Fundamentals of Business Law
Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.
ROGER LeROY MILLER Institute for University Studies Arlington, Texas
GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin
Learning Objectives • What factors determine whether a Seller’s or Lessor’s statement constitutes an express warranty or mere puffery? • What implied warranties under the UCC? • Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product? • What are the elements of a cause of action in strict product liability? • What defenses to liability can be raised in a product liability lawsuit? Copyright © 2010 South-Western
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Warranties • Warranties of Title – automatic in most sales contracts: – Good Title. – No Liens. – No Infringements. – Disclaimer of Title Warranty.
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Express Warranties • Representations of fact about quality, condition, description or performance. • Goods must conform to model or sample. • Warranty must be Basis of the Bargain. • Statements of Opinion do not create express warranties.
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Implied Warranties • UCC/Law derives from implication or inference of circumstances. • Implied Warranty of Merchantability: – Merchantable Goods. • CASE 17.1 Shoop v. DaimlerChrysler, Corp. (Illinois, 2007). – Merchantable Food. • CASE 17.2 Webster v. Blue Ship Tea Room, Inc. (Massachusetts, 1964). Copyright © 2010 South-Western
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Implied Warranties • Implied Warranty of Fitness for a Particular Purpose arises when: – Seller or Lessor knows particular purpose, – For which Buyer will use the product, and – Seller Knows that Buyer is relying on Seller’s expertise to select a suitable good.
• Implied Warranties From Prior Dealings or Trade Custom. Copyright © 2010 South-Western
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Warranty Issues • Overlapping (or Cumulative) Warranties. • Warranty Disclaimers. – Express Warranty: • Courts view unfavorably. • Must be conspicuous. • Buyer must be aware of disclaimer at time of sale.
– Implied Warranty of Fitness: “As Is” or “With All Faults”. Copyright © 2010 South-Western
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Warranty Issues • What about Buyer’s Refusal to Inspect? • Courts will test Disclaimers based on UCC unconscionability standards.
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Magnuson-Moss Warranty Act • Federal law to prevent deception in warranties by making them easier to understand. • Enforced by Federal Trade Commission. – Full Warranty (free repair/replacement). – Limited Warranty. – Implied Warranties arise under UCC -- not Magnuson-Moss. Copyright © 2010 South-Western
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Lemon Laws • Coverage of Lemon Laws. – Applies primarily to automobiles. – Give consumer remedies for automobiles under warranty that cannot be fixed with a certain number of attempts. – Buyer is entitled to new car, replacement of defective parts or return of payment.
• Arbitration is typical Procedure. Copyright © 2010 South-Western
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Product Liability • Manufacturers, sellers and lessors of goods can be liable for a defective good that causes injury. • Negligence: – – – – – –
Due care in designing the product. Selecting materials. Production Process. Assembly. Adequate warning label for ordinary person. Privity of Contract Not Required.
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Strict Product Liability • Liability without regard to fault or standard of care. • Injured party can be 3rd party (not the buyer). • Assumption that: – Consumers should be protected against unsafe products. – Manufacturers and distributors should not escape liability for defective products, and – Manufacturers and sellers are in a better position to bear the costs of injury.
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Requirements for Strict Product Liability • Product must be in a defective condition when sold • Defendant must be engaged in selling that product • Product must be “unreasonably dangerous”: product is dangerous beyond ordinary expectation or less dangerous alternative not used. • Plaintiff must incur injury to self or property by use or consumption of the product • Defective condition must be cause • Goods have not be substantially changed from time of sale. Copyright © 2010 South-Western
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Proving Defective Condition • Defective condition made product “unreasonably dangerous” to consumer. But not all products can be made entirely safe. • Courts will find unreasonably dangerous product when: – Danger is beyond expectation of ordinary consumer. – Less dangerous alternative was economically feasible, but manufacturer failed to produce it. Copyright © 2010 South-Western
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Restatement (Third) of Torts: Product Liability • Manufacturing Defects. • Design Defects. • Warning Defects. – Manufacturer must warn if foreseeable misuse will cause injury. – Factors: user groups, content of message. – CASE 17.3 Bullock v. Phillip Morris, USA, Inc. (California, 2008). Copyright © 2010 South-Western
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Market Share Liability • Market Share Liability. – Multiple Defendants involved are liable based on the share of the market.
• Other Applications. – All courts extend liability of manufacturers and other sellers to injured bystanders. – Statutes of Repose.
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Defenses to Product Liability • Preemption. – Riegel v. Medtronic case: injured consumer may not be able to sue manufacturer that is subject to federal regulatory scheme.
• Assumption of Risk. • Product Misuse. – Severely limited.
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Defenses to Product Liability • Comparative Negligence. – Apportion fault between parties.
• Commonly Known Dangers. – Sharp knives and guns. – Knowledgeable User Defense.
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