Theories of Liability

Some information and tidbits to consider. This is California law focused.

Relevant Statutes:

1. Uniform Commercial Code ("U.C.C.")

2. California Commercial Code. This largely follows the provisions of the U.C.C. regarding warranties which apply to the sale of "goods". "Goods" are defined, at Section 2105 of the California Commercial Code, as "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action".

3. Song-Beverly Act. Codified as California Civil Code, Section 1790, et seq., the Song-Beverly Consumer Warranty Act prevails over conflicting provisions of the California Commercial  Code to the extent that it gives rights to buyers of consumer goods. California Civil Code, Section 1790.3. It establishes broad statutory control over warranties in consumer sales and specifies requirements for creating and excluding the warranties accompanying such sales.

4. Magnusson-Moss Warranty Act. Codified as 15 U.S.C., Section 2301, et. seq., the Magnusson-Moss Warranty Act regulates written warranties of consumer goods distributed in interstate commerce and manufactured after July 4, 1975. It does not restrict consumer rights or remedies under state law.

Types of Warranties:

1. Express Warranties

Some contracts for the sale of goods provide the buyer with an express warranty. An express warranty is often provided in the form of an “affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain.” Com. Code §2313(1)(a). The express warranty in such case is a warranty that “the good shall conform to the affirmation or promise.”

2. Implied Warranties

An implied warranty is a statutorily imposed requirement that a product is fit for its intended purpose and meets the buyer's reasonable expectations. There are two implied warranties:

a. Implied Warranty of Merchantability

The implied warranty of merchantability is formed by operation of law and is implied in every contract for the sale of goods. Merchantability refers to whether the goods are of average, acceptable quality and are generally fit for the ordinary purpose for which such goods are used. California Commercial Code, Section 2314.

Implied warranties as to merchantability may be excluded or modified if, at the time of sale, the seller specifically makes known to the buyer that the warranty of merchantability is excluded or modified and, if in writing, it must be conspicuous. California Commercial Code, Section 2316.

b. Implied Warranty of Fitness for a Particular Purpose

The question of whether a product is fit for a particular purpose arises when the seller knows or has reason to know the particular purpose for which the goods are required and the buyer is relying on the seller's skill and judgment in selecting the goods. California Commercial Code, Section 2315.

Like the implied warranty of merchantability, the implied warranty of fitness for a particular purpose can be excluded. To be excluded, it must be in writing and must be conspicuous. As with the warranty of merchantability, it may also be excluded by words such as “with all faults” or “as is,” or such other language making it clear to the buyer that there are no implied warranties.  Com. Code §2316(3)(a).

Relationship Between Express and Implied Warranties:

When express and implied warranties are seen as inconsistent, the intention of the parties shall determine which warranty is dominant, and implied warranties created under the Code may be excluded or modified by course of dealing, course of performance or usage of trade. California Commercial Code, Sections 2317, 2316.

A manufacturer, distributor, or retailer, in transacting a sale in which express warranties are given, may not limit, modify, or disclaim the implied warranties guaranteed by the Act to the sale of consumer goods. California Civil  Code, Section 1793. Song-Beverly Act

Disclaimers:

Generally, unless the circumstances indicate otherwise, all implied warranties are excluded by expressions such as "as is", "with all faults" or other language which in common understanding call the buyer's attention to the exclusion of warranties and make plain that there is no implied warranty. California Commercial Code, Section 2316.

Implied Warranty of Merchantability. Implied warranties as to merchantability may be excluded or modified if, at the time of the sale, the seller specifically makes known to the buyer that the warranty of merchantability is excluded or modified and, if in writing, it must be conspicuous. California Commercial Code, Section 2316

Implied Warranty of Fitness for a Particular Purpose. Implied warranties as to fitness may be excluded or modified by a notice in writing to the effect that there are no warranties which extend beyond the description of the goods. Such notice must be conspicuous. California Commercial Code, Section 2316.

Inadequate Disclaimers. California courts have allowed products liability actions to be maintained despite the existence of disclaimers. Hauter v. Zogarts (1974) 14 Cal.3d 104; Southern Cal. Edison Co. v. Harnischfeger Corp. (1981) 120 Cal.App.3d 842.

Hidden/Latent Defects

The Restatement Third of Torts: Products Liability, Section 2, distinguishes between defects existing at the time of sale and defects which arise later after the time of sale, for example, from a new unforeseeable use of the product. The Restatement states that negligence, not strict liability, is the proper theory of recovery for product-related, harm-causing behavior not involving defects at time of sale.

When a product is defective at the time of sale and the defect causes harm to persons or property, the seller is subject to liability whether or not the seller attempts to eliminate the defect by post-sale recall.  Similarly, when a product is defective at the time of sale, if the seller reasonably should have issued a post-sale warning, then the seller may be liable for not doing so as well as being liable for the original defect. Restatement Third  of Torts: Products Liability, Section 10.

In Daniel v. Ford Motor Company, the Ninth Circuit Court of Appeal resolved the issue of whether consumers may sustain a breach of implied warranty claim under California’s Song Beverly Consumer Warranty Act for “latent” defects discovered after the warranty period had expired. The Circuit Court followed the holding in the California state appellate court decision of Mexia v. Rinker Boat Co. which previously determined there is nothing in California’s lemon law that requires a consumer to discover a latent defect during the duration of the warranty.

Damages in Breach of Warranty Cases:

Damages for Injuries to the Person and Property. Recoverable under causes of action based on express warranty, implied warranties of merchantability or fitness for a particular purpose. California Commercial Code, Section 2714.

Damages to the goods are measured as follows: the difference at the time and place of acceptance between the value of goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. California Commercial Code, Section 2714.

Damages under the Song-Beverly Act. Under the Act, if the consumer good cannot be repaired to make it as warranted after a reasonable number of attempts at repair, the consumer is entitled to restitution or replacement, at his election. California Civil Code, Section 1793.2(d)(2).

If the consumer establishes a failure to replace or reimburse was willful, the judgment may include a civil penalty of up to two times the amount of actual damages. California Civil Code, Section 1794(c).

Also, if a consumer prevails in an action under the Act, he may recover costs and expenses including attorney's fees. California Civil Code, Section 1794(d).

Economic or Commercial Loss

Implied warranty: Not recoverable unless privity of contract exists between plaintiff and defendant. Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442.

Express warranty: Recoverable even if no privity of contract between plaintiff and defendant. Seely v. White Motor Co. (1965) 63 Cal.2d 9.

Lost Profits. When economic losses are recoverable, lost profits may be recoverable if their extent and occurrence can be ascertained with reasonable certainty, and the entity asserting the claim is an established business. Grupe v. Glick (1945) 26 Cal.2d 680.

Punitive Damages. Recoverable under express warranty theories when the plaintiff proceeds under alternate tort theories in his contract action. Frazier v. Metropolitan Life Ins.  Co. (1985) 169 Cal.App.3d 90, 107.

Damages: Fraud and Deceit Actions

1. Measure of Damages.

   • One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers. California Civil Code, Section 1709.

2. Punitive Damages.

   • Under some circumstances, punitive damages are recoverable. Ward v. Taggart (1959) 51 Cal.2d 736; California Civil Code, Section 3294.