Business Law Ch. 7

Consumer Products and Negligence

A century ago, the rule was that a manufacturer was liable for injuries caused by defects in its products only to parties with whom the manufacturer had a contractual relationship. The term privity of contract refers to the relationship that exists between contracting parties. It is essential to a contract case that privity, a legal relationship, exist between the parties.

Express Warranty

An express warranty is when the manufacturer contractually provides performance promises to the consumer.

Ultra hazardous Activity

Long before the development of strict liability for defective products, the common law had developed a rule of strict liability for injuries resulting from ultrahazardous activity. one that necessarily involves a risk of serious harm to the plerson, land, or chattels of another, which cannot be eliminated by the exercise of the utmost care" and "is not a matter of common usage."

Strict Liability under Contract Law

The Strict Liability doctrine resolved this by holding manufacturers liable to consumers injured by defective products regardless of whether the manufacturer exercised all reasonable care or not.

Unknown Hazard

The largest dollar volume and greatest number of product liability cases are based on unknown hazards or latent defects dangers that were not known or not fully appreciated at the time other product was manufactured. ex. asbestos

Design Defects

Unlike defective product cases, design defect cases are not concerned with a product that has been poorly manufactured and causes an injury rather looking for whether design could have prevented the injury

Primary Areas of Product Liability Law

a. a defect liability in tort is outlined there are four key areas: 1. product was defective 2. the defect created an unreasonably dangerous product. 3. the defect was the proximate cause of or a substantial factor in bringing about the injury.4. the injury caused damages.

Sophisticated user

defense, as the massachsetts high court explains, releives a manufacturer of liablilty for failing to warn of a product's characteristics or dangers when "the end user knows or reasonably should know of a product's dangers"

product misuse

if it can be shown that the product was misused, combined with another prodcut to make it dangerous, used in some improper and unforeseen manner, or not maintained properly, the injured consumer's behavior may preclude recovery for damages.

Rule of Caveat Emptor

injured parties who did not have privity of contract with the manufacturer of the defective products operated under the rule of caveat emptor,which means "let the buyer beware."

Fraud

is a broad concept and may be held to be an intentional tort or to be a tort based on negligence. In the last chapter, we looked at negligent misrepresentation. Here we consider the more serious charge of fraud as intentional misrepresentation.

Product liability

is a general term applied to an area of the law that is primarily tort law but also involves some contract law and statutory law. This concerns the liability that producers and sellers of goods have to those injured by theri products.

Implied Warranty

is when the law inserts quality standards into the relationship regardless of the actual contract terms.

Strict Liability in Tort

strict liability is still imposed under contract law. This can be the basis for a strong liability suit. However, the plaintiff can be faced with the problem of showing a warranty existed.

warranty

strict liability under contract law is based on the relationship between the injured party and the manufacturer because of the existence of a warranty.

Intentional Misrepresentation or Fraud

there must be proof, as the United Kingdom's House of Lords expressed in a famous case in 1889 that a false representation has been made 1. knowingly 2. without belief in its truth, or 3 recklessly, careless whether it be true or false.

Statutory Limits on Liability

various laws are specifically designed to limit potential tort liability see page 203

Interference with Contractual relations

1. the existence of a contractual relationship between the injured business and another party, 2. that was known to the wrongdoer, who, 3. intentionally interfered with that relationship.

misstatement / material fact

1.that is , false information was presented as fact. 2. there must be a scienter or intent to defraud; that is, the party wanted to mislead the other party and intentionally deceived him. Scienter means that the court finds that there is something rotten about the deal about which the seller could not be ignorant.3.the seller must know or have reason to know, that the statement she is making is false. 4. the recipent of the false information must justifiable rely on that information in making the decision to go ahead with the deal. 5. There must be privity between the parties; that is, the parties must have been in a relationship that created a legal obligation. 6. Causation: a logical link existed between reliance on the misstatement and the losses that were then suffered by the plaintiff. There is, there must be proximate cause. 7. There must be damages, that were caused by the fraud. That is, even if there is fraud, if there are no damages that result, there should be no award.

Reasonable care

A manufacturer is required to exercise reasonable care under the circumstances in the production of its product.

Negligence in Tort

The privity rule often left innocent, injured consumers without any remedy. In response to the harsh result the rule could impose, the courts began to recognize exceptions. Then, in 1916, in the famous MacPherson decision, New York's highest court eiliminated the the privity requriement and held a manufacturer liable in tort for negligence for a product-related injury to a consumer despite the lack of privity.

Bulk supplier Doctrine and Sophisticated User Defense

These defenses usually apply in business settings. The bulk-supplier doctrine holds that when a supplier sells a product to an intermediary in bulk, the supplier can discharge its duty to warn the ultimate users if it proveds adequate insturections to the distributor next in line, or determines that the intermediary party is adequately trained in the use of the product. The bulk supplier has a duty to take reasonalbe steps to insure that its buyer is knowledeable and equipped to provde warnings to the utimate users, but it does not have to police the details of what is done as the product continures down the chain of use.