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Chapter 12 Warranties, Product Liability, and Consumer law

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Chapter 12 Warranties, Product Liability, and Consumer law. 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? . Learning Objectives.

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learning objectives
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? 
learning objectives1
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?
  • 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.
  • Warranties automatically arise in most commercial sales transactions.
  • Normally warranties can be disclaimed or modified with specific language in the contract. 
  • Warranties of Title.
    • UCC-312 can create three express warranties at sale:
      • Good Title.
      • No Liens.
      • No Infringements.
  • 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.
  • 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. 
  • 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.
  • Implied Warranties.
    • Inferred at law based on the circumstances or nature of the transaction. 
  • 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. 
  • 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?
  • 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.
  • 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. 
  • 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.
  • 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.
overlapping warranties
Overlapping Warranties
  • Occurs when two or more warranties are made in a single transaction:
    • When Warranties are Consistent: they are construed as cumulative. 
overlapping warranties1
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.
warranty disclaimers
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).
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Warranty Disclaimers
  • Implied Warranties.
    • Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults.” 
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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.
warranty disclaimers3
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.
magnuson moss warranty act
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. 
magnuson moss warranty act1
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.” 
magnuson moss warranty act2
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.”
lemon laws
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. 
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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.
product liability
Product Liability
  • Product Liability is not a new tort.
  • Liability can be based on:
    • Negligence; 
    • Misrepresentation; 
    • Strict Liability; 
    • Warranty Theory. 
product liability1
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. 
product liability2
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.
product liability3
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.
strict product liability
Strict Product Liability
  • Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care. 
strict product liability1
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. 
strict product liability2
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. 
strict product liability3
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.

strict product liability4
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. 
strict product liability5
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.
product defects restatement 3 rd of torts
Product Defects—Restatement (3rd) of Torts
  • Three types of product defects:
    • Manufacturing Defects. 
    • Design Defects. 
    • Warning Defects. 
product defects restatement 3 rd of torts1
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.”
product defects restatement 3 rd of torts2
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. 
product defects restatement 3 rd of torts3
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.
product defects restatement 3 rd of torts4
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. 
product defects restatement 3 rd of torts5
Product Defects—Restatement (3rd) of Torts
  • Inadequate Warnings.
    • CASE 12.2 Johnson v. Medtronic, Inc. (2012).
    • Obvious Risks: no duty to warn.
strict product liability6
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.
defenses to product liability
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. 
defenses to product liability1
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. 
defenses to product liability2
Defenses to Product Liability
  • Commonly Known Dangers.
  • Knowledgeable User.
consumer law1
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.
consumer law2
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. 
consumer law3
Consumer Law
  • Deceptive Advertising.
    • Online Deceptive Ads: same rules apply. To satisfy the “clear and conspicuous” requirement, disclosures must be close (only hyperlink if lengthy).
      • CASE 12.3 Hypertouch, Inc. v. ValueClick, Inc. (2011). What makes an email deceptive?
consumer law4
Consumer Law
  • Deceptive Advertising.
    • Federal Trade Commission (FTC) Actions. The FTC can:
      • Issue cease and desist orders. With respect to a particular product or advertisement.
      • With regard to multiple product orders.
      • Impose counter-advertising.
consumer law5
Consumer Law
  • Telemarketing Sales Rule (TSR).
    • FTC’s TSR requires a telemarketer to identify the seller, described the product being sold, and disclose all material facts related to the sale.
    • Do Not Call registry.
consumer law6
Consumer Law
  • Labeling and Packaging.
    • Labeling must be accurate, and must use words that are easily understood by the ordinary consumer.
    • Fuel Economy on Automobiles.
    • Food Labeling.
    • Menu Labeling Regulations.
consumer law7
Consumer Law
  • Sales.
    • FTC and many states require that consumers have a three business day “cooling-off” period during which they can cancel their purchase without obligation. 
consumer law8
Consumer Law
  • Protection of Health and Safety.
    • Food and Drugs.
      • Pure Food and Drugs Act (1906), then Federal Food, Drug and Cosmetic Act (1938), enforced by Food and Drug Administration.
consumer law9
Consumer Law
  • Protection of Health and Safety.
    • Consumer Product Safety.
      • Consumer Product Safety Act (1972) regulates matters affecting consumer safety; established the Consumer Product Safety Commission.
consumer law10
Consumer Law
  • Protection of Health and Safety.
    • Health Care Reforms.
      • 2010, Congress passed the Patient Protection and Affordable Care Act.
      • Expanded Coverage for Children and Seniors.
      • Controlling Costs of Health Insurance.
credit protection
Credit Protection
  • Consumer Credit is protected by:
    • Truth in Lending Act.
    • Fair Credit Reporting Act.
    • Fair Debt Collection Practices Act.
    • Wage Garnishment.
credit protection1
Credit Protection
  • Truth-in-Lending Act.
    • TILA is basically a disclosure law. Requires all consumer lenders to compute the cost of a loan the same way and to advertise it as an Annual Percentage Rate (APR). 
credit protection2
Credit Protection
  • Truth-in-Lending Act.
    • Equal Credit Opportunity: requires that credit be extended without regard to race, sex, color, national origin, age, or marital status.
credit protection3
Credit Protection
  • Truth-in-Lending Act.
    • Credit Card Rules: limits consumer liability to $50 for credit card debt in cases of stolen cards.
    • Amendments to Credit-Card Rules (2010).
credit protection4
Credit Protection
  • Fair Credit Reporting Act.
    • Limits the activities of credit reporting agencies.
    • Consumers have the right to access information contained about them in a credit reporting agency’s files and to require credit reporting agencies to delete unverifiable information.
credit protection5
Credit Protection
  • FACT: combat identity theft.
    • Created the National Fraud Alert system so that consumers can place fraud alert in their credit files.
    • Requires credit companies to give customers free credit reports each year.
    • Gives victims of identity theft some assistance.
credit protection6
Credit Protection
  • Fair Debt-Collection Practices Act.
    • Requires collectors provide validation notice to the debtor, at the time of first contact.
    • Prohibits collection agencies from:
      • Contacting debtor at work.
      • Contacting third parties about payments.
credit protection7
Credit Protection
  • Fair Debt-Collection Practices prohibits collection agencies from:
    • Using harassment or intimidation or employing false misleading information.
    • Contact debtor after notice of payment refusal.