Warranties and Product Liability - Mercantile or Business Law - Lecture Slides, Slides for Business Law. AMET University

Business Law

Description: This lecture can be refereed to Business Law as well as Mercantile Law. Keywords of the lecture are: Warranties and Product Liability, Sales or Lease Contract, Product Liability, Requirements, Warranties of Title, Express Warranties, Implied Warranties, Merchant Seller, Good Title, Disclaimer of Title Warranty
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Business Law

Business Law

Chapter 21 Warranties and Product

Liability

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Objectives

• State when express warranties arise in a sales or lease contract

• Identify the implied warranties that arise in a sales or lease contract

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Objectives

• Discuss negligence as the basis of product liability

• List the requirements of strict product liability

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Warranty

• 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

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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

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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

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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”

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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

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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

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Merchantability

• Arises in every sale of goods by a merchant who deals in goods of the kind sold

• Liability for the safe performance of a product

• Goods must be merchantable

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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

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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

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Other Implied Warranties

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

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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

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Warranty Disclaimers

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

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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

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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

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Product Liability

• Warranties • Negligence • Misrepresentation • Strict liability

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Negligence

• 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

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Misrepresentation

• Fraudulent misrepresentation made to a user or consumer and results in an injury

• Nonfraudulent misrepresentation – merchant innocently misrepresents the character or quality of goods

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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

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Requirements

• 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

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Unreasonably Dangerous

• Beyond the expectation of ordinary consumer

• A less dangerous alternative was economically feasible

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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

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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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