BLAW Chapter 22: Product Liability: Warranties and Strict Liability

All implied warranties, unless the circumstances indicate otherwise, are excluded by expressions like

"as is" or "with all faults" or by other language plainly calling the buyer's attention to the exclusion of warranties.

Manufacturing Defect

A manufacturing defect occurs when the product is not properly made; that is, it fails to meet its own manufacturing specifications.

Statute of Repose

A number of lawsuits have been brought against manufacturers many years after a product was first sold. In response, many states have adopted statutes of repose. These enactments limit the period—typically between six and twelve years—for which a manufacturer is liable for injury caused by a defective product. After the statutory time period has elapsed, a manufacturer ceases to be liable for such harm. See the following Business Law in Action and the Ethical Dilemma at the end of this chapter.

Obstacles to Warranty Actions

A number of technical obstacles, which vary considerably from jurisdiction to jurisdiction, limit the effectiveness of warranty as a basis for recovery. These include disclaimers of warranties, limitations or modifications of warranties, privity, notice of breach, and the conduct of the plaintiff.

Failure to Warn Section 2(c) provides:

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 by the seller or other distributor, or a predecessor in the commercial chain of distribution and the omission of the instructions or warnings renders the product not reasonably safe.

Design Defect Section 2(b) states:

A product ... is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the reasonable alternative design renders the product not reasonably safe.

Design Defect

A product contains a design defect when, despite its being produced as specified, the product is dangerous or hazardous because its design is inadequate. Design defects can result from a number of causes, including poor engineering, poor choice of materials, and poor packaging.

Failure to Warn

A seller is under a duty to provide adequate warning of a product's possible danger, to provide appropriate directions for its safe use, and to package the product safely.

warranty

A warranty is a statement or representation made by a seller of goods, contemporaneously with and as a part of a contract of sale, though collateral to express the object of the sale, having reference to the character, quality, or title of goods, and by which the seller promises or undertakes to ensure that certain facts are or shall be as he then represents them. The general statutory law governing warranties on sales of goods is provided in the UCC. The three main types of warranties are (1) express warranty; (2) implied warranty of fitness; (3) implied warranty of merchantability.

Types of Warranties

A warranty may arise out of the mere existence of a sale (a warranty of title), out of any affirmation of fact or promise made by the seller to the buyer (an express warranty), or out of the circumstances under which the sale is made (an implied warranty). In a contract for the sale of goods, it is possible to have both express and implied warranties, as well as a warranty of title. All warranties are construed as consistent with each other and cumulative, unless such construction is unreasonable.

Express Warranties

An express warranty is an explicit undertaking by the seller with respect to the quality, description, condition, or functionality of the goods. The undertaking may consist of an affirmation of fact or a promise that relates to the goods, a description of the goods, or a sample or model of the goods.

Implied Warranties

An implied warranty arises out of the circumstances under which the parties enter into their contract and depends on factors such as the type of contract or sale entered into, the seller's merchant or nonmerchant status, the conduct of the parties, and the applicability of other statutes.

Unreasonably Dangerous

An unreasonably dangerous product is one that contains a danger beyond that which would be contemplated by the ordinary consumer who purchases it with common knowledge of its characteristics.

Privity of Contract

Because of the close association between warranties and contracts, a principle of law in the nineteenth century established that a plaintiff could not recover for breach of warranty unless he was in a contractual relationship with the defendant. This relationship is known as privity of contract.

Disclaimers and Notice

Comment m to Section 402A provides that the basis of strict liability rests solely in tort and therefore is not subject to contractual defenses. The comment specifically states that strict product liability is not governed by the Code, that it is not affected by contractual limitations or disclaimers, and that it is not subject to any requirement that notice be given to the seller by the injured party within a reasonable time. Nevertheless, most courts have allowed clear and specific disclaimers of Section 402A liability in commercial transactions between merchants of relatively equal economic power.

Obstacles to Recovery Under Second Restatement

Few of the obstacles to recovery in warranty cases present serious problems to plaintiffs in strict liability actions brought pursuant to Section 402A because this section was drafted largely to avoid such obstacles.

Fitness for Particular Purpose

Goods are fit for a stated purpose, provided that the seller selects the product knowing the buyer's intended use and that the buyer is relying on the seller's judgment.

Defective Condition

In an action to recover damages under the rule of strict liability in tort, though the plaintiff must prove a defective condition in the product, she is not required to prove how or why or in what manner the product became defective. The plaintiff must, however, show that at the time she was injured, the condition of the product was not substantially changed from the condition in which the manufacturer or seller sold it.

Express Exclusions

In general, a seller cannot provide an express warranty and then disclaim it. A seller can, however, avoid making an express warranty by carefully refraining from making any promise or affirmation of fact relating to the goods, by refraining from making a description of the goods, or by refraining from using a sample or model in a sale.

Merchantability

Merchant seller guarantees that the goods are fit for their ordinary purpose.

Basis of Bargain

Part of the buyer's assumption underlying the sale.

puffery

Sales talk that is considered general bragging or overstatement.

Subsequent Alteration

Section 402A provides that liability exists only if the product reaches "the user or consumer without substantial change in the condition in which it is sold." Accordingly, most, but not all, courts would not hold a manufacturer liable for a faulty carburetor if a car dealer had removed the part and made significant changes in it before reinstalling it in an automobile.

Limitation or Modification of Warranties

The Code permits a seller to limit or modify the buyer's remedies for breach of warranty. One important exception to this right is the prohibition against a seller's "unconscionable" limitations or exclusions of consequential damages.

Disclaimer of Warranties

To be effective, a disclaimer (negation of warranty) must be positive, explicit, unequivocal, and conspicuous. The Code calls for a reasonable construction of words or conduct to disclaim or limit warranties. (Article 2A.)

Federal Legislation Relating to Warranties of Consumer Goods

To protect purchasers of consumer goods (defined as "tangible personal property normally used for personal, family or household purposes"), Congress enacted the Magnuson-Moss Warranty Act. The purpose of the Act is to prevent deception and to make sure that consumer purchasers are adequately informed about warranties. Some courts have applied the Act to leases.

warranty of title

Under the UCC's warranty of title, the seller implicitly warrants that the title conveyed is good and its transfer rightful and the goods are subject to no security interest or other lien (a claim on property by another for payment of debt) of which the buyer did not know at the time of contracting.

Creation of Express Warranty

Value, opinion, description, and sample/modal

Notice of Breach of Warranty

When a buyer has accepted a tender of goods that are not as warranted by the seller, she is required to notify the seller of any breach of warranty, express or implied, as well as any other breach, within a reasonable time after she has discovered or should have discovered it. If the buyer fails to notify the seller of any breach within a reasonable time, she is barred from any remedy against the seller.

Express warranties by the seller are created as follows:

any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

A warranty of title may be excluded only

by specific language or by certain circumstances, including a judicial sale or sales by sheriffs, executors, or foreclosing lienors.

Horizontal privity

determines who benefits from a warranty and who may therefore sue for its breach. Horizontal privity pertains to noncontracting parties who are injured by the defective goods; this group includes users, consumers, and bystanders who are not the contracting purchaser.

Manufacturing Defects

ection 2(a) provides that "A product ... contains a manufacturing defect when the product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product." Therefore, sellers and distributors of products remain strictly liable for manufacturing defects, although a plaintiff may seek to recover based upon allegations and proof of negligent manufacture. In actions against the manufacturer, the plaintiff ordinarily must prove that the defect existed in the product when it left the manufacturer.

Buyer's Examination or Refusal to Examine

f the buyer inspects the goods before entering into the contract, implied warranties do not apply to defects that are apparent on examination. Moreover, there is no implied warranty on defects that an examination ought to have revealed not only when the buyer has examined the goods as fully as desired but also when the buyer has refused to examine the goods.

Section 402A of the Restatement (Second) of Torts

imposes strict liability in tort on merchant sellers both for personal injuries and for property damage that result from selling a product in a defective condition, unreasonably dangerous to the user or consumer.

Vertical privity

in determining who is liable for breach of warranty, pertains to remote sellers within the chain of distribution, such as manufacturers and wholesalers, with whom the consumer purchaser has not entered into a contract. Although the Code adopts a neutral position regarding vertical privity, the courts in most states have eliminated the requirement of vertical privity in warranty actions.

The liability of manufacturers and sellers of goods for a defective product, or for its failure to perform adequately, may be based on one or more of the following:

negligence, misrepresentation, violation of statutory duty, warranty, and strict liability in tort.

To exclude or to modify an implied warranty of fitness for the particular purpose

of the buyer, the disclaimer must also be in writing and conspicuous.

To exclude or to modify an implied warranty of merchantability,

the language of disclaimer or modification must mention merchantability and, in the case of a writing, must be conspicuous.