Product Liability: Disclaimers, Implied Warranties, and Defenses - Prof. Tim Lemper, Study notes of Business and Labour Law

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Chapter 20–Product Liability (Continued)  Disclaimers and Remedy Limitations o A product liability disclaimer- is a clause in the sales contract whereby the seller attempts to eliminate liability it might otherwise have under the theories of recovery o A remedy limitation- is a clause attempting to block recovery of certain damages o If a disclaimer is effective, no damages of any sort are recoverable under the legal theory attached by the disclaimer o A successful remedy limitation prevents the plaintiff from recovering certain types of damages but doesn’t attack the plaintiff’s theory of recovery o Damages not excluded still may be recovered because the theory is left intact o The main justification for enforcing disclaimers and remedy limitations is freedom of contract o Sellers need not insure against lawsuits for defective goods accompanied by an effect disclaimer or remedy limitation, they should be able to sell those goods more cheaply o Enforcing such clauses allows buyers to obtain a lower price by accepting the economic risk of a product defect o For purchases by ordinary consumers and other unsophisticated buyer, this argument is often is illusory o Sellers normally present the disclaimer or remedy limitation in a standardized, take-it-or-leave-it fashion  It is also doubtful whether many consumers read disclaimers and remedy limitations at the time of purchase, or would, comprehend them f they did read the,  As a result, there is little or no genuine bargaining over disclaimers or remedy limitations in consumer situations  They are effectively dictated by a seller with superior size and organization  These observations are less valid when the buyer is a business entity with the capability to engage in genuine bargaining with sellers o Implied Warranty Disclaimers  The Basic Tests of UCC Section 2-316(2)  Makes it relatively easy for sellers to disclaim the implied warranties of merchantability and fitness for a particular purpose  The section states that to exclude or modify the implied warranty of merchantability, a seller must: o Use the word merchantability o Make the disclaimer conspicuous if it is written  To exclude or modify the implied warranty of fitness, a seller must: o Use a writing o Make the disclaimer conspicuous  A disclaimer is conspicuous if it is written so that a reasonable person ought to have noticed it o Capital letter, larger type, contrasting type, and contrasting colors usually suffice  Unlike the fitness warranty disclaimer, a disclaimer of the implied warranty of merchantability can be oral  Although disclaimers of the later warranty must use the word merchantability, no special language is needed to disclaim the implied warranty of fitness  Other Ways to Disclaim Implied Warranties: Section 2-316(3)  Sellers may also disclaim either implied warranty by using such terms as “with all faults”, “as is”, and “as they stand”  Some courts have held that these terms must be conspicuous to be effective as disclaimers  Other courts have allowed such terms to be effective disclaimers only in sales of used  Describes two situations in which the buyer’s inspection of the goods or her refusal to inspect may operate as a disclaimer  If a buyer examines the goods before the sale and fails to discover a defect that should have been reasonably apparent to her, there can be no implied warranty claim based on that defect  If a seller requests that the buyer examine the goods and the buyer refuses the buyer cannot base an implied warranty claim on a defect that would have been reasonably apparent had she made the inspection o the definition of a reasonably apparent defect varies with the buyer’s expertise o unless the defect is blatantly obvious, ordinary consumers may have little to fear from section 2-316(3)(b)  An implied warranty may be excluded or modified by course of dealing (the parties’ previous conduct), course of performance (the parties’ previous conduct under the same contract), or usage of trade (any practice regularly observed in the trade).  Unconscionable Disclaimers  A sellers ability to disclaim implied warranties sometimes is restricted by the doctrine of unconscionably established by the UCC  In appropriate instances, courts apply unconscionably standards to implied warranty disclaimers even though those disclaimers satisfy UCC section 2-316(2)  Despite a growing willingness to protect smaller firms that deal with corporate giants, however, courts still tend to reject unconscionably claims where business parties have contracted in a commercial context  Implied warranty disclaimers often are declared unconscionable, however, in personal injury cases brought by ordinary consumers  The Impact of Magnuson-Moss  Magnuson-Moss Act limits a seller’s ability to disclaim implied warranties o If a seller gives a consumer a full warranty on consumer goods whose price exceeds $10, the seller may no disclaim, modify, or limit the duration of any implied warranty o If limited warranty is given- the seller may not disclaim or modify any implied warranty buy may limit its duration to the duration of the limited warranty if this is done conspicuously and if the limitation is not unconscionable  These significant limitations on a seller’s power to disclaim implied warranties  A seller still can disclaim by refusing to give a written warranty while placing the disclaimer on some writing o Express Warranty Disclaimer  UCC section 2-316(1) says that an express warranty and a disclaimer should be read consistently if possible, but that the disclaimer must yield if such a reading is unreasonable  Because it is unreasonable for a seller to exclude with one hand what he has freely and openly promised with the other, it is quite difficult to disclaim an express warranty o Disclaimers of Tort Liabilities  Disclaimers of negligence liability and strict liability are usually ineffective in cases involving ordinary consumers  Some courts enforce such disclaimers where both parties are business entities that:  Dealt in a commercial setting  Had relatively equal bargaining power  Bargained over the product’s specifications  Negotiated the risk of loss from product defects(e.g., the disclaimer itself)  Even though it has a provision that seems to bar all disclaimers, the same should be true under the Restatement (Third)  Defenses o Various matters- ex, the absence of privity or valid disclaimer- can be considered defenses to a product liability suit o Traditional Defenses