Chapter 31 PRODUCTS LIABILITY - BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY

• Jurisdiction: North Carolina

31 PRODUCTS LIABILITY - BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY

A. Definition

An action for breach of implied warranty of merchantability is established by N.C.G.S. § 25-2-314 of the North Carolina Uniform Commercial Code, and is a product liability action¹ within the meaning of the Products Liability Act² if the action is for injury or damage resulting from a sale of a product.³

A plaintiff may base a products liability action on a breach of a contractual warranty.⁴ A plaintiff may base a products liability action against a manufacturer or seller on contract principles of breach of warranty.⁵ Privity is not required in an action against a manufacturer.⁶

The term "product liability action" as used in the Products Liability Act includes "any action brought for or on account of personal injury, death or property damage caused by or resulting from . . . the selling . . . of any product."⁷ Therefore, an action for breach of implied warranty of merchantability under the Uniform Commercial Code is a "product liability action" within the meaning of the Products Liability Act if, as here, the action is for injury to person or property resulting from a sale of a product."⁸

As described in DeWitt v. Eveready Battery Co., "the General Assembly, when enacting the Products Liability Act after the Uniform Commercial Code had been adopted, did not intend that the two acts be mutually exclusive, but intended an harmonious integration of the two."⁹

According to Daye and Morris, implied warranties arise by operation of law and are independent of intent; every contract for the sale of goods by a merchant contains an implied warranty of merchantability unless the warranty is excluded or modified.¹⁰

B. Elements

To establish an action for breach of implied warranty of merchantability, a plaintiff must show that:

(1) The goods bought and sold were subject to an implied warranty of merchantability,
(2) The goods did not comply with the warranty in that the goods were defective at the time of sale,
(3) The injury was due to the defective nature of the goods, and
(4) Damages were suffered as a result.¹¹

C. Elements Defined

1. Goods Subject to Warranty

North Carolina's version of the Uniform Commercial Code states "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."¹² A warranty that goods are merchantable is implied if "seller is a merchant" and goods are merchantable if they are "fit for the ordinary purposes for which such goods are used"¹³

[The term] "merchant" means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.¹⁴
[The terms] "contract" and "agreement" are limited to those relating to the present or future sale of goods, including layaway contracts. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (G.S. 25-2-401).¹⁵

2. Goods Were Defective

The burden of proof is upon the purchaser to establish a breach by the seller of the implied warranty of merchantability by showing that a defect existed at the time of the sale.¹⁶ A plaintiff alleging breach of an implied warranty of merchantability must establish "that the goods did not comply with the warranty in that the goods were defective at the time of sale."¹⁷ A plaintiff may use circumstantial evidence to establish that the product at issue was defective at the time of sale.¹⁸

In DeWitt v. Eveready Battery Co., the North Carolina Supreme Court identified six relevant factors to determine whether a plaintiff established the existence of a defect through circumstantial evidence: (1) the malfunction of the product; (2) expert testimony as to a possible cause; (3) how soon the malfunction occurred after the plaintiff obtained the product and other relevant history of the product; (4) similar incidents, when accompanied by proof of substantially similar circumstances and reasonable proximity in time; (5) elimination of other possible causes of the accident; and (6) proof tending to establish that such an accident would not occur absent a manufacturing defect.¹⁹

A products liability claim based on breach of warranty is not dependent upon a showing of negligence.²⁰

3. Defective Goods Caused Injury

In an action for breach of implied warranty of merchantability, a plaintiff may recover without any proof of negligence on a defendant's part where it is shown that (1) a merchant sold goods, (2) the goods were not "merchantable" at the time of sale, (3) the plaintiff (or his property) was injured by such goods, (4) the defect or other condition amounting to a breach of the implied warranty of merchantability proximately caused the injury, and (5) the plaintiff so injured gave timely notice to the seller.²¹ The plaintiff has the burden of showing that the notice was given in a timely manner.²²

The injury need not be foreseeable "as long as it proximately results from the breach of the warranty."²³

4. Injury Resulted in Damages

"The cause producing the injurious result must be in a continuous sequence, without which the injury would not have occurred, and one from which any person of ordinary prudence would have foreseen the likelihood of the result under the circumstances as they existed."²⁴ The North Carolina Court of Appeals in Evans v. Evans discussed at length the damages resulting from an injury caused by a breach of warranty of merchantability.²⁵

The North Carolina General Statutes define the key terms that relate to each of the elements for a breach of warranty action:

When used in this Chapter, unless the context otherwise requires: "Claimant" means a person or other entity asserting a claim and, if said claim is asserted on behalf of an estate, an incompetent or a minor, "claimant" includes plaintiff's decedent, guardian, or guardian ad litem; (2) "Manufacturer" means a person or entity who designs, assembles, fabricates, produces, constructs or otherwise prepares a product or component part of a product prior to its sale to a user or consumer, including a seller owned in whole or significant part by the manufacturer or a seller owning the manufacturer in whole or significant part; (3) "Product liability action" includes any action brought for or on account of personal injury, death or property damage caused by or resulting from the manufacture, construction, design, formulation, development of standards, preparation, processing, assembly, testing, listing, certifying, warning, instructing, marketing, selling, advertising, packaging, or labeling of any product; (4) "Seller" includes a retailer, wholesaler, or distributor, and means any individual or entity engaged in the business of selling a product, whether such sale is for resale or for use or consumption. "Seller" also includes a lessor or bailor engaged in the business of leasing or bailment of a product.²⁶

D. Defenses

1. Statute of Limitations

TAKE NOTE: Based on a variety of factors, such as the nature of the litigants, several different statutory periods have been used by litigants and/or applied by the courts in products liability/breach of warranty of merchantability cases, including two years,²⁷ three years²⁸ and four years.²⁹ However, in most cases involving sales contracts, products liability and breach of the warranty of merchantability, the four-year statute of limitations found in N.C.G.S. § 25-2-725 governs.³⁰

2. Other Statutory Defenses

The primary statutory defense to a breach of warranty of merchantability claim states:

(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this article on parole or extrinsic evidence (G.S. 25-2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must

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