CONCEPT REVIEW:

The idea of a seller's being in breach of an implied warranty raises an entirely new issue: Is the seller liable to anyone other than the buyer? This question may initially sound peculiar. After all, the seller and the buyer are bound together by contract, and if either breaches, then the breaching party is liable to the nonbreaching party. But in many scenarios, often it is not the buyer, but rather a third party that uses the product or is injured by the product. So questions arise as to when those third parties are beneficiaries to warranties.

Read the hypothetical case and answer the questions that follow.

Suppose that Howie buys a garbage disposal from a kitchen appliance outlet. He has it professionally installed by professionals from the kitchen appliance outlet, and he has a full and written warranty on the product.  Howie's 16-year-old daughter, Joanna, was cleaning up after dinner one evening when the garbage disposal began to malfunction.  Parts flew out of the hole in the sink, hitting Joanna in the face and causing serious injuries. She had reconstructive surgery on her face and no longer has full vision in her right eye.

For each question, select the correct answer AND provide a short explanation as to why it is the correct answer.

1. Does a "contractual relationship" exist between Joanna (the third party) and the kitchen appliance seller?

a. No, Joanna did not enter into a contract with the merchant.

b. No, Joanna cannot bring a breach of warranty suit against the seller.

c. Yes, as long as Joanna paid for at least a portion of the garbage disposal.

d. Yes, Joanna and the seller entered into an official contract.

e. Yes, the Uniform Commercial Code (UCC) recognizes that third parties automatically enter into contracts with sellers.

2. Which of the following is not a choice the states are given (under the UCC) regarding third-party beneficiaries of warranties, such as Joanna?

a. Seller's warranties extend to only the person who purchased the good and has the receipt.

b. Seller's warranties extend to the buyer's household members and guests.

c. Seller's warranties extend to any reasonable and foreseeable user.

d. Seller's warranties extend to anyone injured by the good.

e. None of the above.

3. Most states have adopted which option regarding people like Joanna, who are third-party beneficiaries of warranties?

a. Seller's warranties extend to any reasonable and foreseeable user.

b. Seller's warranties extend only to the person who purchased the good and has the receipt.

c. Seller's warranties extend to the buyer's household members and guests.

d. Most states do not acknowledge any third-party beneficiaries of warranties.

e. Seller's warranties extend to anyone injured by the good.

4. Let's suppose that Howie and Joanna live in a state that has adopted the most common guideline regarding third-party beneficiaries to warranties. Who might be covered by the warranty for the garbage disposal?

a. Only Howie's immediate family, including Joanna.

b. Only people who were stipulated as "foreseeable" users on the written contract.

c. Only those injured by the good, including Joanna.

d. No one other than the purchaser (Howie).

e. Any foreseeable user, including Howie and Joanna.

5. Suppose that Joanna was injured by the garbage disposal in 2008, but her family does not choose to bring a lawsuit against the kitchen appliance company until 2015. Can they bring a lawsuit for breach of contract in 2015?

a. No, Joanna is not a foreseeable user of the product.

b. Yes, they can bring a lawsuit whenever they want.

c. No, under the UCC they must sue within four years of the breach.

d. Yes, the lawsuit would be within the statute of limitations.

e. No Howie waived his warranty when he failed to inspect the good.