University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

332

Pages:

2
Author:

bratrochanter

Key Points Summary on Product Liability Cases and Warranties 1. Royal Indemnity Co. v. Tyco Fire Products o Background: Tyco’s sprinklers in an apartment building failed to activate during a fire six years after installation, resulting in extensive damage. Royal Indemnity, the insurer, sought recovery from Tyco, arguing the sprinkler data sheet implied a warranty of future performance. o Legal Issue: Whether the data sheet’s description of sprinkler function constituted an express warranty of future performance, extending Tyco’s liability beyond Virginia’s four-year statute of limitations. o Court’s Decision: The court ruled that the data sheet was merely descriptive and did not guarantee future performance. Tyco’s one-year warranty clearly limited its liability, so the four-year limit applied, barring Royal’s claim. 2. Implied Warranty of Merchantability o Concept: Implied by law for goods sold by merchants, requiring that products be suitable for their ordinary purposes, be consistent in quality, and free from substantial defects. o Merchantability Test: Products are typically unmerchantable if they don’t perform as expected or are inherently unsafe. For instance, in food cases, courts use the “foreign-natural” or “reasonable expectations” tests to assess merchantability. 3. Crowe v. CarMax Auto Superstores o Background: The Crowes sued CarMax, alleging their used car was unmerchantable due to recurring repair needs. They argued that CarMax breached the implied warranty of merchantability, despite the vehicle being repaired multiple times under warranties. o Court’s Decision: The court ruled in favor of CarMax, finding no evidence the car was defective at sale. Since repairs were effectively completed and the issues varied over time, there was no indication of a defect at the sale point, so the implied warranty of merchantability wasn’t breached. 4. Implied Warranty of Fitness for a Particular Purpose o Requirements: This warranty applies if (1) the seller knows the buyer’s specific purpose, (2) the buyer relies on the seller’s expertise, and (3) the goods provided fail to meet that particular purpose. o Example: If a buyer explicitly states a unique need for a product, the seller is responsible for ensuring the product meets that need, regardless of the product’s general suitability. 5. Case Illustration: Moss v. Batesville Casket Co. o Background: The plaintiffs chose a cherry wood casket for aesthetic reasons. No specific implied warranty issue is provided here, but the case highlights the importance of buyers explicitly expressing needs if they seek particular warranties. These cases illustrate the nuances in express and implied warranties in product liability, demonstrating that sellers are often liable for specific warranties they create or implied expectations of ordinary use but not for indefinite or unrequested assurances.