identify and analyze legal issues and make recommendations based on one or more fact patterns.

This project requires you to identify and analyze legal issues and make recommendations based on one or more fact patterns.

Scenario:  Deeper Depths, Inc. is a deep water oil drilling corporation headquartered in Rome, but with oceanic drilling on the east and southern coasts of the U.S.   Deeper Depths transports oil to all parts of the US.  Deeper Depths averages $12 million annual profits and has 300 full-time employees.

1.  Evaluate and discuss all the administrative regulations that create potential liabilities for Deeper Depths related to its drilling operations and why/how.   

1A.  Analyze and describe several ways Deeper Depth could prevent or minimize potential liabilities related to its drilling operations.

2.  Evaluate and discuss all the administrative regulations that create potential liabilities for Deeper Depths workplace and employee safety.

2A.  Analyze and describe several ways Deeper Depth could prevent or minimize potential liabilities related to its workplace and employees.

Please Note:  Use reference material attached, along with outside sources. Otherwise, limit your analysis and discussion to the topics and assigned resources in weeks 1,2 AND the additional resource below: 

https://www.osha.gov/SLTC/oilgaswelldrilling/index.html

Format

Must use in text citations, and References list.

Must write in depth, comprehensive analysis and explanations to support conclusions.

Use legible 12-point font.

Double Space

Label all parts of assignment questions,

Third person writing is required.  Third person means that there are no words such as “I, me, my, we, or us” (first person writing), nor is there use of “you or your” (second person writing).  If uncertain how to write in the third person, view this link:  http://www.quickanddirtytips.com/education/grammar/first-second-and-third-person.

Contractions are not used in business writing, so you are expected NOT to use contractions in writing this assignment.

The expectation is that you provide a robust use of the course readings attached. When using a source document, the expectation is that the information is cited and referenced with a page or paragraph number.

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Chapter 11

Chapter 11 from Advanced Business Law and the Legal Environment was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0

license without attribution as requested by the work’s original creator or licensee. © 2014, The Saylor Foundation.

http://www.saylor.org/site/textbooks/Advanced%20Business%20Law%20and%20the%20Legal%20Environment.pdf

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Products Liability

LEARNING OBJECTIVES

After reading this chapter, you should understand the following:

1. How products-liability law allocates the costs of a consumer society

2. How warranty theory works in products liability, and what its limitations are

3. How negligence theory works, and what its problems are

4. How strict liability theory works, and what its limitations are

5. What efforts are made to reform products-liability law, and why

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11.1 Introduction: Why Products-Liability Law Is Important

LEARNING OBJECTIVES

1. Understand why products-liability law underwent a revolution in the

twentieth century.

2. Recognize that courts play a vital role in policing the free enterprise system by

adjudicating how the true costs of modern consumer culture are allocated.

3. Know the names of the modern causes of action for products-liability cases.

In previous chapters, we discussed remedies generally. In this chapter, we focus specifically on remedies

available when a defective product causes personal injury or other damages. Products liability describes a

type of claim, not a separate theory of liability. Products liability has strong emotional overtones—ranging

from the prolitigation position of consumer advocates to the conservative perspective of the

manufacturers.

History of Products-Liability Law The theory of caveat emptor—let the buyer beware—that pretty much governed consumer law from the

early eighteenth century until the early twentieth century made some sense. A horse-drawn buggy is a

fairly simple device: its workings are apparent; a person of average experience in the 1870s would know

whether it was constructed well and made of the proper woods. Most foodstuffs 150 years ago were grown

at home and “put up” in the home kitchen or bought in bulk from a local grocer, subject to inspection and

sampling; people made home remedies for coughs and colds and made many of their own clothes. Houses

and furnishings were built of wood, stone, glass, and plaster—familiar substances. Entertainment was a

book or a piano. The state of technology was such that the things consumed were, for the most part,

comprehensible and—very important—mostly locally made, which meant that the consumer who suffered

damages from a defective product could confront the product’s maker directly. Local reputation is a

powerful influence on behavior.

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The free enterprise system confers great benefits, and no one can deny that: materialistically, compare the

image sketched in the previous paragraph with circumstances today. But those benefits come with a cost,

and the fundamental political issue always is who has to pay. Consider the following famous passage from

Upton Sinclair’s great novel The Jungle. It appeared in 1906. He wrote it to inspire labor reform; to his

dismay, the public outrage focused instead on consumer protection reform. Here is his description of the

sausage-making process in a big Chicago meatpacking plant:

There was never the least attention paid to what was cut up for sausage; there would come all the way

back from Europe old sausage that had been rejected, and that was moldy and white—it would be dosed

with borax and glycerin, and dumped into the hoppers, and made over again for home consumption.

There would be meat that had tumbled out on the floor, in the dirt and sawdust, where the workers had

tramped and spit uncounted billions of consumption germs. There would be meat stored in great piles in

rooms; and the water from leaky roofs would drip over it, and thousands of rats would race about on it. It

was too dark in these storage places to see well, but a man could run his hand over these piles of meat and

sweep off handfuls of the dried dung of rats. These rats were nuisances, and the packers would put

poisoned bread out for them; they would die, and then rats, bread, and meat would go into the hoppers

together. This is no fairy story and no joke; the meat would be shoveled into carts, and the man who did

the shoveling would not trouble to lift out a rat even when he saw one—there were things that went into

the sausage in comparison with which a poisoned rat was a tidbit. There was no place for the men to wash

their hands before they ate their dinner, and so they made a practice of washing them in the water that

was to be ladled into the sausage. There were the butt-ends of smoked meat, and the scraps of corned

beef, and all the odds and ends of the waste of the plants, that would be dumped into old barrels in the

cellar and left there.

Under the system of rigid economy which the packers enforced, there were some jobs that it only paid to

do once in a long time, and among these was the cleaning out of the waste barrels. Every spring they did

it; and in the barrels would be dirt and rust and old nails and stale water—and cartload after cartload of it

would be taken up and dumped into the hoppers with fresh meat, and sent out to the public’s breakfast.

Some of it they would make into “smoked” sausage—but as the smoking took time, and was therefore

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expensive, they would call upon their chemistry department, and preserve it with borax and color it with

gelatin to make it brown. All of their sausage came out of the same bowl, but when they came to wrap it

they would stamp some of it “special,” and for this they would charge two cents more a pound. [1]

It became clear from Sinclair’s exposé that associated with the marvels of then-modern meatpacking and

distribution methods was food poisoning: a true cost became apparent. When the true cost of some

money-making enterprise (e.g., cigarettes) becomes inescapably apparent, there are two possibilities.

First, the legislature can in some way mandate that the manufacturer itself pay the cost; with the

meatpacking plants, that would be the imposition of sanitary food-processing standards. Typically,

Congress creates an administrative agency and gives the agency some marching orders, and then the

agency crafts regulations dictating as many industry-wide reform measures as are politically possible.

Second, the people who incur damages from the product (1) suffer and die or (2) access the machinery of

the legal system and sue the manufacturer. If plaintiffs win enough lawsuits, the manufacturer’s insurance

company raises rates, forcing reform (as with high-powered muscle cars in the 1970s); the business goes

bankrupt; or the legislature is pressured to act, either for the consumer or for the manufacturer.

If the industry has enough clout to blunt—by various means—a robust proconsumer legislative response

so that government regulation is too lax to prevent harm, recourse is had through the legal system. Thus

for all the talk about the need for tort reform (discussed later in this chapter), the courts play a vital role in

policing the free enterprise system by adjudicating how the true costs of modern consumer culture are

allocated.

Obviously the situation has improved enormously in a century, but one does not have to look very far to

find terrible problems today. Consider the following, which occurred in 2009–10:

In the United States, Toyota recalled 412,000 passenger cars, mostly the Avalon model, for

steering problems that reportedly led to three accidents.

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Portable baby recliners that are supposed to help fussy babies sleep better were recalled after the

death of an infant: the Consumer Product Safety Commission announced the recall of 30,000

Nap Nanny recliners made by Baby Matters of Berwyn, Pennsylvania.

More than 70,000 children and teens go to the emergency room each year for injuries and

complications from medical devices. Contact lenses are the leading culprit, the first detailed

national estimate suggests.

Smith and Noble recalled 1.3 million Roman shades and roller shades after a child was nearly

strangled: the Consumer Product Safety Commission says a five-year-old boy in Tacoma,

Washington, was entangled in the cord of a roller shade in May 2009. [2]

The Consumer Product Safety Commission reported that 4,521 people were killed in the United

States in consumer-product-related incidences in 2009, and millions of people visited hospital

emergency rooms from consumer-product-related injuries. [3]

Reports about the possibility that cell-phone use causes brain cancer continue to be hotly

debated. Critics suggest that the studies minimizing the risk were paid for by cell-phone

manufacturers. [4]

Products liability can also be a life-or-death matter from the manufacturer’s perspective. In 2009,

Bloomberg BusinessWeek reported that the costs of product safety for manufacturing firms can be

enormous: “Peanut Corp., based in Lynchberg, Va., has been driven into bankruptcy since health officials

linked tainted peanuts to more than 600 illnesses and nine deaths. Mattel said the first of several toy

recalls it announced in 2007 cut its quarterly operating income by $30 million. Earlier this decade, Ford

Motor spent roughly $3 billion replacing 10.6 million potentially defective Firestone tires.” [5]Businesses

complain, with good reason, about the expenses associated with products-liability problems.

Current State of the Law Although the debate has been heated and at times simplistic, the problem of products liability is complex

and most of us regard it with a high degree of ambivalence. We are all consumers, after all, who profit

greatly from living in an industrial society. In this chapter, we examine the legal theories that underlie

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products-liability cases that developed rapidly in the twentieth century to address the problems of

product-caused damages and injuries in an industrial society.

In the typical products-liability case, three legal theories are asserted—a contract theory and two tort

theories. The contract theory is warranty, governed by the UCC, and the two tort theories are

negligence and strict products liability, governed by the common law. See .

Figure 11.1 Major Products Liability Theories

KEY TAKEAWAY

As products became increasingly sophisticated and potentially dangerous in the

twentieth century, and as the separation between production and consumption

widened, products liability became a very important issue for both consumers and

manufacturers. Millions of people every year are adversely affected by defective

products, and manufacturers and sellers pay huge amounts for products-liability

insurance and damages. The law has responded with causes of action that provide

a means for recovery for products-liability damages.

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EXERCISES

1. How does the separation of production from consumption affect products-

liability issues?

2. What other changes in production and consumption have caused the need for

the development of products-liability law?

3. How can it be said that courts adjudicate the allocation of the costs of a

consumer-oriented economy?

[1] Upton Sinclair, The Jungle (New York: Signet Classic, 1963), 136.

[2] FindLaw, AP reports, http://news.findlaw.com/legalnews/us/pl.

[3] US Consumer Product Safety Commission, 2009 Report to the President and the Congress,

accessed March 1, 2011,http://www.cpsc.gov/cpscpub/pubs/reports/2009rpt.pdf.

[4] Matt Hamblen, “New Study Warns of Cell Phone Dangers,”Computerworld US, August 9,

2009, accessed March 1, 2011,http://news.techworld.com/personal-tech/3200539/new-study-

warns-of-cell-phone-dangers.

[5] Michael Orey, “Taking on Toy Safety,” BusinessWeek, March 6, 2009, accessed March 1,

2011,http://www.businessweek.com/managing/content/mar2009/ca2009036_271002.htm.

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11.2 Warranties

LEARNING OBJECTIVES

1. Recognize a UCC express warranty and how it is created.

2. Understand what is meant under the UCC by implied warranties, and know the main

types of implied warranties: merchantability, fitness for a particular purpose, and

title.

3. Know that there are other warranties: against infringement and as may arise from

usage of the trade.

4. See that there are difficulties with warranty theory as a cause of action for products

liability; a federal law has addressed some of these.

The UCC governs express warranties and various implied warranties, and for many years it was the only

statutory control on the use and meanings of warranties. In 1975, after years of debate, Congress passed

and President Gerald Ford signed into law the Magnuson-Moss Act, which imposes certain requirements

on manufacturers and others who warrant their goods. We will examine both the UCC and the Magnuson-

Moss Act.

Types of Warranties Express Warranties

An express warranty is created whenever the seller affirms that the product will perform in a certain

manner. Formal words such as “warrant” or “guarantee” are not necessary. A seller may create an express

warranty as part of the basis for the bargain of sale by means of (1) an affirmation of a fact or promise

relating to the goods, (2) a description of the goods, or (3) a sample or model. Any of these will create an

express warranty that the goods will conform to the fact, promise, description, sample, or model. Thus a

seller who states that “the use of rustproof linings in the cans would prevent discoloration and

adulteration of the Perform solution” has given an express warranty, whether he realized it or

not. [1] Claims of breach of express warranty are, at base, claims of misrepresentation.

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But the courts will not hold a manufacturer to every statement that could conceivably be interpreted to be

an express warranty. Manufacturers and sellers constantly “puff” their products, and the law is content to

let them inhabit that gray area without having to make good on every claim. UCC 2-313(2) says that “an

affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or

commendation of the goods does not create a warranty.” Facts do.

It is not always easy, however, to determine the line between an express warranty and a piece of puffery. A

salesperson who says that a strawberry huller is “great” has probably puffed, not warranted, when it turns

out that strawberries run through the huller look like victims of a massacre. But consider the classic cases

of the defective used car and the faulty bull. In the former, the salesperson said the car was in “A-1 shape”

and “mechanically perfect.” In the latter, the seller said not only that the bull calf would “put the buyer on

the map” but that “his father was the greatest living dairy bull.” The car, carrying the buyer’s seven-

month-old child, broke down while the buyer was en route to visit her husband in the army during World

War II. The court said that the salesperson had made an express warranty. [2] The bull calf turned out to be

sterile, putting the farmer on the judicial rather than the dairy map. The court said the seller’s spiel was

trade talk, not a warranty that the bull would impregnate cows. [3]

Is there any qualitative difference between these decisions, other than the quarter century that separates

them and the different courts that rendered them? Perhaps the most that can be said is that the more

specific and measurable the statement’s standards, the more likely it is that a court will hold the seller to a

warranty, and that a written statement is easier to construe as a warranty than an oral one. It is also

possible that courts look, if only subliminally, at how reasonable the buyer was in relying on the

statement, although this ought not to be a strict test. A buyer may be unreasonable in expecting a car to

get 100 miles to the gallon, but if that is what the seller promised, that ought to be an enforceable

warranty.

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The CISG (Article 35) provides, “The seller must deliver goods which are of the quantity,

quality and description required by the contract and which are contained or packaged in

the manner required by the contract. [And the] goods must possess the qualities of goods

which the seller has held out to the buyer as a sample or model.”

Implied Warranties

Express warranties are those over which the parties dickered—or could have. Express warranties go to the

essence of the bargain. An implied warranty, by contrast, is one that circumstances alone, not specific

language, compel reading into the sale. In short, an implied warranty is one created by law, acting from an

impulse of common sense.

Implied Warranty of Merchantability

Section 2-314 of the UCC lays down the fundamental rule that goods carry

an implied warranty of merchantability if sold by a merchant-seller. What is merchantability? Section 2-

314(2) of the UCC says that merchantable goods are those that conform at least to the following six

characteristics:

1. Pass without objection in the trade under the contract description

2. In the case of fungible goods, are of fair average quality within the description

3. Are fit for the ordinary purposes for which such goods are used

4. Run, within the variations permitted by the agreement, of even kind, quality, and quantity within

each unit and among all units involved

5. Are adequately contained, packaged, and labeled as the agreement may require

6. Conform to the promise or affirmations of fact made on the container or label if any

For the purposes of Section 2-314(2)(c) of the UCC, selling and serving food or drink for consumption on

or off the premises is a sale subject to the implied warranty of merchantability—the food must be “fit for

the ordinary purposes” to which it is put. The problem is common: you bite into a cherry pit in the cherry-

vanilla ice cream, or you choke on the clam shells in the chowder. Is such food fit for the ordinary

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purposes to which it is put? There are two schools of thought. One asks whether the food was natural as

prepared. This view adopts the seller’s perspective. The other asks what the consumer’s reasonable

expectation was.

The first test is sometimes said to be the “natural-foreign” test. If the substance in the soup is natural to

the substance—as bones are to fish—then the food is fit for consumption. The second test, relying on

reasonable expectations, tends to be the more commonly used test.

The Convention provides (Article 35) that “unless otherwise agreed, the goods sold are fit

for the purposes for which goods of the same description would ordinarily be used.”

Fitness for a Particular Purpose

Section 2-315 of the UCC creates another implied warranty. Whenever a seller, at the time she contracts to

make a sale, knows or has reason to know that the buyer is relying on the seller’s skill or judgment to

select a product that is suitable for the particular purpose the buyer has in mind for the goods to be sold,

there is an implied warranty that the goods are fit for that purpose. For example, you go to a hardware

store and tell the salesclerk that you need a paint that will dry overnight because you are painting your

front door and a rainstorm is predicted for the next day. The clerk gives you a slow-drying oil-based paint

that takes two days to dry. The store has breached an

implied warranty of fitness for particular purpose.

Note the distinction between “particular” and “ordinary” purposes. Paint is made to color and when dry to

protect a surface. That is its ordinary purpose, and had you said only that you wished to buy paint, no

implied warranty of fitness would have been breached. It is only because you had a particular purpose in

mind that the implied warranty arose. Suppose you had found a can of paint in a general store and told

the same tale, but the proprietor had said, “I don’t know enough about that paint to tell you anything

beyond what’s on the label; help yourself.” Not every seller has the requisite degree of skill and knowledge

about every product he sells to give rise to an implied warranty. Ultimately, each case turns on its

particular circumstances:“The Convention provides (Article 35): [The goods must be] fit for

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any particular purpose expressly or impliedly made known to the seller at the time of the

conclusion of the contract, except where the circumstances show that the buyer did not

rely, or that it was unreasonable for him to rely, on the seller’s skill and judgment.”

Other Warranties

Article 2 contains other warranty provisions, though these are not related specifically to products liability.

Thus, under UCC, Section 2-312, unless explicitly excluded, the seller warrants he is conveyinggood

title that is rightfully his and that the goods are transferred free of any security interest or other lien or

encumbrance. In some cases (e.g., a police auction of bicycles picked up around campus and never

claimed), the buyer should know that the seller does not claim title in himself, nor that title will

necessarily be good against a third party, and so subsection (2) excludes warranties in these

circumstances. But the circumstances must be so obvious that no reasonable person would suppose

otherwise.

In Menzel v. List, an art gallery sold a painting by Marc Chagall that it purchased in Paris. [4] The painting

had been stolen by the Germans when the original owner was forced to flee Belgium in the 1930s. Now in

the United States, the original owner discovered that a new owner had the painting and successfully sued

for its return. The customer then sued the gallery, claiming that it had breached the implied warranty of

title when it sold the painting. The court agreed and awarded damages equal to the appreciated value of

the painting. A good-faith purchaser who must surrender stolen goods to their true owner has a claim for

breach of the implied warranty of title against the person from whom he bought the goods.

A second implied warranty, related to title, is that the merchant-seller warrants the goods are free of any

rightful claim by a third personthat the seller has infringed his rights (e.g., that a gallery has not infringed

a copyright by selling a reproduction). This provision only applies to a seller who regularly deals in goods

of the kind in question. If you find an old print in your grandmother’s attic, you do not warrant when you

sell it to a neighbor that it is free of any valid infringement claims.

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A third implied warranty in this context involves the course of dealing or usage of trade. Section 2-314(3)

of the UCC says that unless modified or excluded implied warranties may arise from a course of dealing or

usage of trade. If a certain way of doing business is understood, it is not necessary for the seller to state

explicitly that he will abide by the custom; it will be implied. A typical example is the obligation of a dog

dealer to provide pedigree papers to prove the dog’s lineage conforms to the contract.

Problems with Warranty Theory In General

It may seem that a person asserting a claim for breach of warranty will have a good chance of success

under an express warranty or implied warranty theory of merchantability or fitness for a particular

purpose. In practice, though, claimants are in many cases denied recovery. Here are four general

problems:

The claimant must prove that there was a sale.

The sale was of goods rather than real estate or services.

The action must be brought within the four-year statute of limitations under Article 2-725, when

the tender of delivery is made, not when the plaintiff discovers the defect.

Under UCC, Section 2-607(3)(a) and Section 2A-516(3)(a), which covers leases, the claimant who

fails to give notice of breach within a reasonable time of having accepted the goods will see the

suit dismissed, and few consumers know enough to do so, except when making a complaint about

a purchase of spoiled milk or about paint that wouldn’t dry.

In addition to these general problems, the claimant faces additional difficulties stemming directly from

warranty theory, which we take up later in this chapter.

Exclusion or Modification of Warranties

The UCC permits sellers to exclude or disclaim warranties in whole or in part. That’s reasonable, given

that the discussion here is about contract, and parties are free to make such contracts as they see fit. But a

number of difficulties can arise.

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Exclusion of Express Warranties

The simplest way for the seller to exclude express warranties is not to give them. To be sure, Section 2-

316(1) of the UCC forbids courts from giving operation to words in fine print that negate or limit express

warranties if doing so would unreasonably conflict with express warranties stated in the main body of the

contract—as, for example, would a blanket statement that “this contract excludes all warranties express or

implied.” The purpose of the UCC provision is to prevent customers from being surprised by unbargained-

for language.

Exclusion of Implied Warranties in General

Implied warranties can be excluded easily enough also, by describing the product with language such as

“as is” or “with all faults.” Nor is exclusion simply a function of what the seller says. The buyer who has

either examined or refused to examine the goods before entering into the contract may not assert an

implied warranty concerning defects an inspection would have revealed.

The Convention provides a similar rule regarding a buyer’s rights when he has failed to

inspect the goods (Article 35): “The seller is not liable…for any lack of conformity of the

goods if at the time of the conclusion of the contract the buyer knew or could not have been

unaware of such lack of conformity.”

Implied Warranty of Merchantability

Section 2-316(2) of the UCC permits the seller to disclaim or modify the implied warranty of

merchantability, as long as the statement actually mentions “merchantability” and, if it is written, is

“conspicuous.” Note that the disclaimer need not be in writing, and—again—all implied warranties can be

excluded as noted.

Implied Warranty of Fitness

Section 2-316(2) of the UCC permits the seller also to disclaim or modify an implied warranty of fitness.

This disclaimer or modification must be in writing, however, and must be conspicuous. It need not

mention fitness explicitly; general language will do. The following sentence, for example, is sufficient to

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exclude all implied warranties of fitness: “There are no warranties that extend beyond the description on

the face of this contract.”

Here is a standard disclaimer clause found in a Dow Chemical Company agreement: “Seller warrants that

the goods supplied here shall conform to the description stated on the front side hereof, that it will convey

good title, and that such goods shall be delivered free from any lawful security interest, lien, or

encumbrance. SELLER MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A

PARTICULAR USE. NOR IS THERE ANY OTHER EXPRESS OR IMPLIED WARRANTY.”

Conflict between Express and Implied Warranties

Express and implied warranties and their exclusion or limitation can often conflict. Section 2-317 of the

UCC provides certain rules for deciding which should prevail. In general, all warranties are to be

construed as consistent with each other and as cumulative. When that assumption is unreasonable, the

parties’ intention governs the interpretation, according to the following rules: (a) exact or technical

specifications displace an inconsistent sample or model or general language of description; (b) a sample

from an existing bulk displaces inconsistent general language of description; (c) express warranties

displace inconsistent implied warranties other than an implied warranty of fitness for a particular

purpose. Any inconsistency among warranties must always be resolved in favor of the implied warranty of

fitness for a particular purpose. This doesn’t mean that warranty cannot be limited or excluded altogether.

The parties may do so. But in cases of doubt whether it or some other language applies, the implied

warranty of fitness will have a superior claim.

The Magnuson-Moss Act and Phantom Warranties

After years of debate over extending federal law to regulate warranties, Congress enacted the Magnuson-

Moss Federal Trade Commission Warranty Improvement Act (more commonly referred to as the

Magnuson-Moss Act) and President Ford signed it in 1975. The act was designed to clear up confusing and

misleading warranties, where—as Senator Magnuson put it in introducing the bill—“purchasers of

consumer products discover that their warranty may cover a 25-cent part but not the $100 labor charge or

that there is full coverage on a piano so long as it is shipped at the purchaser’s expense to the

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factory.…There is a growing need to generate consumer understanding by clearly and conspicuously

disclosing the terms and conditions of the warranty and by telling the consumer what to do if his

guaranteed product becomes defective or malfunctions.” The Magnuson-Moss Act only applies to

consumer products (for household and domestic uses); commercial purchasers are presumed to be

knowledgeable enough not to need these protections, to be able to hire lawyers, and to be able to include

the cost of product failures into the prices they charge.

The act has several provisions to meet these consumer concerns; it regulates the content of warranties and

the means of disclosing those contents. The act gives the Federal Trade Commission (FTC) the authority

to promulgate detailed regulations to interpret and enforce it. Under FTC regulations, any written

warranty for a product costing a consumer more than ten dollars must disclose in a single document and

in readily understandable language the following nine items of information:

1. The identity of the persons covered by the warranty, whether it is limited to the original purchaser

or fewer than all who might come to own it during the warranty period.

2. A clear description of the products, parts, characteristics, components, or properties covered, and

where necessary for clarity, a description of what is excluded.

3. A statement of what the warrantor will do if the product fails to conform to the warranty,

including items or services the warranty will pay for and, if necessary for clarity, what it will not

pay for.

4. A statement of when the warranty period starts and when it expires.

5. A step-by-step explanation of what the consumer must do to realize on the warranty, including

the names and addresses of those to whom the product must be brought.

6. Instructions on how the consumer can be availed of any informal dispute resolution mechanism

established by the warranty.

7. Any limitations on the duration of implied warranties—since some states do not permit such

limitations, the warranty must contain a statement that any limitations may not apply to the

particular consumer.

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8. Any limitations or exclusions on relief, such as consequential damages—as above, the warranty

must explain that some states do not allow such limitations.

9. The following statement: “This warranty gives you specific legal rights, and you may also have

other rights which vary from state to state.”

In addition to these requirements, the act requires that the warranty be labeled either a full or limited

warranty. A full warranty means (1) the defective product or part will be fixed or replaced for free,

including removal and reinstallation; (2) it will be fixed within a reasonable time; (3) the consumer need

not do anything unreasonable (like shipping the piano to the factory) to get warranty service; (4) the

warranty is good for anyone who owns the product during the period of the warranty; (5) the consumer

gets money back or a new product if the item cannot be fixed within a reasonable number of attempts. But

the full warranty may not cover the whole product: it may cover only the hard drive in the computer, for

example; it must state what parts are included and excluded. A limited warranty is less inclusive. It

may cover only parts, not labor; it may require the consumer to bring the product to the store for service;

it may impose a handling charge; it may cover only the first purchaser. Both full and limited warranties

may exclude consequential damages.

Disclosure of the warranty provisions prior to sale is required by FTC regulations; this can be done in a

number of ways. The text of the warranty can be attached to the product or placed in close conjunction to

it. It can be maintained in a binder kept in each department or otherwise easily accessible to the

consumer. Either the binders must be in plain sight or signs must be posted to call the prospective buyer’s

attention to them. A notice containing the text of the warranty can be posted, or the warranty itself can be

printed on the product’s package or container.

Phantom warranties are addressed by the Magnuson-Moss Act. As we have seen, the UCC permits the

seller to disclaim implied warranties. This authority often led sellers to give what were called phantom

warranties—that is, the express warranty contained disclaimers of implied warranties, thus leaving the

consumer with fewer rights than if no express warranty had been given at all. In the words of the

legislative report of the act, “The bold print giveth, and the fine print taketh away.” The act abolished

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these phantom warranties by providing that if the seller gives a written warranty, whether express or

implied, he cannot disclaim or modify implied warranties. However, a seller who gives a limited warranty

can limit implied warranties to the duration of the limited warranty, if the duration is reasonable.

A seller’s ability to disclaim implied warranties is also limited by state law in two ways. First, by

amendment to the UCC or by separate legislation, some states prohibit disclaimers whenever consumer

products are sold. [5] Second, the UCC at 2-302 provides that unconscionable contracts or clauses will not

be enforced. UCC 2-719(3) provides that limitation of damages for personal injury in the sale of

“consumer goods is prima facie unconscionable, but limitation of damages where the loss is commercial is

not.” (Unconscionability was discussed in (Reference mayer_1.0-ch12 not found in Book).)

A first problem with warranty theory, then, is that it’s possible to disclaim or limit the warranty. The worst

abuses of manipulative and tricky warranties are eliminated by the Magnuson-Moss Act, but there are

several other reasons that warranty theory is not the panacea for claimants who have suffered damages or

injuries as a result of defective products.

Privity

A second problem with warranty law (after exclusion and modification of warranties) is that of privity.

Privity is the legal term for the direct connection between the seller and buyer, the two contracting parties.

For decades, the doctrine of privity has held that one person can sue another only if they are in privity.

That worked well in the days when most commerce was local and the connection between seller and buyer

was immediate. But in a modern industrial (or postindustrial) economy, the product is transported

through a much larger distribution system, as depicted in Figure 11.2 “Chain of Distribution”. Two

questions arise: (1) Is the manufacturer or wholesaler (as opposed to the retailer) liable to the buyer under

warranty theory? and (2) May the buyer’s family or friends assert warranty rights?

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Figure 11.2 Chain of Distribution

Horizontal Privity

Suppose Carl Consumer buys a new lamp for his family’s living room. The lamp is defective: Carl gets a

serious electrical shock when he turns it on. Certainly Carl would be covered by the implied warranty of

merchantability: he’s in direct privity with the seller. But what if Carl’s spouse Carlene is injured? She

didn’t buy the lamp; is she covered? Or suppose Carl’s friend David, visiting for an afternoon, gets zapped.

Is David covered? This gets to horizontal privity, noncontracting parties who suffer damages from

defective goods, such as nonbuyer users, consumers, and bystanders. Horizontal privity determines to

whose benefit the warranty “flows”—who can sue for its breach. In one of its rare instances of

nonuniformity, the UCC does not dictate the result. It gives the states three choices, labeled in Section 2-

318 as Alternatives A, B, and C.

Alternative A says that a seller’s warranty extends “to any natural person who is in the family or

household of his buyer or who is a guest in his home” provided (1) it is reasonable to expect the person

suffering damages to use, consume, or be affected by the goods and (2) the warranty extends only to

damages for personal injury.

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Alternative B “extends to any natural person who may reasonably be expected to use, consume, or be

affected by the goods, and who is injured in person by breach of the warranty.” It is less restrictive than

the first alternative: it extends protection to people beyond those in the buyer’s home. For example, what

if Carl took the lamp to a neighbor’s house to illuminate a poker table: under Alternative B, anybody at the

neighbor’s house who suffered injury would be covered by the warranty. But this alternative does not

extend protection to organizations; “natural person” means a human being.

Alternative C is the same as B except that it applies not only to any “natural person” but “to any person

who is injured by breach of the warranty.” This is the most far-reaching alternative because it provides

redress for damage to property as well as for personal injury, and it extends protection to corporations

and other institutional buyers.

One may incidentally note that having three different alternatives for when third-party nonpurchasers can

sue a seller or manufacturer for breach of warranty gives rise to unintended consequences. First, different

outcomes are produced among jurisdictions, including variations in the common law. Second, the great

purpose of the Uniform Commercial Code in promoting national uniformity is undermined. Third, battles

over choice of law—where to file the lawsuit—are generated.

, Section 2A-216, provides basically the same alternatives as applicable to the leasing of goods.

Vertical Privity

The traditional rule was that remote selling parties were not liable: lack of privity was a defense by the

manufacturer or wholesaler to a suit by a buyer with whom these entities did not themselves contract. The

buyer could recover damages from the retailer but not from the original manufacturer, who after all made

the product and who might be much more financially able to honor the warranty. The UCC takes no

position here, but over the last fifty years the judicial trend has been to abolish

this vertical privity requirement. (See Figure 11.2 “Chain of Distribution”; the entities in the

distribution chain are those in vertical privity to the buyer.) It began in 1958, when the Michigan Supreme

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Court overturned the old theory in an opinion written by Justice John D. Voelker (who also wrote the

novel Anatomy of a Murder, under the pen name Robert Traver). [6]

Contributory Negligence, Comparative Negligence, and Assumption of Risk

After disclaimers and privity issues are resolved, other possible impediments facing the plaintiff in a

products-liability warranty case are issues of assumption of the risk, contributory negligence, and

comparative negligence (discussed in Chapter 7 “Introduction to Tort Law” on torts).

Courts uniformly hold that assumption of risk is a defense for sellers against a claim of breach of

warranty, while there is a split of authority over whether comparative and contributory negligence are

defenses. However, the courts’ use of this terminology is often conflicting and confusing. The ultimate

question is really one of causation: was the seller’s breach of the warranty the cause of the plaintiff’s

damages?

The UCC is not markedly helpful in clearing away the confusion caused by years of discussion of

assumption of risk and contributory negligence. Section 2-715(2)(b) of the UCC says that among the forms

of consequential damage for which recovery can be sought is “injury to person or

property proximately resulting from any breach of warranty” (emphasis added). But “proximately” is a

troublesome word. Indeed, ultimately it is a circular word: it means nothing more than that the defendant

must have been a direct enough cause of the damages that the courts will impose liability. Comment 5 to

this section says, “Where the injury involved follows the use of goods without discovery of the defect

causing the damage, the question of ‘proximate’ turns on whether it was reasonable for the buyer to use

the goods without such inspection as would have revealed the defects. If it was not reasonable for him to

do so, or if he did in fact discover the defect prior to his use, the injury would not proximately result from

the breach of warranty.”

Obviously if a sky diver buys a parachute and then discovers a few holes in it, his family would not likely

prevail in court when they sued to recover for his death because the parachute failed to function after he

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jumped at 5,000 feet. But the general notion that it must have been reasonable for a buyer to use goods

without inspection can make a warranty case difficult to prove.

KEY TAKEAWAY

A first basis of recovery in products-liability theory is breach of warranty. There are two

types of warranties: express and implied. Under the implied category are three major

subtypes: the implied warranty of merchantability (only given by merchants), the implied

warranty of fitness for a particular purpose, and the implied warranty of title. There are

a number of problems with the use of warranty theory: there must have been a sale of

the goods; the plaintiff must bring the action within the statute of limitations; and the

plaintiff must notify the seller within a reasonable time. The seller may—within the

constraints of the Magnuson-Moss Act—limit or exclude express warranties or limit or

exclude implied warranties. Privity, or lack of it, between buyer and seller has been

significantly eroded as a limitation in warranty theory, but lack of privity may still affect

the plaintiff’s recovery; the plaintiff’s assumption of the risk in using defective goods

may preclude recovery.

1. EXERCISES

2. What are the two main types of warranties and the important subtypes?

3. Who can make each type of warranty?

4. What general problems does a plaintiff have in bringing a products-liability warranty

case?

5. What problems are presented concerning exclusion or manipulative express

warranties, and how does the Magnuson-Moss Act address them?

6. How are implied warranties excluded?

7. What is the problem of lack of privity, and how does modern law deal with it?

[1] Rhodes Pharmacal Co. v. Continental Can Co., 219 N.E.2d 726 (Ill. 1976).

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[2] Wat Henry Pontiac Co. v. Bradley, 210 P.2d 348 (Okla. 1949).

[3] Frederickson v. Hackney, 198 N.W. 806 (Minn. 1924).

[4] Menzel v. List, 246 N.E.2d 742 (N.Y. 1969).

[5] A number of states have special laws that limit the use of the UCC implied warranty

disclaimer rules in consumer sales. Some of these appear in amendments to the UCC and others

are in separate statutes. The broadest approach is that of the nine states that prohibit the

disclaimer of implied warranties in consumer sales (Massachusetts, Connecticut, Maine,

Vermont, Maryland, the District of Columbia, West Virginia, Kansas, Mississippi, and, with

respect to personal injuries only, Alabama). There is a difference in these states whether the

rules apply to manufacturers as well as retailers.

[6] Spence v. Three Rivers Builders & Masonry Supply, Inc., 90 N.W.2d 873 (Mich. 1958).

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11.3 Negligence

LEARNING OBJECTIVES

1. Recognize how the tort theory of negligence may be of use in products-liability

suits.

2. Understand why negligence is often not a satisfactory cause of action in such

suits: proof of it may be difficult, and there are powerful defenses to claims of

negligence.

Negligence is the second theory raised in the typical products-liability case. It is a tort theory (as

compared to breach of warranty, which is of course a contract theory), and it does have this advantage

over warranty theory: privity is never relevant. A pedestrian is struck in an intersection by a car whose

brakes were defectively manufactured. Under no circumstances would breach of warranty be a useful

cause of action for the pedestrian—there is no privity at all. Negligence is considered in detail in the on

torts; it basically means lack of due care.

Typical Negligence Claims: Design Defects and Inadequate Warnings Negligence theory in products liability is most useful in two types of cases: defective design and defective

warnings.

Design Defects

Manufacturers can be, and often are, held liable for injuries caused by products that were defectively

designed. The question is whether the designer used reasonable care in designing a product reasonably

safe for its foreseeable use. The concern over reasonableness and standards of care are elements of

negligence theory.

Defective-design cases can pose severe problems for manufacturing and safety engineers. More safety

means more cost. Designs altered to improve safety may impair functionality and make the product less

desirable to consumers. At what point safety comes into reasonable balance with performance, cost, and

desirability (see ) is impossible to forecast accurately, though some factors can be taken into account. For

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example, if other manufacturers are marketing comparable products whose design are intrinsically safer,

the less-safe products are likely to lose a test of reasonableness in court.

Figure 11.3 The Reasonable Design Balance

Warning Defects

We noted that a product may be defective if the manufacturer failed to warn the user of potential dangers.

Whether a warning should have been affixed is often a question of what is reasonably foreseeable, and the

failure to affix a warning will be treated as negligence. The manufacturer of a weed killer with poisonous

ingredients is certainly acting negligently when it fails to warn the consumer that the contents are

potentially lethal.

The law governing the necessity to warn and the adequacy of warnings is complex. What is reasonable

turns on the degree to which a product is likely to be misused and, as the disturbing Laaperi case ()

illustrates, whether the hazard is obvious.

Problems with Negligence Theory Negligence is an ancient cause of action and, as was discussed in the torts chapter, it carries with it a

number of well-developed defenses. Two categories may be mentioned: common-law defenses and

preemption.

Common-Law Defenses against Negligence Among the problems confronting a plaintiff with a claim of negligence in products-

liability suits (again, these concepts are discussed in the torts chapter) are the following:

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Proving negligence at all: just because a product is defective does not necessarily

prove the manufacturer breached a duty of care.

Proximate cause: even if there was some negligence, the plaintiff must prove her

damages flowed proximately from that negligence.

Contributory and comparative negligence: the plaintiff’s own actions contributed

to the damages.

Subsequent alteration of the product: generally the manufacturer will not be

liable if the product has been changed.

Misuse or abuse of the product: using a lawn mower to trim a hedge or taking too

much of a drug are examples.

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

Preemption

Preemption (or “pre-emption”) is illustrated by this problem: suppose there is a federal standard

concerning the product, and the defendant manufacturer meets it, but the standard is not really very

protective. (It is not uncommon, of course, for federal standard makers of all types to be significantly

influenced by lobbyists for the industries being regulated by the standards.) Is it enough for the

manufacturer to point to its satisfaction of the standard so that such satisfaction preempts (takes over)

any common-law negligence claim? “We built the machine to federal standards: we can’t be liable. Our

compliance with the federal safety standard is an affirmative defense.”

Preemption is typically raised as a defense in suits about (1) cigarettes, (2) FDA-approved medical devices,

(3) motor-boat propellers, (4) pesticides, and (5) motor vehicles. This is a complex area of law. Questions

inevitably arise as to whether there was federal preemption, express or implied. Sometimes courts find

preemption and the consumer loses; sometimes the courts don’t find preemption and the case goes

forward. According to one lawyer who works in this field, there has been “increasing pressure on both the

regulatory and congressional fronts to preempt state laws.” That is, the usual defendants (manufacturers)

push Congress and the regulatory agencies to state explicitly in the law that the federal standards preempt

and defeat state law. [1]

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KEY TAKEAWAY

Negligence is a second possible cause of action for products-liability claimants. A

main advantage is that no issues of privity are relevant, but there are often

problems of proof; there are a number of robust common-law defenses, and

federal preemption is a recurring concern for plaintiffs’ lawyers.

EXERCISES

1. What two types of products-liability cases are most often brought under

negligence?

2. How could it be said that merely because a person suffers injury as the result

of a defective product, proof of negligence is not necessarily made?

3. What is “preemption” and how is it used as a sword to defeat products-

liability plaintiffs?

[1] C. Richard Newsome and Andrew F. Knopf, “Federal Preemption: Products Lawyers

Beware,” Florida Justice Association Journal, July 27, 2007, accessed March 1,

2011, http://www.newsomelaw.com/resources/articles/federal-preemption-products-lawyers-

beware.

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11.4 Strict Liability in Tort

LEARNING OBJECTIVES

1. Know what “strict products liability” means and how it differs from the other two

products-liability theories.

2. Understand the basic requirements to prove strict products liability.

3. See what obstacles to recovery remain with this doctrine.

The warranties grounded in the Uniform Commercial Code (UCC) are often ineffective in assuring

recovery for a plaintiff’s injuries. The notice requirements and the ability of a seller to disclaim the

warranties remain bothersome problems, as does the privity requirement in those states that continue to

adhere to it.

Negligence as a products-liability theory obviates any privity problems, but negligence comes with a

number of familiar defenses and with the problems of preemption.

To overcome the obstacles, judges have gone beyond the commercial statutes and the ancient concepts of

negligence. They have fashioned a tort theory of products liability based on the principle of strict

products liability. One court expressed the rationale for the development of the concept as follows:

“The rule of strict liability for defective products is an example of necessary paternalism judicially shifting

risk of loss by application of tort doctrine because [the UCC] scheme fails to adequately cover the

situation. Judicial paternalism is to loss shifting what garlic is to a stew—sometimes necessary to give full

flavor to statutory law, always distinctly noticeable in its result, overwhelmingly counterproductive if

excessive, and never an end in itself.” [1] Paternalism or not, strict liability has become a very important

legal theory in products-liability cases.

Strict Liability Defined The formulation of strict liability that most courts use is Section 402A of the Restatement of Torts

(Second), set out here in full:

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(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or

to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or

to his property, if

(a) the seller is engaged in the business of selling such a product, and

(b) it is expected to and does reach the user or consumer without substantial change in the condition in

which it is sold.

(2) This rule applies even though

(a) the seller has exercised all possible care in the preparation and sale of his product, and

(b) the user or consumer has not bought the product from or entered into any contractual relation with

the seller.

Section 402A of the Restatement avoids the warranty booby traps. It states a rule of law not governed by

the UCC, so limitations and exclusions in warranties will not apply to a suit based on the Restatement

theory. And the consumer is under no obligation to give notice to the seller within a reasonable time of

any injuries. Privity is not a requirement; the language of the Restatement says it applies to “the user or

consumer,” but courts have readily found that bystanders in various situations are entitled to bring

actions under Restatement, Section 402A. The formulation of strict liability, though, is limited to physical

harm. Many courts have held that a person who suffers economic loss must resort to warranty law.

Strict liability avoids some negligence traps, too. No proof of negligence is required. See .

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Figure 11.4 Major Difference between Warranty and Strict Liability

Section 402A Elements Product in a Defective Condition

Sales of goods but not sales of services are covered under the Restatement, Section 402A. Furthermore,

the plaintiff will not prevail if the product was safe for normal handling and consumption when sold. A

glass soda bottle that is properly capped is not in a defective condition merely because it can be broken if

the consumer should happen to drop it, making the jagged glass dangerous. Chocolate candy bars are not

defective merely because you can become ill by eating too many of them at once. On the other hand, a

seller would be liable for a product defectively packaged, so that it could explode or deteriorate and

change its chemical composition. A product can also be in a defective condition if there is danger that

could come from an anticipated wrongful use, such as a drug that is safe only when taken in limited doses.

Under those circumstances, failure to place an adequate dosage warning on the container makes the

product defective.

The plaintiff bears the burden of proving that the product is in a defective condition, and this burden can

be difficult to meet. Many products are the result of complex feats of engineering. Expert witnesses are

necessary to prove that the products were defectively manufactured, and these are not always easy to

come by. This difficulty of proof is one reason why many cases raise the failure to warn as the dispositive

issue, since in the right case that issue is far easier to prove. The Anderson case (detailed in the exercises

at the end of this chapter) demonstrates that the plaintiff cannot prevail under strict liability merely

because he was injured. It is not the fact of injury that is dispositive but the defective condition of the

product.

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Unreasonably Dangerous

The product must be not merely dangerous but unreasonably dangerous. Most products have

characteristics that make them dangerous in certain circumstances. As the Restatement commentators

note, “Good whiskey is not unreasonably dangerous merely because it will make some people drunk, and

is especially dangerous to alcoholics; but bad whiskey, containing a dangerous amount of fuel oil, is

unreasonably dangerous.…Good butter is not unreasonably dangerous merely because, if such be the case,

it deposits cholesterol in the arteries and leads to heart attacks; but bad butter, contaminated with

poisonous fish oil, is unreasonably dangerous.” [2] Under Section 402A, “the article sold must be

dangerous to an extent beyond that which would be contemplated by the ordinary consumer who

purchases it, with the ordinary knowledge common to the community as to its characteristics. ”

Even high risks of danger are not necessarily unreasonable. Some products are unavoidably unsafe; rabies

vaccines, for example, can cause dreadful side effects. But the disease itself, almost always fatal, is worse.

A product is unavoidably unsafe when it cannot be made safe for its intended purpose given the present

state of human knowledge. Because important benefits may flow from the product’s use, its producer or

seller ought not to be held liable for its danger.

However, the failure to warn a potential user of possible hazards can make a product defective under

Restatement, Section 402A, whether unreasonably dangerous or even unavoidably unsafe. The dairy

farmer need not warn those with common allergies to eggs, because it will be presumed that the person

with an allergic reaction to common foodstuffs will be aware of them. But when the product contains an

ingredient that could cause toxic effects in a substantial number of people and its danger is not widely

known (or if known, is not an ingredient that would commonly be supposed to be in the product), the lack

of a warning could make the product unreasonably dangerous within the meaning of Restatement, Section

402A. Many of the suits brought by asbestos workers charged exactly this point; “The utility of an

insulation product containing asbestos may outweigh the known or foreseeable risk to the insulation

workers and thus justify its marketing. The product could still be unreasonably dangerous, however, if

unaccompanied by adequate warnings. An insulation worker, no less than any other product user, has a

right to decide whether to expose himself to the risk.” [3] This rule of law came to haunt the Manville

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Corporation: it was so burdened with lawsuits, brought and likely to be brought for its sale of asbestos—a

known carcinogen—that it declared bankruptcy in 1982 and shucked its liability. [4]

Engaged in the Business of Selling

Restatement, Section 402A(1)(a), limits liability to sellers “engaged in the business of selling such a

product.” The rule is intended to apply to people and entities engaged in business, not to casual one-time

sellers. The business need not be solely in the defective product; a movie theater that sells popcorn with a

razor blade inside is no less liable than a grocery store that does so. But strict liability under this rule does

not attach to a private individual who sells his own automobile. In this sense, Restatement, Section 402A,

is analogous to the UCC’s limitation of the warranty of merchantability to the merchant.

The requirement that the defendant be in the business of selling gets to the rationale for the whole

concept of strict products liability: businesses should shoulder the cost of injuries because they are in the

best position to spread the risk and distribute the expense among the public. This same policy has been

the rationale for holding bailors and lessors liable for defective equipment just as if they had been

sellers.[5]

Reaches the User without Change in Condition

Restatement, Section 402A(1)(b), limits strict liability to those defective products that are expected to and

do reach the user or consumer without substantial change in the condition in which the products are sold.

A product that is safe when delivered cannot subject the seller to liability if it is subsequently mishandled

or changed. The seller, however, must anticipate in appropriate cases that the product will be stored;

faulty packaging or sterilization may be the grounds for liability if the product deteriorates before being

used.

Liability Despite Exercise of All Due Care

Strict liability applies under the Restatement rule even though “the seller has exercised all possible care in

the preparation and sale of his product.” This is the crux of “strict liability” and distinguishes it from the

conventional theory of negligence. It does not matter how reasonably the seller acted or how exemplary is

a manufacturer’s quality control system—what matters is whether the product was defective and the user

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injured as a result. Suppose an automated bottle factory manufactures 1,000 bottles per hour under

exacting standards, with a rigorous and costly quality-control program designed to weed out any bottles

showing even an infinitesimal amount of stress. The plant is “state of the art,” and its computerized

quality-control operation is the best in the world. It regularly detects the one out of every 10,000 bottles

that analysis has shown will be defective. Despite this intense effort, it proves impossible to weed out

every defective bottle; one out of one million, say, will still escape detection. Assume that a bottle, filled

with soda, finds its way into a consumer’s home, explodes when handled, sends glass shards into his eye,

and blinds him. Under negligence, the bottler has no liability; under strict liability, the bottler will be

liable to the consumer.

Liability without Contractual Relation

Under Restatement, Section 402A(2)(b), strict liability applies even though the user has not purchased

the product from the seller nor has the user entered into any contractual relation with the seller. In short,

privity is abolished and the injured user may use the theory of strict liability against manufacturers and

wholesalers as well as retailers. Here, however, the courts have varied in their approaches; the trend has

been to allow bystanders recovery. The Restatement explicitly leaves open the question of the bystander’s

right to recover under strict liability.

Problems with Strict Liability Strict liability is liability without proof of negligence and without privity. It would seem that strict liability

is the “holy grail” of products-liability lawyers: the complete answer. Well, no, it’s not the holy grail. It is

certainly true that 402A abolishes the contractual problems of warranty. Restatement, Section 402A,

Comment m, says,

The rule stated in this Section is not governed by the provisions of the Uniform Commercial Code, as to

warranties; and it is not affected by limitations on the scope and content of warranties, or by limitation to

“buyer” and “seller” in those statutes. Nor is the consumer required to give notice to the seller of his injury

within a reasonable time after it occurs, as provided by the Uniform Act. The consumer’s cause of action

does not depend upon the validity of his contract with the person from whom he acquires the product, and

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it is not affected by any disclaimer or other agreement, whether it be between the seller and his immediate

buyer, or attached to and accompanying the product into the consumer’s hands. In short, “warranty” must

be given a new and different meaning if it is used in connection with this Section. It is much simpler to

regard the liability here stated as merely one of strict liability in tort.

Inherent in the Restatement’s language is the obvious point that if the product has been altered, losses

caused by injury are not the manufacturer’s liability. Beyond that there are still some limitations to strict

liability.

Disclaimers

Comment m specifically says the cause of action under Restatement, Section 402A, is not

affected by disclaimer. But in nonconsumer cases, courts have allowed clear and specific

disclaimers. In 1969, the Ninth Circuit observed: “In Kaiser Steel Corp. the [California Supreme

Court] court upheld the dismissal of a strict liability action when the parties, dealing from

positions of relatively equal economic strength, contracted in a commercial setting to limit the

defendant’s liability. The court went on to hold that in this situation the strict liability cause of

action does not apply at all. In reaching this conclusion, the court inKaiser reasoned that strict

liability ‘is designed to encompass situations in which the principles of sales warranties serve

their purpose “fitfully at best.”’ [Citation]” It concluded that in such commercial settings the

UCC principles work well and “to apply the tort doctrines of products liability will displace the

statutory law rather than bring out its full flavor.” [6]

Plaintiff’s Conduct Conduct by the plaintiff herself may defeat recovery in two circumstances.

Assumption of Risk

Courts have allowed the defense of assumption of the risk in strict products-liability cases. A plaintiff

assumes the risk of injury, thus establishing defense to claim of strict products liability, when he is aware

the product is defective, knows the defect makes the product unreasonably dangerous, has reasonable

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opportunity to elect whether to expose himself to the danger, and nevertheless proceeds to make use of

the product. The rule makes sense.

Misuse or Abuse of the Product

Where the plaintiff does not know a use of the product is dangerous but nevertheless uses for an incorrect

purpose, a defense arises, but only if such misuse was not foreseeable. If it was, the manufacturer should

warn against that misuse. In Eastman v. Stanley Works, a carpenter used a framing hammer to drive

masonry nails; the claw of the hammer broke off, striking him in the eye. [7] He sued. The court held that

while a defense does exist “where the product is used in a capacity which is unforeseeable by the

manufacturer and completely incompatible with the product’s design…misuse of a product suggests a use

which was unanticipated or unexpected by the product manufacturer, or unforeseeable and unanticipated

[but] it was not the case that reasonable minds could only conclude that appellee misused the [hammer].

Though the plaintiff’s use of the hammer might have been unreasonable, unreasonable use is not a

defense to a strict product-liability action or to a negligence action.”

Limited Remedy

The Restatement says recovery under strict liability is limited to “physical harm thereby caused to the

ultimate user or consumer, or to his property,” but not other losses and not economic losses. In Atlas Air

v. General Electric, a New York court held that the “economic loss rule” (no recovery for economic losses)

barred strict products-liability and negligence claims by the purchaser of a used airplane against the

airplane engine manufacturer for damage to the plane caused by an emergency landing necessitated by

engine failure, where the purchaser merely alleged economic losses with respect to the plane itself, and

not damages for personal injury (recovery for damage to the engine was allowed). [8]

But there are exceptions. In Duffin v. Idaho Crop Imp. Ass’n, the court recognized that a party generally

owes no duty to exercise due care to avoid purely economic loss, but if there is a “special relationship”

between the parties such that it would be equitable to impose such a duty, the duty will be imposed. [9] “In

other words, there is an extremely limited group of cases where the law of negligence extends its

protections to a party’s economic interest.”

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The Third Restatement The law develops. What seemed fitting in 1964 when the Restatement (Second) announced the state of the

common-law rules for strict liability in Section 402A seemed, by 1997, not to be tracking common law

entirely closely. The American Law Institute came out with the Restatement (Third) in that year. The

Restatement changes some things. Most notably it abolishes the “unreasonably dangerous” test and

substitutes a “risk-utility test.” That is, a product is not defective unless its riskiness outweighs its utility.

More important, the Restatement (Third), Section 2, now requires the plaintiff to provide a reasonable

alternative design to the product in question. In advancing a reasonable alternative design, the plaintiff is

not required to offer a prototype product. The plaintiff must only show that the proposed alternative

design exists and is superior to the product in question. The Restatement (Third) also makes it more

difficult for plaintiffs to sue drug companies successfully. One legal scholar commented as follows on the

Restatement (Third):

The provisions of the Third Restatement, if implemented by the courts, will establish a degree of fairness

in the products liability arena. If courts adopt the Third Restatement’s elimination of the “consumer

expectations test,” this change alone will strip juries of the ability to render decisions based on potentially

subjective, capricious and unscientific opinions that a particular product design is unduly dangerous

based on its performance in a single incident. More important, plaintiffs will be required to propose a

reasonable alternative design to the product in question. Such a requirement will force plaintiffs to prove

that a better product design exists other than in the unproven and untested domain of their experts’

imaginations.[10]

Of course some people put more faith in juries than is evident here. The new Restatement has been

adopted by a few jurisdictions and some cases the adopting jurisdictions incorporate some of its ideas, but

courts appear reluctant to abandon familiar precedent.

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KEY TAKEAWAY

Because the doctrines of breach of warranty and negligence did not provide adequate

relief to those suffering damages or injuries in products-liability cases, beginning in the

1960s courts developed a new tort theory: strict products liability, restated in the

Second Restatement, section 402A. Basically the doctrine says that if goods sold are

unreasonably dangerous or defective, the merchant-seller will be liable for the

immediate property loss and personal injuries caused thereby. But there remain

obstacles to recovery even under this expanded concept of liability: disclaimers of

liability have not completely been dismissed, the plaintiff’s conduct or changes to the

goods may limit recovery, and—with some exceptions—the remedies available are

limited to personal injury (and damage to the goods themselves); economic loss is not

recoverable. Almost forty years of experience with the Second Restatement’s section on

strict liability has seen changes in the law, and the Third Restatement introduces those,

but it has not been widely accepted yet.

EXERCISES

1. What was perceived to be inadequate about warranty and negligence theories that

necessitated the development of strict liability?

2. Briefly describe the doctrine.

3. What defects in goods render their sellers strictly liable?

4. Who counts as a liable seller?

5. What obstacles does a plaintiff have to overcome here, and what limitations are

there to recovery?

[1] Kaiser Steel Corp. v. Westinghouse Electric Corp., 127 Cal. Rptr. 838 (Cal. 1976).

[2] Restatement (Second) of Contracts, Section 402A(i).

[3] Borel v. Fibreboard Paper Products Corp., 493 F.Zd 1076 (5th Cir. 1973).

[4] In re Johns-Manville Corp., 36 R.R. 727 (So. Dist. N.Y. 1984).

[5] Martin v. Ryder Rental, Inc., 353 A.2d 581 (Del. 1976).

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[6] Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 9CA (1979).

[7] Eastman v. Stanley Works, 907 N.E.2d 768 (Ohio App. 2009).

[8] Atlas Air v. General Electric, 16 A.D.3d 444 (N.Y.A.D. 2005).

[9] Duffin v. Idaho Crop Imp. Ass’n, 895 P.2d 1195 (Idaho 1995).

[10] Quinlivan Wexler LLP, “The 3rd Restatement of Torts—Shaping the Future of Products

Liability Law,” June 1, 1999, accessed March 1,

2011,http://library.findlaw.com/1999/Jun/1/127691.html.

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11.5 Tort Reform

LEARNING OBJECTIVES

1. See why tort reform is advocated, why it is opposed, and what interests take

each side.

2. Understand some of the significant state reforms in the last two decades.

3. Know what federal reforms have been instituted.

The Cry for Reform In 1988, The Conference Board published a study that resulted from a survey of more than 500 chief

executive officers from large and small companies regarding the effects of products liability on their firms.

The study concluded that US companies are less competitive in international business because of these

effects and that products-liability laws must be reformed. The reform effort has been under way ever

since, with varying degrees of alarms and finger-pointing as to who is to blame for the “tort crisis,” if there

even is one. Business and professional groups beat the drums for tort reform as a means to guarantee

“fairness” in the courts as well as spur US economic competitiveness in a global marketplace, while

plaintiffs’ attorneys and consumer advocates claim that businesses simply want to externalize costs by

denying recovery to victims of greed and carelessness.

Each side vilifies the other in very unseemly language: probusiness advocates call consumer-oriented

states “judicial hell-holes” and complain of “well-orchestrated campaign[s] by tort lawyer lobbyists and

allies to undo years of tort reform at the state level,” [1] while pro-plaintiff interests claim that there is

“scant evidence” of any tort abuse.[2] It would be more amusing if it were not so shrill and partisan.

Perhaps the most one can say with any certainty is that peoples’ perception of reality is highly colored by

their self-interest. In any event, there have been reforms (or, as the detractors say, “deforms”).

State Reforms Prodded by astute lobbying by manufacturing and other business trade associations, state legislatures responded to

the cries of manufacturers about the hardships that the judicial transformation of the products-liability lawsuit

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ostensibly worked on them. Most state legislatures have enacted at least one of some three dozen “reform” proposal

pressed on them over the last two decades. Some of these measures do little more than affirm and clarify case law.

Among the most that have passed in several states are outlined in the next sections.

Statutes of Repose

Perhaps nothing so frightens the manufacturer as the occasional reports of cases involving products that

were fifty or sixty years old or more at the time they injured the plaintiff. Many states have addressed this

problem by enacting the so-called statute of repose. This statute establishes a time period, generally

ranging from six to twelve years; the manufacturer is not liable for injuries caused by the product after

this time has passed.

State-of-the-Art Defense

Several states have enacted laws that prevent advances in technology from being held against the

manufacturer. The fear is that a plaintiff will convince a jury a product was defective because it did not use

technology that was later available. Manufacturers have often failed to adopt new advances in technology

for fear that the change will be held against them in a products-liability suit. These new statutes declare

that a manufacturer has a valid defense if it would have been technologically impossible to have used the

new and safer technology at the time the product was manufactured.

Failure to Warn

Since it is often easier to prove that an injury resulted because the manufacturer failed to warn against a

certain use than it is to prove an injury was caused by a defective design, manufacturers are subjected to a

considerable degree of hindsight. Some of the state statutes limit the degree to which the failure to warn

can be used to connect the product and the injury. For example, the manufacturer has a valid defense if it

would have been impossible to foresee that the consumer might misuse the product in a certain way.

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Comparative Fault for Consumer Misuse

Contributory negligence is generally not a defense in a strict liability action, while assumption of risk is. In

states that have enacted so-called comparative fault statutes, the user’s damages are pegged to the

percentage of responsibility for the injury that the defendant bears. Thus if the consumer’s misuse of the

product is assessed as having been 20 percent responsible for the accident (or for the extent of the

injuries), the consumer is entitled to only 80 percent of damages, the amount for which the defendant

manufacturer is responsible.

Criminal Penalties

Not all state reform is favorable to manufacturers. Under the California Corporate Criminal Liability Act,

which took effect twenty years ago, companies and managers must notify a state regulatory agency if they

know that a product they are selling in California has a safety defect, and the same rule applies under

certain federal standards, as Toyota executives were informed by their lawyers following alarms about

sudden acceleration in some Toyota automobiles. Failure to provide notice may result in corporate and

individual criminal liability.

Federal Reform Piecemeal reform of products-liability law in each state has contributed to the basic lack of uniformity

from state to state, giving it a crazy-quilt effect. In the nineteenth century, this might have made little

difference, but today most manufacturers sell in the national market and are subjected to the varying

requirements of the law in every state. For years there has been talk in and out of Congress of enacting a

federal products-liability law that would include reforms adopted in many states, as discussed earlier. So

far, these efforts have been without much success.

Congressional tort legislation is not the only possible federal action to cope with products-related injuries.

In 1972, Congress created the Consumer Product Safety Commission (CPSC) and gave the commission

broad power to act to prevent unsafe consumer products. The CPSC can issue mandatory safety standards

governing design, construction, contents, performance, packaging, and labeling of more than 10,000

consumer products. It can recall unsafe products, recover costs on behalf of injured consumers, prosecute

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those who violate standards, and require manufacturers to issue warnings on hazardous products. It also

regulates four federal laws previously administered by other departments: the Flammable Fabrics Act, the

Hazardous Substances Act, the Poison Prevention Packaging Act, and the Refrigerator Safety Act. In its

early years, the CPSC issued standards for bicycles, power mowers, television sets, architectural glass,

extension cords, book matches, pool slides, and space heaters. But the list of products is long, and the

CPSC’s record is mixed: it has come under fire for being short on regulation and for taking too long to

promulgate the relatively few safety standards it has issued in a decade.

KEY TAKEAWAY

Business advocates claim the American tort system—products-liability law

included—is broken and corrupted by grasping plaintiffs’ lawyers; plaintiffs’

lawyers say businesses are greedy and careless and need to be smacked into

recognition of its responsibilities to be more careful. The debate rages on, decade

after decade. But there have been some reforms at the state level, and at the

federal level the Consumer Product Safety Act sets out standards for safe products

and requires recalls for defective ones. It is regularly castigated for (1) being

officious and meddling or (2) being too timid.

EXERCISES

1. Why is it so difficult to determine if there really is a “tort crisis” in the United

States?

2. What reforms have been made to state tort law?

3. What federal legislation affects consumer safety?

[1] American Tort Reform Association website, accessed March 1, 2011,http://www.atra.org.

[2] http://www.shragerlaw.com/html/legal_rights.html.

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11.6 Cases

Implied Warranty of Merchantability and the Requirement of a “Sale” Sheeskin v. Giant Food, Inc.

318 A.2d 874 (Md. App. 1974)

Davidson, J.

Every Friday for over two years Nathan Seigel, age 73, shopped with his wife at a Giant Food Store. This

complex products liability case is before us because on one of these Fridays, 23 October 1970, Mr. Seigel

was carrying a six-pack carton of Coca-Cola from a display bin at the Giant to a shopping cart when one or

more of the bottles exploded. Mr. Seigel lost his footing, fell to the floor and was injured.

In the Circuit Court for Montgomery County, Mr. Seigel sued both the Giant Food, Inc., and the

Washington Coca-Cola Bottling Company, Inc., for damages resulting from their alleged negligence and

breach of an implied warranty. At the conclusion of the trial Judge Walter H. Moorman directed a verdict

in favor of each defendant.…

In an action based on breach of warranty it is necessary for the plaintiff to show the existence of the

warranty, the fact that the warranty was broken and that the breach of warranty was the proximate cause

of the loss sustained. [UCC] 2-314.…The retailer, Giant Food, Inc., contends that appellant failed to prove

that an implied warranty existed between himself and the retailer because he failed to prove that there

was a sale by the retailer to him or a contract of sale between the two. The retailer maintains that there

was no sale or contract of sale because at the time the bottles exploded Mr. Seigel had not yet paid for

them. We do not agree.

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[UCC] 2-314(1) states in pertinent part:

Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract

for their sale if the seller is a merchant with respect to goods of that kind. [1] (emphasis added)

Thus, in order for the implied warranties of 2-314 to be applicable there must be a “contract for sale.” In

Maryland it has been recognized that neither a completed ‘sale’ nor a fully executed contract for sale is

required. It is enough that there be in existence an executory contract for sale.…

Here, the plaintiff has the burden of showing the existence of the warranty by establishing that at the time

the bottles exploded there was a contract for their sale existing between himself and the Giant. [Citation]

Mr. Titus, the manager of the Giant, testified that the retailer is a “self-service” store in which “the only

way a customer can buy anything is to select it himself and take it to the checkout counter.” He stated that

there are occasions when a customer may select an item in the store and then change his mind and put the

item back. There was no evidence to show that the retailer ever refused to sell an item to a customer once

it had been selected by him or that the retailer did not consider himself bound to sell an item to the

customer after the item had been selected. Finally, Mr. Titus said that an employee of Giant placed the

six-pack of Coca-Cola selected by Mr. Seigel on the shelf with the purchase price already stamped upon it.

Mr. Seigel testified that he picked up the six-pack with the intent to purchase it.

We think that there is sufficient evidence to show that the retailer’s act of placing the bottles upon the

shelf with the price stamped upon the six-pack in which they were contained manifested an intent to offer

them for sale, the terms of the offer being that it would pass title to the goods when Mr. Seigel presented

them at the check-out counter and paid the stated price in cash. We also think that the evidence is

sufficient to show that Mr. Seigel’s act of taking physical possession of the goods with the intent to

purchase them manifested an intent to accept the offer and a promise to take them to the checkout

counter and pay for them there.

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[UCC] 2-206 provides in pertinent part:

(1) Unless otherwise unambiguously indicated by the language or circumstances

(a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any

medium reasonable in the circumstances.…

The Official Comment 1 to this section states:

Any reasonable manner of acceptance is intended to be regarded as available unless the offeror has made

quite clear that it will not be acceptable.

In our view the manner by which acceptance was to be accomplished in the transaction herein involved

was not indicated by either language or circumstances. The seller did not make it clear that acceptance

could not be accomplished by a promise rather than an act. Thus it is equally reasonable under the terms

of this specific offer that acceptance could be accomplished in any of three ways: 1) by the act of delivering

the goods to the check-out counter and paying for them; 2) by the promise to pay for the goods as

evidenced by their physical delivery to the check-out counter; and 3) by the promise to deliver the goods

to the check-out counter and to pay for them there as evidenced by taking physical possession of the goods

by their removal from the shelf.

The fact that customers, having once selected goods with the intent to purchase them, are permitted by

the seller to return them to the shelves does not preclude the possibility that a selection of the goods, as

evidenced by taking physical possession of them, could constitute a reasonable mode of acceptance.

Section 2-106(3) provides:

“Termination” occurs when either party pursuant to a power created by agreement or law puts an end to

the contract otherwise then for its breach. On “termination” all obligations which are still executory on

both sides are discharged but any right based on prior breach or performance survives.

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Here the evidence that the retailer permits the customer to “change his mind” indicates only an

agreement between the parties to permit the consumer to end his contract with the retailer irrespective of

a breach of the agreement by the retailer. It does not indicate that an agreement does not exist prior to the

exercise of this option by the consumer.…

Here Mr. Seigel testified that all of the circumstances surrounding his selection of the bottles were

normal; that the carton in which the bottles came was not defective; that in lifting the carton from the

shelf and moving it toward his basket the bottles neither touched nor were touched by anything other than

his hand; that they exploded almost instantaneously after he removed them from the shelf; and that as a

result of the explosion he fell injuring himself. It is obvious that Coca-Cola bottles which would break

under normal handling are not fit for the ordinary use for which they were intended and that the

relinquishment of physical control of such a defective bottle to a consumer constitutes a breach of

warranty. Thus the evidence was sufficient to show that when the bottles left the retailer’s control they did

not conform to the representations of the warranty of merchantability, and that this breach of the

warranty was the cause of the loss sustained.…

[Judgment in favor of Giant Foods is reversed and the case remanded for a new trial. Judgment in favor of

the bottler is affirmed because the plaintiff failed to prove that the bottles were defective when they were

delivered to the retailer.]

CASE QUESTIONS

1. What warranty did the plaintiff complain was breached here?

2. By displaying the soda pop, the store made an offer to its customers. How did the

court say such offers might be accepted?

3. Why did the court get into the discussion about “termination” of the contract?

4. What is the controlling rule of law applied in this case?

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Strict Liability and Bystanders Embs v. Pepsi-Cola Bottling Co. of Lexington, Kentucky, Inc.

528 S.W.2d 703 (Ky. 1975)

Jukowsky, J.

On the afternoon of July 25, 1970 plaintiff-appellant entered the self-service retail store operated by the

defendant-appellee, Stamper’s Cash Market, Inc., for the purpose of “buying soft drinks for the kids.” She

went to an upright soft drink cooler, removed five bottles and placed them in a carton. Unnoticed by her, a

carton of Seven-Up was sitting on the floor at the edge of the produce counter about one foot from where

she was standing. As she turned away from the cooler she heard an explosion that sounded “like a

shotgun.” When she looked down she saw a gash in her leg, pop on her leg, green pieces of a bottle on the

floor and the Seven-Up carton in the midst of the debris. She did not kick or otherwise come into contact

with the carton of Seven-Up prior to the explosion. Her son, who was with her, recognized the green

pieces of glass as part of a Seven-Up bottle.

She was immediately taken to the hospital by Mrs. Stamper, a managing agent of the store. Mrs. Stamper

told her that a Seven-Up bottle had exploded and that several bottles had exploded that week. Before

leaving the store Mrs. Stamper instructed one of her children to clean up the mess. Apparently, all of the

physical evidence went out with the trash. The location of the Seven-Up carton immediately before the

explosion was not a place where such items were ordinarily kept.…

When she rested her case, the defendants-appellees moved for a directed verdict in their favor. The trial

court granted the motion on the grounds that the doctrine of strict product liability in tort does not extend

beyond users and consumers and that the evidence was insufficient to permit an inference by a reasonably

prudent man that the bottle was defective or if it was, when it became so.

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In [Citation] we adopted the view of strict product liability in tort expressed in Section 402 A of the

American Law Institute’s Restatement of Torts 2d.

402 A. Special Liability of Seller of Product for Physical Harm to User or Consumer (1) One who sells any product in a defective condition unreasonably dangerous to the user or to his

property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his

property, if

(a) the seller is engaged in the business of selling such a product, and

(b) it is expected to and does reach the user or consumer without substantial change in the condition in

which it was sold.

(2) The rule stated in Subsection (1) applies although

(a) the seller has exercised all possible care in the preparation and sale of his product, and

(b) the user or consumer has not bought the product from or entered into any contractual relation with

the seller.

Comment f on that section makes it abundantly clear that this rule applies to any person engaged in the

business of supplying products for use or consumption, including any manufacturer of such a product and

any wholesale or retail dealer or distributor.

Comment c points out that on whatever theory, the justification for the rule has been said to be that the

seller, by marketing his product for use and consumption, has undertaken and assumed a special

responsibility toward any member of the consuming public who may be injured by it; that the public has

the right to and does expect that reputable sellers will stand behind their goods; that public policy

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demands that the burden of accidental injuries caused by products intended for consumption be placed

upon those who market them, and be treated as a cost of production against which liability insurance can

be obtained; and that the consumer of such products is entitled to the maximum of protection at the

hands of someone, and the proper persons to afford it are those who market the products.

The caveat to the section provides that the Institute expresses no opinion as to whether the rule may not

apply to harm to persons other than users or consumers. Comment on caveat o states the Institute

expresses neither approval nor disapproval of expansion of the rule to permit recovery by casual

bystanders and others who may come in contact with the product, and admits there may be no essential

reason why such plaintiffs should not be brought within the scope of protection afforded, other than they

do not have the same reasons for expecting such protection as the consumer who buys a marketed

product, and that the social pressure which has been largely responsible for the development of the rule

has been a consumer’s pressure, and there is not the same demand for the protection of casual

strangers.…

The caveat articulates the essential point: Once strict liability is accepted, bystander recovery is fait

accompli.

Our expressed public policy will be furthered if we minimize the risk of personal injury and property

damage by charging the costs of injuries against the manufacturer who can procure liability insurance and

distribute its expense among the public as a cost of doing business; and since the risk of harm from

defective products exists for mere bystanders and passersby as well as for the purchaser or user, there is

no substantial reason for protecting one class of persons and not the other. The same policy requires us to

maximize protection for the injured third party and promote the public interest in discouraging the

marketing of products having defects that are a menace to the public by imposing strict liability upon

retailers and wholesalers in the distributive chain responsible for marketing the defective product which

injures the bystander. The imposition of strict liability places no unreasonable burden upon sellers

because they can adjust the cost of insurance protection among themselves in the course of their

continuing business relationship.

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We must not shirk from extending the rule to the manufacturer for fear that the retailer or middleman

will be impaled on the sword of liability without regard to fault. Their liability was already established

under Section 402 A of the Restatement of Torts 2d. As a matter of public policy the retailer or

middleman as well as the manufacturer should be liable since the loss for injuries resulting from defective

products should be placed on those members of the marketing chain best able to pay the loss, who can

then distribute such risk among themselves by means of insurance and indemnity agreements.

[Citation]…

The result which we reach does not give the bystander a “free ride.” When products and consumers are

considered in the aggregate, bystanders, as a class, purchase most of the same products to which they are

exposed as bystanders. Thus, as a class, they indirectly subsidize the liability of the manufacturer,

middleman and retailer and in this sense do pay for the insurance policy tied to the product.…

For the sake of clarity we restate the extension of the rule. The protections of Section 402 A of the

Restatement of Torts 2d extend to bystanders whose injury from the defective product is reasonably

foreseeable.…

The judgment is reversed and the cause is remanded to the Clark Circuit Court for further proceedings

consistent herewith.

Stephenson, J. (dissenting):

I respectfully dissent from the majority opinion to the extent that it subjects the seller to liability. Every

rule of law in my mind should have a rational basis. I see none here.

Liability of the seller to the user, or consumer, is based upon warranty. Restatement, Second, Torts s

403A. To extend this liability to injuries suffered by a bystander is to depart from any reasonable basis

and impose liability by judicial fiat upon an otherwise innocent defendant. I do not believe that the

expression in the majority opinion which justifies this rule for the reason that the seller may procure

liability insurance protection is a valid legal basis for imposing liability without fault. I respectfully

dissent.

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CASE QUESTIONS

1. Why didn’t the plaintiff here use warranty as a theory of recovery, as Mr. Seigel did

in the previous case?

2. The court offers a rationale for the doctrine of strict products liability. What is it?

3. Restatement, Section 402A, by its terms extends protection “to the ultimate user or

consumer,” but Mrs. Embs [plaintiff-appellant] was not that. What rationale did the

court give for expanding the protection here?

4. Among the entities in the vertical distribution chain—manufacturer, wholesaler,

retailer—who is liable under this doctrine?

5. What argument did Judge Stephenson have in dissent? Is it a good one?

6. What is the controlling rule of law developed in this case?

Failure to Warn Laaperi v. Sears, Roebuck & Co., Inc.

787 F.2d 726 C.A.1 (Mass. 1986)

Campbell, J.

In March 1976, plaintiff Albin Laaperi purchased a smoke detector from Sears. The detector,

manufactured by the Pittway Corporation, was designed to be powered by AC (electrical) current. Laaperi

installed the detector himself in one of the two upstairs bedrooms in his home.

Early in the morning of December 27, 1976, a fire broke out in the Laaperi home. The three boys in one of

the upstairs bedrooms were killed in the blaze. Laaperi’s 13-year-old daughter Janet, who was sleeping in

the other upstairs bedroom, received burns over 12 percent of her body and was hospitalized for three

weeks.

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The uncontroverted testimony at trial was that the smoke detector did not sound an alarm on the night of

the fire. The cause of the fire was later found to be a short circuit in an electrical cord that was located in a

cedar closet in the boys’ bedroom. The Laaperi home had two separate electrical circuits in the upstairs

bedrooms: one which provided electricity to the outlets and one which powered the lighting fixtures. The

smoke detector had been connected to the outlet circuit, which was the circuit that shorted and cut off.

Because the circuit was shorted, the AC-operated smoke detector received no power on the night of the

fire. Therefore, although the detector itself was in no sense defective (indeed, after the fire the charred

detector was tested and found to be operable), no alarm sounded.

Laaperi brought this diversity action against defendants Sears and Pittway, asserting negligent design,

negligent manufacture, breach of warranty, and negligent failure to warn of inherent dangers. The parties

agreed that the applicable law is that of Massachusetts. Before the claims went to the jury, verdicts were

directed in favor of defendants on all theories of liability other than failure to warn.…

Laaperi’s claim under the failure to warn theory was that he was unaware of the danger that the very short

circuit which might ignite a fire in his home could, at the same time, incapacitate the smoke detector. He

contended that had he been warned of this danger, he would have purchased a battery-powered smoke

detector as a back-up or taken some other precaution, such as wiring the detector to a circuit of its own, in

order better to protect his family in the event of an electrical fire.

The jury returned verdicts in favor of Laaperi in all four actions on the failure to warn claim. The jury

assessed damages in the amount of $350,000 [$1,050,000, or about $3,400,000 in 2010 dollars] each of

the three actions brought on behalf of the deceased sons, and $750,000 [about $2,500,000 in 2010

dollars] in the action brought on behalf of Janet Laaperi. The defendants’ motions for directed verdict and

judgment notwithstanding the verdict were denied, and defendants appealed.

Defendants ask us to declare that the risk that an electrical fire could incapacitate an AC-powered smoke

detector is so obvious that the average consumer would not benefit from a warning. This is not a trivial

argument; in earlier—some might say sounder—days, we might have accepted it.… Our sense of the

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current state of the tort law in Massachusetts and most other jurisdictions, however, leads us to conclude

that, today, the matter before us poses a jury question; that “obviousness” in a situation such as this would

be treated by the Massachusetts courts as presenting a question of fact, not of law. To be sure, it would be

obvious to anyone that an electrical outage would cause this smoke detector to fail. But the average

purchaser might not comprehend the specific danger that a fire-causing electrical problem can

simultaneously knock out the circuit into which a smoke detector is wired, causing the detector to fail at

the very moment it is needed. Thus, while the failure of a detector to function as the result of an electrical

malfunction due, say, to a broken power line or a neighborhood power outage would, we think, be obvious

as a matter of law, the failure that occurred here, being associated with the very risk—fire—for which the

device was purchased, was not, or so a jury could find.…

Finally, defendants contend that the award of $750,000 [$2.5 million in 2010 dollars] in damages to

Janet Laaperi was excessive, and should have been overturned by the district court.…

Janet Laaperi testified that on the night of the fire, she woke up and smelled smoke. She woke her friend

who was sleeping in her room, and they climbed out to the icy roof of the house. Her father grabbed her

from the roof and took her down a ladder. She was taken to the hospital. Although she was in “mild

distress,” she was found to be “alert, awake, [and] cooperative.” Her chest was clear. She was diagnosed as

having first and second degree burns of her right calf, both buttocks and heels, and her left lower back, or

approximately 12 percent of her total body area. She also suffered from a burn of her tracheobronchial

mucosa (i.e., the lining of her airway) due to smoke inhalation, and multiple superficial lacerations on her

right hand.

The jury undoubtedly, and understandably, felt a great deal of sympathy for a young girl who, at the age of

13, lost three brothers in a tragic fire. But by law the jury was only permitted to compensate her for those

damages associated with her own injuries. Her injuries included fright and pain at the time of and after

the fire, a three-week hospital stay, some minor discomfort for several weeks after discharge, and a

permanent scar on her lower back. Plaintiff has pointed to no cases, and we have discovered none, in

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which such a large verdict was sustained for such relatively minor injuries, involving no continuing

disability.

The judgments in favor of Albin Laaperi in his capacity as administrator of the estates of his three sons are

affirmed. In the action on behalf of Janet Laaperi, the verdict of the jury is set aside, the judgment of the

district court vacated, and the cause remanded to that court for a new trial limited to the issue of

damages.

CASE QUESTIONS

1. The “C.A. 1” under the title of the case means it is a US Court of Appeals case from

the First Circuit in Massachusetts. Why is this case in federal court?

2. Why does the court talk about its “sense of the current state of tort law in

Massachusetts” and how this case “would be treated by the Massachusetts courts,”

as if it were not in the state at all but somehow outside?

3. What rule of law is in play here as to the defendants’ liability?

4. This is a tragic case—three boys died in a house fire. Speaking dispassionately—if

not heartlessly—though, did the fire actually cost Mr. Laaperi, or did he lose $3.4

million (in 2010 dollars) as the result of his sons’ deaths? Does it make sense that he

should become a millionaire as a result? Who ends up paying this amount? (The

lawyers’ fees probably took about half.)

5. Is it likely that smoke-alarm manufactures and sellers changed the instructions as a

result of this case?

[1] Uniform Commercial Code, Section 2-316.

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11.7 Summary and Exercises

Summary Products liability describes a type of claim—for injury caused by a defective product—and not a separate

theory of liability. In the typical case, three legal doctrines may be asserted: (1) warranty, (2) negligence,

and (3) strict liability.

If a seller asserts that a product will perform in a certain manner or has certain characteristics, he has

given an express warranty, and he will be held liable for damages if the warranty is breached—that is, if

the goods do not live up to the warranty. Not every conceivable claim is an express warranty; the courts

permit a certain degree of “puffing.”

An implied warranty is one created by law. Goods sold by a merchant-seller carry an implied warranty of

merchantability, meaning that they must possess certain characteristics, such as being of average quality

for the type described and being fit for the ordinary purposes for which they are intended.

An implied warranty of fitness for a particular purpose is created whenever a seller knows or has reason to

know that the buyer is relying on the seller’s knowledge and skill to select a product for the buyer’s

particular purposes.

Under UCC Article 2, the seller also warrants that he is conveying good title and that the goods are free of

any rightful claim by a third person.

UCC Article 2 permits sellers to exclude or disclaim warranties in whole or in part. Thus a seller may

exclude express warranties. He may also disclaim many implied warranties—for example, by noting that

the sale is “as is.” The Magnuson-Moss Act sets out certain types of information that must be included in

any written warranty. The act requires the manufacturer or seller to label the warranty as either “full” or

“limited” depending on what types of defects are covered and what the customer must do to obtain repair

or replacement. The act also abolishes “phantom warranties.”

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Privity once stood as a bar to recovery in suits brought by those one or more steps removed in the

distribution chain from the party who breached a warranty. But the nearly universal trend in the state

courts has been to abolish privity as a defense.

Because various impediments stand in the way of warranty suits, courts have adopted a tort theory of

strict liability, under which a seller is liable for injuries resulting from the sale of any product in a

defective condition if it is unreasonably dangerous to the user or consumer. Typical issues in strict liability

cases are these: Is the defendant a seller engaged in the business of selling? Was the product sold in a

defective condition? Was it unreasonably dangerous, either on its face or because of a failure to warn? Did

the product reach the consumer in an unchanged condition? Strict liability applies regardless of how

careful the seller was and regardless of his lack of contractual relation with the consumer or user.

Manufacturers can also be held liable for negligence—most often for faulty design of products and

inadequate warnings about the hazards of using the product.

The products-liability revolution prompted many state legislatures to enact certain laws limiting to some

degree the manufacturer’s responsibility for defective products. These laws include statutes of repose and

provide a number of other defenses.’

EXERCISES

1. Ralph’s Hardware updated its accounting system and agreed to purchase a

computer system from a manufacturer, Bits and Bytes (BB). During contract

negotiations, BB’s sales representative promised that the system was “A-1” and

“perfect.” However, the written contract, which the parties later signed, disclaimed

all warranties, express and implied. After installation the computer produced only

random numbers and letters, rather than the desired accounting information. Is BB

liable for breaching an express warranty? Why?

2. Kate owned a small grocery store. One day John went to the store and purchased a

can of chip dip that was, unknown to Kate or John, adulterated. John became

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seriously ill after eating the dip and sued Kate for damages on the grounds that she

breached an implied warranty of merchantability. Is Kate liable? Why?

3. Carrie visited a neighborhood store to purchase some ham, which a salesperson cut

by machine in the store. The next day she made a ham sandwich. In eating the

sandwich, Carrie bit into a piece of cartilage in the ham. As a result, Carrie lost a

tooth, had to undergo root canal treatments, and must now wear a full-coverage

crown to replace the tooth. Is the store liable for the damage? Why?

4. Clarence, a business executive, decided to hold a garage sale. At the sale, his

neighbor Betty mentioned to Clarence that she was the catcher on her city-league

baseball team and was having trouble catching knuckleball pitches, which required a

special catcher’s mitt. Clarence pulled an old mitt from a pile of items that were on

sale and said, “Here, try this.” Betty purchased the mitt but discovered during her

next game that it didn’t work. Has Clarence breached an express or implied

warranty? Why?

5. Sarah purchased several elegant picture frames to hang in her dorm room. She also

purchased a package of self-sticking hangers. Late one evening, while Sarah was

studying business law in the library, the hangers came loose and her frames came

crashing to the floor. After Sarah returned to her room and discovered the rubble,

she examined the box in which the hangers were packaged and found the following

language: “There are no warranties except for the description on this package and

specifically there is NO IMPLIED WARRANTY OF MERCHANTABILITY.” Assuming the

hangers are not of fair, average, ordinary quality, would the hanger company be

liable for breaching an implied warranty of merchantability? Why?

6. A thirteen-year-old boy received a Golfing Gizmo—a device for training novice

golfers—as a gift from his mother. The label on the shipping carton and the cover of

the instruction booklet urged players to “drive the ball with full power” and further

stated: “COMPLETELY SAFE BALL WILL NOT HIT PLAYER.” But while using the device,

the boy was hit in the eye by the ball. Should lack of privity be a defense to the

manufacturer? The manufacturer argued that the Gizmo was a “completely safe”

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training device only when the ball is hit squarely, and—the defendant argued—

plaintiffs could not reasonably expect the Gizmo to be “completely safe” under all

circumstances, particularly those in which the player hits beneath the ball. What

legal argument is this, and is it valid?

7. A bank repossessed a boat and sold it to Donald. During the negotiations with

Donald, Donald stated that he wanted to use the boat for charter service in Florida.

The bank officers handling the sale made no representations concerning the boat

during negotiations. Donald later discovered that the boat was defective and sued

the bank for breach of warranty. Is the bank liable? Why?

8. Tom Anderson, the produce manager at the Thriftway Market in Pasco, Washington,

removed a box of bananas from the top of a stack of produce. When he reached for

a lug of radishes that had been under the bananas, a six-inch spider—Heteropoda

venatoria, commonly called a banana spider—leaped from some wet burlap onto his

left hand and bit him. Nine months later he died of heart failure. His wife brought an

action against Associated Grocers, parent company of Thriftway Market, on theories

of (1) strict products liability under Restatement, Section 402(a); (2) breach of the

implied warranty of merchantability; and (3) negligence. The trial court ruled against

the plaintiff on all three theories. Was that a correct ruling? Explain.

9. A broken water pipe flooded a switchboard at RCA’s office. The flood tripped the

switchboard circuit breakers and deactivated the air-conditioning system. Three

employees were assigned to fix it: an electrical technician with twelve years on-the-

job training, a licensed electrician, and an electrical engineer with twenty years of

experience who had studied power engineering in college. They switched on one of

the circuit breakers, although the engineer said he knew that one was supposed to

test the operation of a wet switchboard before putting it back into use. There was a

“snap” and everyone ran from the room up the stairs and a “big ball of fire” came

after them up the stairs. The plaintiffs argued that the manufacturer of the circuit

breaker had been negligent in failing to give RCA adequate warnings about the

circuit breakers. How should the court rule, and on what theory should it rule?

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10. Plaintiff’s business was to convert vans to RVs, and for this purpose it had used a 3M

adhesive to laminate carpeting to the van walls. This adhesive, however, failed to

hold the fabric in place in hot weather, so Plaintiff approached Northern Adhesive

Co., a manufacturer of adhesives, to find a better one. Plaintiff told Northern why it

wanted the adhesive, and Northern—Defendant—sent several samples to Plaintiff

to experiment with. Northern told Plaintiff that one of the adhesives, Adhesive

7448, was “a match” for the 3M product that previously failed. Plaintiff tested the

samples in a cool plant and determined that Adhesive 7448 was better than the 3M

product. Defendant had said nothing except that “what they would ship would be

like the sample. It would be the same chemistry.” Plaintiff used the adhesive during

the fall and winter; by spring complaints of delamination came in: Adhesive 7448

failed just as the 3M product had. Over 500 vans had to be repaired. How should the

court rule on Plaintiff’s claims of breach of (1) express warranty, (2) implied

warranty of merchantability, and (3) implied warranty of fitness for a particular

purpose?

SELF-TEST QUESTIONS

1. In a products-liability case

a. only tort theories are typically asserted

b. both tort and contract theories are typically asserted

c. strict liability is asserted only when negligence is not asserted

d. breach of warranty is not asserted along with strict liability

An implied warranty of merchantability

a. is created by an express warranty

b. is created by law

c. is impossible for a seller to disclaim

d. can be disclaimed by a seller only if the disclaimer is in writing

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A possible defense to breach of warranty is

a. lack of privity

b. absence of an express warranty

c. disclaimer of implied warranties

d. all of the above

Under the strict liability rule in Restatement, Section 402A, the seller is liable for

all injuries resulting from a product

a. even though all possible care has been exercised

b. regardless of the lack of a contract with the user

c. in both of the above situations

d. in none of the above situations

An individual selling her car could be liable

a. for breaching the implied warranty of merchantability

b. under the strict liability theory

c. for breaching the implied warranty of fitness

d. under two of the above

SELF-TEST ANSWERS

1. b

2. b

3. d

4. c

5. d

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