Product Liability for Breach of Warranty – Part 2

Product Liability for Breach of Warranty – Part 2


This is part 2. Part 1 is here.

Product Liability for Breach of Warranty – Part 2

In part one of this presentation, we introduced the concept of breach of warranty as a product liability cause of action and discussed the types of warranties that can attach to goods that are sold. Next, we will focus on the parties that can bring breach of warranty actions and possible defenses that may be available against breach of warranty claims.

Who can bring a breach of warranty claim against whom?

In the most common type of breach of warranty claim, the person who bought the product brings a suit against the merchant she brought it from. Things become more complicated when the action concerns parties other than the immediate buyer and seller.  

            Consider the facts of a commonly studied case of Henningsen v. Bloomfield Motors, dealing with the sale of a car with a defective steering wheel. A married man purchased a Chrysler automobile from a local Chrysler dealership, and gave it to his wife. While she was driving the car, the steering mechanism failed, leading to a serious accident and serious injury to the wife. She sued Chrysler for selling a defective car to the dealership that her husband bought it from.[1]

To address the wife’s claim, the court had to decide two issues. First, could the wife, as someone who did not purchase the car herself, bring a suit for breach of warranty? Second, could Chrysler, who did not directly transact with husband or wife, be sued for the product defect?

The first question is: Who else, other than the purchaser, is covered by warranty protections? The second is: Can the purchaser sue a seller with whom he has not directly contracted, but who sold the defective product to the middleman he bought it from?

Let’s take these one at a time.

Under the common law, a warranty was considered a kind of contract between buyer and seller. Therefore, any legal action could only be maintained against an immediate seller, and not another party further up the distribution chain.

However, in modern economic conditions of mass-marketing and regular use of dealers or middlemen to sell products, the law considers a manufacturer’s warranty to extend to remote purchasers well beyond the initial sale. So, coming back to the Henningsen case, the fact that the car was purchased from the dealership rather than Chrysler does not prevent a product liability lawsuit against Chrysler as manufacturer.[2]

Now, let’s consider the other question raised by the case. Courts have extended liability for defective products to apply to users well beyond the initial purchaser. The general rule is that warranty covers all people whom it is reasonable to expect would use the product.[3] Clearly, this would cover the wife in our example, who was using the car her husband purchased. More broadly, it has been understood to cover any member of the household of the purchaser, or even bystanders who are injured due to the defect, if it is reasonable to expect that they would be affected by the goods.[4] It is certainly reasonable, for example, to foresee that people who purchase five-passenger cars will ride with passengers. As such, defects in the car that cause injuries to the passengers will allow the passengers to maintain breach of warranty product liability actions against the manufacturer or seller.

Defenses to Breach of Warranty

Product liability law operates with a strong presumption that merchants selling products offer warranties, whether express or due to the implied warranty of merchantability or implied fitness for a particular purpose. So, it is important to cover the ways that sellers can reduce their potential liability by limiting when warranty protections apply.

            One method for precluding the assumption of warranty protection is a disclaimer.

A merchant can make a written disclaimer that the merchandise for sale does not come with a warranty.  The merchant can even disclaim the implied warranty of merchantability normally insured under the UCC. The disclaimer is effective if it is conspicuous, which usually means that it must be in large, easily seen print, and it must include the word “merchantability.”[5] 

            However, under federal law, a disclaimer is only effective if no written warranty is given to the customer.[6] So, if a microwave was sold with a conspicuous stamp on the package making it clear it is not covered under warranty, the disclaimer would free the seller of liability. But, if the same microwave comes with a written warranty in its packaging, the stamp purporting to disclaim the warranty will not prevent the written warranty and its packaging from being effective. This law was enacted to stop merchants from using disclaimers together with warranties in an unfair or misleading way.

A disclaimer of a warranty can also be implied when it is clear from circumstances that the product is being sold without any guarantees. A common example is when good are offered for sale in the ‘as-is’ section of a store.[7]  

An important caveat to disclaimers is that many courts will not enforce disclaimers in cases of gross negligence, as allowing merchants to disclaim liability for their own gross negligence violates public policy.[8] It is axiomatic, then, that a merchant cannot disclaim liability his own intentionally wrongful conduct.

            Another means of not including a full warranty at time of sale is to specify that remedies for a defective product are limited to repair or replacement. In this way, sellers are protected from further losses resulting from the defect, and the buyer must be aware of this at time of purchase. However, such a repair or replace limitation is only effective for commercial loss for business products, not for personal injury harms.[9]

Conclusion

The application of the legal standards for breach of warranty can be complex and depends on industry standards. However, the basic premise is that if goods are offered for sale, they should meet reasonable standards of quality and performance, unless the customer is informed in advance that this is not the case.

Warranties are an important part of commercial interactions because they place burdens on sellers to ensure quality products. In turn, buyers are more likely to purchase goods because they know that the risk of defective or harmful products is reduced by the legal remedy of breach of warranty.




Footnotes:

[1] Henningsen v. Bloomfield Motors, Inc., 161 A.2d 69, 32 N.J. 358, 32 N.J. Super. 358 (1960).

[2] Id.

[3] U.C.C. § 2-318.

[4] U.C.C. § 2-318.

[5] U.C.C. § 2-316(2).

[6] 15 U.S.C. § 2301 et seq.

[7] U.C.C. § 2-316(3).

[8] Abacus Federal Savings Bank v. ADT Security Services, Inc., 967 N.E.2d 666 (2012)

[9] U.C.C. § 2-719(3).