Warranty Liability

Chapter 16 Warranty Liability Warranties A warranty is a promise that certain facts are true. Warranties can be express (based on statements of a party) or implied (based on conduct of a party or by operation of law). A breached or incorrect warranty will support an action for damages. The measure of damages is the difference between (a) the value of the contract performance as warranted and (b) the value of the contract performance as it was actually performed. The non breaching party may also be able to recover additional amounts (known as consequential or incidental damages) under rules discussed in later chapters. PRACTICE TIP Warranties are generally drafted in this form: "[Buyer, Seller, other defined term] warrants that [warranted facts carefully stated as to scope and substance]." Just about any statement of present or past fact can be warranted, and warranties are often coupled with representations (which, if incorrect, support recision of the contract and possibly tort damages, including punitive damages). Typical representations and warranties in business transactions include that (1) the party is duly organized, in good standing, and authorized to enter in the transaction, (2) the transaction is not a breach of any other agreement and does not violate the law, (3) a seller or lessor has good title to all assets being sold or leased, and those assets are free of liens and encumbrances, (4) all material facts have been disclosed, and (5) goods being sold conform to certain standards. Unlike representations, which are focused on the truth of the matter stated, warranties are really about allocating risk, which implicates pricing. In other words, when thinking about the warranty function of a provision, the focus is on who bears the loss if the fact does not exist as warranted, not whether or not it is true. The amount of risk impacts the purchase price or interest rate to be charged. This is different from a representation, which is wholly concerned with whether a fact is true or not, a binary go/no-go function that may allow a party to rescind the contract and face no obligation to close the transaction. Thus, it may be appropriate for a party to make a warranty but not a representation concerning the particular fact at issue. The U.C.C. Approach In a sale of goods contract covered by the Uniform Commercial Code, any "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 creates an express warranty that the goods shall conform to the affirmation or promise." U.C.C. § 2--313(1)(a). This approach blurs the distinction between the classic definitions of representations, warranties, and covenants. As stated in Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824, 830, 51 Cal. Rptr. 3d 118 (2006): A warranty is a contractual promise from the seller that the goods conform to the promise. If they do not, the buyer is entitled to recover the difference between the value of the goods accepted by the buyer and the value of the goods had they been as warranted. A seller may limit its liability for defective goods by disclaiming or modifying a warranty. The general rule is that an express warranty does not cover repairs made after the applicable time or mileage periods have elapsed . . . . Several courts have expressly rejected the proposition that a latent defect, discovered outside the limits of a written warranty, may form the basis for a valid express warranty claim [even] if the warrantor knew of the defect at the time of sale. [internal citations and quotation marks omitted.---Eds.] There are two major questions that arise under § 2--313: (1)Is the purported warranty an "affirmation of fact" (2--313(a)) and not just puffing? The cases on this point are in conflict and often this may appear to be decided on the basis of court's view of the equities. (2)What does the statute mean by the requirement that the purported warranty be part of the "basis of the bargain?" This requires a showing of knowledge of the warranty and reliance on the warranty. Generally speaking, the case law provides a rebuttable presumption of reliance. Finally, keep in mind that warranty liability is strict liability in contract. If a party makes a warranty, it is bound even though the fact or promise that was warranted was out of that party's control. In fact, that is the whole point of a warranty. Under the U.C.C., warranties are presumed to relate45 to the condition of the goods when they are delivered unless the contract provides otherwise. PRACTICE TIP: DISCLAIMERS Consider including a broad provision that eliminates or disclaims as far as legally possible all express or implied warranties except as expressly provided for in the contract. But see U.C.C. § 2--316(1) (disclaimer or limitation of warranty inconsistent with an express warranty will be inoperative if consistent construction not reasonable); U.C.C. § 2--316(2)--(3) (disclaimer of implied warranties with specific disclaimers, general disclaimers, buyer inspections, and course of performance). A disclaimer of warranties, however, may be subject to court scrutiny that may reflect some hostility to overreaching disclaimers and releases obtained by economically dominant parties. You should also include a merger or integration clause so that evidence of any prior or contemporaneous statements that could be construed as representations or warranties will be excluded. A.EXPRESS WARRANTY Royal Business Machines v. Lorraine Corp., United States Court of Appeals, Seventh Circuit, 633 F.2d 34 (1980) [1]This is an appeal from a judgment of the district court entered after a bench trial awarding Michael L. Booher and Lorraine Corp. (Booher) \$1,171,216.16 in compensatory and punitive damages against Litton Business Systems, Inc. and Royal Business Machines, Inc. (Royal). The judgment further awarded Booher attorneys' fees of \$156,800.00. It denied, for want of consideration, the recovery by Royal of a \$596,921.33 indebtedness assessed against Booher earlier in the proceedings in a summary judgment. The judgment also granted Royal a set-off of \$12,020.00 for an unpaid balance due on computer typewriters. [2]The case arose from commercial transactions extending over a period of 18 months between Royal and Booher in which Royal sold and Booher purchased 114 RBC I and 14 RBC II plain paper copying machines. In mid-August 1976, Booher filed suit against Royal in the Indiana courts claiming breach of warranties and fraud. On September 1, 1976, Royal sued Booher on his financing agreements in the district court and also removed the state litigation to the district court where the cases were consolidated.452 [3]The issues in the cases arise under Indiana common law and under the UCC as adopted in Indiana. The contentions urged by Royal on appeal are that: (1)substantial evidence does not support the findings that Royal made certain express warranties or that it breached any express warranty and, as a matter of law, no warranties were made; and (2)substantial evidence does not support the findings that Royal breached the implied warranties of merchantability and fitness for a particular purpose; and (3)substantial evidence does not support the finding that Booher made timely revocation of acceptance of the goods sold; and (4)substantial evidence does not support the findings upon which the awards of compensatory damages were made and that certain awards constituted a double recovery; and (5)substantial evidence does not support the findings upon which the awards of punitive damages were made. [4]We reverse and remand for a new trial on the grounds set forth in this opinion. EXPRESS WARRANTIES [5]We first address the question whether substantial evidence on the record supports the district court's findings that Royal made and breached express warranties to Booher. The trial judge found that Royal Business Machines made and breached the following express warranties: (1)that the RBC Model I and II machines and their component parts were of high quality; (2)that experience and testing had shown that frequency of repairs was very low on such machines and would remain so; (3)that replacement parts were readily available; (4)that the cost of maintenance for each RBC machine and cost of supplies was and would remain low, no more than 1/2 cent per copy; (5)that the RBC machines had been extensively tested and were ready to be marketed; (6)that experience and reasonable projections had shown that the purchase of the RBC machines by Mr. Booher and Lorraine Corporation and the leasing of the same to customers would return substantial profits to Booher and Lorraine; (7)that the machines were safe and could not cause fires; and453 (8)that service calls were and would be required for the RBC Model II machine on the average of every 7,000 to 9,000 copies, including preventive maintenance calls. [6]Substantial evidence supports the court's findings as to Numbers 5, 7, 8, and the maintenance aspect of Number 4, but, as a matter of law, Numbers 1, 2, 3, 6, and the cost of supplies portion of Number 4 cannot be considered express warranties. [7]Paraphrasing UCC § 2--313 as adopted in Indiana, an express warranty is made up of the following elements: (a) an affirmation of fact or promise, (b) that relates to the goods, and (c) becomes a part of the basis of the bargain between the parties. When each of these three elements is present, a warranty is created that the goods shall conform to the affirmation of fact or to the promise. [8]The decisive test for whether a given representation is a warranty or merely an expression of the seller's opinion is whether the seller asserts a fact of which the buyer is ignorant or merely states an opinion or judgment on a matter of which the seller has no special knowledge and on which the buyer may be expected also to have an opinion and to exercise his judgment. General statements to the effect that good are "the best," or are "of good quality," or will "last a lifetime" and be "in perfect condition," are generally regarded as expressions of the seller's opinion or "the puffing of his wares" and do not create an express warranty. [9]No express warranty was created by Royal's affirmation that both RBC machine models and their component parts were of high quality. This was a statement of the seller's opinion, the kind of "puffing" to be expected in any sales transaction, rather than a positive averment of fact describing a product's capabilities to which an express warranty could attach. [10]Similarly, the representations by Royal that experience and testing had shown that the frequency of repair was "very low" and would remain so lack the specificity of an affirmation of fact upon which a warranty could be predicated. These representations were statements of the seller's opinion. [11]The statement that replacement parts were readily available is an assertion of fact, but it is not a fact that relates to the goods sold as required by [UCC §] 2--313(1)(a) and is not an express warranty to which the goods were to conform. Neither is the statement about the future costs of supplies being 1/2 cent per copy an assertion of fact that relates to the goods sold, so the statement cannot constitute the basis of an express warranty. [12]It was also erroneous to find that an express warranty was created by Royal's assurances to Booher that purchase of the RBC machines would bring him substantial profits. Such a representation does not describe the goods within the meaning of UCC § 2--313(1)(b), nor is the representation45 an affirmation of fact relating to the goods under UCC § 2--313(1)(a). It is merely sales talk and the expression of the seller's opinion. See Regal Motor Products v. Bender, 102 Ohio App. 447, 139 N.E.2d 463, 465 (1956) (representation that goods were "readily saleable" and that the demand for them would create a market was not a warranty). [13]On the other hand, the assertion that the machines could not cause fires is an assertion of fact relating to the goods, and substantial evidence in the record supports the trial judge's findings that the assertion was made by Royal to Booher.1 The same may be said for the assertion that the machines were tested and ready to be marketed. See Bemidji Sales Barn v. Chatfield, 312 Minn. 11, 250 N.W.2d 185 (1977) (seller's representation that cattle "had been vaccinated for shipping fever and were ready for the farm" constituted an express warranty). See generally R. Anderson, Uniform Commercial Code § 2--313:36 (2d ed. 1970) (author asserts that seller who sells with seal of approval of a third person, e.g., a testing laboratory, makes an express warranty that the product has been tested and approved and is liable if the product was in fact not approved). The record supports the district court's finding that Royal represented that the machines had been tested.2 [14]As for findings 8 and the maintenance portion of Number 4, Royal's argument that those statements relate to predictions for the future and cannot qualify as warranties is unpersuasive.3 An expression of future capacity or performance can constitute an express warranty. In Teter v. Shultz, 110 Ind. App. 541, 39 N.E.2d 802, 804 (1942), the Indiana courts held that a seller's statement that dairy cows would give six gallons of milk per day was an affirmation of fact by the seller relating to the goods. It was not a statement of value nor was it merely a statement of the seller's opinion. The Indiana courts have also found that an express warranty was created by a seller's representation that a windmill was capable of furnishing power to grind 20 to 30 bushels of grain per hour in a moderate45 wind and with a very light wind would pump an abundance of water. Smith v. Borden, 160 Ind. 223, 66 N.E. 681 (1903). Further, in General Supply and Equipment Co. v. Phillips, supra, the Texas courts upheld the following express warranties made by a seller of roof panels: (1) that tests show no deterioration in 5 years of normal use; (2) that the roofing panels won't turn black or discolor . . . even after years of exposure; and (3) that the panels will not burn, rot, rust, or mildew. Snow's Laundry and Dry Cleaning v. Georgia Power Co., 61 Ga. App. 402, 6 S.E.2d 159 (1939), impliedly recognized that a warranty as to future gas consumption following installation of gas equipment was possible. In holding that no warranty was created in that particular case, the Georgia court noted: "The statements made by Spencer were denominated by him as estimates, and nowhere did he warrant or guarantee that the gas consumption would not exceed \$230.50 per month." 61 Ga. App. at 405, 6 S.E.2d at 162. See Matlack, Inc. v. Butler Mfg. Co., 253 F. Supp. 972 (E.D. Pa. 1966). [15]Whether a seller affirmed a fact or made a promise amounting to a warranty is a question of fact reserved for the trier of fact. Substantial evidence in the record supports the finding that Royal made the assertion to Booher that maintenance cost for the machine would run 1/2 cent per copy and that this assertion was not an estimate but an assertion of a fact of performance capability.4 [16]Finding Number 8, that service calls on the RBC II would be required every 7,000 to 9,000 copies, relates to performance capability and could constitute the basis of an express warranty. There is substantial evidence in the record to support the finding that this assertion was also made.5 [17]While substantial evidence supports the trial court's findings as to the making of those four affirmations of fact or promises, the district court failed to make the further finding that they became part of the basis of the bargain. Ind. Code § 26--1--2--313(1) (1976). While Royal may have45 made such affirmations to Booher, the question of his knowledge or reliance is another matter.6 [18]This case is complicated by the fact that it involved a series of sales transactions between the same parties over approximately an 18-month period and concerned two different machines. The situations of the parties, their knowledge and reliance, may be expected to change in light of their experience during that time. An affirmation of fact which the buyer from his experience knows to be untrue cannot form a part of the basis of the bargain. Therefore, as to each purchase, Booher's expanding knowledge of the capacities of the copying machines would have to be considered in deciding whether Royal's representations were part of the basis of the bargain. The same representations that could have constituted an express warranty early in the series of transactions might not have qualified as an express warranty in a later transaction if the buyer had acquired independent knowledge as to the fact asserted. [19]The trial court did not indicate that it considered whether the warranties could exist and apply to each transaction in the series. Such an analysis is crucial to a just determination. Its absence renders the district court's findings insufficient on the issue of the breach of express warranties. [20]Since a retrial on the questions of the breach of express warranties and the extent of damages is necessary, we offer the following observations. The court must consider whether the machines were defective upon delivery. Breach occurs only if the goods are defective upon delivery and not if the goods later become defective through abuse or neglect.457 [21]In considering the promise relating to the cost of maintenance, the district court should determine at what stage Booher's own knowledge and experience prevented him from blindly relying on the representations of Royal. A similar analysis is needed in examining the representation concerning fire hazard in the RBC I machines. The court also should determine when that representation was made. If not made until February 1975, the representation could not have been the basis for sales made prior to that date.---------

Notes and Questions 1.How did the court justify its conclusion that no express warranty was created by the statements that the machines "were of high quality?" Are you convinced by this? Suppose the seller had said, "This is Grade A merchandise." Suppose the seller had said, "These are Grade A eggs." Would these statements create express warranties? 2.In Jones v. Kellner, 5 Ohio App. 3d 242, 451 N.E.2d 548, 36 U.C.C. Rep. Serv. 784 (1982), a private party seller's oral statement that a used car was "in 'A-l' condition mechanically" was held to be an express warranty. In Chrysler-Plymouth City Inc. v. Guerrero, 620 S.W.2d 700 (Tex. Civ. App. 1981) the court held that the words, "top quality" constituted an express warranty. 3.How does the court reach the conclusion that the statement that replacement parts were readily available was not an express warranty? Would the court's reasoning support a conclusion that the statement, "replacement parts for this machine are readily available," is not an express warranty but "this is a machine for which replacement parts are readily available" is such a warranty? Regardless of how the statement was actually phrased, what do you suppose the seller was really trying to tell the buyer? 4.How does the court reach the conclusion that two identical statements could be made with respect to the first copier purchased and the last, and an express warranty would be created with respect to the first copier but not with respect to the last? 5.What does U.C.C. § 2--313 mean when it says the affirmation or promise must become "part of the basis of the bargain?" Under the old, now superseded Uniform Sales Act a statement could become an express warranty only "if the buyer purchases the goods relying thereon."--------- 458 Bayliner Marine Corp. v. Crow, Supreme Court of Virginia, 257 Va. 121, 509 S.E.2d 499 (1999) [1]In this appeal, the dispositive issue is whether there was sufficient evidence to support the trial court's ruling that the manufacturer of a sport fishing boat breached an express warranty and implied warranties of merchantability and fitness for a particular purpose. [2]In the summer of 1989, John R. Crow was invited by John Atherton, then a sales representative for Tidewater Yacht Agency, Inc. (Tidewater), to ride on a new model sport fishing boat known as a 3486 Trophy Convertible, manufactured by Bayliner Marine Corporation (Bayliner). At that time, Tidewater was the exclusive authorized dealer in southeastern Virginia for this model Bayliner boat. During an excursion lasting about 20 minutes, Crow piloted the boat for a short period of time but was not able to determine its speed because there was no equipment on board for such testing. [3]When Crow asked Atherton about the maximum speed of the boat, Atherton explained that he had no personal experience with the boat or information from other customers concerning the boat's performance. Therefore, Atherton consulted two documents described as "prop matrixes," which were included by Bayliner in its dealer's manual. [4]Atherton gave Crow copies of the "prop matrixes," which listed the boat models offered by Bayliner and stated the recommended propeller sizes, gear ratios, and engine sizes for each model. The "prop matrixes" also listed the maximum speed for each model. The 3486 Trophy Convertible was listed as having a maximum speed of 30 miles per hour when equipped with a size "20x20" or "20x19" propeller. The boat Crow purchased did not have either size propeller but, instead, had a size "20x17" propeller. [5]At the bottom of one of the "prop matrixes" was the following disclaimer: "This data is intended for comparative purposes only, and is available without reference to weather conditions or other variables. All testing was done at or near sea level, with full fuel and water tanks, and approximately 600 lb. passenger and gear weight." [6]Atherton also showed Crow a Bayliner brochure describing the 1989 boat models, including the 3486 Trophy Convertible. The brochure included a picture of that model fully rigged for offshore fishing, accompanied by the statement that this model "delivers the kind of performance you need to get to the prime offshore fishing grounds." [7]In August 1989, Crow entered into a written contract for the purchase of the 3486 Trophy Convertible in which he had ridden. The purchase price was \$120,000, exclusive of taxes. The purchase price included various equipment to be installed by Tidewater including a45 generator, a cockpit cover, a "Bimini top," a winch, a spotlight, radar, a navigation system, an icemaker, fishing outriggers, an automatic pilot system, extra fuel gauges, a second radio, and air conditioning and heating units. The total weight of the added equipment was about 2,000 pounds. Crow did not test drive the boat after the additional equipment was installed or at any other time prior to taking delivery. [8]When Crow took delivery of the boat in September 1989, he piloted it onto the Elizabeth River. He noticed that the boat's speed measuring equipment, which was installed in accordance with the contract terms, indicated that the boat's maximum speed was 13 miles per hour. Crow immediately returned to Tidewater and reported the Problem. [9]During the next 12 to 14 months, while Crow retained ownership and possession of the boat, Tidewater made numerous repairs and adjustments to the boat in an attempt to increase its speed capability. Despite these efforts, the boat consistently achieved a maximum speed of only 17 miles per hour, except for one period following an engine modification when it temporarily reached a speed of about 24 miles per hour. In July 1990, a representative from Bayliner wrote Crow a letter stating that the performance representations made at the time of purchase were incorrect, and that 23 to 25 miles per hour was the maximum speed the boat could achieve. [10]In 1992, Crow filed a suit against Tidewater, Bayliner, and Brunswick Corporation, the manufacturer of the boat's diesel engines. Crow alleged, among other things, that Bayliner breached express warranties, and implied warranties of merchantability and fitness for a particular purpose. [11]At a bench trial in 1994, Crow, Atherton, and Gordon W. Shelton, III, Tidewater's owner, testified that speed is a critical quality in boats used for offshore sport fishing in the Tidewater area of Virginia because of the distance between the coast and the offshore fishing grounds. According to these witnesses, a typical offshore fishing site in that area is 90 miles from the coast. Therefore, the speed at which the boat can travel to and from fishing sites has a major impact on the amount of time left in a day for fishing. [12]Crow testified that because of the boat's slow speed, he could not use the boat for offshore fishing, that he had no other use for it, and that he would not have purchased the boat if he had known that its maximum speed was 23 to 25 miles per hour. Crow testified that he had not used the boat for fishing since 1991 or 1992. He admitted, however, that between September 1989, and September 1994, the boat's engines had registered about 850 hours of use. Bob Schey, Bayliner's manager of yacht testing, testified that a pleasure boat in a climate such as Virginia's typically would register 150 engine hours per year.460 [13]The trial court entered judgment in favor of Crow against Bayliner on the counts of breach of express warranty and breach of implied warranties of merchantability and fitness for a particular purpose. The court awarded Crow damages of \$135,000, plus prejudgment interest from June 1993. The court explained that the \$135,000 award represented the purchase price of the boat, and about \$15,000 in "damages" for a portion of the expenses Crow claimed in storing, maintaining, insuring, and financing the boat. [14]On appeal, we review the evidence in the light most favorable to Crow, the prevailing party at trial. We will uphold the trial court's judgment unless it is plainly wrong or without evidence to support it. [We reverse.---Eds.] [15]Crow argues that the "prop matrixes" he received created an express warranty by Bayliner that the boat he purchased was capable of a maximum speed of 30 miles per hour. We disagree. [16][U.C.C.] § 2--313 provides, in relevant part: Express warranties by the seller are created as follows: (a)Any 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 creates an express warranty that the goods shall conform to the affirmation or promise. (b)Any description of the goods which is made a part of the basis of the bargain creates an express warranty that the goods shall conform to the description. [17]The issue whether a particular affirmation of fact made by the seller constitutes an express warranty is generally a question of fact. See id., Official Comment 3. In Daughtrey, we examined whether a jeweler's statement on an appraisal form constituted an express warranty. We held that the jeweler's description of the particular diamonds being purchased as "v.v.s. quality" constituted an express warranty that the diamonds were, in fact, of that grade. [18]Unlike the representation in Daughtrey, however, the statements in the "prop matrixes" provided by Bayliner did not relate to the particular boat purchased by Crow, or to one having substantially similar characteristics. By their plain terms, the figures stated in the "prop matrixes" referred to a boat with different sized propellers that carried equipment weighing substantially less than the equipment on Crow's boat. Therefore, we conclude that the statements contained in the "prop matrixes" did not constitute an express warranty by Bayliner about the performance capabilities of the particular boat purchased by Crow.461 [19]Crow also contends that Bayliner made an express warranty regarding the boat's maximum speed in the statement in Bayliner's sales brochure that this model boat "delivers the kind of performance you need to get to the prime offshore fishing grounds." While the general rule is that a description of the goods that forms a basis of the bargain constitutes an express warranty, [U.C.C.] § 2--313(2) directs that "a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty." [20]The statement made by Bayliner in its sales brochure is merely a commendation of the boat's performance and does not describe a specific characteristic or feature of the boat. The statement simply expressed the manufacturer's opinion concerning the quality of the boat's performance and did not create an express warranty that the boat was capable of attaining a speed of 30 miles per hour. Therefore, we conclude that the evidence does not support the trial court's finding that Bayliner breached an express warranty made to Crow. [The court's discussions of the implied warranty issues are reprinted later in this chapter.---Eds.]---------

Questions 1.If you were representing Bayliner, what additional language would you want to add to the prop matrixes to beef up the disclaimer? 2.Assuming that the disclaimer keeps the prop matrixes from being an express warranty by Bayliner, is it still possible to make a good argument that by giving the buyer the document, the dealer made a warranty? 3.Would there have been a breach of an express warranty if it were shown that when Bayliner did the tests upon which the prop matrixes were based, the boat had defective speed measuring equipment and was only making 25 mph rather than the 30 mph stated in the matrixes? Would Bayliner be liable? Would the dealer? 4.How might Crow have been able to overcome the argument that the prop matrixes related to boats not configured the way his was?---------

Problem 16-1 Buyer went to Seller's used car lot looking for a car. She found one she liked and asked Seller: "How are the tires on this one?" Seller replied: "It has good tires."462 Buyer decided to take the car, and she and Seller signed a contract that was silent as to the subject of warranties. A few days later, the right front tire, which had been defectively re-treaded, blew out while Buyer was on the Interstate. Buyer was injured and sued Seller, alleging breach of an express warranty. At trial Seller proved that he bought the tires from a reputable dealer who warranted to Seller that the tires were "better than new." Seller also proved that he had bought at least 200 tires from the same dealer and had never before had problems with them. The court found that the written contract was NOT a "fully integrated agreement." Which is Seller's best defense? Why? (a)The written contract didn't say anything about the tires. (b)The buyer didn't rely on his statement. (c)The seller took all reasonable precautions to insure that the tires were in fact good tires. (d)The statement was "just puffing" rather than an affirmation of fact. Problem 16-2 Grower bought several bags of seeds, planning to grow his crop in the normal manner, using 600 pounds of fertilizer per acre. When he got home, he opened one of the bags and found inside a brochure that stated (among other things): "These are new and improved seeds. Because of advances in seed science, these seeds require only 300 pounds of fertilizer per acre, half the amount required with ordinary seeds." Grower followed the directions and used only 300 pounds of fertilizer. His crop failed. Surveying his neighbors, he discovered that those who believed the brochure and used only 300 pounds of fertilizer per acre also had crop failures, while those who ignored it and used 600 pounds had successful crops. Does Grower have a cause of action for breach of express warranty? See Official Comment 7 to U.C.C. § 2--313. B.IMPLIED WARRANTY OF MERCHANTABILITY Read carefully U.C.C. § 2--314 and the comments. Then read carefully Restatement (Third) of Torts §§ 1--3, and 21, which are reproduced below. How are they alike? How do they differ? Which provides the most protection? Restatement (Third) of Torts § 1.Liability of Commercial Seller or Distributor for Harm Caused by Defective Products. One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.463 § 2.Categories of Product Defect A product is defective when, at the time of sale or distribution, it contains a manufacturing defect, is defective in design, or is defective because of inadequate instructions or warnings. A product: (a)contains a manufacturing defect when the product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product; (b)is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe; (c)is defective because of inadequate instructions or warnings when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the instructions or warnings renders the product not reasonably safe. § 3.Circumstantial Evidence Supporting Inference of Product Defect It may be inferred that the harm sustained by the plaintiff was caused by a product defect existing at the time of sale or distribution, without proof of a specific defect, when the incident that harmed the plaintiff: (a)was of a kind that ordinarily occurs as a result of product defect; and (b)was not, in the particular case, solely the result of causes other than product defect existing at the time of sale or distribution. § 21.Definition of "Harm to Persons or Property": Recovery for Economic Loss For purposes of this Restatement, harm to persons or property includes economic loss if caused by harm to: (a)the plaintiff's person; or (b)the person of another when harm to the other interferes with an interest of the plaintiff protected by tort law; or (c)the plaintiff's property other than the defective product itself.--------- 464 Problem 16-3 Consumer buys a dozen eggs at the grocery store. When he gets them home, he discovers they are rotten. (a)Does he have a claim under U.C.C. § 2--314? If so, which of the specific tests in U.C.C. § 2--314 does it fail to satisfy? (b)Does he have a claim under the Restatement (Third) of Torts? Problem 16-4 Sir Galahad bought a shield from Sir Mordred, a wandering knight who spends most of his time wandering from castle to castle, mooching off the local barons. In the course of his sales pitch, Mordred told Galahad: "this shield will never break." The first time Galahad went into combat with the shield, it was shattered by a single blow of his adversary's sword, and Galahad was severely wounded. Does Galahad have a claim for breach of express warranty, implied warranty of merchantability, neither, or both? Problem 16-5 Samantha purchased a used taxi with 212,000 miles on it from Executive's Taxi Company. Within two weeks after she purchased it, the transmission in the car failed, and Samantha had to spend \$1,000 to have it repaired. Samantha sued and alleged a breach of the implied warranty of merchantability. Can Executive Taxi Company prevail with the argument that no implied warranty of merchantability arose because it was not "a merchant with respect to goods of that kind?" See U.C.C. § 2--104.---------

Bayliner Marine Corp. v. Crow Supreme Court of Virginia257 Va. 121, 509 S.E.2d 499 (1999) [Please refer back to the facts of the case earlier in this chapter.---Eds.] [1]We next consider whether the evidence supports the trial court's conclusion that Bayliner breached an implied warranty of merchantability. Crow asserts that because his boat was not capable of achieving a maximum speed of 30 miles per hour, it was not fit for its ordinary purpose as an offshore sport fishing boat. Bayliner contends in response that, although the boat did not meet the needs of this particular sport fisherman, there was no evidence from which the trial court could conclude that the46 boat generally was not merchantable as an offshore fishing boat. We agree with Bayliner's argument. [2][U.C.C. §] 2--314 provides that, in all contracts for the sale of goods by a merchant, a warranty is implied that the goods will be merchantable. To be merchantable, the goods must be such as would "pass without objection in the trade" and as "are fit for the ordinary purposes for which such goods are used." [U.C.C.] § 2--314(2)(a),(c). The first phrase concerns whether a "significant segment of the buying public" would object to buying the goods, while the second phrase concerns whether the goods are "reasonably capable of performing their ordinary functions." Federal Signal Corp. v. Safety Factors, Inc., 125 Wash. 2d 413, 886 P.2d 172, 180 (Wash. 1994). In order to prove that a product is not merchantable, the complaining party must first establish the standard of merchantability in the trade. Bayliner correctly notes that the record contains no evidence of the standard of merchantability in the offshore fishing boat trade. Nor does the record contain any evidence supporting a conclusion that a significant portion of the boat-buying public would object to purchasing an offshore fishing boat with the speed capability of the 3486 Trophy Convertible. [3]Crow, nevertheless, relies on his own testimony that the boat's speed was inadequate for his intended use, and Atherton's opinion testimony that the boat took "a long time" to reach certain fishing grounds in the Gulf Stream off the coast of Virginia. However, this evidence did not address the standard of merchantability in the trade or whether Crow's boat failed to meet that standard. Thus, we hold that Crow failed to prove that the boat would not "pass without objection in the trade" as required by Code § 8.2--314(2)(a).---------

Adams v. American Cyanamid Co., Nebraska Court of Appeals, 1 Neb. App. 337, 498 N.W.2d 577 (1992) I.Introduction [1]This appeal arises from an action based on theories of strict liability and breach of warranty of merchantability under the Uniform Commercial Code. William Timothy "Tim" Adams and Carol Adams brought suit against American Cyanamid Company and Panhandle cooperative Association for damages sustained to a crop of edible beans which was lost after a herbicide manufactured by American Cyanamid was applied to the Adamses' fields. The jury awarded a judgment for the Adams in the amount of \$193,500 against American Cyanamid. American Cyanamid appeals. We affirm in part, and in part reverse and remand for a new trial.466 II.Factual Background [2]In 1989, Tim Adams planned to grow beans on 860 acres of center-pivot irrigated fields. He sought the services of Glenn Johnson of Servi-Tech crop consultants to inspect his fields, to make recommendations as to fertilizers, herbicides, and seed, and to observe the crop through the growing season. Johnson recommended a combination of the herbicides Eptam and Prowl. Prowl herbicide is manufactured by the defendant, American Cyanamid. Adams purchased these herbicides from Panhandle Co-op, whose employee applied the herbicides at the application rate specified by Johnson. In early June, the fields were planted with great northern and pinto beans. [3]At first, the bean crop grew well, but after the first of July, Adams noticed that the plants in field No. 8 began to look weakened, and plants in the other fields followed suit. The beans flourished in a strip of field No. 1 where no herbicide had been applied due to a parked center pivot. The beans also flourished in a 10-acre area of field No. 5 where no herbicide was applied because the sod had recently been brought under cultivation. [4]Prowl, the trade name for the herbicide used, is a dinitroaniline herbicide, which can destroy plants by causing a swollen hypocotyl, i.e., the plant's main root stem, and a reduction of the secondary root system. [5]Prowl was applied in combination with Eptam, a thiocarbamate herbicide. A thiocarbamate herbicide produces a type of plant injury different from that produced by a dinitroaniline herbicide. A thiocarbamate herbicide causes early leaf effect and lasts in the soil for a few weeks. The Adamses' expert was able to exclude the possibility that Eptam had caused the plant injury. [6]The jury entered a general verdict for the Adamses for \$193,500, the amount of the lost crop. The jury entered special verdicts finding that the defendant was strictly liable in tort and had breached the warranty of merchantability. The defendant moved for judgment notwithstanding the verdict and for a new trial, which motions were overruled. [This court reverses as to strict liability but affirms on merchantability.---Eds.] III.Assignment of Errors [7]The defendant's assignments of error may be reduced to the following claims: (1) The court erred in failing to sustain the defendant's motions for a directed verdict and motion for judgment notwithstanding the verdict because there was insufficient evidence for the jury to find that the defendant was strictly liable for the damage to the plaintiffs' crops; (2) the court erred in failing to sustain the defendant's motions for a directed verdict and motion for judgment notwithstanding the verdict because there was insufficient evidence for the jury to find that the herbicide sold to the plaintiffs was not merchantable; (3) the court erred in instructing the jury46 to determine whether the disclaimer was conspicuous, contrary to Neb. UCC § 1--201(10) (Cum. Supp. 1990); (4) the court erred in failing to sustain the defendant's motions for a directed verdict and motion for judgment notwithstanding the verdict because the herbicide label contained a conspicuous disclaimer of the implied warranty of merchantability as a matter of law; (5) the court erred in failing to sustain the defendant's motions for a directed verdict and motion for judgment notwithstanding the verdict because the plaintiffs' knowledge of the disclaimer on the herbicide label, through their agent, excluded the implied warranty of merchantability as a matter of law; and (6) the court erred in failing to rule on the unconscionability of the limitation of damages clause on the herbicide label, pursuant to Neb. UCC § 2--302 (Reissue 1980), thereby failing to find and instruct the jury that the limitation of damages clause in the herbicide label excluded the plaintiffs' recovery of consequential damages from breach of warranty. IV.Analysis 1.Directed Verdict and Judgment Notwithstanding the Verdict [8]Generally, the defendant claims that the trial court erred by failing to sustain its motions for directed verdict and for judgment notwithstanding the verdict because there was insufficient evidence to support the jury's verdict finding the defendant liable on theories of strict liability and breach of warranty of merchantability. These assignments will be considered together because they must be reviewed under the same standards. [9]A trial court should direct a verdict as a matter of law only when the facts are conceded, undisputed, or such that reasonable minds can draw but one conclusion therefrom. The party against whom the motion is made is entitled to have every controverted fact resolved in his or her favor and to have the benefit of every inference which can reasonably be drawn from the evidence. If there is any evidence which will sustain a finding for the party against whom the motion is made, the case may not be decided as a matter of law. [10]On a motion for judgment notwithstanding the verdict, the moving party is deemed to have admitted as true all the material and relevant evidence admitted which is favorable to the party against whom the motion is directed, and, further, the party against whom the motion is directed is entitled to the benefit of all proper inferences which can be deduced therefrom. (a)Strict Liability [11]The defendant claims the trial court erred in overruling its motions for a directed verdict and for judgment notwithstanding the verdict because there was insufficient evidence for a jury to find the46 defendant liable on a theory of strict liability. The Adamses' suit was based on Restatement (Second) of Torts § 402 A at 347--48 (1965), which in relevant part provides: "(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." The elements in a prima facie case in strict liability depend on the type of defect that is asserted. The Supreme Court has said: In products liability litigation the notion of a defective product embraces two separate concepts. The first, commonly labeled a manufacturing defect, is one in which the product differs from the specifications and plan of the manufacturer. . . . The second concept of a defective product is one in which the product meets the specifications of the manufacturer but the product nonetheless poses an unreasonable risk of danger. This condition is generally characterized as a design defect. . . . While a particular design may pose such an unreasonable risk of danger, liability for this danger differs, depending upon the theory of recovery presented by the plaintiff. . . . In a strict liability cause of action it is generally proposed that the focus of the court's inquiry should be on the product itself and not the manufacturer. Thus, a finding that the product poses an unreasonable risk of danger is sufficient. Nerud v. Haybuster Mfg., 215 Neb. 604, 610--11, 340 N.W.2d 369, 373--74 (1983). [12]The Adamses did not claim that American Cyanamid's product was subject to a manufacturing defect, or stated differently, they concede that Prowl did conform to the chemical description on the label. Therefore, the question is whether the evidence is sufficient to support the jury's finding on strict liability for a design defect. According to Rahmig v. Mosley Machinery Co., 226 Neb. 423, 441, 412 N.W.2d 56, 69 (1987), to recover on a claim of strict liability in tort for a defectively designed product, a plaintiff must prove the following by a preponderance of the evidence: (1) The defendant placed the product on the market for use and knew, or in the exercise of reasonable care should have known, that the product would be used without inspection for defects; (2) the product was in a defective condition when it was placed on the market and left the defendant's possession; (3) the defect was the proximate or a proximately contributing cause of plaintiff's injury sustained while the product was being used in the way and for the general purpose for which it was designed and intended; (4) the defect, if existent, rendered the product unreasonably dangerous46 and unsafe for its intended use . . . and (6) plaintiff's damages were a direct and proximate result of the alleged defect. [13]In the instant case, there is no question that it was foreseeable to American Cyanamid that its product would be used by a farmer without inspection. Moreover, if the product was defective, it was defective when it was placed on the market and left American Cyanamid's possession. Nevertheless, no evidence was adduced to show that Prowl was unreasonably dangerous. The Supreme Court has stated: This court has defined the term "unreasonably dangerous" to mean that the product has a propensity for causing physical harm beyond that which would be contemplated by the ordinary user or consumer who purchases it, with the ordinary knowledge common to the foreseeable class of users as to its characteristics. Rahmig v. Mosley Machinery Co., 226 Neb. at 440, 412 N.W.2d at 69 (quoting Nerud v. Haybuster Mfg., supra). [14]Because the Adamses have failed to make a prima facie case that the herbicide was unreasonably dangerous, their cause of action for strict liability must fail. Accordingly, we hold that it was error for the court to overrule the defendant's motions for directed verdict and for judgment notwithstanding the verdict on this count. Our holding makes it unnecessary to consider the defendant's assignment of error based on its motion to strike the strict liability count. (b)Breach of Warranty [15]The defendant also claims that the Adamses presented insufficient evidence to prove there was a breach of the implied warranty of merchantability and that the trial court erred by failing to direct a verdict against the Adamses on this theory of recovery. [We affirm.---Eds.] Neb. UCC § 2--314 (Reissue 1980) provides: (1)Unless excluded or modified (Section 2--316), 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. . . . (2)Goods to be merchantable must be at least such as . . . . (c)are fit for the ordinary purposes for which such goods are used. There is no question that American Cyanamid is a merchant, i.e., one that deals in the goods of the kind involved in the transactions under consideration. See Neb. UCC § 2--104 (Reissue 1980).470 [16]After goods are accepted, the buyer has the burden of establishing any breach with respect to those goods. Laird v. Scribner Coop, 237 Neb. 532, 466 N.W.2d 798 (1991). [17]The plaintiffs' prima facie case for breach of warranty of merchantability has been described in Delgado v. Inryco, Inc., 230 Neb. 662, 433 N.W.2d 179 (1988): There must be proof that there was a deviation from the standard of merchantability at the time of sale and that such deviation caused the plaintiff's injury both proximately and in fact. Thus, a breach of the warranty has been found to exist where the item sold failed to perform adequately because of a lack of quality inherent within the item itself. Id. at 668, 433 N.W.2d at 183--84 (quoting O'Keefe Elevator v. Second Ave. Properties, 216 Neb. 170, 343 N.W.2d 54 (1984)). [18]The Delgado court also stated, "In proving a deviation from the standard of merchantability, some proof of noncompliance with the warranty must be presented." Id. at 668, 433 N.W.2d at 184. A plaintiff may not rely on the sole fact that an accident occurred. See Delgado v. Inryco, Inc., supra. [19]In the case at bar, the defendant argues that "there was no proof by the plaintiffs that the risk of harm from the Prowl herbicide was any greater than herbicides in its class generally, and there was no evidence as to any breach of a standard of merchantability." Brief for appellant at 30. [20]In Laird v. Scribner Coop, supra, the Supreme Court held that " 'reliance on eyewitnesses alone is not fatal when the defect is obvious to a layman, but when standards of performance of the product are not generally known, other evidence, usually expert testimony, is necessary to prove proper or acceptable standards of performance.' " (Emphasis in original.) Id. at 539, 466 N.W.2d at 804 (quoting Durrett v. Baxter Chrysler-Plymouth, Inc., 198 Neb. 392, 253 N.W.2d 37 (1977)). [21]It would seem apparent to a layperson that the standard of merchantability for herbicides is that they should not damage the crops to which they are applied. Therefore, expert testimony was not required to establish a standard of merchantability. [22]As to the existence of a breach of the standard, the evidence at trial was in conflict. Prof. Eugene Heikes, called by the Adamses, testified that a dinitroaniline herbicide affects plants through their root system, attacking the hypocotyl, or main root, and the secondary roots which branch therefrom. He also testified that the growth of the bean plants he inspected was stunted because of their swollen hypocotyl and the lack of a secondary root system.471 [23]Dr. Raymond Ward, a soil testing specialist called by the defendant, testified that the injury to the root system was not caused by the herbicide, but by the quality of water from the deep wells used to irrigate the fields. He testified that the irrigation water contained sodium, chlorides, and boron and that dry beans are especially susceptible to injury from the concentration of such salts in the soil. [24]Whether there was a breach of implied warranty of merchantability is a factual question for jury determination. Professor Heikes testified that injury to the plants was caused by the effects of dinitroaniline substances. It was undisputed that Prowl contained dinitroaniline. Professor Heikes' testimony was sufficient for the jury to have concluded that the herbicide in question was not suitable for its ordinary use in controlling weeds in dry beans. [25]Therefore, we hold that the Adamses presented sufficient evidence as to a breach of a standard of merchantability. Accordingly, we affirm that portion of the court's judgment overruling the motions for directed verdict and for judgment notwithstanding the verdict to the Adamses' theory of recovery based on implied warranty of merchantability.---------

Note In case you're wondering how the court held that a product that killed a farmer's crop was not "unreasonably dangerous," the definition, as the quote from the Rahmig case shows, requires "physical harm." While the court doesn't define that term, it has often been limited in a products liability context to mean damage caused by a sudden traumatic event rather than by a gradual process as would be the case with an herbicide of this type.---------

Suminski v. Maine Appliance Warehouse, Inc., Supreme Court of Maine, 602 A.2d 1173 (1992) Roberts, J. [1]Defendant Maine Appliance Warehouse, Inc. appeals from a judgment of the Superior Court (Androscoggin County, Alexander, J.) affirming the judgment of the District Court (Lewiston, Beliveau, J.) in favor of the plaintiff Paul Suminski. The District Court held that Maine Appliance breached the implied warranty of merchantability under the Maine Uniform Commercial Code (UCC), 11 M.R.S.A. § 2--314 (1964), when it sold Suminski a defective television set for \$713.97 and that Maine Appliance's conduct amounted to a violation of the Maine Unfair Trade47 Practices Act (UTPA), 5 M.R.S.A. § 206--214 (1989). The District Court ordered that Maine Appliance fully reimburse Suminski and pay \$1,000 in attorneys' fees. Maine Appliance contends inter alia that the District Court erred in finding a violation of the UTPA and that the evidence was insufficient to prove a breach of the implied warranty of merchantability. Although we reject the first contention, we agree with the second and vacate the judgment. [2]Suminski purchased a brand new television set from Maine Appliance in May 1988. In June 1989 the set began to turn off by itself, although the picture would come on when the plaintiff turned the set off and on. Suminski called Maine Appliance and was told that his set was out of warranty, but was given the name of a repairperson. Suminski called the repairperson who requested that he look for someone else to repair the set. About two months later, the set did not turn on at all. Suminski called again to Maine Appliance, and a salesperson repeated that the set was out of warranty and that Suminski would have to talk to the sales manager for any further assistance. Suminski requested that the manger call him the next morning. After not hearing back the next morning, Suminski called in the afternoon and spoke with manager Ray Picard. Picard stated that Maine Appliance's only obligation was to provide the name of a repairperson and that the store would charge Suminski for any work that it might do on the set. [3]Suminski then contacted attorney Stephen Wade who telephoned Picard. Picard repeated his assertion that the express warranty was the store's only obligation to Suminski, although he offered to give the name of a repairperson. Picard stated that Suminski was not being treated differently than any other Maine Appliance customer. In addition, Picard stated that he had been in the electronics business for a long time and had never heard of an implied warranty of merchantability. When Wade requested that Picard contact his attorney to confirm the existence of the implied warranty of merchantability, Picard abruptly hung up. [4]Suminski brought suit against Maine Appliance for a breach of the implied warranty of merchantability and violation of the UTPA. After the trial, the District Court found that Maine Appliance had breached the implied warranty of merchantability and violated the UTPA. The Superior Court affirmed the judgment of the District Court but denied Suminski's motion for attorneys' fees on appeal. Maine Appliance now appeals, and Suminski cross-appeals, from the Superior Court rulings. Suminski also requests attorneys' fees for this appeal. [5]Maine Appliance contends that, because no exclusion or modification of an implied warranty was made at the time of sale, the District Court erred in finding a violation of the UTPA, citing State ex rel. Tierney v. Ford Motor Co., 436 A.2d 866, 873 (Me. 1981). We disagree.47 Although we stated in Ford Motor that a violation of the statutory warranties, such as the implied warranty of merchantability, is not a per se violation of the UTPA, we stressed "that given the proper circumstances a defendant's failure to honor the statutory warranties may well be evidence of a violation of the UTPA." Id. To trigger the UTPA, we require more than a mere failure to honor the statutory warranty. The defendant's conduct must be unfair or deceptive. Id. at 874. [6]In this case, the court could find that Maine Appliance continually refused to take responsibility for repairing the television set once the express warranty had expired and that the sales manager even denied the existence of Maine's implied warranty of merchantability. Suminski testified that he was told by a salesperson and by Picard that all Maine Appliance was required to do was to provide Suminski with the name of a repairperson. Moreover, there was evidence that this conduct was consistent with the regular practices of Maine Appliance. The District Court rationally could find that the practice of Maine Appliance involved such unfair or deceptive behavior that it violated the UTPA. Id. [7]Fatal to Suminski's claim, however, is his failure to establish a breach of the implied warranty of merchantability. Maine's version of Article 2 of the UCC provides that "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." 11 M.R.S.A. § 2--314(1) (1964). The District Court concluded that the television set bought by Suminski "was not fit for the ordinary purposes for which such goods are used," and, therefore, was not merchantable under 11 M.R.S.A. 314(2)(c). On appeal, we view the evidence of a breach of the implied warranty of merchantability, together with all justifiable inferences drawn therefrom, in the light most favorable to the plaintiff. See Sylvain v. Masonite Corp., 471 A.2d 1039, 1041 (Me. 1984). [8]The District Court heard evidence that Suminski bought a new expensive television set which began to turn off automatically after thirteen months. No evidence was presented concerning the specific defect in the product. In some circumstances a breach of the implied warranty of merchantability under the UCC may be established by circumstantial evidence. In the case at bar, however, the television set was in all respects satisfactory during approximately thirteen months after it was purchased. For all that appears in the record, the malfunction at that time may have resulted from a defective switch, repairable at a small cost. We conclude that the sale of a major appliance with a switch that fails more than a year later, cannot support a finding that the entire appliance was unmerchantable when sold. To use an automotive example, an unmerchantable battery may not render an entire vehicle unmerchantable.474 [9]We need not discuss any other issue raised by Maine Appliance nor Suminski's cross-appeal for attorney fees. Judgment vacated.---------

Notes and Questions 1.In each of the preceding cases, think of how the court characterized the product and its intended use. Was there an alternative way of characterizing these things that might have changed the outcome of the case, or alternatively, one that might have made the decision even easier? 2.The characterization of the product's intended use was outcome determinative in Daniell v. Ford Motor Co., 581 F.Supp. 728 (D.N.M. 1984). Connie Daniell felt "overburdened," so she attempted to commit suicide by locking herself in the trunk of her Ford LTD. At some point after she incarcerated herself, she changed her mind and discovered that she couldn't get out. Nine days later, she did get out. The opinion doesn't say how. She sued Ford, alleging, among other things, breach of the implied warranty of merchantability. The court said "the usual and ordinary purpose of an automobile trunk is to transport and store goods, including the automobile's spare tire. Plaintiff's use of the trunk was highly extraordinary, and there is no evidence that the trunk was not fit for the ordinary purpose for which it was intended." Id. at 731. The court also rejected the plaintiff's claim that Ford had breached a duty to warn her of the danger, saying: "the potential efficacy of any warning, given the plaintiff's use of the automobile trunk compartment for a deliberate suicide attempt, is questionable." Id. C.IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE Lewis v. Mobil Oil Corp., United States Court of Appeals, Eighth Circuit, 438 F.2d 500 (1971) Gibson, J. [1]In this diversity case the defendant appeals from a judgment entered on a jury verdict in favor of the plaintiff in the amount of \$89,250 for damages alleged to be caused by use of defendant's oil. [2]Plaintiff Lewis has been doing business as a sawmill operator in Cove, Arkansas, since 1956. In 1963, in order to meet competition, Lewis decided to convert his power equipment to hydraulic equipment. He purchased a hydraulic system in May 1963, from a competitor who was installing a new system. The used system was in good operating condition at the time Lewis purchased it. It was stored at his plant until November47 1964, while a new mill building was being built, at which time it was installed. Following the installation, Lewis requested from Frank Rowe, a local Mobil oil dealer, the proper hydraulic fluid to operate his machinery. The prior owner of the hydraulic system had used Pacemaker oil supplied by Cities Service, but plaintiff had been a customer of Mobil's for many years and desired to continue with Mobil. Rowe said he didn't know what the proper lubricant for Lewis' machinery was, but would find out. The only information given to Rowe by Lewis was that the machinery was operated by a gear-type pump; Rowe did not request any further information. He apparently contacted a Mobil representative for a recommendation, though this is not entirely clear, and sold plaintiff a product known as Ambrex 810. This is a straight mineral oil with no chemical additives. [3]Within a few days after operation of the new equipment commenced, plaintiff began experiencing difficulty with its operation. The oil changed color, foamed over and got hot. The oil was changed a number of times, with no improvement. By late April 1965, approximately six months after operations with the equipment had begun, the system broke down, and a complete new system was installed. The cause of the breakdown was undetermined, but apparently by this time there was some suspicion of the oil being used. Plaintiff Lewis requested Rowe to be sure he was supplying the right kind of oil. Ambrex 810 continued to be supplied. [4]From April 1965 until April 1967, plaintiff continued to have trouble with the system, principally with the pumps which supplied the pressure. Six new pumps were required during this period, as they continually broke down. During this period, the kind of pump used was a Commercial pump which was specified by the designer of the hydraulic system. The filtration of oil for this pump was by means of a metal strainer, which was cleaned daily by the plaintiff in accordance with the instruction given with the equipment. [5]In April 1967, the plaintiff changed the brand of pump from a Commercial to a Tyrone pump. The Tyrone pump, instead of using the metal strainer filtration alone, used a disposable filter element in addition. Ambrex 810 oil was also recommended by Mobil and used with this pump, which completely broke down three weeks later. At this point, plaintiff was visited for the first time by a representative of Mobil Oil Corporation, as well as a representative of the Tyrone pump manufacturer. [6]On the occasion of this visit, May 9, 1967, plaintiff's system was completely flushed and cleaned, a new Tyrone pump installed, and on the pump manufacturer's and Mobil's representative's recommendation, a new oil was used which contained certain chemical additives, principally a "defoamant." Following these changes, plaintiff's system worked satisfactorily up until the time of trial, some two and one-half years later.476 [7]Briefly stated, plaintiff's theory of his case is that Mobil supplied him with an oil which was warranted fit for use in his hydraulic system, that the oil was not suitable for such use because it did not contain certain additives, and that it was the improper oil which caused the mechanical breakdowns, with consequent loss to his business. The defendant contends that there was no warranty of fitness, that the breakdowns were caused not by the oil but by improper filtration, and that in any event there can be no recovery of loss of profits in this case. I.The Existence of Warranties [8]Defendant maintains that there was no warranty of fitness in this case, that at most there was only a warranty of merchantability and that there was no proof of breach of this warranty, since there was no proof that Ambrex 810 is unfit for use in hydraulic systems generally. We find it unnecessary to consider whether the warranty of merchantability was breached, although there is some proof in the record to that effect, since we conclude that there was a warranty of fitness. [9]Plaintiff Lewis testified that he had been a longtime customer of Mobil Oil, and that his only source of contact with the company was through Frank Rowe, Mobil's local dealer, with whom he did almost all his business. It was common knowledge in the community that Lewis was converting his sawmill operation into a hydraulic system. Rowe knew this, and in fact had visited his mill on business matters several times during the course of the changeover. When operations with the new machinery were about to commence, Lewis asked Rowe to get him the proper hydraulic fluid. Rowe asked him what kind of a system he had, and Lewis replied it was a Commercial-pump type. This was all the information asked or given. Neither Lewis nor Rowe knew what the oil requirements for the system were, and Rowe knew that Lewis knew nothing more specific about his requirements. Lewis also testified that after he began having trouble with his operations, while there were several possible sources of the difficulty the oil was one suspected source, and he several times asked Rowe to be sure he was furnishing him with the right kind. [10]Rowe's testimony for the most part confirmed Lewis'. It may be noted here that Mobil does not contest Rowe's authority to represent it in this transaction, and therefore whatever warranties may be implied because of the dealings between Rowe and Lewis are attributable to Mobil. Rowe admitted knowing Lewis was converting to a hydraulic system and that Lewis asked him to supply the fluid. He testified that he did not know what should be used and relayed the request to a superior in the Mobil organization, who recommended Ambrex 810. This is what was supplied. [11]When the first Tyrone pump was installed in April 1967, Rowe referred the request for a proper oil recommendation to Ted Klock, a Mobil engineer. Klock recommended Ambrex 810. When this pump failed a few47 weeks later, Klock visited the Lewis plant to inspect the equipment. The system was flushed out completely and the oil was changed to DTE-23 and Del Vac Special containing several additives. After this, no further trouble was experienced. [12]This evidence adequately establishes an implied warranty of fitness. Arkansas has adopted the Uniform Commercial Code's provision for an implied warranty of fitness [U.C.C. § 2--315]: Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. . . . Under this provision of the Code, there are two requirements for an implied warranty of fitness: (1) that the seller have "reason to know" of the use for which the goods are purchased, and (2) that the buyer relies on the seller's expertise in supplying the proper product. Both of these requirements are amply met by the proof in this case. Lewis' testimony, as confirmed by that of Rowe and Klock, shows that the oil was purchased specifically for his hydraulic system, not for just a hydraulic system in general, and that Mobil certainly knew of this specific purpose. It is also clear that Lewis was relying on Mobil to supply him with the proper oil for the system, since at the time of his purchases, he made clear that he didn't know what kind was necessary. [13]Mobil contends that there was no warranty of fitness for use in his particular system because he didn't specify that he needed an oil with additives, and alternatively that he didn't give them enough information for them to determine that an additive oil was required. However, it seems that the circumstances of this case come directly within that situation described in the first comment to this provision of the Uniform Commercial Code: 1.Whether or not this warranty arises in any individual case is basically a question of fact to be determined by the circumstances of the contracting. Under this section the buyer need not bring home to the seller actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller's skill and judgment, if the circumstances are such that the seller has reason to realize the purpose intended or that the reliance exists. . . . (emphasis added). Here Lewis made it clear that the oil was purchased for his system, that he didn't know what oil should be used, and that he was relying on Mobil to supply the proper product. If any further information was needed, it was incumbent upon Mobil to get it before making its recommendation. That it47 could have easily gotten the necessary information is evidenced by the fact that after plaintiff's continuing complaints, Mobil's engineer visited the plant, and, upon inspection, changed the recommendation that had previously been made. [14]Additionally, Mobil contends that even if there were an implied warranty of fitness, it does not cover the circumstances of this case because of the abnormal features which the plaintiff's system contained, namely an inadequate filtration system and a capacity to entrain excessive air. There are several answers to this contention. First of all, the contention goes essentially to the question of causation---i.e., whether the damage was caused by a breach of warranty or by some other cause---and not to the existence of a warranty of fitness in the first place. Secondly, assuming that certain peculiarities in the plaintiff's system did exist, the whole point of an implied warranty of fitness is that a product be suitable for a specific purpose, and that a seller should not supply a product which is not so suited. Thirdly, there is no evidence in the record that the plaintiff's system was unique or abnormal in these respects. It operated satisfactorily under the prior owner, and the new system has operated satisfactorily after it was adequately cleaned and an additive type oil used. [15]While we will discuss these problems more completely in the question of causation, it may be briefly noted here that the proof shows that plaintiff's filtration system was installed and maintained in strict accordance with the manufacturer's recommendations, that this was a standard system, and that any hydraulic system has a certain unavoidable capacity to entrain air. . . . It is sufficient to note here that there was no evidence that the plaintiff's system was in any way unique in this respect. Thus, Mobil's defense that there was no warranty of fitness because of an "abnormal use" of the oil is not appropriate here. . . . [The opinion also considered Mobil's contentions relating to (1) causation and (2) damages. The court concluded, inter alia, that the record did not support recovery for loss of profits of the dimension reflected in the verdict for plaintiff of \$89,250, and remanded the case for a new trial on the issue of damages---Eds.]---------

Note Lewis shows how easy it is to create an implied warranty of fitness when the sales person is dealing face-to-face with a customer. For this reason, most sellers include in their sales receipts and other documentation very explicit disclaimers of this warranty. In the next chapter, we'll see what is necessary to make such disclaimers effective.--------- 479 Bayliner Marine Corp. v. Crow Supreme Court of Virginia257 Va. 121, 509 S.E.2d 499 (1999) [Please refer back to the facts of the case earlier in this chapter.---Eds.] [1]Crow contends that the "particular purpose" for which the boat was intended was use as an offshore fishing boat capable of traveling at a maximum speed of 30 miles per hour. However, to establish an implied warranty of fitness for a particular purpose, the buyer must prove as a threshold matter that he made known to the seller the particular purpose for which the goods were required. The record before us does not support a conclusion that Crow informed Atherton of this precise requirement. Although Crow informed Atherton that he intended to use the boat for offshore fishing and discussed the boat's speed in this context, these facts did not establish that Atherton knew on the date of sale that a boat incapable of travelling at 30 miles per hour was unacceptable to Crow. Thus, we conclude that the evidence fails to support the trial court's ruling that Bayliner breached an implied warranty of fitness for a particular purpose.---------

Notes and Questions 1.What is the court's stated reason for holding there was no breach of the implied warranty of fitness for a particular purpose? 2.Suppose that Crow had come to Atherton and said "I need a boat for offshore fishing. It'll be based in the Tidewater." Atherton said "I think the Bayliner 3486 is just what you need." (a)Would that create an express warranty? (b)Would it create an implied warranty of fitness for a particular purpose? (c)If there was created a warranty of fitness for a particular purpose, was it breached? 3.In the Daniell case---the one involving attempted suicide in the trunk of a Ford car---discussed earlier in the chapter, the plaintiff also alleged breach of the warranty of fitness for a particular purpose. The court rejected this as well. There was no evidence that the seller had reason to know the plaintiff intended to use the car to commit suicide.--------- 480 Problem 16-6 Gwen developed a fever and red spots on her face. Art went to Merlin, described Gwen's symptoms, and asked Merlin to prepare a potion to cure her. Merlin told him, "For five shillings I can give you a potion that will fix her right up." Art paid the five shillings and Merlin mixed up a batch of his world-renowned chicken pox potion. Gwen took the potion but remained sick for two weeks until a wandering monk called at the castle and said a blessing over her. At that point, she began to get better. Subsequently, it was determined that Gwen had measles, rather than chicken pox. Art has sought your advice as court solicitor. First, he wants to know if there has been a breach of the implied warranty of fitness for a particular purpose. What do you tell him? Problem 16-7 Now let us look at the same question in Problem 16-6 from the standpoint of express warranty. On the same facts, now Art wants to know if there has been a breach of any express warranty. What do you tell him? Lawyering Skills Problem Buyer, a logger, entered into a contract to log a tract of land in which a substantial portion of the timber was located in swampland. Buyer had never logged swampland before, but he knew of another logger, Seller, who had. Buyer telephoned Seller and asked him what kind of tractor Buyer should purchase in order to log the swampland. Seller told Buyer, "You're in luck. I have a tractor that I'm selling and it's just what you need." After some negotiations, Buyer purchased the tractor. The tractor failed to meet Buyer's expectations, and Buyer sued, alleging breaches of express warranties, the implied warranty of merchantability, and the implied warranty of fitness for a particular purpose. In the course of discovery: Seller sent Buyer the following Request for Admissions under Fed. R. Civ. P. 36: 1.Seller is NOT a "merchant" as that term is defined in the U.C.C. with respect to tractors. Buyer sent Seller the following Requests for Admissions under Fed. R. Civ. P. 36: 1.By a contract entered into on January 14, 2004, Seller sold Buyer a tractor, which Buyer intended to use for the purpose of logging swampland. 2.Seller had actual knowledge that Buyer required the tractor for the purpose of logging swampland.481 3.Buyer relied on Seller's skill and judgment to select a suitable tractor and Buyer purchased the tractor in reliance on Seller's skill and judgment. 4.The sale contract contained no effective disclaimer of the implied warranty of merchantability or the implied warranty of fitness for a particular purpose. 5.There is no course of performance, course of dealing, or usage of trade that would exclude or modify any implied warranty of merchantability or any warranty of fitness for a particular purpose arising in this transaction. 6.Buyer's inspection of the tractor would not exclude or modify any implied warranty of merchantability or any warranty of fitness for a particular purpose arising in this transaction. 7.The tractor is not fit for the purpose of logging swampland. 8.The tractor is not fit for the ordinary purpose for which such goods are used. ALL of these Requests were admitted. Solely on the basis of the requests for admissions, Buyer and Seller have both moved for partial summary judgment on the issues of (1) breach of the implied warranty of merchantability and (2) breach of the implied warranty of fitness for a particular purpose. Explain how the court should decide the motions. In other words, can the court decide---solely on the basis of the Requests for Admissions---if either of the implied warranties has or has not been breached? Explain why the court can or cannot decide each of the issues. 1Michael Booher testified at trial that in February or March of 1975 he called the service department at Royal Typewriter Company and spoke with either Bruce Lewis, national service manager, or with Joe Miller. Booher testified that he told the Royal representative that he had received a report of a fire in an RBC I machine at a customer's office. Booher then testified. "They told me that that couldn't happen." (Tr. Vol. IV. pp. 457--59). 2The trial court's findings speak of "RBC machines" with reference to the testing warranty. The court's specific findings, however, refer only to the RBC II machine. On retrial, it would clarify matters if the specific machine intended were named. Michael Booher testified at trial that Tom Gavel had assured Booher the Royal Bond Copier machine had been tested: "He [Gavel] said. 'They have been well tested.' and said, 'They are great machines.' " (Tr. Vol. III, p. 292). Booher also testified that Jack Airey, a Royal representative, had stated at a promotional meeting that the RBC 11 had been extensively tested and was ready to market: "They [Royal] were now ready to market it [RBC II]; that it had been extensively tested." (Tr. Vol. 111, p. 317). 3In Number 4, the trial court found that the appellant warranted that the cost of maintenance for each RBC machine and cost of supplies was and would remain low, no more than 1/2 cent per copy, and in Number 8 that service calls were and would be required for the RBC Model II machine approximately every 7,000 to 9,000 copies. 4Michael Booher testified at trial that Mr. Gavel, a Royal representative, told Booher in April 1974, at a meeting in Booher's Indianapolis office, that cost for service on the RBC I machine would be a half cent. (Tr. Vol. 111, pp. 29498). Booher further testified that in July 1974, at a meeting in Chicago sponsored by Royal, he was told by Jack Airey, a Royal representative, that maintenance costs for the RBC II machine would be the same as on the RBC I, except that service costs should actually be a little less due to the reliability of the machine. (Tr. Vol. 111. pp. 320--21). Gavel testified by deposition taken on May 27, 1977, which was admitted into evidence at trial, that he told Booher that service costs for the RBC I machine would be half a cent (Gavel Dep., p. 28). He further testified in reference to the costs quoted to dealers on the RBC II machines that "[n]obody ever implied they were estimates." (Gavel Dep., p. 110).5Michael Booher testified at trial that at the Chicago meeting Royal representatives, Jack Airey and Roland Schultz, told him that the RBC II machines would require a service call, a customer-related call about every nine thousand copies, and that "we would have preventative maintenance calls about every twenty to twenty-one thousand copies. . . ." (Tr. Vol. III, p. 325). 6The requirement that a statement be part of the basis of the bargain in order to constitute an express warranty is essentially a reliance requirement and is inextricably intertwined with the initial determination as to whether given language may constitute an express warranty since affirmations, promises and descriptions tend to become a part of the basis of the bargain. It was the intention of the drafters of the U.C.C. not to require a strong showing of reliance. In fact, they envisioned that all statements of the seller become part of the basis of the bargain unless clear affirmative proof is shown to the contrary. See Official Comments 3 and 8 to U.C.C. § 2--313. Sessa v. Riegle, 427 F. Supp. 760, 766 (E.D. Pa. 1977), aff'd without op., 568 F.2d 770 (3d Cir. 1978). Cf. Woodruff v. Clark County Farm Bureau Coop. Ass'n, 153 Ind. App. 31, 286 N.E.2d 188 (1972) where the court stated: "Whether such assertions [statements by the seller] constituted express warranties and whether [the buyer] relied upon these assertions are material issues of fact to be determined by the trier of fact. 286 N.E.2d at 199; Stamm v. Wilder Travel Trailers, 44 Ill. App. 3d 530, 358 N E.2d 382 (1976) (reliance necessary in order to give rise to an express warranty). "(F)or all practical purposes it is suggested that no great change was wrought by the Code. Whether one speaks of reliance or basis of the bargain, little difference exists between the two. In neither case should the statement be required to have been the sole factor leading the buyer to purchase. In either case, the statement should, at least, be one of such factors. What is really crucial is whether the statement was made as an affirmation of fact, the goods did not live up to the statement and the defect was not so apparent that the buyer could not be held to have discovered it for himself." Bender's U.C.C. Service, Dusenberg & King, Sales and Bulk Transfers § 6.01, n. 2. (Matthew Bender & Co. 1980).