LAW 3220 CHAPTER 7

• Was the product defective? • Did the defect create an unreasonably dangerous product or instrumentality? • Was the defect a proximate cause or substantial factor of the injury? • Did the injury cause damages? • Courts do not worry about due care, reasonableness, in production. The issue is if there was a defect as defined.

what does the court ask in strict liability? (5)

• interference with prospective economic advantage • interference with prospective contractual relationship

"Interference with prospective advantages"

• interference with business relations • interference with contractual relations

"interference with contractual relations"

knowledgeable purrchaser

"sophisticated user"

abnormally dangerous activity

"ultrahazardous"

Laws Designed to Limit Tort Liability

-Worker Compensation -Federal Regulations -Manufacturers of Government Products -State Laws Limits on Liability

(1) The 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

4 Key Areas to Establish Liability in Tort

What percentage of civil suits are tort actions?

5%

Associated with consumption of products such as cigarettes & alcohol

Assumption of Risk

When a supplier sells a product to an intermediary in bulk, the supplier can discharge its duty to warn the ultimate users if it provides adequate instructions to the distributor next in line, or determines that the intermediary party is adequately trained in the use of the product

Bulk-supplier Doctrine

• Held: Trial court erred in taking the case from the jury. • Representations of Ford were false and Baxter relied on them. • Ford failed to provide the safety glass as advertised. • Breach of express warranty. • Reversed and remanded to grant a new trial allowing advertisement to be admissible evidence.

CASE: Baxter v. Ford Motor Company: RESULTS?

• breach of expressed warranty

CASE: Baxter v. Ford Motor Company: SUBJECT?

• Baxter buys new Model A. • Printed material states "Triple Shatter-Proof Glass"--"will not fly or shatter under the hardest impact. . .it eliminates the danger of flying glass." • Rock hits windshield - Baxter loses an eye. • Trial court did not allow advertising to be admitted into evidence; said there was no privity of contract.

CASE: Baxter v. Ford Motor Company: WHAT HAPPENED?

• S. Ct. of Calif. affirms trial court decision in favor of Greenman and says that the manufacturer is *"strictly liable in tort."* • By mid-1970s every state supreme court had adopted strict liability rule.

CASE: Greenman vs Yuba Power: RESULTS?

• strict liability • eliminates privity

CASE: Greenman vs Yuba Power: SUBJECT?

• Wife buys husband power tool. • Two years later wood flies out of machine, striking Greenman's head. • He alleges breaches of warranties and negligence. • However: S. Ct. of Calif. affirms trial court decision in favor of Greenman and says that the manufacturer is "strictly liable in tort."

CASE: Greenman vs Yuba Power: WHAT HAPPENED?

• HELD: Affirmed. Diversified Water had reasonable expectation of economic advantage before IDCA interfered with that prospective advantage.

CASE: Gueskeke vs IDCS, Incs.: RESULTS?

interference with prospective advantages

CASE: Gueskeke vs IDCS, Incs.: SUBJECT?

• Brothers Michael (MH) and Arthur Hogenson (AH) owned Standard Water together. • Gieseke worked for them. • MH & DH got into a dispute; stopped working together. • MH kept Standard and fired Gieseke because he was friendly with AH • Gieseke & AH started Diversified Water (each owned ½). • MH bought AH's half interest in Diversified Water and merged into a new company, IDCA. • Without Gieseke's consent, MH changed all business correspondence for Diversified Water to another address. - Hauled away some physical equipment - Made it nearly impossible for Gieseke to continue operations • Gieseke sued MH and IDCA for interference with prospective advantage. • District Court awarded $220,000 to Gieseke. • Relations protected against intentional interference include • Any prospective contractual relations

CASE: Gueskeke vs IDCS, Incs.: WHAT HAPPENED?

• Held that Lightle committed fraudulent misrepresentation. • Lightle said that prior deal was "dead"; that Seeley offer had been accepted, and "the house is yours". • Lightle made partial disclosure but failed to disclose facts that might have affected Seeley's decision.

CASE: Lightle v. Real Estate Commission: RESULTS?

Fraudulent misrepresentation

CASE: Lightle v. Real Estate Commission: SUBJECT?

• Lightle, Alaska real estate agent, listed house for sale by Leighs. Williams made offer to buy, conditioned on obtaining mortgage (a usual condition). • Another realtor had a client, Seeley, who was interested in the house. Lightle said house was available. Seeley made an offer; Leighs accepted. Seeley cancelled her existing lease, switched utilities, prepared to move. • Unknown to Seeley, Lightle wrote on her offer it was a "back-up contract" if Williams couldn't get financing. • Seeley found out, rescinded offer, demanded her deposit back. Seeley filed a claim against the Alaska Real Estate Commission's surety fund (to compensate losses in real estate due to fraud).

CASE: Lightle v. Real Estate Commission: WHAT HAPPENED?

• Buick is responsible for the finished product • NY Ct. of Appeals holds manufacturer has primary control over product design & safety

CASE: MacPherson v. Buick Motor Company: RESULTS?

• negligence • privity

CASE: MacPherson v. Buick Motor Company: SUBJECT?

• Buick sells cars to dealers. • NY dealer sells car to MacPherson. • Wheels made by another company; wheel collapses, causing accident that results in injury. • MacPherson files a negligence suit; Buick says it has no privity with MacPherson; trial court holds that privity is not required; MacPherson wins. • NY Ct. of Appeals holds manufacturer has primary control over product design & safety. • Defects could have been discovered by reasonable inspection, which was omitted.

CASE: MacPherson v. Buick Motor Company: WHAT HAPPENED?

• HELD: summary judgment for manufacturers • Users and consumers are required to "bear appropriate responsibility for proper product use." • "Prevents careless users and consumers from being subsidized by more careful users and consumers" - damages paid from law suits are built into higher product prices. • Warnings here were adequate.

CASE: Parish vs ICON: RESULTS?

• "failure" to warn of dangers

CASE: Parish vs ICON: SUBJECT?

• Parish was jumping on a backyard trampoline made by Jumpking • He did a back somersault, landed on his head, rendered a quadriplegic. • Sued ICON and Jumpking for failure to warn of dangers in using products. • Numerous warnings provided in this case

CASE: Parish vs ICON: WHAT HAPPENED

• A reasonable jury could conclude that ANACS purposefully depleted the ranks of ICG. It also significantly impaired ICG's ability to fulfill Cable's coin grading needs. • ANACS also used Slater's confidential information and made a play for Cable's business while undercutting ICG's pricing. • This is "not just the nature of competition" • There is a triable claim for intentional interference with contractual relations in this case

CASE: Slater Numismatics v. Driving Force: RESULTS?

interference with contractual relations

CASE: Slater Numismatics v. Driving Force: SUBJECT?

• Slater bought & sold rare and modern coins. • Worked with ICG to grade and ship coins to Cable Shopping Network - which advertised coins for sale. • ICG and Slater shared revenues form that work. • Taylor and Williams worked with ICG. They left the company and set up Driving Force which operated as ANACS in coin business • ANACS hired away most of ICG's key employees. • Essentially drove ICG out of business. • Then knowing the terms of Slater's deal with Cable, offered Cable a better deal and took the account away from Slater. • Slater sued for intentional interference with contractual relations. • Intentional interference occurs by inducing or otherwise causing the third person not to perform the contract • Result is pecuniary loss from failure of 3rd person to perform the contract

CASE: Slater Numismatics v. Driving Force: WHAT HAPPENED?

When a logical link existed between reliance on the misstatement and the losses that were then suffered by the plaintiff

Causation

Latin for "let the buyer beware"; requires that the buyer examine, judge, and test [the product] for himself

Caveat Emptor

Money compensation sought or awarded as a remedy for a breach of contract or for tortious acts

Damages

1. product misuse or abuse 2. assumption of risk 3. sophisticated user defense & bulk supplier doctrine 4. some statutory limits exist

Defense in product liability (4)

In product liability litigation, a claim that a consumer suffered an injury because a safer product design was not used

Design Defect

• Not likely, as any company selling their products in the U.S. must meet same liability standard as U.S. companies. • High standards of products marketed abroad force improvement of standards worldwide.

Does a costly tort system make American firms less competitive than foreign forms?

A promise, in addition to an underlying sales agreement, that goes beyond the terms of the sales agreement and under which the promisor assures the description, performance, or quality of the goods (when the manufacturer contractually provides performance promises to the consumer)

Express Warranty

In product liability cases, when a producer is found liable in tort for not warning consumers of dangers the producer knew existed or should have known existed

Failure to Warn

An intentional misrepresentation of a material fact designed to induce the person receiving the miscommunication to rely upon it to her detriment, so that a loss is suffered-may be held to be an intentional tort or to be a tort based on negligence

Fraud/Intentional Misrepresentation

An unwritten, unexpressed promise or guarantee that a court infers to exist and that accompanies a good (when the law inserts quality standards into the relationship regardless of the actual contract terms) [EX: food products]

Implied Warranty

Where are most tort claims filed?

In state courts

The existence of a contractual relationship between the injured business and another party that was known to the wrongdoer who intentionally interfered with that relationship

Interference with Contractual Relations

interference with prospective economic advantage or interference with prospective contractual relationship

Interference with Prospective Advantage

• One party makes it difficult/impossible for another party to continue in some/all business dealings • A business attempts to improve its place in the market by interfering with another's business • Unreasonable, improper manner of interference • Predatory behavior, not "merely competitive" • EXAMPLE: football-> defense & receiver

Interference with prospective advantages

No, there are torts that concern business

Is there "business tort"?

Liability that a person or business either shares with other tortfeasors or bears individually

Joint and Several Liability

Information that is substantially relevant to the consideration of a contract or to securities or to the decision made in a trial

Material Fact

the product will do what you say it will do; basic standard of quality

Merchantability

Words or conduct by a person to another that, under the circumstances, amount to a false statement (EX: Ford claiming their windshields were shatter-proof, providing an express warranty)

Misrepresentation

induces another to enter into some sort of business relationship; In securities law, liability may be imposed on those responsible for issuing information about securities that misleads a reasonable investor in investment decisions to her detriment; may be part of fraud-must be MATERIAL (EX: Abraham Lincoln was president during the Vietnam War isn't material)

Misstatement

- Misstatement induces another to enter into some sort of business relationship - Unrelated or unimportant misstatement cannot be a basis of fraud, i.e. hyping a product

Misstatement of an important or material fact

Doctrine that states no warning is needed when the danger is obvious

Open-and-obvious Doctrine

• Manufacture defect • Failure to warn • Design defects • Unknown hazards

Primary areas of product liability law (4)

A legal relationship between parties, such as between parties to a contract

Privity

The immediate relationship that exists between the parties to a contract (often not between consumers and producers)

Privity of Contract

A general category of cases in which the producer or seller of products may be held responsible to buyers, users, or innocent third parties, who suffer injuries due to defects in the goods (evolves with changes in technology); . This concerns the liability that producers and sellers of goods have to those injured by their products

Product Liability

logical link between reliance on misstatement & losses to the plaintiff

Proximate cause

The degree of care that a person of ordinary prudence would use in the same or similar circumstances or in the same line of business

Reasonable Care

A product is defective when, at the time of sale or distribution, it contains a manufacturing defect, is defective in design, or is defective because of inadequate instructions or warnings (focuses on functionality of the product, not as much negligence & strict liability)

Restatement (Third) of Torts

The idea that some products cannot be made completely safe (EX: gasoline)

Risk-utility Balancing

When evidence shows that a reasonable person would conclude that the benefits of a product's particular design compared to a reasonable alternative design did not outweigh the dangers inherent in the original design

Risk-utility Test

Latin for "knowingly"; usually meaning that the defendant knew that the act in question was illegal; *INTENT TO DEFRAUD*

Scienter

one who "reasonably should know of the product's dangers" e.g. another manufacturer. (EX: the Air Force should know the dangers of exposure to chemicals)

Sophisticated User

In tort, a legal theory that imposes responsibility for damages regardless of the existence of negligence; any good sold that has a defect that causes injury leads to the imposition of liability

Strict Liability

• Has abated since Supreme Court has cracked down on massive punitive damage awards and doubtful expert testimony.

The "tort crisis" in the U.S.

A person who commits a tort

Tortfeasor

- Fraud or Intentional Misrepresentation - Interference With Contractual Relations - Interference With Prospective Advantage - Product Liability - Consumer Products & Negligence - Strict Liability - Primary Areas of Product Liability Law - Ultrahazardous Activity

Torts particular to business (8)

- intentional - negligence - strict liability

Types of business torts (3)

where *utmost care* is needed; In tort law, a rule that when an activity involves a risk of serious harm, such as the use of explosives or toxic chemicals, strict liability will be imposed when any harm is caused to other persons or property

Ultrahazardous Activity

*danger not known at the time of the product's manufacture*; In product liability, a claim that tort liability should be assigned to a producer for injuries suffered by a consumer due to a defect or hazard in a product that was not known by the producer at the time the product was made (neither the producer nor the consumer may be able to prevent injury); *asbestos*

Unknown Hazards/Latent Defects

An assurance or guaranty, either expressed in the form of a statement by a seller of goods or implied by law, having reference to and ensuring the character, quality, or fitness of purpose of the goods

Warranty

Greenman vs Yuba Power

Which case eliminates privity?

• tort + contractual law • Businesses don't want to wait on a common law to be created by trial; so the lobby and get through congress (statutory law) • tort *isn't* usually statutory law

Why is product liability unique?

Causal connection must be present between the product or the design defect and the injury

casual connection

- Guarantee of safety or performance - By model - By statement - By contract - By advertising - Misrepresentation theory is used as well to create strict liability

expressed warranty (6)

• *Failure to give information* about specific dangers • *Failure to issue added warnings* about problems that become known after product has been in use • *Failure to give special emphasis* on biggest danger

failure to warn (3)

deliberate deception

fraud=

- Implied Warranty of safety - Manufactured Products - Food Products - Implied Warranty of Merchantability - Under the UCC Implied Warranty For Fitness For A Particular Purpose (asked an expert for a particular product -> expert gives product and it fails)

implied warranty (4)

1. misstatement of an important or material fact 2. scientier or intend to fraud 3. person knows or has reason to know that the statement being made is false 4. recipient of false information justifiably relies on the information and makes a decision to enter into the deal 5. privity between parties 6. proximate cause 7. damages

intentional misrepresentation of fraud (7) *MUST PROVE THESE*

negligence (strongest)

what is the first this to prove in court?