Chapter Six | Privity

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Chapter Six | Privity

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Privity

Consider this explanation from Gilliam, Products Liability in a Nutshell, 37 Or. L. Rev. 119, 131 (1958):

“When the consumer deals with the retailer rather than directly with the manufacturer, he establishes a contractual relationship with the retailer to which the manufacturer is not, legally speaking, a party. The manufacturer sells (directly or indirectly) to the retailer; the retailer sells to the consumer. The marketing process is a series of sales—a series of contracts. The parties to these contracts overlap in the middle of the marketing process, but not at the ends: there is an ultimate supplier and his customer, and so is the connecting link between them. The customer, however, makes no contract with… the manufacturer. These two do not deal with one another; typically they are strangers. In legal phraseology, there is no “privity of contract: between them.”

We begin this Chapter by taking a close look at the historical evolution of privity.

In the early 1800s, there were few sellers in the marketplace. As a result, cases alleging a product defect were decided on the basis of the theory of absolute liability against the manufacturer. As manufacturing capabilities increased, a negligence theory was adopted, but this led to enormous exposure on the part of the “new manufacturing class” developing in England during the Industrial Revolution. English courts developed a theory in tort cases, highly favorable to this “new manufacturing class” in the 1842 case of Winterbottom v. Wright that determined the scope of the manufacturer’s duty. The court in Winterbottom held that a duty of a manufacturer to show reasonable care would only extend to the party with whom the manufacturer had actually dealt through its contract. Since a buyer rarely dealt with a manufacturer, no contractual relationship existed between the manufacturer and the buyer. Hence, the manufacturer had no duty of due or reasonable care to the buyer because no privity of contract existed.

On the other hand, since the buyer had dealt with the retailer in purchasing a chattel (the common law term for an item of personal property), could the buyer sue the retailer? As a factual matter, in most cases, the buyer had been injured by a defect in the product not caused by any negligence on the part of the retailer (the retailer had only passed on the manufacturer’s product). So, the buyer was effectively barred from recovery against the retailer on a negligence theory and against the manufacturer on ground that the consumer was not in privity with the manufacturer. This was the origin of the doctrine termed caveat emptor, or “let the buyer beware!” which was the watch phrase of the emerging common law of the industrial age.

Two early exceptions were created by English courts. In 1852, a decade after Winterbottom v. Wright, an English court decided the case of Thomas v. Winchester, which determined that for products termed negligently labeled products (in this case, poisons), the manufacturer could not limit its liability through the defense of privity. Later in 1870, Loop v. Litchfield recognized the inherent unfairness and practical limiting nature of the doctrine of privity. The court extended the limitation on applying the privity doctrine to the range of imminently dangerous products such as poisons, explosives, deadly weapons, and the like.

The doctrine of privity was finally severely limited – some say obliterated – in Judge (later Justice) Cardozo’s opinion in the case of MacPherson v. Buick Motors, a case arising in the Court of Appeals in New York. This case dealt with the issue of vertical privity; that is, from the Manufacturer to the Retailer to the Consumer or Buyer.

In MacPherson, the manufacturer was first found to be negligent on the basis that it could have discovered defects in the construction of wooden wheels by and through a reasonable inspection of the wheels which it had failed to do! The court noted that wooden wheels
were not inherently dangerous products but that any product is likely to be dangerous if it is negligently made. The court then extended the duty of the manufacturer to those persons who would be foreseeable users within the vertical marketing chain, without a showing of privity,
in the case of all products negligently constructed or made. Since it was foreseeable that others besides the retailer would use the product, the buyer (MacPherson) was a foreseeable party and should be permitted to bring suit on the basis of the theory of negligence.

Macpherson v. Buick Motor Company

Court of Appeals of N.Y., 217 N.Y.382, 111 N.E. 1050 (1916)

Cardozo, J . . . . The defendant is a manufacturer of automobiles. It sold an automobile to a retail dealer. The retail dealer resold to the plaintiff. While the plaintiff was in the car, it suddenly collapsed. He was thrown out and injured. One of the wheels was made of defective wood, and its spokes crumbled into fragments. The wheel was not made by the defendant; it was bought from another manufacturer. There is evidence, however, that its defects could have been discovered by reasonable inspection, and that inspection was missed. There is no claim that the defendant knew of the defect and willfully concealed it. The case, in other words, is not brought within the rule of Kuelling v. Lean Mfg. Co. * * *. The charge is one, not of fraud, but of negligence. The question to be determined is whether the defendant owed a duty of care and vigilance to any one but the immediate purchaser. The foundations of this branch of the law, at least in this state, were laid in Thomas v. Winchester * * *. A poison was falsely labeled. The sale was made to a druggist, who in turn sold to a customer. The customer recovered damages from the seller who affixed the label. The defendant’s negligence,’ it was said, put human life in imminent danger.’ A poison falsely labeled is likely to injure any one who gets it. Because the danger is to be foreseen, there is a duty to avoid the injury. Cases were cited by way of illustration in which manufacturers were not subject to any duty irrespective of contract. The distinction was said to be that their conduct, though, negligent, was not likely to result in injury to any one except the purchaser. We are not required to say whether the chance of injury was always as remote as the distinction assumes. * * *

The defendant argues that things imminently dangerous to life are poisons, explosives, deadly weapons- things whose normal function it is to injure or destroy. But whatever the rule in Thomas v. Winchester may once have been, it has no longer that restricted meaning. A large coffee urn (Statler v. Ray Mfg. Co., supra) may have within itself, ifnegligently made, the potency of danger, yet no one thinks of it as an implement whose normal function is destruction. What is true of the coffee urn is equally true of bottles of aerated water (Torgeson v. Schultz, * * *).

We have mentioned only cases in this court. But the rule has received a like extension in our courts of intermediate appeal. In Burke v. Ireland, * * * it was applied to a builder who constructed a defective building; in Kahner v. Otis Elevator Co. * * * to the manufacturer of an elevator; in Davies v. Pelham Hod Elevating Co. * * *; affirmed in this court without opinion, (146 N.Y. 363) to a contractor who furnished a defective rope was to be used.

We are not required at this time either to approve or to disapprove the application of the rule that was made in these cases. It is enough that they help to characterize the trend of judicial thought. Devlin v. Smith was decided in 1882. A year later a very similar case came before the Court of Appeal in England (Heaven v. Pender, L.R. (11 Q.B.D.)503). We find in the opinion * * * the same conception of a duty, irrespective of contract, imposed upon the manufacturer by the law itself: Whenever one person supplies goods, or machinery, or the like, for the purpose of their being used by another person under such circumstances that every one of ordinary sense would, if he thought, recognize at once that unless he used ordinary care and skill with regard to the condition of the thing supplied or the mode of supplying it, there will be danger of injury to the person or property of him for whose use the thing is supplied, and who is to use it, a duty arises to use ordinary care and skill as the condition or manner of supplying such thing.’ He then points out that for a neglect of such ordinary care or skill whereby injury happens, the appropriate remedy is an action for negligence. The right to enforce this liability is not to be confined to the immediate buyer. The right, he says, extends to the persons or class of persons for whose use the thing is supplied. It is enough that the goods would in all probability be used at once * * * before a reasonable opportunity for discovering any defect which might exist,’ and that the thing supplied is of such a nature that a neglect of ordinary care or skill as to its condition or the manner of supplying it would probably cause danger to the person or property of the person for whose use it was supplied, and who was about to use it.’

On the other hand, he would exclude a case in which the goods are supplied under circumstances in which it would be a chance by whom they would be used or whether they would be used or not, or whether they would be before there would probably be means of observing any defect,” or where the goods are of such a nature that a want of care or skill as to their condition or the manner of supplying them would not probably produce danger of injury to person or property.” What was said by Lord Esher in that case did not command the full assent of his associates. His opinion has been criticized as requiring every man to take affirmative precautions to protect his neighbors as well as to refrain from injuring them’. * * * It may not be an accurate exposition of the law of England. Perhaps it may need some qualification even in our own state. Like most attempts at comprehensive definition, it may involve errors of inclusion and of exclusion. But its tests and standards, at least in their underlying principled, with whatever qualifications may be called for as they are applied to varying conditions, are the tests and standards of our law.

We hold, then, that the principle of Thomas v. Winchester is not limited to poisons, explosives, and things of like nature, to things which in their normal operation are implements of destruction. If the nature of a thing is such that it is reasonably certain to place and limb in peril when negligently made, it is then a thing of danger. Its nature gives warning of the consequences to be expected. If to the element of danger there is added knowledge that the thing will be used by persons other than the purchaser, and used without new tests then, irrespective of contract, the manufacturer of this thing of danger is under a duty to make it carefully. That is as far as we are required to go for the decision of this case. There must be knowledge of a danger, not merely possible, but probable. It is possible to use almost anything in a way that will make it dangerous if defective. That is not enough to charge the manufacturer with a duty independent of his contract. Whether a given thing is dangerous may be sometimes a question for the court and sometimes a question for the jury. There must also be knowledge that in the usual course of events the danger will be shared by others than the buyer. Such knowledge may often be inferred from the nature of the transaction. But it is possible that even knowledge of the danger and of the use will not always be enough.

The proximity or remoteness of the relation is a factor to be considered. We are dealing now with the liability of the manufacturer of the finished product, who puts it on the market to be used without inspection by his customers. If he is negligent, where danger is to be

foreseen, a liability will follow. We are not required at this time to say that it is legitimate to go back of the manufacturer of the finished product and hold the manufacturers of the component parts. To make their negligence a cause of imminent danger, an independent cause must often intervene; the manufacturer of the finished product must also fail in his duty of inspection. It may be that in those circumstances the negligence of the earlier members of the series as too remote to constitute, as to the ultimate user, an actionable wrong * * * We leave that question open to you. We shall have to deal with it when it arises. The difficulty which it suggests is not present in this case. There is here no break in the chain of cause and effect. In such circumstances, the presence of a known danger, attendant upon a known use, makes vigilance a duty. We have put aside the notion that the duty to safeguard life and limb, when the consequences of negligence may be foreseen, grows out of contract and nothing else. We have put the source of the obligation where it ought not be. We have put its source in the law. From this survey of the decisions, there thus emerges a definition of the duty of a manufacturer which enables us to measure this defendant’s liability.

Beyond all question, the nature of an automobile gives warning of probable danger if its construction is defective. This automobile was designed to go fifty miles an hour. Unless its wheels were sound and strong, injury was almost certain. It was as much a thing of danger as a defective engine for a railroad. The defendant knew the danger. It knew also that the care would be used by persons other than the buyer. This was apparent from its size; there were seats for three persons. It was apparent also from the fact that the buyer was a dealer in cars, who bought to resell. The maker of this car supplied it for the use of purchasers from the dealer just as plainly as the contractor in Devlin v. Smith supplied the scaffold for use by the servants of the owner. The dealer was indeed the one person of whom it might be said with some approach to certainly that by him the car would not be used. Yet the defendant would have us say that he was the one person whom it was under a legal duty to protect. The law does not lead us to so inconsequent a conclusion. Precedents drawn from the days of travel by stage coach do not fit the conditions of travel today. The principle that the danger must be imminent does not change, but the things subject to the principle do change. They are whatever the needs of life in a developing civilization require them to be. In reaching this conclusion, we do not ignore the decisions to the contrary in other jurisdictions. It was held in Cadillac M.C. Co. v. Johnson that anautomobile is not within the rule of Thomas v. Winchester. * * * The earlier cases are * * * at first sight inconsistent with our conclusion, may be reconciled upon the ground that the negligence was too remote, and that another cause had intervened. But even when they cannot be reconciled, the difference is rather in the application of the principle than in the principle itself. Judge Sanborn says, for example, that the contractor who builds a bridge, or the manufacturer who builds a car, cannot ordinarily foresee injury to other persons than the owner as the probable result. * * * We take a different view. We think that injury to others is to be foreseen not merely as a possible, but as an almost inevitable result. * * * Indeed Judge Sanborn concedes that his view is not to be reconciled with our decision in Devlin v. Smith (supra). The doctrine of that decision has now become the settled law of this state, and we have no desire to depart form it. In England the limits of the rule are still unsettled. Winterbottom v. Wright * * * is often cited. The defendant undertook to provide a mail coach to carry the mail bags. The coach broke down from latent defects in its construction. The defendant, however, was not the manufacturer. The court held that he was not liable for injuries to a passenger. The case was decided on a demurrer to the declaration. * * *

* * * The court left it to the jury to say whether the defendant ought to have foreseen that the car, if negligently constructed, would become imminently dangerous.’ Subtle distinctions are drawn by the defendant between things inherently dangerous and things imminently dangerous, but the case does not turn upon these verbal niceties. If danger was to be expected as reasonably certain, there was a duty of vigilance, and this whether you call the danger inherent or imminent. In varying forms that the court would not have been justified in ruling as a matter of law that the car was a dangerous thing. If there was any error, it was none of which the defendant can complain. We think the defendant was not absolved from a duty of inspection because it bought the wheels from a reputable manufacturer. It was not merely a dealer in automobiles. It was a manufacturer of automobiles. It was responsible for the finished product. It was not at liberty to put the finished product on the market without subjecting the component parts to ordinary and simple tests. * * * Under the charge of the trial judge nothing more was required of it. The obligation to inspect must vary with the nature of the thing to be inspected. The more probable the danger, the greater the need of caution. There is little analogy between this case and Carlson v. Phoenix Bridge Co., * * * where the defendant bought a tool for a servant’s use. The making of tools was not the business on which the master was engaged. Reliance on the skill of the manufacturer was proper and almost inevitable. But that is not the defendant’s situation. Both by its relation to the work and by the nature of its business, it is charged with a stricter duty. Other rulings complained of have been considered, but no error has been found on them.

The judgment should be affirmed.

The case of Henningsen v. Bloomfield Motors raised the issue of privity in a warranty action. The case involved both the issue of vertical privity (now settled in MacPherson) and horizontal privity, since it was Mrs. Henningsen who was seeking recovery for her personal injury and Mrs. Henningsen was not the purchaser of the automobile.


Manufacturer >>> Retailer >>>
Mr. Klaus Henningsen [Purchaser] > Helen Henningsen [User]

The manufacturer had argued that since it was not a party to the sale (contract) by the dealer to Mr. Henningsen, the absence of privity eliminated the existence of any warranty from the manufacturer to Mr. Henningsen, except that which was expressly given by the manufacturer. Based on MacPherson, however, the court rejected the requirement of privity and found that Mr. Henningsen was in fact covered by the implied warranty of merchantability – despite the lack of privity.

The court then turned its attention to the claims of Mrs. Helen Henningsen. Clearly, Mrs. Henningsen was not the purchaser of the automobile or a party to the contract. However, the court extended protection to Mrs. Henningsen (horizontally) by the following formulation, in effect, also extending the warranty of merchantability to all those persons who:

“Within the reasonable contemplation of the parties to the warranty might be expected to become a user of the automobile.’’

The Henningsen rule of extended horizontal privity may be found in the original text of U.C.C. Section 2-318, Alternative A:

“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 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.”

We will see later in our discussion of warranties under the UCC that Section 2-318 was extended to other parties as the law of warranties was further developed and extended.

Henningsen v. Bloomfield Motors, Inc.

Supreme Court of New Jersey, 32 N.J. 358, 161 A.2d 69 (1960)

FRANCIS, JUDGE

Mr. Henningsen purchased an automobile from defendant Bloomfield Motors and gave it to his wife as a gift. The automobile was manufactured by defendant Chrysler Corporation. Ten days after delivery of the car, Mrs. Henningsen was injured in an accident that resulted when the steering failed suddenly and without warning. Up to this time the car had functioned properly. Mrs. Henningsen sued both defendants for breach of express and implied warranties and for negligence. Her husband joined in the action seeking compensation for his consequential losses. The trial judge dismissed the negligence counts because of insufficient evidence. He gave the case to the jury on the implied warranty theory only. The jury rendered verdicts against both defendants in favor of the plaintiffs. Defendants appealed and plaintiffs cross-appealed, claiming that the negligence count should not have been dismissed.

The sales contract signed by Mr. Henningsen was a standard printed form. It contained the following language concerning the warranty. It was in fine print and located on the back of the form:

“7. It is expressly agreed that there are no warranties, express or implied, made by either the dealer or the manufacturer on the motor vehicle, chassis, of parts furnished hereunder except as follows.” ‘The manufacturer warrants each new motor vehicle (including original equipment placed thereon by the manufacturer except tires), chassis or parts manufactured by it to be free from defects in material or workmanship under normal use and service. Its obligation under this warranty being limited to making good at its factory any part or parts thereof which shall, within ninety (90) days after delivery of such vehicle to the original purchaser or before such vehicle has been driven 4,000 miles, whichever event shall first occur, be returned to it with transportation charges prepaid and which its examination shall disclose to its satisfaction to have been thus defective; this warranty being expressly in lieu of all other warranties expressed or implied, and all other obligation or liabilities on its part, and it neither assumes nor authorizes any other person to assume for it any other liability in connection with the sale of its vehicles. * * *.’ “ (Emphasis added.)

I. THE CLAIM OF IMPLIED WARRANTY AGAINST THE MANUFACTURER

In the ordinary case of sale of goods by description an implied warranty of merchantability is an integral part of the transaction. * * * If the buyer, expressly or by implication, makes known to the seller the particular purpose for which the article is required and it appears that he has relied on the seller’s skill or judgment, an implied warranty arises of reasonable fitness for that purpose. * * * The former type of warranty simply means that the thing sold is reasonably fit for the general purpose for which it is manufactured and sold. * * * As Judge (later Justice) Cardozo remarked in Ryan, supra, the distinction between a warranty of fitness for a particular purpose and of merchantability in many instances is practically meaningless. In the particular case he was concerned with food for human consumption in a sealed container. Perhaps no more apt illustration of the notion can be thought of than the instance of the ordinary purchaser who informs the automobile dealer that he desires a car for the purpose of business and pleasure driving on the public highway.* * *

Of course such sales, whether oral or written, may be accompanied by an express warranty. Under the broad terms of the Uniform Sale of Goods Law any affirmation of fact relating to the goods is an express warranty if the natural tendency of the statement is to induce the buyer to make the purchase. * * * [The act] preserves and continues any permissible implied warranty, despite an express warranty, unless the two are inconsistent. * * * The uniform act codified, extended and liberalized the common law of sales. The motivation in part was to ameliorate the harsh doctrine of caveat emptor and in some measure to impose a reciprocal obligation on the seller to beware. The transcendent value of the legislation, particularly with respect to implied warranties, rests in the fact that obligations on the part of the seller were imposed by operation of law, and did not depend for their existence upon express agreement of the parties. And of tremendous significance in a rapidly expanding commercial society was the recognition of the right to recover damages on account of personal injuries arising from a breach of warranty. * * * The particular importance of this advance resides in the fact that under such circumstances strict liability is imposed upon the maker or seller of the product. Recovery of damages does not depend upon proof of negligence or know edge of the defect. * * *

As the Sales Act and its liberal interpretation by the courts threw this protective cloak about the buyer, the decisions in various jurisdictions revealed beyond doubt that many manufacturers took steps to avoid these ever increasing warranty obligations. Realizing that the act governed the relationship of buyer and seller, they undertook to withdraw from actual and direct contractual contact with the buyer. They ceased selling products to the consuming public through their own employees and making contracts of sale in their own names. Instead, a system of independent dealers was established; their products were sold to dealers who in turn dealt with the buying public, ostensibly solely in their own personal capacity as sellers. In the past in many instances, manufacturers were able to transfer to the dealers burdens imposed by the act and thus achieved a large measure of immunity for themselves. * * *

The terms of the warranty are a sad commentary upon the automobile manufacturers, marketing practices. Warranties developed in the law in the interest of and to protect the ordinary consumer who cannot be expected to have the knowledge or capacity or even the opportunity to make adequate inspection of mechanical instrumentalities, likeautomobiles, and to decide for himself whether they are reasonably fit for the designed purpose. * * * But the ingenuity of the Automobile Manufacturers Association, by means of its standardized form, has metamorphosed the warranty into a device to limit the maker’s liability. * * *

Putting aside for the time being the problem of the efficacy of the disclaimer provisions contained in the express warranty, a question of first importance to be decided is whether an implied warranty of merchantability by Chrysler Corporation accompanied the sale of the automobile to Claus Henningsen.

Preliminarily, it may be said that the express warranty against defective parts and workmanship is not inconsistent with an implied warranty of merchantability. Such warranty cannot be excluded for that reason. * * *

Chrysler points out that an implied warranty of merchantability is an incident of a contract of sale. It concedes, of course, the making of the original sale to Bloomfield Motors, Inc., but maintains that this transaction marked the terminal point of its contractual connection with the car. Then Chrysler urges that since it was not a party to the sale by the dealer to Henningsen, there is no privity of contract between it and the plaintiffs, and the absence of this privity eliminates any such implied warranty.

There is no doubt that under early common-law concepts of contractual liability only those persons who were parties to the bargain could sue for a breach of it. In more recent times a noticeable disposition has appeared in a number of jurisdictions to break through the narrow barrier of privity when dealing with sales of goods in order to give realistic recognition to a universally accepted fact. The fact is that the dealer and the ordinary buyer do not, and are not expected to, buy goods, whether they be foodstuffs or automobiles, exclusively for their own consumption or use. Makers and manufacturers know this and advertise and market their products on that assumption; witness, the “family,” car, the baby foods, etc. The limitations of privity in contracts for the sale of goods developed their place in the law when marketing conditions were simple, when maker and buyer frequently met face to face on an equal bargaining plane and when many of the products were relatively uncomplicated and conducive to inspection by a buyer competent to evaluate their quality. * * * With the advent of mass marketing, the manufacturer became remote from the purchaser, sales were accomplished through intermediaries, and the demand for the product was created by advertising media. In such an economy it became obvious that the consumer was the person being cultivated.

Manifestly, the connotation of “consumer” was broader than that of “buyer.” He signified such a person who, in the reasonable contemplation of the parties to the sale, might be expected to use the product. Thus, where the commodities sold are such that if defectively manufactured they will be dangerous to life or limb, then society’s interests can only be protected by eliminating the requirement of privity between the maker and his dealers and the reasonably expected ultimate consumer. In that way the burden of losses consequent upon use of defective articles is borne by those who are in a position to either control the danger or make an equitable distribution of the losses when they do occur. As Harper & James put it, “The interest in consumer protection calls for warranties by the maker that do run With the goods, to reach all who are likely to be hurt by the use of the unfit commodity for a purpose ordinarily to be expected.” * * *

Although only a minority of jurisdictions have thus far departed from the requirement of privity, the movement in that direction is most certainly gathering momentum. Liability to the ultimate consumer in the absence of direct contractual connection has been predicated upon a variety of theories. Some courts hold that the warranty runs with the article like a covenant running with land; others recognize a third-party beneficiary thesis; still others rest their decision on the ground that public policy requires recognition of a warranty made directly to the consumer. * * *

Most of the cases where lack of privity has not been permitted to interfere with recovery have involved food and drugs. * * * In fact, the rule as to such products has been characterized as an exception to the general doctrine. But more recently courts, sensing the inequity of such limitation, have moved into broader fields: home permanent wave set, * * *

We see no rational doctrinal basis for differentiating between a fly in a bottle of beverage and a defective automobile. The unwholesome beverage may bring illness to one person, the defective car, with its great potentiality for harm to the driver, occupants, and others, demands even less adherence to the narrow barrier of privity. * * *

Under modern conditions the ordinary layman, on responding to the importuning of colorful advertising, has neither the opportunity nor the capacity to inspect or to determine the fitness of an automobile for use; he must rely on the manufacturer who has control of its construction, and to some degree on the dealer who, to the limited extent called for by the manufacturer’s instructions, inspects and services it before delivery. In such a marketing milieu his remedies and those of persons who properly claim through him should not depend “upon the intricacies of the law of sales. The obligation of the manufacturer should not be based alone on privity of contract. It should rest, as was once said, upon ‘the demands of social justice.’ “ Masetti v. Armour & Co., 75 Wash. 622, 135 P. 633, 635, 48 L.R.A., N.S., 213 (Sup.Ct. 1913). “If privity of contract is required,” then, under the circumstances of modern merchandising, “privity of contract exists in the consciousness and understanding of all right-thinking persons., Madouros v. Kansas City Coca-Cola Bottling Co., [90 S.W.2d 445, 450 (Mo.App. 1936).

Accordingly, we hold that under modern marketing conditions, when a manufacturer puts a new automobile in the stream of trade and promotes its purchase by the public, an implied warranty that it is reasonably suitable for use as such accompanies it into the hands of the ultimate purchaser. Absence of agency between the manufacturer and the dealer who makes the ultimate sale is immaterial.

II. THE EFFECT OF THE DISCLAIMER AND LIMITATION OF LIABILITY CLAUSES ON THE IMPLIED WARRANTY OF MERCHANTABILITY

* * *

In view of the cases in various jurisdictions suggesting at the conclusion which we have now reached with respect to the implied warranty of merchantability, it becomes apparent that manufacturers who enter into promotional activities to stimulate consumer buying may incur warranty obligations of either or both the express or implied character. These developments in the law inevitably suggest the inference that the form of express warranty made part of the Henningsen purchase contract was devised for general use in the automobile industry as a possible means of avoiding the consequences of the growing judicial acceptance of the thesis that the described express or implied warranties run directly to the consumer.

In the light of these matters, what effect should be given to the express warranty in question which seeks to limit the manufacturer’s liability to replacement of defective parts, and which disclaims all other warranties, express or implied? In assessing its significance we must keep in mind the general principle that, in the absence of fraud, one who does not choose to read a contract before signing it, cannot later relieve himself of its burdens.

* * * And in applying that principle, the basic tenet of freedom of competent parties to contract is a factor of importance. But in the framework of modern commercial life and business practices, such rules cannot be applied on a strict, doctrinal basis. The conflicting interests of the buyer and seller must be evaluated realistically and justly, giving due weight to the social policy evinced by the Uniform Sales Act, the progressive decisions of the courts engaged in administering it, the mass production methods of manufacture and distribution to the public, and the bargaining position occupied by the ordinary consumer in such an economy. This history of the law shows that legal doctrines, as first expounded, often prove to be inadequate under the impact of later experience. In such case, the need for justice has stimulated the necessary qualifications or adjustments. * * *

It is apparent that the public has an interest not only in the safe manufacture of automobiles, but also, as shown by the Sales Act, in protecting the rights and remedies of purchasers, so far as it can be accomplished consistently with our system of free enterprise. In a society such as ours, where the automobile is a common and necessary adjunct of daily life, and where its use is so fraught with danger to the driver, passengers and the public, the manufacturer is under a special obligation in connection with the construction, promotion and sale of his cars. Consequently, the courts must examine purchase agreements closely to see if consumer and public interests are treated fairly.

* * * As we have said, warranties originated in the law to safeguard the buyer and not to limit the liability of the seller or manufacturer. It seems obvious in this instance that the motive was to avoid the warranty obligations which are normally incidental to such sales. The language gave little and withdrew much. In return for the delusive remedy of replacement of defective parts at the factory, the buyer is said to have accepted the exclusion of the maker’s liability for personal injuries arising from the breach of the warranty, and to have agreed to the elimination of any other express or implied warranty. An instinctively felt sense of justice cries out against such a sharp bargain. But does the doctrine that a person is bound by his signed agreement, in the absence of fraud, stand in the way of any relief?

In the modern consideration of problems such as this, Corbin suggests that practically all judges are “chancellors” and cannot fail to be influenced by any equitable doctrines that are available. And he opines that “there is sufficient flexibility in the concepts of fraud, duress, misrepresentation and undue influence, not to mention differences in economic bargaining power” to enable the courts to avoid enforcement of unconscionable provisions in long printed standardized contracts. * * * Freedom of contract is not such an immutable doctrine as to admit of no qualification in the area in which we are concerned. * * *

The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. “The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood in a vague way, if at all.” ** *

The warranty before us is a standardized form designed for mass use. It is imposed upon the automobile consumer. He takes it or leaves it, and he must take it to buy an automobile. No bargaining is engaged in with respect to it. In fact, the dealer through whom it comes to the buyer is without authority to alter it; his function is ministerial — simply to deliver it. The form warranty is not only standard with Chrysler but, as mentioned above, it is the uniform warranty of the Automobile Manufacturers Association. * * *

* * *

The task of the judiciary is to administer the spirit as well as the letter of the law. On issues such as the present one, part of that burden is to protect the ordinary man against the loss of important rights through what, in effect, is the unilateral act of the manufacturer. The status of the automobile industry is unique. Manufacturers are few in number and strong in bargaining position. In the matter of warranties on the sale of their products, the Automotive Manufacturers Association has enabled them to present a united front. From the standpoint of the purchaser, there can be no arms length negotiating on the subject. Because his capacity for bargaining is so grossly unequal, the inexorable conclusion which follows is that he is not permitted to bargain at all. He must take or leave the automobile on the warranty terms dictated by the maker. He cannot turn to a competitor for better security. Public policy at a given time finds expression in the Constitution, the statutory law and in judicial decisions. In the area of sale of goods, the legislative will has imposed an implied warranty of merchantability as a general incident of sale of an automobileby description. The warranty does not depend upon the affirmative intention of the parties. It is a child of the law; it annexes itself to the contract because of the very nature of the transaction. Minneapolis Steel & Machinery Co. v. Casey Land Agency, 51 N.D. 832, 201 N.W. 172 (Sup.Ct. 1924). The judicial process has recognized a right to recover damages for personal injuries arising from a breach of that warranty. The disclaimer of the implied warranty and exclusion of all obligations except those specifically assumed by the express warranty signify a studied effort to frustrate that protection. True, the Sales Act authorizes agreements between buyer and seller qualifying the warranty obligations. But quite obviously the legislature contemplated lawful stipulations (which are determined by the circumstances of a particular case) arrived at freely by parties of relatively equal bargaining strength. The lawmakers did not authorize the automobile manufacturer to use its grossly disproportionate bargaining power to relieve itself from liability and to impose on the ordinary buyer, who in effect has no real freedom of choice, the grave danger of injury to himself and others that attends the sale of such a dangerous instrumentality as a defectively made automobile. In the framework of this case, illuminated as it is by the facts and the many decisions noted, we are of the opinion that Chrysler’s attempted disclaimer of an implied warranty of merchantability and of the obligations arising therefrom is so inimical to the public good as to compel an adjudication of its invalidity. * *

IV. PROOF OF BREACH OF THE IMPLIED WARRANTY OF MERCHANTABILITY

Both defendants argue that the proof adduced by plaintiffs as to the happening of the accident was not sufficient to demonstrate a breach of warranty. Consequently, they claim that their motion for judgment should have been granted by the trial court. We cannot agree. In our view, the total effect of the circumstances shown from purchase to accidentis adequate to raise an inference that the car was defective and that such condition was causally related to the mishap. See, Yormack v. Farmers, Coop. Ass’n of N.J., 11 N.J. Super. 416, 78 A.2d 421 (App. Div. 1951) * * *. Thus, determination by the jury was required.

The proof adduced by the plaintiffs disclosed that after servicing and delivery of the car, it operated normally during the succeeding ten days, so far as the Henningsens could tell. They had no difficulty or mishap of any kind, and it neither had nor required any servicing. It was driven by them alone. The owner’s service certificate provided for return for further servicing at the end of the first 1,000 miles–less than half of which had been covered at the time of Mrs. Henningsen’s injury.

The facts, detailed above, show that on the day of the accident, ten days after delivery, Mrs. Henningsen was driving in a normal fashion, on a smooth highway, when unexpectedly the steering wheel and the front wheels of the car went into the bizarre action described. Can it reasonably be said that the circumstances do not warrant an inference of unsuitability for ordinary use against the manufacturer and the dealer? Obviously there is nothing in the proof to indicate in the slightest that the most unusual action of the steering wheel was caused by Mrs. Henningsen’s operation of the automobile on this day, or by the use of the car between delivery and the happening of the incident. Nor is there anything to suggest that any external force or condition, unrelated to the manufacturing or servicing of the car operated as an inducing or even concurring factor.

* * *

[T]he question of breach of warranty * * * was properly placed in the hands of the jury. In our judgment, the evidence shown, as a matter of preponderance of probabilities, would justify the conclusion by the ultimate triers of the facts that the accident was caused by a failure of the steering mechanism of the car and that such failure constituted a breach of the warranty of both defendants.

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V. THE DEFENSE OF LACK OF PRIVITY AGAINST MRS. HENNINGSEN

Both defendants contend that since there was no privity of contract between them and Mrs. Henningsen, she cannot recover for breach of any warranty made by either of them. On the facts, as they were developed, we agree that she was not a party to the purchase agreement. * * * Her right to maintain the action, therefore, depends upon whether she occupies such legal status thereunder as to permit her to take advantage of a breach of defendants’ implied warranties.

For the most part the cases that have been considered dealt with the right of the buyer or consumer to maintain an action against the manufacturer where the contract of sale was with a dealer and the buyer had no contractual relationship with the manufacturer. In the present matter, the basic contractual relationship is between Claus Henningsen, Chrysler, and Bloomfield Motors, Inc. The precise issue presented is whether Mrs. Henningsen, who is not a party to their respective warranties, may claim under them. In our judgment, the principles of those cases and the supporting texts are just as proximately applicable to her situation. We are convinced that the cause of justice in this area of the law can be served only by recognizing that she is such a person whom in the reasonable contemplation of the parties to the warranty, might be expected to become a user of the automobile. Accordingly, her lack of privity does not stand in the way of prosecution of the injury suit against the defendant Chrysler.

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[I]t cannot be overlooked that historically actions on warranties were in tort also, sounding in deceit. * * * The contract theory gradually emerged, although the tort idea has continued to lurk in the background, making the warranty “a curious hybrid of tort and contract.” Prosser, supra, 83. An awareness of this evolution makes for ready acceptance of the relaxation of rigid concepts of privity when third persons, who in the reasonable contemplation of the parties to a warranty might be expected to use or consume the product sold, are injured by its unwholesome or defective state.

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Under all of the circumstances outlined above, the judgments in favor of the plaintiffs and against the defendants are affirmed.

In Henningsen, the hybrid nature of a warranty, arising both under contract and tort theories, led the court to reject the rigid privity requirement of contract and instead to adopt a more consumer friendly foreseeability standard associated with tort liability, especially in negligence cases.

Questions

  1. The plaintiff, Winterbottom, had been contracted by the postmaster general to drive a mail coach. The defendant, Wright, had been contracted by the postmaster to main- tain the coach. While Winterbottom was driving, the coach collapsed and he sus- tained injuries. Winterbottom brought suit asserting that Wright was negligent and disregarded his contract.
    1. How did the ruling constrain the law’s stance on negligence?
    2. Is Wright liable?
  2. How did Thomas v. Winchester determine that manufacturers could not limit liability through the defense of privity.
  3. How did Loop v. Litchfield uncover the flaw of the doctrine of privity?
  4. Buick Motor Company, the defendant, is a manufacturer of automobiles. It sold one of its automobiles to a retail dealer that proceeded to resell to MacPherson, the plaintiff. While driving, the car collapsed because one of the wheels was made from defective wood. Consequently, the plaintiff was thrown out of the car and sustained injuries. Furthermore, the wheel was not made by the defendant, but bought from another manufacturer. However, its defects could have been discovered by reasonable inspection. The plaintiff sued for negligence.
    1. Does the doctrine of vertical privity apply? If so, how?
    2. Is Buick Motor Company liable?
  5. Mr. Henningsen purchased an automobile from defendant, Bloomfield Motors Inc., as a gift for his wife. The automobile was manufactured by Chrysler Corporation. Ten days after delivery, Mrs. Henningsen was injured in an accident when the steering suddenly failed. Mrs. Henningsen brought suit against Bloomfield Motors Inc. and Chrysler Corporation for breach of express and implied warranties and additionally for negligence.
    1. How was horizontal privity extended in this case?
    2. Is Chrysler liable? Is Bloomfield Motors Inc. liable?