personal injury, property damage, economic loss Seller who is a merchant with respect to the goods sold Personal injury, property damage Seller who is engaged in business of selling such a product Compensable Harms Who May Be Sued *The warranty of fitness for a particular purpose differs form the warranty of merchantability in the following respects: (1) the condition that triggers liability is the failure of the goods to perform according to the particular purpose described in the warranty, and (2) a disclaimer need not mention “fitness for a particular purpose.” ...
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