Case and statutory trends in the privity area-Continued

New Hampshire.

New Mexico.

New York.

North Carolina..

North Dakota.

Oklahoma..

South Carolina.

Tennessee..

Virginia..

Vermont.

Washington.

West Virginia.

Wisconsin.

Wyoming..

WARRANTY CONSIDERATIONS OTHER THAN PRIVITY; DISCLAIMERS AND RELIANCE Generally speaking, the warranty makes the manufacturer (warrantor) an insurer. However, the adoption of the view that a manufacturer warrants the fitness of his product to the public at large, and not just to a purchaser in privity with him, does not necessarily mean that he will be an insurer of his product. The manufacturer will be an insurer if, but only if, a breach of warranty is proved, i.e., that his product was defective or injurious or failed in normal use and caused the injury complained of. The warranty cases dispensing with privity, as well as cases in which there was privity make this clear.

An abrogation of the privity requirement is not the only advantage that would be derived from stripping warranty of its contractual basis. Other requirements and defenses contractual in nature that have arisen in connection with warranty, such as reliance and disclaimers, could be obviated.

48

Until Henningsen v. Bloomfield Motors and Chrysler Corp. there was comparatively little case law (in connection with products liability) dealing with the effect of disclaimers on a manufacturer's liability in warranty or on the necessity of proving reliance.

The Henningsen decision points the way to greater consumer protection by the simple expedient of refusing to enforce disclaimer provisions when these would tend to limit protection to which the consumer is justifiably entitled. Since New Jersey is among the 40 States " and the District of Columbia which have adopted the Uniform Commercial Code, and since the code specifically declares that the courts may decline to enforce unconscionable agreements, it would appear that these courts may continue to refuse to enforce disclaimers embodied in standardized contracts wherein the consumer has no opportunity to bargain but must accept the agreement as written."

50

UNIFORM COMMERCIAL CODE SECTION 2-318 THIRD PARTY BENEFICIARIES OF WARRANTIES EXPRESS OR IMPLIED

The Uniform Commercial Code dispenses with the necessity of privity only to a limited extent. Section 2-318, entitled "Third Party Beneficiaries of Warranties Express or Implied," provides that:

A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such a person may use, consume, or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.52 What this section of the UCC has done is to give legislative sanction to what a number of courts have accomplished by decision-the extension to the members of the household, the family, and guests in the home-the benefit of protection against noxious, deleterious, and dangerous products (automobile fits into this latter category) without encountering the bar of privity.

It should be noted, however, that section 2-318 refers only to personal injury and not to property damage. With respect to employees, the right extended to a member of the family or household or to a guest would seem to cover only a domestic servant.

53

48 32 N.J. 358, 161 A2d 69 (1960).

For complete list of States who have adopted the Uniform Commercial Code see the chart on p. 14.

50 Uniform Commercial Code, sec. 2-302.

California omitted this section entirely.

51 I.e., automotive sales contracts, insurance policies, and similar agreements, 4 Williston, Contracts, sec. 626 (3d ed. Jaeger 1961).

52 Sec. 318: 1. Official Code Comment.

2. The purpose of this section is to give the buyer's family, household and guests the benefit of the same warranty which the buyer received in the contract of sale, thereby freeing any such beneficiaries from any technical rules as to "privity". It seeks to accomplish this purpose without any derogation of any right or remedy restive on negligence. It rests primarily upon the merchant-seller's warranty under this article that the goods sold are merchantable and fit for the ordinary purposes for which such goods are used rather than the warranty of fitness for a particular purpose. Implicit in the section is that any beneficiary of a warranty may bring a direct action for breach of warranty against the seller whose warranty extends to him.

3. This section expressly includes as beneficiaries within its provisions the family, household, and guests of the purchaser. Beyond this, the section is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, given to his buyer who resells, extend to other persons in the distributive chain.

53 Hochgertel v. Canada Dry Corp. (409 Pa. 610, 187 A2d 575 (1963)), settles this point that an employee of the purchaser is definitely not in any of the statutory categories.

Beyond its limited abrogation of the requirement of privity, "the section is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, even to his buyer who resells, extend to other persons in the distributive chain." "

The last sentence of section 2-318 merely means that the seller cannot exclude the third person listed from the warranties of the buyer. An exclusion or disclaimer of warranties as to the buyer operates against the third persons.

SUMMARY AND ANALYSIS

The socioeconomic realities of modern society give rise to an implied warranty of fitness of goods which extend from the manufacturer and retailer to the ultimate consumer or user, and which exists independently of any privity between the parties involved:

It may be said that:

(1) The antiquated requirement of privity is unfit for application in the modern law of products liability.

(2) Conditions prevailing in the modern world have caused the once innocuous requirement of privity to become a burdensome obstacle unjustified by any policy considerations.

(3) The modern trend in the law does away with the essentiality of privity as a prerequisite to a good cause of action for breach of an implied warranty.

(4) The most recent decisions maintain that warranties implied by law extend to all those who, within the reasonable contemplation of the parties, are likely to use the product.

Summing up what I covered previously, in warranty cases, the major departures from strict privity fall into one of the following categories:

(1) The consumer or other injured party is the third party beneficiary of the sales contract between the purchaser and the vendor.

(2) The conduit theory, that is, the vendor is the agent or conduit of the manufacturer and is as such the intermediary between the latter and the

consumer.

(3) The buyer is the agent of the injured consumer.

(4) The manufacturer who advertises extensively makes a general offer of warranty to those who use his products.

(5) The consumer is a subpurchaser within the distributive chain or conduit. (6) Public policy requires consumer protection or indemnification where harmful products are manufactured for distribution.

(7) By specific legislation, certain jurisdictions have declared that privity shall be no obstacle to recovery against a manufacturer or producer by an injured consumer."

In conclusion, the arguments marshaled by enlightened courts to obliterate the privity requirement in breach of warranty actions recommend themselves to all courts, for application not only in the traditional area of sales of products for human consumption, but also, in sales of automobiles and other mechanical devices. A more advanced and forthright approach is available in the application to the automobile manufacturers of strict liability in tort.

EXHIBIT 115

ROYHL, BENSON & BEACH,

ATTORNEYS AT LAW, Huron, S. Dak., May 10, 1966.

Hon. KARL E. MUNDT,

U.S. Scnator, Senate Office Building,
Washington, D.C.

DEAR SENATOR MUNDT: While Senator Ribicoff and others are having their innings with the automobile manufacturers, on the general subject of highway safety, there is one area they have thus far overlooked which I think would be helpful. At least here in South Dakota we have experienced in the last few

54 Comment 3, sec. 2-318, note 48 supra.

Arkansas session laws, Act No. 35, p. 49 (1965); Georgia Code Ann. sec. 96–301 (1957): Code of Virginia sec. 8-654.3 (1962).

56 Jaeger, Products Liability: The Constructive Warranty, 39 Notre Dame L. 558 (1964).

Because

years a considerable number of automobile-railroad train accidents. of the relative size of the vehicles involved, these are frequently fatal. As an example, last month four people were killed near Tripp when the automobile in which they were riding collided with a train. I just finished settlement of a case involving a fatal accident two years ago near Davis where U.S. Highway 18 crosses the C & NW Railway tracks. I can think of one at Redfield and one at Aberdeen last year. I could recite other examples but do not have them in mind at the moment.

Most of these accidents occur at night or in periods of diminished visibility. I suppose part of the reason for them is that trains run so seldom in South Dakota these days that people are not as prepared as they were to look for trains at crossings. Amazingly enough, a good number of the accidents involve automobiles running into trains which already are on the railroad crossing. Naturally in South Dakota all or nearly all of such trains now are freight trains.

It seems to me that for the benefit of the public as a whole, it would be worthwhile to require that all railroad freight cars bear a reflectorized surface on their sides. If this were done a lot of these accidents could be avoided. Because railroads are so much interstate in character, it would take federal legislation to require this. Many of the railways are now doing this as they repair and refurbish cars and as they purchase new ones, but a mandatory requirement would be a good thing from the standpoint of safety.

I urge that you bring this to the attention of the appropriate committee of the Senate.

Very truly yours,

CHANDLER L. BEACH.