Chapter 12 Warranties, Product Liability, and Consumer law

1. Chapter 12 Warranties, Product Liability, and Consumer law

2. Learning Objectives • What implied warranties arise 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? 

3. Learning Objectives • 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? • When will advertising be deemed deceptive?

4. Introduction • A warranty is an assurance or guarantee by the seller or lessor of certain facts concerning the goods being sold or leased. • If seller breaches a warranty, buyer can recover damages, or rescind the contract.

5. Warranties • Warranties automatically arise in most commercial sales transactions. • Normally warranties can be disclaimed or modified with specific language in the contract. 

6. Warranties • Warranties of Title. • UCC-312 can create three express warranties at sale: • Good Title. • No Liens. • No Infringements.

7. Warranties • Express Warranties. • Representations concerning quality, condition, description, or performance potential of goods. • Can be created by: • Any Affirmation or Promise. • Any Description. • Any Sample or Model.

8. Warranties • Express Warranties. • Basis of the Bargain. • Seller does not have to use the words “guarantee” or “warranty.” • Buyer must rely on warranty when he enters into contract. 

9. Warranties • Express Warranties. • Statements of Opinion and Value. Only statements of fact create express warranties. • Exception for Statements of Opinion by Experts. • Puffery versus Express Warranties.

10. Warranties • Implied Warranties. • Inferred at law based on the circumstances or nature of the transaction. 

11. Warranties • Implied Warranty of Merchantability. • Merchantable Goods: • Are average, fair, or medium-grade. • Are adequately packaged and labeled. • Conform to promises on label. • Have a consistent quality and quantity among the commercial units. 

12. Warranties • Implied Warranty of Merchantability. • Merchantable Food: based on consumer expectations. • CASE 12.1 Webster v. Blue Ship Tea Room, Inc. (1964). Was the soup fit to eat on the basis of consumer expectations?

13. Warranties • Implied Warranty of Fitness for a Particular Purpose. • Arises by any Seller who: • Knows the particular purpose for which the goods are being bought; and • Knows the buyer is relying on seller’s skill and judgment to select suitable goods.

14. Warranties • Implied Warranty of Fitness for a Particular Purpose. • Particular vs. Ordinary Purpose: Differs from ordinary purpose of merchantability. Goods can be merchantable but unfit for a particular purpose. 

15. Warranties • Implied Warranty of Fitness for a Particular Purpose. • Knowledge and Reliance Requirements: seller must have reason to know purpose, and buyer must have relied on the recommendation.

16. Warranties • Implied Warranty from Prior Dealings or Trade Custom. • Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.

17. Overlapping Warranties • Occurs when two or more warranties are made in a single transaction: • When Warranties are Consistent: they are construed as cumulative. 

18. Overlapping Warranties • When Warranties are Inconsistent: • First: implied warrant of fitness for a particular purpose. • Samples take precedence over inconsistent descriptions. • Exact or technical specifications displace inconsistent samples or descriptions.

19. Warranty Disclaimers • Express Warranties can be disclaimed: • If they were never made (evidentiary matter). • If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).

20. Warranty Disclaimers • Implied Warranties. • Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults.” 

21. Warranty Disclaimers • Implied Warranties. • Disclaimer of the Implied Warranty of Merchantability: must use the word merchantability. • Disclaimer of the Implied Warranty of Fitness: must be in writing and conspicuous.

22. Warranty Disclaimers • Buyer’s or Lessee’s Examination or Refusal to Inspect. • Warranties are disclaimed as to defects that could reasonably be found on examination. • Warranty Disclaimers and Unconscionability.

23. Magnuson-Moss Warranty Act • Modifies UCC for consumer sales. • Only applies when written warranties are made by Seller (including a service contract). • If goods > $25 label must state either a “full” or “limited” warranty. 

24. Magnuson-Moss Warranty Act • Full Warranty: Seller must repair or replace. • Limited Warranty must be conspicuous. • If limit of time only must say, e.g., “full twelve-month warranty.” 

25. Magnuson-Moss Warranty Act • UCC Implied Warranties: • May not be disclaimed, but can be limited, but must correspond with time of express warranty. • Requires document of all warranties in “readily understood language.”

26. Lemon Laws • Apply to cars that are “lemons” and cannot be repaired properly. • Lemon Laws: • Provide remedies to consumers whose automobiles under warranty fail to meet value or performance. 

27. Lemon Laws • Lemon Laws: • Seller has reasonable attempts to fix the defect (usually 4). If not, buyer has remedy of a new car, replacement of defective parts, or return of all consideration paid. • Arbitration is usual process.

28. Product Liability • Product Liability is not a new tort. • Liability can be based on: • Negligence;  • Misrepresentation;  • Strict Liability;  • Warranty Theory. 

29. Product Liability • Negligence. • Claim based on a manufacturer’s breach of the reasonable standard of care. • Due Care Must Be Exercised in: design, selection of materials, using appropriate production process, assembling and testing, adequate warnings, inspection, and testing. 

30. Product Liability • Negligence. • Privity of Contract Not Required. No privity of contract required between Plaintiff and Manufacturer. Liability extends to any person’s injuries caused by a negligently made (defective) product.

31. Product Liability • Misrepresentation. • Occurs when fraud committed against consumer or user of product. Fraud must have been made knowingly or with reckless disregard for safety. • Plaintiff does not have to show product was defective.

32. Strict Product Liability • Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care. 

33. Strict Product Liability • Strict Liability and Public Policy. • Consumers should be protected from unsafe products; • Manufacturers and distributors should be liable to any user of the product; • Manufacturers, sellers and distributors can bear the costs of injuries. 

34. Strict Product Liability • Requirements for Strict Liability: • Product must be in defective condition when sold. • Defendant is in the business of selling the product. • Product must be unreasonably dangerous. 

35. Strict Product Liability • Requirements for Strict Liability: 4. Plaintiff must be physically harmed 5. Defective condition must be proximate cause of injury. 6. Goods are in substantially same condition.

36. Strict Product Liability • Requirements for Strict Liability. • Proving a Defective Condition. • Plaintiff does not need to show product or in what manner the product become defective. • But plaintiff must show product was defective and “unreasonably dangerous” to the user. 

37. Strict Product Liability • Requirements for Strict Liability. • Unreasonably Dangerous Products. • The product was dangerous beyond the expectation of the ordinary consumer. • A less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it.

38. Product Defects—Restatement (3rd) of Torts • Three types of product defects: • Manufacturing Defects.  • Design Defects.  • Warning Defects. 

39. Product Defects—Restatement (3rd) of Torts • Manufacturing Defects. • Occurs when a product “departs from its intended design even though all possible care was exercised in the preparation and marketing of the product.”

40. Product Defects—Restatement (3rd) of Torts • Design Defects. • Product is manufactured correctly, but defect is based on design. • Test for Design Defects: plaintiff must show defendant’s failure to use a reasonable alternative design rendered the product not reasonably safe. 

41. Product Defects—Restatement (3rd) of Torts • Design Defects. • Factors to be Considered. • Magnitude and probability of foreseeable risks. • Relative advantages and disadvantages of product. • Most courts use “risk-utility” analysis.

42. Product Defects—Restatement (3rd) of Torts • Inadequate Warnings. • Content: a product may be defective because of inadequate warnings or instructions. • Liability based on foreseeability that proper instructions/labels would have made the product safe to use. 

43. Product Defects—Restatement (3rd) of Torts • Inadequate Warnings. • CASE 12.2 Johnson v. Medtronic, Inc. (2012). • Obvious Risks: no duty to warn.

44. Strict Product Liability • Other Applications of Strict Liability. • Virtually all courts extend strict liability to injured bystanders. • Strict liability also applies to suppliers of component parts.

45. Defenses to Product Liability • Preemption. • Government regulations preempt claims for product liability. • Assumption of Risk. • Some courts do not allow AR to be used in strict product liability claims. 

46. Defenses to Product Liability • Product Misuse. • Plaintiff does not know the product is dangerous for a particular use. • Comparative Negligence (Fault). • Defendants may be able to limit damages by apportioning fault. 

47. Defenses to Product Liability • Commonly Known Dangers. • Knowledgeable User.

48. Consumer Law

49. Consumer Law • Deceptive Advertising. • Occurs if a reasonable consumer would be misled by the advertising claim. • Puffery: Vague generalities and obvious exaggerations are permissible and not considered deceptive. • Half-Truths: information is true, but incomplete.

50. Consumer Law • Deceptive Advertising. • Bait and Switch Ads: the advertising of a product at an attractively low price to lure customers in to buy more expensive items. 