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Business Law I (BMGT 380)

Week 3

Rafael Andrino, JD

Business Law I

Agenda:

● Product Liability
â—‹ What is it?

â—‹ Warranty

â—‹ Negligence

â—‹ Strict Liability

â—‹ Impact on Business

● Video

● Discussion

● Wrap up

Business Law I

Product Liability
● Arises when a product fails, resulting in loss or injury.

● Typically due to a defect in design and resulting from intended use

● Types:
â—‹ Warranty (Contract)

â—‹ Negligence (Tort)

â—‹ Strict Liability (Tort)

Business Law I

Product Liability – Warranty
● Contractual – arises out of a relationship between the manufacturer or seller, and the user

â—‹ We will cover what it means to be in a contractual relationship when we cover Contracts

● Warranty liability, as with other forms of contract liability, is strict liability

â—‹ This means that the plaintiff need only show that the product failed per the terms of the

warranty, but not that the defendant (manufacturer/seller) was at fault (negligent or wilful).

● There are express warranties and implied warranties

â—‹ Express warranties are expressly written out by the party issuing the warranty–manufacturer

or seller

â—‹ Implied warranties arise by operation of law, as found in Uniform Commercial Code Art 2.

● Read Chapter 17 – Products Liability

Business Law I

Express Warranty – typically
â–  Seller agrees to repair or replace a defective product that fails within a specified

period of time. May also cover compensation to Buyer for foreseeable resulting

damage.

â–  Buyer must report failure promptly, and normally return the defective product.

■ Seller’s promise will typically exclude:

● Buyer’s modification of the product

● Buyer’s misuse or abuse of the product

● Buyer’s failure to maintain the product

● Normal wear and tear.

Business Law I

Express Warranty – continued…
â–  Buyer often waives right to sue for failure of the product in exchange for the warranty.

● E.g., the Buyer cannot claim under warranty and then sue for negligence.

â–  Requires privity of contract — a relationship between the plaintiff and the defendant.

● Although the warranty may cover third parties in some cases.

â–  The UN Convention on Contracts for the International Sale of Goods (CISG, similar to

UCC Art 2 but for contracts between parties in different countries) allows the buyer to

require seller for deliver substitute goods for goods that do not materially conform to

contract requirements. The buyer may also require repair of accepted non-conforming

goods.

Business Law I

Implied Warranties — UCC – Sale of Goods (Art 2)
UCC Art 2 provides the following implied warranties to the sale of goods

● Merchantability – Goods (products) are what the merchant says they are – conforms to buyer’s

reasonable expectations.

● Fitness for a particular purpose – If a seller knows or should know what the good is being

purchased for, that the good will meet that purpose.

● Both of the above can be waived by an express, conspicuous waiver, agreed by buyer and seller.

● Merchants may also offer express warranties outside of UCC Art 2.

● Not applicable to non-merchant sellers

○ Goods sold by private sellers are typically sold “as-is”, meaning that there are no such

implied warranties or express warranties.

Business Law I

Problems with Warranties
● The claimant must prove that there was a sale.

â—‹ There must be privity – a contractual relationship between the seller and the buyer.

â–  We will explore this in Contracts.

● The sale was of goods and not for real estate or services.

â—‹ However, express warranties can be provided for real estate and for services.

● The action must be brought within the statute of limitations after delivery

â—‹ Four (4) years under UCC Art 2-725

â—‹ Unless there is a longer period provided in an express warranty.

Business Law I

Product Liability – Negligence
● From last week, as with all negligence cases, the plaintiff must prove fault.

● The elements of a negligence case are:

â—‹ The defendant had a duty of care,

â—‹ The duty of care was breached,

○ The breach (cause) resulted in and was connected (proximate) to the plaintiff’s injury, and

â—‹ The plaintiff suffered actual damage or loss.

If the plaintiff cannot prove all four elements above, the defendant prevails.

● Keep in mind, though, that a manufacturer’s failure to follow manufacturing standards or safety

regulations may be deemed negligence per se.

Business Law I

Negligence – continued…
● As with other forms of negligence, claims can be difficult to prove, and are subject to defenses:

â—‹ Just because a product is defective does not necessarily prove the manufacturer breached

a duty of care.

○ Proximate cause: did plaintiff’s injury flow proximately from that negligence? Was it a

foreseeable outcome?

â—‹ Was there comparative fault?

■ Did the plaintiff’s own actions contribute to the harm?

â—‹ Assumption of the risk: knowingly using the product in a risky way.

Business Law I

Negligence – continued…
● As with other forms of negligence, claims can be difficult to prove, and are subject to defenses:

â—‹ Some defenses similar to warranty:

â–  Was there a subsequent alteration of the product?

â–  Was the product misused or abused?

● A negligence claim for product liability would likely be brought against the manufacturer/designer

of the product, and not a reseller, unless the plaintiff can show that the reseller’s own actions

were negligent, such as the reseller:

â—‹ knew of the defect and sold it anyway,

â—‹ altered the product prior to sale,

○ did not follow the manufacturer’s guidance.

Business Law I

Product Liability – Strict Liability:
● As with warranty claims, a strict liability claim means that the plaintiff need not prove fault, only

that the injury occurred as a result of using the defective product.

● Unlike other forms of strict liability, it does not have origins in English law.

â—‹ England does not recognize strict product liability under common law tort.

● It is a consumer cause of action against a manufacturer and seller/distributor resulting from a

defective product.

Business Law I

Strict Liability – continued…

● Elements:
â—‹ The product must be in defective condition when the defendant sells it.

â—‹ The defendant is normally engaged in the business of selling/distributing the product.

â—‹ The product is unreasonably dangerous to the user/consumer because of its defect.

â—‹ The plaintiff incurs physical harm to self or property by using/consuming the product.

â—‹ The defective condition must be the proximate cause of the injury or damage.

â—‹ The goods must not have been substantially changed from the time the product was sold to

the time the injury was sustained.

Even if the defendant uses all possible care to avoid the injury.

Business Law I

Strict Liability:

● May not apply to:
â—‹ Assumption of risk

â—‹ Product misuse and comparative negligence (using a product in a manner other than

intended, e.g., burns suffered when ironing clothes while they are on, or texting while

driving). See Daniell v. Ford Motor Company (gross consumer misuse, unforeseeable

misuse)

â—‹ Commonly known dangers

â—‹ The knowledgeable-user defense (suing a fast food restaurant for your health problems due

to unhealthy foods).

â—‹ See: Liriano v. Hobart Corp. (failure to adequately warn, defective and negligent design)

â—‹ Read Instructor Notes for Week 3

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