BUSINESS TORTS and
PRODUCT LIABILITY
Chapter 7
Torts in the
Business Setting
• There is no such thing as a
“business tort”.
• This just means torts that
concern businesses.
• Often cases with businesses
are settled out of court.
• There are often big awards,
as plaintiffs and juries view
businesses as “deep
pockets”.
Fraud
• Deliberate Deception: fraud, misrepresentation,
fraudulent misrepresentation, or deceit
Relationship of parties:
– 1) Representation has been made knowingly
– 2) Without belief in its truth, OR
– 3) Recklessly and careless whether it is true or false
– “Malice, intent, knowledge and other conditions of a
person’s mind may be alleged generally” (Rule 9b,
Federal Rules of Civil Procedure)
• Claim often added to a suit of breach of contract
Intentional Misrepresentation or Fraud
• #1 Misstatement of an important or material fact
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– Misstatement induces entry into business relationship
– Unrelated/unimportant misstatement not a basis of fraud
#2 Scienter or intent to defraud
– Intentionally misleading and deceiving another
#3 Person knows statement being made is false
#4 Recipient of false information justifiably relies on the
information and makes a decision to enter into the deal
#5 Privity between the parties – relationship exists
#6 Proximate Cause – logical link between reliance on
misstatement & losses to the plaintiff
# 7 Damages
Lightle v. Real Estate
Commission
• Lightle, Alaska real estate agent, listed house for sale by Leighs.
• Lightle allowed two offers (Seeley & Williams) to be made on same
property, telling both buyers they would get the house.
• Seeley found out, rescinded offer, demanded deposit back.
• Seeley filed a claim against the Alaska Real Estate Commission’s
surety fund (to compensate losses in real estate due to fraud).
• Commission heard case – held that Lightle committed fraudulent
misrepresentation. Awarded Seeley damages. Suspended Lightle’s
real estate license. Lightle appealed.
• HELD: Affirmed Commission’s ruling.
• Lightle told Seeley that other offer was “dead” that Seeley offer had
been accepted and “the house is yours”.
• Lightle failed to disclose facts that might have affected Seeley’s
decision.
Interference With Contractual Relations
and
Interference With Prospective Advantage
• Interference with Contractual
Relations
– Breaking the contract
benefits a 3rd party
– 1. Existence of a
contractual relationship
– 2. 3rd party knows about
the contract
– 3. 3rd party intentionally
interferes with the
contractual relationship
• Interference With Prospective
Economic Advantage
– A business attempts to
improve its place in the
market by interfering with
another’s business
– Unreasonable, improper
manner of interference
– Predatory behavior, not
“merely competitive”
Product Liability
• Liability of producers and sellers of
goods re: defective products
• We want companies to have incentives
to ensure their products are safe.
• But, we do not want companies to pay
for injuries consumers suffer while
using products improperly.
• General term applied that deals
primarily in tort law
• Involves some contract law
• Primarily now statutory law
History of Consumer Products
and Negligence
• In the 19th century courts, there was the privity of
contract requirement – a contractual relationship
with the manufacturer was needed
• Burden on consumer
• If there was no relationship, caveat emptor applied –
”Let the buyer beware”
• This changed with MacPherson v. Buick Motor
Company
Negligence in Tort
• Manufacturer must exercise reasonable care under
the circumstances.
• Were the dangers foreseeable?
• Care must be taken to avoid misrepresentation.
• Defects and dangers must be revealed.
• Causal connection must be present between the
product or the design defect and the injury.
• By the 1960s, courts began to apply strict liability.
• Producers are responsible for damages and punitive
damages may be added.
• This theory can be used in conjunction with and as a
separate theory from strict liability in a lawsuit.
MacPherson v. Buick Motor
Company (1916 landmark case)
• Buick sells cars to dealers. Dealer sells car to MacPherson.
• Wheel collapses, causing accident/injury to MacPherson.
• MacPherson sues for negligence; Buick says it has no
privity with MacPherson; trial court holds that privity is not
required; tort law applies; MacPherson wins. Appeal.
• NY Ct. of Appeals holds manufacturer has primary control
over product design & safety.
• Defects could have been discovered by reasonable
inspection, which was omitted, so Buick negligent in tort.
• Buick (not dealer) is responsible for the finished product.
• Judgment affirmed.
Strict Liability Created
Under Contract Law
• Implied Warranty of safety
– Manufactured Products
– Food Products
• Implied Warranty of
Merchantability
• Under the UCC Implied
Warranty For Fitness For A
Particular Purpose
• Implied AT LAW – whether
the manufacturer wants
such a warranty for the
product or not
•
See Issue Spotter: “Understanding
Product Problems”
• Express Warranty
– Guarantee of safety or
performance
– By model
– By statement
– By contract
– By advertising
– Misrepresentation theory
is used as well to create
strict liability
– Ex: Baxter v. Ford Motor
Baxter v. Ford Motor Company
(1932)
• Baxter buys new Model A.
• Printed material states “Triple
Shatter-Proof Glass”--”will not
fly or shatter under the hardest
impact. . .it eliminates the
danger of flying glass.”
• Rock hits windshield – Baxter
loses left eye. Not shatterproof.
• Trial court did not allow
advertising to be admitted into
evidence; said there was no
privity of contract.
• Baxter appeals.
• Held: Trial court erred in taking
the case from the jury.
• Representations of Ford were
false and Baxter relied on them.
• Ford failed to provide the safety
glass as advertised.
• Breach of express warranty.
• Reversed and remanded to
grant a new trial allowing
advertisement to be admissible
evidence.
Strict Liability in Tort Law – California Changes
Law: Greenman v. Yuba Power
• Wife buys husband power tool.
• Two years later wood flies out of
machine, striking Greenman’s
head.
• He alleges breaches of
warranties and negligence.
• S. Ct. of Calif. affirms trial court
decision in favor of Greenman
and says that the manufacturer
is “strictly liable in tort.”
• By mid-1970s every state
supreme court had adopted strict
liability in tort rule.
Strict Liability In Tort:
402 A Restatement (Second) Tort
• Manufacturers are strictly liable for defective
products
• The courts ask:
– Was the product defective?
– Did the defect create an unreasonably
dangerous product or instrumentality?
– Was the defect a proximate cause or
substantial factor of the injury?
– Did the injury cause damages to person or
property?
– Courts do not worry about carefulness, due
care, reasonableness, etc.
Restatement (Third) of
Torts on Products Liability
• The American Law Institute’s (ALI) definition of strict liability in
Section 402A of the Restatement (Second) of Torts still leading rule.
• ALI wrote a new standard for product defect cases in newer
Restatement (Third) of Torts.
• State supreme courts consider the new concepts of law and often
gradually adopt it.
• Key part to the Restatement (Third) of Torts define categories of
defect in §2 regarding (a) product departing from intended design,
(b) foreseeable risk of harm could be reduced or avoided by an
alternative design and (c) harm could have been reduced by
reasonable instructions or warnings.
• Restatement Third speaks of “risk-utility balancing”
• Restatement Third encourages courts to move away from the a
distinction between negligence and strict liability
• Product defect law deals with design defects and manufacturing
defects
Parish v. ICON
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Parish was jumping on a backyard trampoline made by Jumpking.
Surrounded by a safety net (fun ring) made by ICON
He did a jump, landed on his head, left quadriplegic.
Sued ICON and Jumpking for failure to warn of dangers in products.
District court granted summary judgment for manufacturers; Parish
appealed.
• HELD: Affirmed. Warnings were adequate.
• Look at reasonable instructions or warnings if foreseeable risks of
using a product. Numerous warnings were provided.
• 3 warnings placed permanently on pad of trampoline.
• Included warnings not to land on head or neck; paralysis or death
could result; reduce chance of landing on head or neck by not doing
somersaults/flips; only 1 person on trampoline at a time; multiple
jumpers increase chances of loss of control, collision, falling off;
results can be broken head, neck, back or leg; not recommended for
children under 6 years of age.
(Continued)
Parish v. ICON, cont.
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Had nationally recognized warning symbols on the product.
1 warning on each of 8 legs of trampoline – designed to assemble so that
warnings face out, visible to user.
Jumpking manufactures 2 printed non-pictorial warnings sewn onto the
trampoline bed.
Warning placard for the owner to affix to the trampoline – both pictorial
warning and language about safe use of trampoline.
Owner’s manual contains warnings found on trampoline, plus additional
warning about supervision and educational instruction.
Warnings exceed the warnings required by the American Society for
Testing and Material (ASTM).
Warnings are also provided with fun ring, which has separate owner’s
manual with added warnings.
Restatement says users must pay some attention for their own safety.
Users and consumers are required to “bear appropriate responsibility for
proper product use.”
“Prevents careless users and consumers from being subsidized by more
careful users and consumers” – damages paid from law suits are built
into higher product prices.
Warnings here were adequate.
Timpte Industries v. Gish
• Gish, a trucker, arrived at a plant to pick up load of fertilizer.
• His truck was pulling a trailer made by Timpte; twin hopper trailer,
loaded from above by a downspout that pours fertilizer into opper.
• Downspout wasn’t going into position; Gish climbed on top of trailer;
walked out along the top rail that is about 5” wide so he could put
downspout in position to pour in fertilizer.
• While on top, gust of wind blew. He fell & was severely injured.
• Gish (& his workers’ compensation insurance carrier) sued for design
defect.
• Contended that trailer shouldn’t have a ladder that allowed him to
climb up to the rail (top rail is too narrow to walk on safely).
• Timpte argued: Danger of being on rail was “open and obvious.”
• District court granted summary judgment for Timpte.
• Appeals court reversed. Timpte appealed.
(Continued)
Timpte Industries v. Gish
• HELD: Reversed; reinstated trial court’s judgment for Timpte.
• No evidence that design rendered the trailer unreasonably dangerous.
• Gish’s expert witness proposed 3 design changes.
– 1) Remove top 2 rungs of ladder to make it impossible for person to climb
atop trailer;
– 2) Provide adequate foothold and handhold at top of trailer;
– 3) If an adequate handhold cannot be provided, widen the side rail to at
least 12 “ to provide adequate footing
• Texas courts apply risk-utility analysis.
– Basis of design defect claim is if there is a reasonable alternative design
(at a reasonable cost) that would reduce a foreseeable risk of harm.
• Timpte always warned users to maintain 3-point contact with trailer
(this can’t be done if a user standing on the top rail).
• Gish did not adhere to warning. Loses lawsuit.
Strict Liability and Unknown
Hazards or Latent Defects
• Dangers not known at the
time of the product’s
manufacture
• Hazard associated with the
product is not learned for
many years
• Consumer Expectation
standard used by courts
– What is the expectation
of an ordinary customer
regarding safety of a
product?
• Claims are often class action
suits
• Asbestos Industry – has paid
billions of dollars to tens of
thousands of plaintiffs in
claims over a 30-year period
• Injuries caused by IUDs have
been in the courts for years
• Manufacturers must have
recalls or warnings when
hazard is detected
Joint and Several Liability
• Courts have held plaintiffs may sue
any or all manufacturers to share
the liability created.
• Manufacturers fight it out as to
which should pay for damages.
• Any of the defendant-manufacturers
may be held responsible for all
damages
• The result has been limits on
application of joint & several
liability in some areas (i.e. medical
products) in some states
Defenses To Negligence and
Strict Liability
• Product Misuse or Abuse
• Assumption of Risk
– Tobacco and alcohol use are controversial areas; so far
courts haven’t applied the defense to users.
• Sophisticated User Defense and Bulk Supplier Doctrine
– Usually apply to business settings
– Bulk supplier does not have to police details of what is
done as product continues down the chain, as bulk
products go to intermediary in bulk and on down.
– Sophisticated user is one who “reasonably should
know of the product’s dangers” e.g. another
manufacturer.
Ultrahazardous Activity
• Common law rules developed
about uncommon activities
where utmost care is needed
– i.e. use of explosives,
transport of dangerous
chemicals, crop dusting, etc.
See Old Island Fumigation (in text)