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Warranties and Product Liability - Mercantile or Business Law - Lecture Slides - Document's extract

Slides, Business Law

Post: December 31th, 2012
Business Law
Chapter 21 Warranties and Product Liability

Objectives • State when express warranties arise in a sales or lease contract • Identify the implied warranties that arise in a sales or lease contract


• Discuss negligence as the basis of product liability • List the requirements of strict product liability

• An assurance by one party of the existence of a fact upon which the other party can rely • Warranties of title • Express warranties • Implied warranties

Warranties of Title
• Good title - valid title and right to transfer • No liens – buyer can recover from seller if the buyer had no knowledge of a creditor’s interest – Merchant seller – buyer in ordinary course of business; buyer is free of security interest • No infringements – patent, trademark, copyright

Disclaimer of Title Warranty
• Disclaim or modify only by specific language in the contract • In certain cases, the circumstances of the sale are sufficient to indicate that no assurances as to title are being made

Express Warranties
• Goods conform to any affirmation or promise • Goods conform to any description • Goods conform to sample or model • The words “warrant” or “guarantee” do not have to be used • “Basis of the Bargain”

Express Warranties
• Statements of opinion • Seller is not creating an express warranty • Exception – if seller is an expert and gives an opinion as an expert • Reasonableness of the buyer’s reliance

Implied Warranties
• A warranty that the law implies through either the situation of the parties or the nature of the transaction • Implied warranty of merchantability • Implied warranty of fitness for a particular purpose

• Arises in every sale of goods by a merchant who deals in goods of the kind sold • Liability for the safe perfor
mance of a product • Goods must be merchantable

Merchantable Goods
• “reasonably fit for the ordinary purposes for which such goods are used” • Quality • Adequate packaging and labeling • Conform to promises made on package and label

Fitness for a Particular Purpose
• When any seller knows the particular purpose for which a buyer will use the goods and knows that the buyer is relying on the seller’s skill and judgment to select the suitable goods

Other Implied Warranties

• Course of dealing • Course of performance • Usage of trade

Third Party Beneficiaries
• UCC drafters proposed three alternatives that eliminate the privity of contract requirement with respect to certain injuries to certain third party beneficiaries (household members or bystanders) • The law in each state depends on which alternative was adopted

Warranty Disclaimers
• Express warranties – clear and conspicuous and called to the attention of the buyer at the time the sales contract is formed

Warranty Disclaimers
• Implied warranties – “as is” or “with all faults” • Disclaimer of fitness – must be in writing, but the word “fitness” not required • Disclaimer of merchantability – word “merchantability” required, but does not have to be in writing

Refusal to Inspect
• There is no implied warranty with respect to defects that a reasonable examination would reveal • Magnuson –Moss Warranty Act
– Designed to prevent deception in warranties by making them easier to understand – Certain disclosures required if express warranty is given

Product Liability • Warranties • Negligence • Misrepresentation • Strict liability

• Failure to use the degree of care that a reasonable, prudent person would have used under the circumstances • Due care to make a product safe • Does not require privity
of contract

• Fraudulent misrepresentation made to a user or consumer and results in an injury • Nonfraudulent misrepresentation – merchant innocently misrepresents the character or quality of goods

Strict Liability
• People are liable for the results of their acts regardless of their intentions or their exercise of reasonable care • Does not require privity of contract

• Product defective when sold • Must normally be in business of selling that product • Unreasonably dangerous because of defect • Physical harm to self or property • Defect must be proximate cause • No substantial change to the product

Unreasonably Dangerous • Beyond the expectation of ordinary consumer • A less dangerous alternative was economically feasible

Strict Liability • Suppliers of component parts are included in the liability for defective parts, as long as the composition of their part is not altered

Defenses to Product Liability
• Assumption of risk
– Voluntarily engaged while realizing the potential danger – Knew the risk created by the defect – Unreasonable decision to undertake the risk

• Product misuse • Comparative negligence

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