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Consumer Warranty Law: 18.3.5.1 Used Homes

A seller of used residential property generally is not liable for the implied warranty of habitability,76 although the original seller may be.77 However, even if the builder uses and occupies the home for a substantial period of time, the home will rarely be deemed used.78 A warranty of habitability may also arise in the sale of a used home if the seller substantially rehabilitates the property.79

Consumer Warranty Law: 7.7.4.4 Defects Not Discovered Until After Period Expires

The more difficult case is when the defect sued upon was discovered after the expiration of the specified warranty period. This is first of all a question of contract construction. Most courts have held that standard warranty language requires that the defect be discovered within the warranty period.570 For example, in Walsh v. Ford Motor Co.,571 the manufacturer promised to repair or replace any parts “found to be defective” within the warranty period.

Consumer Warranty Law: 7.7.4.6.1 Manufacturer’s knowledge; unconscionability

Courts are reluctant to find that time-limited warranties cover latent defects that are not discovered during the warranty period because of concern that this would nullify the time limit and make the manufacturer a guarantor that the product will be defect-free for its entire life.585 One response to this argument is to show that the manufacturer knew of the defect during the warranty period.

Consumer Warranty Law: 12.2.2 Rationales for Economic Loss Doctrine

Supporters of the economic loss rule emphasize its importance as “the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others.”24 They argue that allowing tort liability would disrupt the UCC statutory scheme of rights and remedies covering economic expectations.

Consumer Warranty Law: 12.2.3 Economic Damages May Be Allowed in Consumer But Not Commercial Cases

A number of courts award tort economic injury damages in consumer cases when they would not in commercial cases29 Other courts, while not reaching the question directly, stress that the particular buyer was a commercial entity with bargaining power equal to the seller’s, thereby implying that the rule might not apply to ordinary consumers30 But other courts reject any distinction between consumer and commercial cases31

Consumer Warranty Law: 12.2.5 When UCC Remedies Unavailable; Non-Privity Plaintiffs; Services

As noted in , supra, some courts base their adoption of the economic loss rule on the view that allowing recovery of these losses on strict liability and negligence claims would disrupt the UCC statutory scheme. These courts may reach the parallel conclusion that, if UCC remedies are not available in a particular case, the economic loss doctrine does not apply to an alleged tort claim in that case.47 Otherwise the plaintiff might be left without a remedy.

Consumer Warranty Law: 12.2.6 Breach of Statutory or Independent Duty

Some courts look to the source of the duty breached when they apply the economic loss doctrine. They examine the tort action to find whether the duty alleged to have been breached was the contractual promise itself, or some larger social duty,53 on the grounds that tort law is an appropriate remedy for breaches of the latter.

Consumer Warranty Law: 12.2.7 Special Relationship

Many jurisdictions allow recovery of economic losses when the parties have a special relationship.58 California courts hold that the determination whether a special relationship exists is a matter of policy and involves the balancing of various factors, including: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injury suffered; (

Consumer Warranty Law: 12.2.8.1 Recovery for Damage to Other Property

A tort recovery may be had by characterizing the injury not as economic damage, but as property damage or personal injury. In most jurisdictions the damage that a product causes to itself is considered economic loss, so neither the diminution in value nor repair costs can be recovered on a strict liability or negligence theory, unless some other exception to the economic loss doctrine applies.61 But tort recovery is available for damage the defective product causes to “other property.”62

Consumer Warranty Law: 12.2.8.2 The East River and Saratoga Fishing Standard

When a defective component damages the larger product into which it was installed, is this damage to the product itself or damage to other property? The United States Supreme Court has addressed this question twice in the context of maritime law. In the first case, East River Steamship Corp. v. Transamerica Delaval, Inc.,65 a manufacturer sold a turbine that had defective components. When the components malfunctioned, they damaged the turbine.

Consumer Warranty Law: 12.2.8.3 Alternative Tests

The definition of “other property” in East River and Saratoga Fishing is not universally accepted, however. Some courts follow a more complex test, allowing recovery when one component of a product damages other components if the defective part is a sufficiently discrete element of the larger product so that it is not reasonable to expect that its failure will invariably damage other components.73

Consumer Warranty Law: 12.2.8.4 Damage That a Defective Component Causes to a Home

Denying recovery for damage caused by a component that was installed in the product when the consumer bought it can be particularly unjust when the “product” is a home or condominium. For example, a defectively installed roof that allows water to enter a home may cause great damage to the home. If the home is treated as the integrated product that the consumer bought, the economic loss doctrine would deny tort recovery for this damage.

Consumer Warranty Law: 12.3.1 Introduction

The basic premise of strict liability in tort is that the manufacturer, by marketing its product for use and consumption, implicitly represents that the product is not unreasonably dangerous to person or property, and that the manufacturer should be liable if the product does prove to be unreasonably dangerous.

Consumer Warranty Law: 12.3.2 Strict Liability Can Apply to Manufacturers, Retailers, and Lessors

Manufacturers and other indirect sellers can be strictly liable in tort. The Restatement (Second) of Torts section refers to the “ultimate user or consumer,” and the very purpose of the section is to avoid privity entanglements.91 The manufacturer of a non-defective component part may be also liable if it substantially participates in the negligent integration of the part into the final product.92

Consumer Warranty Law: 12.3.3.1 General Scope

Strict liability can extend to any kind of product that is recognizably dangerous to those who may come in contact with it.102 The products at issue in decisions range from automobiles and airplanes to cinder building blocks, glass doors, and roller skates.103 Some courts hold that houses and buildings,104 or products incorporated into houses or buildings,105 are products that are covered by the doctr

Consumer Warranty Law: 12.3.3.2 Used Goods

The language of the Second Restatement provides that “any product” includes used goods as well as new.106 Reaching the original manufacturer of the used goods may pose a problem because of the Second Restatement’s requirement that the goods reach the consumer “without substantial change in the [goods’] condition.”107 However, a manufacturer may be liable for a good that has been substantially changed if that change was reasonably foreseeable.

Consumer Warranty Law: 12.3.3.3 Services

Strict liability does not apply to the sale of services,114 so negligence may be the appropriate tort claim.115 Nevertheless, strict liability may apply to mixed transactions involving both goods and services, such as the sale and installation of home improvement products.116 In such a case the seller can be strictly liable for defects arising from improper installation or repair even if the goods were not defective.

Consumer Warranty Law: 12.3.4 Defective Condition

According to comment 2 to section 402A of the Second Restatement, a product is defective if it is “at the time it leaves the seller’s hands, in a condition not contemplated by the ultimate consumer.” This standard is similar to UCC unmerchantability119 (not fit for its ordinary purpose based upon the reasonable consumer’s expectations), and the same general principles apply.120

Consumer Warranty Law: 12.3.5 The Unreasonably Dangerous Requirement

In most jurisdictions the consumer must show that the defect rendered the product unreasonably dangerous.126 Historically, the definition of “unreasonably dangerous” was that a product was “dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.”127