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

Slides, Business Law

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

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