BUSINESS TORTS & BUSINESS TORTS & PRODUCT LIABILITYPRODUCT LIABILITY

Chapter 8Chapter 8

Torts in the Business Torts in the Business SettingSetting

There is no such thing as There is no such thing as a “business tort”a “business tort”

By definition, this means By definition, this means torts that torts that concernconcern businessesbusinesses

Often cases with Often cases with businesses are settled businesses are settled out of courtout of court

There are usually big There are usually big awards, as plaintiffs view awards, as plaintiffs view businesses as “deep businesses as “deep pockets”pockets”

The Types and Costs of The Types and Costs of Business TortsBusiness Torts

Costs of TortsCosts of Torts Direct costs range Direct costs range

from $40-150 billion from $40-150 billion per yearper year

Businesses lobby for Businesses lobby for statutory limits on tort statutory limits on tort liabilityliability

Pain & suffering and Pain & suffering and punitive damages punitive damages place a high “sticker place a high “sticker price” on certain price” on certain behaviorbehavior

Types of TortsTypes of Torts Intentional Intentional NegligenceNegligence Strict LiabilityStrict Liability Torts are traditionally Torts are traditionally

common lawcommon law More and more More and more

statutes are playing statutes are playing an important role in an important role in this area of the lawthis area of the law

Torts Particular To BusinessesTorts Particular To Businesses

MisrepresentationMisrepresentation Interference With Contractual RelationsInterference With Contractual Relations Interference With Prospective Advantage Interference With Prospective Advantage

(putting a person in front of door).(putting a person in front of door). Premises LiabilityPremises Liability Product LiabilityProduct Liability Consumer Products & NegligenceConsumer Products & Negligence Consumer Products & Strict LiabilityConsumer Products & Strict Liability UltrahazardousUltrahazardous ActivityActivity

Product LiabilityProduct Liability

“ “Is Japan Really Different?”Is Japan Really Different?” It is said that Japan has It is said that Japan has

less litigation and far less litigation and far fewer lawyersfewer lawyers

Some analysts say this Some analysts say this makes Japan more makes Japan more competitivecompetitive

In fact, the U.S. and In fact, the U.S. and Japanese tort systems Japanese tort systems are similar in outcome are similar in outcome (even if the rules are (even if the rules are different)different)

Liability of producers Liability of producers and sellers of goods and sellers of goods re: defective productsre: defective products

General term applied General term applied that deals primarily in that deals primarily in tort lawtort law

Involves some Involves some contract law contract law

Involves some Involves some statutory lawstatutory law

Types of Product LiabilityTypes of Product Liability

Contract Warranties (Promises)Contract Warranties (Promises) Negligence in tort (Actions)Negligence in tort (Actions) Strict Liability in tort (Actions)Strict Liability in tort (Actions)

Sales Sales WarrantiesWarranties

Warranty of TitleWarranty of Title--good title will be transferred free of --good title will be transferred free of claims against it; stolen and copyright infringe.claims against it; stolen and copyright infringe.

Express WarrantiesExpress Warranties--created by seller’s promise as to --created by seller’s promise as to quality, safety, performance or durability of goods. May quality, safety, performance or durability of goods. May be created:be created: from sample or modelfrom sample or model by description of attributesby description of attributes by seller’s statements or promises; affirmation of fact or promiseby seller’s statements or promises; affirmation of fact or promise

Includes advertising and brochures.Includes advertising and brochures. Contract limitations.Contract limitations.

Expressions of value or seller’s commendations – not warrantyExpressions of value or seller’s commendations – not warranty Warranties may be disclaimed, butWarranties may be disclaimed, but disclaimers disclaimers must be must be

specific to the type of warranty and must be specific to the type of warranty and must be conspicuous.conspicuous.

QuestionQuestion

                  A warranty of title means:A warranty of title means: a. a buyer’s goods are fit for a a. a buyer’s goods are fit for a particular purposeparticular purpose

b. a buyer’s goods are merchantableb. a buyer’s goods are merchantable c. a seller is the rightful owner of c. a seller is the rightful owner of the goods being soldthe goods being sold

d. a buyer is legally capable of d. a buyer is legally capable of owning the goods for saleowning the goods for sale

e. either c or de. either c or d

QuestionQuestion

20.20.                  An express warranty may be created An express warranty may be created by all but which of the following:by all but which of the following:

a. a seller’s promise about goods being a. a seller’s promise about goods being soldsold

b. a seller’s guarantee regarding the b. a seller’s guarantee regarding the safety of a goodsafety of a good

c. the sample the buyer received from the c. the sample the buyer received from the sellerseller

d. the guarantee the buyer reasonably d. the guarantee the buyer reasonably expects for the productexpects for the product

e. any of the abovee. any of the above

Sales WarrantiesSales Warranties Merchantability - for sales by merchantsMerchantability - for sales by merchants

goods must be of quality generally acceptable in goods must be of quality generally acceptable in tradetrade

must be able to do what is expectedmust be able to do what is expected must be safe – test on inconspicuous part of body.must be safe – test on inconspicuous part of body. Examples;Examples;

Freezer does not freeze;Freezer does not freeze; Riding lawnmower does not carry anyone over 120 lbs;Riding lawnmower does not carry anyone over 120 lbs; Pool table, cd, dvd is warpedPool table, cd, dvd is warped Automatic film rewinder tears filmAutomatic film rewinder tears film Feed supplement case. Feed supplement case.

Seller may make disclaimers; language may need to Seller may make disclaimers; language may need to be specific and the disclaimer must be conspicuous. be specific and the disclaimer must be conspicuous.

Implied Warranties

QuestionQuestion

                Under the UCC, merchantable means Under the UCC, merchantable means that goods must be of a quality that goods must be of a quality comparable to:comparable to:

a. that generally acceptable in that a. that generally acceptable in that line or tradeline or trade

b. the median standard of industryb. the median standard of industry c. the highest recent quality of the c. the highest recent quality of the tradetrade

d. defect-free goods in the industryd. defect-free goods in the industry e. none of the abovee. none of the above

Merchantability – Food SafetyMerchantability – Food Safety Two tests:Two tests: Foreign / Natural test;Foreign / Natural test;

Clam chowderClam chowder Hostess fruit pies.Hostess fruit pies.

Reasonable expectations test.Reasonable expectations test.

Implied Warranty of Fitness for a Implied Warranty of Fitness for a Particular PurposeParticular Purpose buyer communicates to seller, or seller buyer communicates to seller, or seller

“had reason to know” buyer’s particular “had reason to know” buyer’s particular needs; needs;

buyer relies on seller’s expertise; then buyer relies on seller’s expertise; then may have warrantymay have warranty

Paint for stuccoPaint for stucco Hydraulic oil; transmission fluidHydraulic oil; transmission fluid

Seller may make disclaimers; language Seller may make disclaimers; language may need to be specific and the disclaimer may need to be specific and the disclaimer must be conspicuous. must be conspicuous.

20.20.                  Miller needs to paint rain Miller needs to paint rain gutters on his house. He tells the paint gutters on his house. He tells the paint store what he needs and says he is store what he needs and says he is concerned about chipping and peeling. concerned about chipping and peeling. The seller recommends Pitts Exterior, The seller recommends Pitts Exterior, which the company advertises as good for which the company advertises as good for such use. If Miller buys Pitts based on such use. If Miller buys Pitts based on the recommendation, and it chips and the recommendation, and it chips and peels immediately, with respect to peels immediately, with respect to fitness for a particular purpose, there fitness for a particular purpose, there is:is:

a. a breach of implied warranty; Miller a. a breach of implied warranty; Miller relied on the maker’s judgment and relied on the maker’s judgment and claimsclaims

b. no breach of implied warranty; b. no breach of implied warranty; sellers are not obligated to supply high sellers are not obligated to supply high quality goodsquality goods

c. no breach of implied warranty; the c. no breach of implied warranty; the maker did not have reason to know of maker did not have reason to know of Miller’s particular use for the paintMiller’s particular use for the paintd. no breach of implied warranty; there d. no breach of implied warranty; there were not written warranty termswere not written warranty terms

e. none of the abovee. none of the above

History of Consumer Products History of Consumer Products and Negligenceand Negligence

In the 19th century there In the 19th century there was the was the privity of contractprivity of contract requirement--a contractual requirement--a contractual relationship with the relationship with the manufacturer was neededmanufacturer was needed

Burden on consumerBurden on consumer If there was no If there was no

relationship, relationship, caveat caveat emptoremptor applied applied—”—”Let the Let the buyer beware”buyer beware”

This changed with This changed with MacPherson v. BuickMacPherson v. Buick

THE NEW STANDARD: THE NEW STANDARD: NEGLIGENCE NEGLIGENCE

Manufacturer must exercise reasonable care Manufacturer must exercise reasonable care under the circumstancesunder the circumstances

Were the dangers foreseeable? Were the dangers foreseeable? Care must be taken to avoid misrepresentationCare must be taken to avoid misrepresentation Defects and dangers must be revealed Defects and dangers must be revealed Causal connection must be present between the Causal connection must be present between the

product or the design defect and the injuryproduct or the design defect and the injury

By the 1960s, courts began to apply the strict By the 1960s, courts began to apply the strict

liability doctrine to manufactured productsliability doctrine to manufactured products

Product Liability – Neg. & S.L.Product Liability – Neg. & S.L. The same general types of actions apply The same general types of actions apply

to both negligence and strict liability. to both negligence and strict liability. The difference is that:The difference is that:

Negligence: must show the specific act Negligence: must show the specific act that led to the injuries;that led to the injuries;

Strict Liability: Need only show that Strict Liability: Need only show that product was defective, the defect made product was defective, the defect made the product unreasonably dangerous, the product unreasonably dangerous, and that the defect caused the injury.and that the defect caused the injury.

Elements of Strict Liability for Elements of Strict Liability for Products. Products. One who sells any productOne who sells any product In a defective conditionIn a defective condition Unreasonably dangerous to the user …Unreasonably dangerous to the user … Liable for Liable for physical physical harmharm Seller is engaged in the business of Seller is engaged in the business of

selling such a product,selling such a product, Product is sold w/o substantial changeProduct is sold w/o substantial change

Unreasonably DangerousUnreasonably Dangerous

More dangerous than an ordinary More dangerous than an ordinary consumer would expect; consumer would expect;

oror Benefits of design do not outweigh Benefits of design do not outweigh

inherent risk. inherent risk. So juries weigh (balance) the usefulness of So juries weigh (balance) the usefulness of

any product with its risks.any product with its risks.

Improper Manufacture, Improper Manufacture, Handling or Inspection.Handling or Inspection. McPherson vs. Buick.McPherson vs. Buick. Lincoln wheel case, if manufacturer.Lincoln wheel case, if manufacturer. Mice in soft drinks.Mice in soft drinks. Frog in taco at Taco Bell (fraud)Frog in taco at Taco Bell (fraud)

Failure to WarnFailure to Warn Manufacturer must warn about all dangers Manufacturer must warn about all dangers

that it knew or s/h/knew about, if the user that it knew or s/h/knew about, if the user might not appreciate the risk.might not appreciate the risk. Foreseeable dangers need be warned.Foreseeable dangers need be warned. Foreseeable misuse must be warned.Foreseeable misuse must be warned. Need not warn of obvious dangers.Need not warn of obvious dangers. A warning will not make an unreasonable A warning will not make an unreasonable

dangerous product safe.dangerous product safe. ExamplesExamples

Ladders, Chain saws, Medicines (external Ladders, Chain saws, Medicines (external use, don’t mix, test on inconsp. part first.)use, don’t mix, test on inconsp. part first.)

Forklift driver, Garbage truck, Forklift driver, Garbage truck, Sears’ Lawn Mower, McDonald’s coffee case.Sears’ Lawn Mower, McDonald’s coffee case.

Strict Liability and the Failure To Warn Strict Liability and the Failure To Warn StandardStandard

(Manufacturers wonder how far the laws will go)(Manufacturers wonder how far the laws will go) Gun mfgr. is liable for failure to warn of possible damage to Gun mfgr. is liable for failure to warn of possible damage to

users’ hearing from long-term exposure to gun fire.users’ hearing from long-term exposure to gun fire. Diet-food producer is liable for failure to warn about using Diet-food producer is liable for failure to warn about using

adult diet food as baby food.adult diet food as baby food. Commercial pizza dough roller machine mfgr. liable when Commercial pizza dough roller machine mfgr. liable when

worker sticks hands in machine to clean it & machine is on.worker sticks hands in machine to clean it & machine is on. Campho-Phenique (external medicine) states: “Keep out of Campho-Phenique (external medicine) states: “Keep out of

reach of children.” “For external use.” “In case of reach of children.” “For external use.” “In case of ingestion--seek medical help & call poison center.” Not ingestion--seek medical help & call poison center.” Not strong enough to explain dangers. strong enough to explain dangers.

Johnson & Johnson pays $8.85 million to a liver transplant Johnson & Johnson pays $8.85 million to a liver transplant patient due to the fact years of drinking & taking Tylenol patient due to the fact years of drinking & taking Tylenol had destroyed his liver. Company knew drinking & taking had destroyed his liver. Company knew drinking & taking regular doses of Tylenol could damage liver.regular doses of Tylenol could damage liver.

Design Defects – Design Design Defects – Design makes products dangerous.makes products dangerous.

Yuba Power tools – inadequate set Yuba Power tools – inadequate set screws. 1963; 1screws. 1963; 1stst S.L. product case. S.L. product case.

Pinto case.Pinto case. American Airlines DC-10.American Airlines DC-10. BIC lighterBIC lighter Weak roofs and seats in autos.Weak roofs and seats in autos. Three-wheeled all terrain vehicles.Three-wheeled all terrain vehicles. Manufacturers need not reduce the Manufacturers need not reduce the

utility of their products.utility of their products. Table saw with removable blade guard.Table saw with removable blade guard.

Design Defects (cont.)Design Defects (cont.)

Drunken driver in a one car accident Drunken driver in a one car accident sues auto manufacturer for defective sues auto manufacturer for defective design. No one disputes he caused the design. No one disputes he caused the accident, but were his injuries worse accident, but were his injuries worse because the auto was poorly designed?because the auto was poorly designed?

Held a jury question.Held a jury question.

Strict Liability & Design Strict Liability & Design DefectsDefects

Worker receives $750,000. Co-worker removes metal plate Worker receives $750,000. Co-worker removes metal plate & covers machine with cardboard (failing to put plate back). & covers machine with cardboard (failing to put plate back). Worker falls into machine and loses his leg. It is a Worker falls into machine and loses his leg. It is a manufacturing design defect that machine manufacturing design defect that machine can runcan run when when the metal plate is removed.the metal plate is removed.

Restaurant employee badly burned. He tries to retrieve an Restaurant employee badly burned. He tries to retrieve an item that fell from his shirt pocket into French Fry machine.item that fell from his shirt pocket into French Fry machine.

Child pushed emergency stop button on an escalator, Child pushed emergency stop button on an escalator, causing person to fall, and be injured. It’s a design defect causing person to fall, and be injured. It’s a design defect to make a button red--kiddies might like it and push it!to make a button red--kiddies might like it and push it!

A man drives a riding mower up a steep hill, mower rolls A man drives a riding mower up a steep hill, mower rolls over & he is cut by the blades. Manufacturer should design over & he is cut by the blades. Manufacturer should design it toit to shut off automatically when it leaves ground.shut off automatically when it leaves ground.

Latent Defect – Failure to test.Latent Defect – Failure to test.

Asbestos case.Asbestos case. IUD’s.IUD’s. Silicon breast implants.Silicon breast implants. Thalidomide.Thalidomide.

Problem was that they were not tested long Problem was that they were not tested long enough to determine long-term safety.enough to determine long-term safety.

Strict Liability and Unknown Strict Liability and Unknown Hazards or Latent DefectsHazards or Latent Defects

Dangers not known at the Dangers not known at the time of the product’s time of the product’s manufacturemanufacture

Hazard associated with the Hazard associated with the product is not learned for product is not learned for many yearsmany years

Consumer Expectation Consumer Expectation standard used by courtsstandard used by courts What is the expectation What is the expectation

of an ordinary of an ordinary customer regarding customer regarding safety of a product?safety of a product?

Claims are often class Claims are often class action suitsaction suits

Asbestos Industry-- has Asbestos Industry-- has paid billions of dollars to paid billions of dollars to tens of thousands of tens of thousands of plaintiffs in claims over a plaintiffs in claims over a 30-year period30-year period

Injuries cased by IUDs Injuries cased by IUDs have been in the courts for have been in the courts for yearsyears

Manufacturers must have Manufacturers must have recalls or warnings when recalls or warnings when hazard is detectedhazard is detected

Review – Areas of Negligence Review – Areas of Negligence / Strict Liability / Strict Liability Failure to Manufacture Properly: Failure to Manufacture Properly:

Improper Handling, Inspection, Improper Handling, Inspection, PackagingPackaging

Failure to Warn ProperlyFailure to Warn Properly Failure to Design ProperlyFailure to Design Properly Failure to Test Properly (Latent Injuries)Failure to Test Properly (Latent Injuries)

Morales v. American HondaMorales v. American Honda

9-year-old9-year-old Gary drove Honda Motorcycle into path ofGary drove Honda Motorcycle into path of pick pick up truck as he left an unpaved farm road; instructions said up truck as he left an unpaved farm road; instructions said “off-the-road use only” and other warnings“off-the-road use only” and other warnings

Driver of pickup was not at fault--her view of the road was Driver of pickup was not at fault--her view of the road was obstructed & she had the right of wayobstructed & she had the right of way

Severe injuries to Gary, including permanent brain damage; Severe injuries to Gary, including permanent brain damage; medical expenses were more than $320,000 medical expenses were more than $320,000

Trial court grants summary judgment for HondaTrial court grants summary judgment for Honda Question: Were the warnings given with the motorcycle a Question: Were the warnings given with the motorcycle a

contributing cause of the accident contributing cause of the accident because not adequatebecause not adequate?? Held: This is a question that should be presented to the Held: This is a question that should be presented to the

jury for determination.jury for determination.

No Safer AlternativeNo Safer Alternative H Hollister v. Dayton Hudsonollister v. Dayton Hudson

Hollister is student at Northwestern; she returns to her Hollister is student at Northwestern; she returns to her apartment at 2:00 a.m., drunk; reaches across hot stove; shirt apartment at 2:00 a.m., drunk; reaches across hot stove; shirt catches fire; she has extensive burns; over $1 million in catches fire; she has extensive burns; over $1 million in reconstructive surgeryreconstructive surgery

She sues Dayton Hudson, claiming shirt was defective She sues Dayton Hudson, claiming shirt was defective because it was flammable; expert witness testify to thisbecause it was flammable; expert witness testify to this

District court rules for Dayton. She appeals.District court rules for Dayton. She appeals. HELD: There is no cause of action based on design defect.HELD: There is no cause of action based on design defect.

Expert failed to show that alternative materials were Expert failed to show that alternative materials were reasonable substitutes to use in shirts reasonable substitutes to use in shirts Suit may proceed on failure to warn of flammability, but Suit may proceed on failure to warn of flammability, but

likelihood of success not high.likelihood of success not high.

Remember table saw case with removable guard.Remember table saw case with removable guard. Unguarded boat motor propellers.Unguarded boat motor propellers.

Borel v. Fibreboard Paper Borel v. Fibreboard Paper Products Corp.Products Corp.

Borel is exposed to asbestos from 1936-69 as he worked on Borel is exposed to asbestos from 1936-69 as he worked on insulation jobs; 1969, is diagnosed w/pulmonary asbestosisinsulation jobs; 1969, is diagnosed w/pulmonary asbestosis

Has lung cancer in 1970 and lung is removed; he sues against Has lung cancer in 1970 and lung is removed; he sues against 11 manufacturers; dies soon thereafter; heirs continued 11 manufacturers; dies soon thereafter; heirs continued litigation; 4 suits settled; one was dismissed; six, including litigation; 4 suits settled; one was dismissed; six, including Fibreboard and Manville are left; jury finds them liable under Fibreboard and Manville are left; jury finds them liable under strict liability; manufacturers appealstrict liability; manufacturers appeal

Held: Manufacturers Petition for Rehearing is deniedHeld: Manufacturers Petition for Rehearing is denied No manufacturer ever warned of the dangers of inhaling No manufacturer ever warned of the dangers of inhaling

asbestos dust; is their responsibility to inform user or consumer asbestos dust; is their responsibility to inform user or consumer of risksof risks

Here there is failure to give adequate warningHere there is failure to give adequate warning Manufacturers must keep up with scientific knowledge; have a Manufacturers must keep up with scientific knowledge; have a

duty to test and inspect their productsduty to test and inspect their products Bear ultimate burden regarding their conduct and dutyBear ultimate burden regarding their conduct and duty

Strict Liability – Strict Liability – Liability Without Fault?? Liability Without Fault?? For Strict Liability to apply, the product:For Strict Liability to apply, the product:

Must be defective, and Must be defective, and unreasonably dangerous.unreasonably dangerous.

Clearly the manufacturer is at fault. If Clearly the manufacturer is at fault. If the manufacturer is not held liable, then the manufacturer is not held liable, then the injured consumer bears the whole the injured consumer bears the whole cost.cost.

Spreading of risks: Spreading of risks: Hold the man. Liable Hold the man. Liable and let him buy insurance; spread the risks and let him buy insurance; spread the risks among all users of the product, like all other among all users of the product, like all other business expenses.business expenses.

Market Share Liability or Enterprise Market Share Liability or Enterprise LiabilityLiability

Used when, because of Used when, because of latent effect, plaintiffs do latent effect, plaintiffs do not know the specific not know the specific manufacturermanufacturer

Arose in response to DES Arose in response to DES drug suits drug suits

May sue any or all of the May sue any or all of the manufacturers in questionmanufacturers in question

Manufacturers share Manufacturers share liability according to their liability according to their share of the market for the share of the market for the drugdrug

Joint and Several LiabilityJoint and Several Liability

Plaintiffs may sue any or Plaintiffs may sue any or all manufacturers to share all manufacturers to share the liability createdthe liability created

Any of the defendant-Any of the defendant-manufacturers may be manufacturers may be held responsible for held responsible for all all damagesdamages

Some states have Some states have abolished itabolished it

The tendency is to use The tendency is to use “market share liability” “market share liability” (though that term is not (though that term is not actually used by courts)actually used by courts)

Collins v. Eli Lilly CoCollins v. Eli Lilly Co..Market Share LiabilityMarket Share Liability

Collin’s mother took DES during pregnancyCollin’s mother took DES during pregnancy Drug later banned due to cancer risks to adult Drug later banned due to cancer risks to adult

female offspring of women who took the drug female offspring of women who took the drug during pregnancyduring pregnancy

Collins develops ovarian cancer; has radical Collins develops ovarian cancer; has radical cancer surgerycancer surgery

Mother didn’t know exactly who manufactured the Mother didn’t know exactly who manufactured the DES she took; sues a dozen manufacturers who DES she took; sues a dozen manufacturers who produced itproduced it

Held:Held: She can sue any of them--they pay She can sue any of them--they pay proportion of damages proportion of damages based on the share of the based on the share of the marketmarket they had at time of the injury they had at time of the injury

DefensesDefenses Product Misuse or Abuse Product Misuse or Abuse Assumption of Risk Assumption of Risk

Tobacco and alcohol use are controversial Tobacco and alcohol use are controversial areas; so far courts haven’t applied the defense areas; so far courts haven’t applied the defense to usersto users

Sophisticated Purchaser or Knowledgeable Sophisticated Purchaser or Knowledgeable PurchaserPurchaser i.e. another mgfr. i.e. another mgfr. or Air Force employees who handle certain or Air Force employees who handle certain

chemicalschemicals State of the Art / No Safer AlternativeState of the Art / No Safer Alternative Statues of Repose – 20 yrs. In Indiana.Statues of Repose – 20 yrs. In Indiana. Obvious risks.Obvious risks. Government Preemption – cigarette warnings.Government Preemption – cigarette warnings.

Product Liability ReformProduct Liability Reform

Setting caps on awardsSetting caps on awards Limiting or abolishing punitive damage awardsLimiting or abolishing punitive damage awards Abolishing joint and several liabilityAbolishing joint and several liability Manufacturers argue liability costs make American products Manufacturers argue liability costs make American products

less competitive less competitive Threat of liability forces good products off the marketThreat of liability forces good products off the market

Free market economists say the market will adjust as to Free market economists say the market will adjust as to which products are “good” or notwhich products are “good” or not

Trial lawyers argue for no changes in the present systemTrial lawyers argue for no changes in the present system Some middle ground may be the outcome of opposing views Some middle ground may be the outcome of opposing views See See Should Companies Take a Hard Stand?”Should Companies Take a Hard Stand?”

Some companies that used to settle are now “drawing a Some companies that used to settle are now “drawing a line in the sand” against dubious/frivolous suits.line in the sand” against dubious/frivolous suits.

Statutes of LimitationsStatutes of Limitations

ContractContract – Breach of Warranty – 4 yrs. – Breach of Warranty – 4 yrs. From time cause of action accrues.From time cause of action accrues. Usually accrues at delivery, but future Usually accrues at delivery, but future

performance: Paint guaranteed for 30 yrs.performance: Paint guaranteed for 30 yrs. TortTort – Usually two yrs. But time does – Usually two yrs. But time does

not start until cause of action is not start until cause of action is discovered.discovered.

Statutes of ReposeStatutes of Repose – from 20 to 30 yrs. – from 20 to 30 yrs. Table saw case – saw was 30 yrs. Old.Table saw case – saw was 30 yrs. Old.

Warranty Disclaimers -Warranty Disclaimers -Contracts onlyContracts only Title WarrantyTitle Warranty: May be disclaimed by : May be disclaimed by

using specific language.using specific language. Implied WarrantiesImplied Warranties: May be disclaimed : May be disclaimed

by using specific language, or “as is”, or by using specific language, or “as is”, or “with all faults”.“with all faults”.

Express WarrantiesExpress Warranties:: Best way is not to give express warranties.Best way is not to give express warranties.

Express Warranties – cont.Express Warranties – cont. Disclaimers and warranties are Disclaimers and warranties are

interpreted as consistent, if possible.interpreted as consistent, if possible. If not possible, the disclaimer is NOT If not possible, the disclaimer is NOT

effective.effective. Cannot give warranties in one Cannot give warranties in one

paragraph, and take away in another.paragraph, and take away in another. But, you can limit express warranties to But, you can limit express warranties to

what is written in the contract.what is written in the contract.

Other Contractual LimitationsOther Contractual Limitations Liquidated DamagesLiquidated Damages

Agreed to before breach; proportionate.Agreed to before breach; proportionate. Limitation of DamagesLimitation of Damages

Disclaim consequential damages (lost Disclaim consequential damages (lost profits);profits);

Cannot disclaim personal injury damages Cannot disclaim personal injury damages on a consumer product.on a consumer product.

Limitation of remediesLimitation of remedies Repair or replace;Repair or replace; Not effective if limitation “fails of its Not effective if limitation “fails of its

essential purpose”. – Lemon laws.essential purpose”. – Lemon laws.

Indiana Lemon LawIndiana Lemon Law Applies only to dealers;Applies only to dealers; Covers lesser of 18 months or 18,000 Covers lesser of 18 months or 18,000

miles, starting with date of delivery.miles, starting with date of delivery. 4 attempts to correct a single 4 attempts to correct a single

nonconformity, and not corrected, ornonconformity, and not corrected, or Out of service cumulatively for 30 days Out of service cumulatively for 30 days

for any nonconformity (ies), and not for any nonconformity (ies), and not corrected.corrected.

Remedy is replacement or refund, at Remedy is replacement or refund, at buyer’s option. buyer’s option.

Magneson-Moss Warranty ActMagneson-Moss Warranty Act

Does not require ANY warranty.Does not require ANY warranty. However, if a written warranty is given, However, if a written warranty is given,

it must be designated Full or Limited.it must be designated Full or Limited. If Full, the seller may NOT disclaim, If Full, the seller may NOT disclaim,

modify or limit implied warranties. modify or limit implied warranties. If Limited, the seller may NOT disclaim If Limited, the seller may NOT disclaim

or modify, but may limit implied or modify, but may limit implied warranties. warranties.

End of Chapter 8End of Chapter 8

Ried v. Eckerds Drugs, Inc.Ried v. Eckerds Drugs, Inc.

Ried purchased spray Ried purchased spray can of deodorant from can of deodorant from Eckerds Drugs. After Eckerds Drugs. After spraying his neck and spraying his neck and chest, he lit a cigarette. chest, he lit a cigarette. The alcohol in the The alcohol in the product ignited causing product ignited causing severe burns.severe burns.

The trial court found the The trial court found the warning on the product’s warning on the product’s can was sufficient and can was sufficient and found for Eckerds.found for Eckerds.

Ried appealed.Ried appealed.

HELDHELD: The Court of : The Court of Appeals found that the Appeals found that the maker breached an maker breached an implied warranty of implied warranty of merchantability and an merchantability and an implied warranty of implied warranty of fitness for a particular fitness for a particular use. This means that no use. This means that no negligence by the maker negligence by the maker need be shown. need be shown.

Judgement reversed and Judgement reversed and remandedremanded

Strict Liability Created Through Strict Liability Created Through Warranties Under Contract LawWarranties Under Contract Law

Implied WarrantyImplied Warranty of safetyof safety

Implied Implied AT LAWAT LAW----whether whether manufacturer manufacturer wants the warranty wants the warranty for the product or for the product or notnot

Express WarrantyExpress Warranty Guarantee of safety

or performance By model By statement By contract By Advertising

Baxter v. Ford Motor Baxter v. Ford Motor (1932)(1932)

Baxter buys Model ABaxter buys Model A Printed material states Printed material states

“Triple Shatter-Proof “Triple Shatter-Proof Glass”--”Glass”--”will not fly or will not fly or shatter under the hardest shatter under the hardest impact. . .it eliminates the impact. . .it eliminates the danger of flying glass”danger of flying glass”

Rock hits windshield-Baxter Rock hits windshield-Baxter loses left eyeloses left eye

Trial court did not allow Trial court did not allow advertising to be admitted in advertising to be admitted in evidence; said there was no evidence; said there was no privity of contractprivity of contract

Baxter appealsBaxter appeals

Held: The case should Held: The case should go to the jury.go to the jury.

Representations of Representations of Ford were false Ford were false and Baxter relied and Baxter relied on them—an on them—an express warranty express warranty of safetyof safety

Consumer Products and Consumer Products and Strict LiabilityStrict Liability

Manufacturers are strictly liable for defective productsManufacturers are strictly liable for defective products The courts ask:The courts ask:

Was the product defective?Was the product defective? Did the defect create an unreasonably dangerous Did the defect create an unreasonably dangerous

product or instrumentality?product or instrumentality? Was the defect a proximate cause or substantial factor Was the defect a proximate cause or substantial factor

of the injury?of the injury? Did the injury cause damages?Did the injury cause damages? It is not a defense that the maker used all possible care It is not a defense that the maker used all possible care

and the highest quality in making the good.and the highest quality in making the good.

The EU uses the strict liability standard involving defective The EU uses the strict liability standard involving defective consumer goods; Japan moving that directionconsumer goods; Japan moving that direction

Strict Liability in Tort Law--Strict Liability in Tort Law--Greenman v. Yuba Power Greenman v. Yuba Power (1963)(1963)

Wife buys husband power Wife buys husband power tooltool

2 years later wood flies out 2 years later wood flies out of machine, striking of machine, striking Greenman’s headGreenman’s head

He alleges breaches of He alleges breaches of warranties and negligencewarranties and negligence

S. Ct. of Calif. affirms trial S. Ct. of Calif. affirms trial court decision in favor of court decision in favor of Greenman and says that the Greenman and says that the maker is “strictly liable in maker is “strictly liable in tort”tort”

By mid-1970s By mid-1970s every state every state supreme court had adopted supreme court had adopted strict liability rulestrict liability rule

MacPherson v. Buick Motor MacPherson v. Buick Motor Co. Co. (1916 landmark case)(1916 landmark case)

Buick sells cars to dealersBuick sells cars to dealers NY dealer sells car to MacPherson NY dealer sells car to MacPherson Wheels made by another company; wheel collapses, causing Wheels made by another company; wheel collapses, causing

accident that results in injury to MacPhersonaccident that results in injury to MacPherson He files negligence suit; Buick says it has no privity with him; He files negligence suit; Buick says it has no privity with him;

trial court holds that privity is not required. Buick appeals.trial court holds that privity is not required. Buick appeals. NY Court of Appeals (high court) holds primary NY Court of Appeals (high court) holds primary

manufacturer has control over product safetymanufacturer has control over product safety Defects could have been discovered by reasonable Defects could have been discovered by reasonable

inspection, which was omittedinspection, which was omitted Buick is responsible for the finished productBuick is responsible for the finished product Judgment affirmedJudgment affirmed

Ultrahazardous ActivityUltrahazardous Activity Common law rules Common law rules

developed about developed about uncommon activities uncommon activities where utmost care is where utmost care is neededneeded i.e. use of explosives, i.e. use of explosives,

transport of transport of dangerous chemicals, dangerous chemicals, crop dustingcrop dusting

SeeSee Old Island Old Island FumigationFumigation (in text) (in text)