Business Law II – Week 4 Lecture 1

Warranties and Product Liability

This week we will discuss what happens when a product fails to work as advertised or even becomes harmful to consumers.

Most goods are now covered by a warranty. This warranty is an assurance that a product will be suitable for various usages, and unless the remedies of these warranties are limited, a breach of a warranty is equivalent to a breach of contract that entitles the buyer to a remedy.

These warranties come in various types. Express warranties exist when the seller states that goods will conform to: 1) an affirmation or promise of fact; 2) a description; or 3) a sample of model. These affirmations may take many forms. However, it is important to note that a seller’s “puffery” or an inflated statement of opinion does not create a warranty. Implied warranties arise from a presumption that the goods merchants sell are either merchantable or are fit for a particular purpose. The implied warranty of merchantability arises in every sale of goods by a merchant who deals in goods of the kind. Merchantability means that the goods are “reasonably fit for the ordinary purposes for which such goods are used.” The implied warranty of fitness for a particular purpose arises when a seller knows a particular purpose for which a buyer will use goods and that the buyer is relying on the seller’s skill and judgment to select suitable goods. For example if a buyer goes to a sporting goods store and tells the buyer that he is looking for skis that are suitable for slalom skiing, then the goods selected by the salesperson may be covered by the implied warranty of fitness for a particular purpose.

Warranties can be disclaimed. However, the court’s look on such disclaimers with extreme disfavor, and the courts will often require that this disclaimers be clear and conspicuous enough to protect the buyer from unfair surprise. For example, implied warranties can be disclaimed by an expression that goods are sold “as is” or “with all faults.”

The law of product liability will hold manufactures and sellers of goods liable to consumers and others for personal injury or property damage that is caused by goods. There are various theories of recovery a consumer can use to recover in a products liability action.

The buyer may use a negligence theory. This is the same cause of action discussed in BA 260 relating to tort law. Basically, the theory is that the seller has a duty of due care to buyers of the products. To succeed in negligence, the buyer must show: 1) a duty owed by the seller; 2) a breach of that duty; 3) causation; and 4) damage.

Additionally, the buyer may use a strict liability theory. Under this doctrine, persons and businesses may be liable for the results of their acts regardless of their intentions or their exercise or reasonable care. This is in direct contrast to negligence. However, buyers often will plead both negligence and strict liability in the same action. The elements of this cause of action are:

· A product must be in a defective condition when the manufacturer sells it.

· The manufacturer must be normally engaged in the business of selling it.

· The product must be unreasonably dangerous to a user or consumer because of its defective condition (not required in all states).

· A plaintiff must incur physical harm to self or property by use or consumption of the product.

· The defective condition must proximately cause the injury or damage.

· The product must not have been substantially changed from the time it was sold to the time of the injury.

The product will be considered unreasonably dangerous if it is beyond the reasonable expectations of the ordinary consumer and a less dangerous alternative was economically feasible but the manufacturer failed to produce it. And there are three types of defects. A manufacturing defect exists when the product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product. The classic example of this is an improperly made bottle of soda that explodes upon opening. In this case, it does not matter how much care the manufacturer put into making sure bottles do not explode. Because this bottle deviated from the design, there is a manufacturing defect. A design defect exists when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor. This theory reflects that there are some products that have some danger inherent in their use. A manufacturer will only be held liable for this if there wasn’t a reasonable alternative design. The final defect is a failure to provide an adequate warning of the risks of the product.