The Applicability of Tort Law to Commercial Buyers

• Publication year: 2021

79 Nebraska L. Rev. 215. The Applicability of Tort Law to Commercial Buyers

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Richard A. Mann, Barry S. Roberts* **

The Applicability of Tort Law to Commercial Buyers

TABLE OF CONTENTS

I. Introduction...................................... 216
II. Products Liability Under Sales Law................ 218
A. Creating Liability in the Seller............... 219
1.Implied Warranty............................. 219
2. Express Warranties.......................... 220
B. Removing Liability From the Seller:
Disclaimers.................................... 221
C. Procedural Limitations on Seller Liability..... 222
D. Remedies for Breach of Warranty................ 223
E. Contractual Limitations on
Remedies for Breach of Warranty................ 224
III. Tort Law and Consumers............................ 225
IV. Conflicts Between Sales and Tort Law Regarding
Liability for Defective Products.................. 233
A. Does Strict Liability Apply to
Commercial Transactions?....................... 233
B. Are Disclaimers of Liability in Commercial
Transactions Effective Under Strict Liability
in Tort?....................................... 236
C. What Damages are Recoverable Under Strict
Liability in Torts?............................ 241
V. A Proposal for What Law Governs Loss
in Sales Contracts................................ 246
A. Consumers...................................... 247
B. Non-Bargaining Commercial Buyers............... 248
C. Bargaining Commercial Buyers................... 248
D. Conclusion..................................... 249

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I. INTRODUCTION

In products liability cases it is a common practice for a plaintiff buyer to make several claims against a defendant seller. One common claim arises under Article 2 of the Uniform Commercial Code (the `U.C.C.' or the `Code') for breach of either, or both, an express or implied warranty.(fn1) A second claim often advanced is that the product was delivered in a `defective condition unreasonably dangerous' rendering the defendant strictly liable in tort for the buyer's injury.(fn2) The final potential claim is that the seller was negligent in the product's manufacture, packaging, or warnings.

Which claim will prove most successful depends on the circumstances of each particular case. For example, if the plaintiff experiences solely economic loss resulting from nonconformity in the goods, the warranty claim would be the most likely to succeed.(fn3) But if the plaintiff suffers physical injury or damage to property other than the goods in the contract resulting from a dangerous defect in manufac

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ture or design, strict liability may be the strongest claim.(fn4) In the event neither of these claims succeeds, the plaintiff may be required to prove that the manufacturer negligently caused the plaintiff's loss or injury.(fn5)

A primary purpose of the sales contract is to provide the parties to the contract with certainty regarding their transaction: certainty that the product will be delivered on time, certainty that it will be accepted, and certainty that it will conform to the description and warranties. Sales contracts may also attempt to provide certainty regarding the available remedies if one of the parties fails to perform its end of the bargain.(fn6) Therefore, it is imperative that disputes arising out of a negotiated sales contract between parties of relatively equal bargaining power be settled by the court in accordance with the terms of the contract.

Many commercial buyers, however, have found a way to recover damages resulting from risks allocated to them by their sales agreement. They do so by stating claims in tort. Although courts are generally opposed to this use of tort law to avoid a sales contract, they have been inconsistent in determining the applicability of tort law to commercial sales transactions.(fn7)

Section II of this Article summarizes the provisions of the U.C.C., which provide a flexible medium for commercial parties to create economically efficient sales agreements.(fn8) Section III reviews how tort law has provided a necessary protective function in consumer transac-tions.(fn9) Section IV catalogues the various ways courts have navigated the unclear and often unfair intersection between tort law and the U.C.C.(fn10) Section V concludes this Article by proposing a resolution to the question of which law should govern losses caused by defective products and the extent to which these losses may be disclaimed.(fn11)

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II. PRODUCTS LIABILITY UNDER SALES LAW

The warranty provisions of Article 2 allocate the risk of the seller's nonperformance in sales transactions.(fn12) They also provide buyers and sellers with a means to redistribute this risk according to the wishes of the interested parties. In bringing a warranty action, the buyer must prove that (1) a warranty existed, (2) the warranty was breached, (3) the breach of the warranty proximately caused the loss suffered, and (4) notice of the breach was given to the seller.(fn13)

First, the Code imposes implied warranties that serve to maintain commercial and industry standards and that maintain a minimum level of product performance.(fn14) Second, the parties may use express

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warranties to impose a higher level of quality than imposed by the implied warranties.(fn15) The Code also allows the parties to contractually limit or eliminate remedies available for breach of warranties.(fn16) Finally, the Code provides for a disclaimer of warranties.(fn17) The selective creation and disclaimer of warranties permit commercial parties to treat the risk of defective goods as a commodity: the commercial buyer, in return for a lower sales price, can choose to assume some or all of that risk. This decision for economically sophisticated purchasers should depend on whether it is able to insure against the risk at a lower cost than the seller.(fn18) These provisions also permit sellers to shift some or all of the risk of defective goods to buyers. However, law outside of the U.C.C. has developed to protect consumers from some transfers of this risk.(fn19)

A. Creating Liability in the Seller

1.Implied Warranty

If the parties fail to address risk of nonperformance by the seller, the Code imposes liability on the seller when it is commercially reasonable to do so. The Code contains two implied warranties relating to the quality or suitability of goods. Where the seller is a merchant,(fn20) the Code imposes an implied warranty of merchantability.(fn21) Merchantability in this context means that the goods must be `fit for the ordinary purposes for which such goods are used.'(fn22) The Code also imposes an implied warranty of fitness for a particular purpose where the seller has reason to know that the buyer intends a specific use for the goods and that the buyer is relying on the seller's knowledge or expertise in determining the suitability of the goods for that use.(fn23) Thus, the warranties of fitness and merchantability implied by the Code create a default allocation of risk of the seller's nonperformance, which applies in certain situations unless the parties alter this allocation.(fn24)

2.Express Warranties

The seller may, by making express warranties, assume performance obligations beyond those imposed by the Code's implied warranties. An express warranty is an explicit undertaking by the seller with respect to the quality, description, condition, or performability of the goods. The undertaking may consist of an affirmation of fact or a promise that relates to the goods, a description of the goods, or a sample or model of the goods.(fn25) In each of these instances, the undertaking must become or be made part of the basis of the bargain in order for an express warranty to be created.(fn26) In recognition that the reasonable buyer does not and should not rely on everything that a seller says, the Code provides that some statements by the seller do not create express warranties. The seller may make affirmations about the value of goods (`puffing') without creating an express warranty that the goods will actually have that value.(fn27) Also, the seller may praise

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the goods without creating an express warranty.(fn28) However, it is not the case that the seller must intend for an express warranty to be cre-ated.(fn29) It is only necessary that, from an objective point of view, an affirmation, description, or sample becomes part of the `basis of the bargain.'(fn30) While `basis of the bargain' has not been well defined, it relates to whether a reasonable person would believe and rely upon the seller's statement and whether the statement was expressed merely as opinion.(fn31) Where a buyer can show that affirmations otherwise within the scope of the Code's express warranty provision were made and were reasonably believable, such affirmations are rebuttably presumed to be part of the basis of the bargain.(fn32)

B. Removing Liability from the Seller: Disclaimers

The seller's performance obligations may be limited by the use of disclaimers. For the buyer's protection, however, the Code imposes some restrictions on the seller's ability to disclaim warranties in a sales contract. The Code severely constrains the seller's ability to disclaim express warranties.(fn33) Furthermore, the Code seeks to ensure that the buyer is aware of disclaimers affecting implied warranties. To this end, a disclaimer of the implied warranty of merchantability must use the term `merchantability and in case of a writing must be conspicuous.'(fn34) Additionally, the implied warranty of fitness for a particular purpose may only be disclaimed by a conspicuous writing.(fn35) Moreover, if the seller wishes to disclaim all implied warranties, it must use `language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that...