CHAPTER 19 WARRANTIES AND PRODUCT LIABILITY

1. CHAPTER 19WARRANTIES AND PRODUCT LIABILITY DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)

2. INTRODUCTION • A Warranty is “a promise that a proposition of fact is true.” • A Warranty is a promise that becomes part of the contract. • Warranty is often the best protection buyer has on a sale.

3. INTRODUCTION • Types of warranties: • Express warranty. • Implied warranty. • Statutory warranty.

4. EXPRESS WARRANTIES • Actually stated or communicated from one party to another. • Given only by the seller. • By UCC is part of the “basis of the bargain.” • Seller creates warranty in one of three ways: • 1) Seller affirms a material fact. • 2) Seller describes the goods. • 3) Seller provides a sample or model of goods.

5. EXPRESS WARRANTIES • No need to show intent or reliance. • Reliance is presumed. • Seller must disprove the existence of an express warranty. • Focuses on facts. • Statement quantifiable it is treated as a fact. • Advertisements that claim certain characteristics for a product.

6. EXPRESS WARRANTIES • The Code considers timing of the statement or conduct from the buyer’s perspective. • A modification of a sales contract is valid without consideration. • Sellers should remember: • If they know a fact, state it honestly. • If they do not know a fact, do not speculate.

7. IMPLIED WARRANTIES • Not created by seller, imposed by operation of law. • Automatically present in contract unless they are voluntarily surrendered by buyer or properly excluded by seller.

8. IMPLIED WARRANTIES • Four types of implied warranties: • Warranty of title. • Warranty against infringement. • Warranty of merchantability. • Warranty of fitness for a particular purpose.

9. WARRANTY OF TITLE • Warranty of Title. • Guarantees title. • Ensures the buyer of the following: • 1) Transfer of the goods by the seller is proper. • 2) Buyer is receiving good title. • 3) Goods are free of hidden security interests, encumbrances, or liens.

10. INFRINGEMENT • Warranty Against Infringement. • Can be given by either the buyer or seller. • The infringement protected against is the rightful claim of any third person concerning the goods. • Seller must be a merchant who regularly deals in the type of goods involved. • Buyer does not need to be a merchant.

11. MERCHANTABILITY • Warranty of Merchantability. • Given whenever a merchant of goods makes a sale. • Designed to assure buyers that purchased goods are suitable for normal or intended use.

12. MERCHANTABILITY • Criteria: goods are merchantable and warranty has been breached: • Goods must be able to pass without objection in the trade. • If goods are fungible, must be of fair average quality within the description. • Goods must be suitable for their ordinary purpose and use. • Goods must be of even kind, quality, and quantity. • Goods must be adequately contained, packaged, and labeled as required under agreement. • Goods must conform to the promise and facts contained on the label.

13. FITNESS FOR A PARTICULAR PURPOSE • Warranty of Fitness for a Particular Purpose • May be given by merchant or non-merchant. • To exist all conditions must be present: • 1) Seller must know that the buyer is contemplating a particular use for the goods. • 2) Seller must know that the buyer is relying on the seller’s skill, judgement or knowledge in selecting proper goods. • 3) Buyer must not restrict the seller’s range of choices to a particular brand or price range or limit the scope of the seller’s judgement.

14. WARRANTY EXCLUSIONS • Seller can modify or exclude warranties. • Simplest way to exclude an express warranty is not to give one. • Seller can attempt to exclude an express warranty in writing. • Not easy to exclude or modify implied warranties.

15. WARRANTY EXCLUSIONS • Three sets of circumstances to exclude all implied warranties: • 1) Language must be used properly so buyer is duly informed no implied warranties are given. • 2) Buyer has examined goods or refused to examine them before sale, no implied warranty is given for defects that examination should have revealed. • 3) Under course of dealings, performance, or usage of trade, implied warranties not given.

16. SCOPE OF WARRANTY PROTECTION • Warranties extend to any member of buyer’s family or household or any guest. • Warranties extend to any natural person who could reasonably be expected to use/consume the goods. • Warranties extend to any person (corporation) who could reasonably be expected to use/consume the goods.

17. STATUTORY WARRANTY PROVISIONS • Consumer Product Warranty Act of 1975: • Manufacturer must provide presale warranty information. • Created informal settlement procedures to benefit consumer. • Manufacturer not required to give any express warranties. • But if manufacturer does give an express warranty, must designate it as full or limited.

18. STATUTORY WARRANTY PROVISIONS • Full Warranty must meet four requirements: • Defects of goods will be remedied within a reasonable time. • Exclusions/limitations must be conspicuously displayed of consequential damages. • Implied warranty must not be limited in time. • If seller attempts to remedy defect fails, consumer allowed to select either a refund or replacement.

19. PRODUCT LIABILITY • Breach of warranty claims do not extent to injury suffered from use of product. • Injured party may be able to assert negligence against the manufacturer. • May be able to establish strict tort liability against the manufacturer or seller of the goods.

20. PRODUCT LIABILITY: NEGLIGENCE • Under common law negligence can be used in only two circumstances: • Buyer can argue breach of duties by privity of the contract. • Goods are innately dangerous, so that privity of contract is not necessary to establish the liability of the seller or manufacturer. • To establish tort negligence injured party must prove duty, breach of duty, harm, and proximate cause.

21. STRICT PRODUCT LIABILITY • Applies only to a merchant. • Merchant must sell a “defective” product that is “unreasonably” dangerous to the consumer. • Product must reach the consumer without any substantial change in its condition.

22. LEASES • When goods are leased, the lessee receives certain warranties. • Lessee receives express warranties on the same basis as a buyer of goods does. • Lessee receives four implied warranties: • Warranty against interference. • Warranty against infringement. • Warranty of merchantability. • Warranty of fitness for a particular purpose.