Ch 17

Fundamentals of Business Fundamentals of Business LawLaw

Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.

ROGER LeROY MILLERInstitute for University Studies

Arlington, Texas

GAYLORD A. JENTZHerbert D. Kelleher Emeritus Professor in Business Law

University of Texas at Austin

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

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Learning ObjectivesLearning Objectives• What factors determine whether a Seller’s or

Lessor’s statement constitutes an express warranty or mere puffery?

• What implied warranties 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?

• 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?


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WarrantiesWarranties• Warranties of Title – automatic in most

sales contracts:– Good Title.– No Liens.– No Infringements.– Disclaimer of Title Warranty.


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Express WarrantiesExpress Warranties• Representations of fact about quality,

condition, description or performance.• Goods must conform to model or

sample.• Warranty must be Basis of the Bargain.• Statements of Opinion do not create

express warranties.


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Implied WarrantiesImplied Warranties• UCC/Law derives from implication or

inference of circumstances.• Implied Warranty of Merchantability:

– Merchantable Goods.• CASE 17.1 Shoop v. DaimlerChrysler,

Corp. (Illinois, 2007).– Merchantable Food.

• CASE 17.2 Webster v. Blue Ship Tea Room, Inc. (Massachusetts, 1964).


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Implied WarrantiesImplied Warranties• Implied Warranty of Fitness for a

Particular Purpose arises when:– Seller or Lessor knows particular purpose,– For which Buyer will use the product, and– Seller Knows that Buyer is relying on Seller’s

expertise to select a suitable good.• Implied Warranties From Prior Dealings

or Trade Custom.


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Warranty IssuesWarranty Issues• Overlapping (or Cumulative)

Warranties.• Warranty Disclaimers.

– Express Warranty:• Courts view unfavorably.• Must be conspicuous.• Buyer must be aware of disclaimer at time of sale.

– Implied Warranty of Fitness: “As Is” or “With All Faults”.


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Warranty IssuesWarranty Issues• What about Buyer’s Refusal to Inspect?• Courts will test Disclaimers based on

UCC unconscionability standards.


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Magnuson-Moss Warranty Magnuson-Moss Warranty Act Act

• Federal law to prevent deception in warranties by making them easier to understand.

• Enforced by Federal Trade Commission.– Full Warranty (free repair/replacement).– Limited Warranty.– Implied Warranties arise under UCC -- not

Magnuson-Moss.


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Lemon LawsLemon Laws• Coverage of Lemon Laws.

– Applies primarily to automobiles.– Give consumer remedies for automobiles

under warranty that cannot be fixed with a certain number of attempts.

– Buyer is entitled to new car, replacement of defective parts or return of payment.

• Arbitration is typical Procedure.


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Product Liability Product Liability • Manufacturers, sellers and lessors of goods

can be liable for a defective good that causes injury.

• Negligence:– Due care in designing the product.– Selecting materials.– Production Process.– Assembly.– Adequate warning label for ordinary person.– Privity of Contract Not Required.


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Strict Product LiabilityStrict Product Liability• Liability without regard to fault or standard of

care.• Injured party can be 3rd party (not the buyer).• Assumption that:

– Consumers should be protected against unsafe products.

– Manufacturers and distributors should not escape liability for defective products, and

– Manufacturers and sellers are in a better position to bear the costs of injury.


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Requirements for Requirements for Strict Product LiabilityStrict Product Liability

• Product must be in a defective condition when sold• Defendant must be engaged in selling that product• Product must be “unreasonably dangerous”:

product is dangerous beyond ordinary expectation or less dangerous alternative not used.

• Plaintiff must incur injury to self or property by use or consumption of the product

• Defective condition must be cause • Goods have not be substantially changed from time

of sale.


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Proving Defective Proving Defective ConditionCondition

• Defective condition made product “unreasonably dangerous” to consumer. But not all products can be made entirely safe.

• Courts will find unreasonably dangerous product when:– Danger is beyond expectation of ordinary

consumer.– Less dangerous alternative was economically

feasible, but manufacturer failed to produce it.


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Restatement (Third) of Restatement (Third) of Torts: Product LiabilityTorts: Product Liability

• Manufacturing Defects.• Design Defects.• Warning Defects.

– Manufacturer must warn if foreseeable misuse will cause injury.

– Factors: user groups, content of message.– CASE 17.3 Bullock v. Phillip Morris, USA,

Inc. (California, 2008).


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Market Share Liability Market Share Liability • Market Share Liability.

– Multiple Defendants involved are liable based on the share of the market.

• Other Applications.– All courts extend liability of manufacturers and

other sellers to injured bystanders.– Statutes of Repose.


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Defenses to Product Defenses to Product LiabilityLiability

• Preemption.– Riegel v. Medtronic case: injured consumer

may not be able to sue manufacturer that is subject to federal regulatory scheme.

• Assumption of Risk.• Product Misuse.

– Severely limited.


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Defenses to Product Defenses to Product LiabilityLiability

• Comparative Negligence.– Apportion fault between parties.

• Commonly Known Dangers.– Sharp knives and guns.– Knowledgeable User Defense.

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Ch 17