Our last newsletter explored how a civil suit unfolds. We
identified the two main parts of a dispute: liability and damages.
We outlined some practical considerations for civil lawsuits.
In this issue we explore one of the most common kinds of claims
advanced against dealerships: product liability claims. We will
also look at the usual bases for bringing them. A product liability
claim (or "products" to those who practice in the area)
is based upon a product causing damages for failing to perform as
it should. Products claims arise when a consumer purchases a
product expecting it to work a certain way, and the product does
not. There are a number of ways that this can happen, but four
common ones are:
a breach of an express term of a contract;
a breach of an implied term of a contract;
a product's failure to function as intended; and
a breach of a legislative requirement.
An easy example of an express term in a contract is an extended
warranty. A customer agrees to purchase additional coverage for
prescribed parts of a vehicle in the event that they fail to
function within the warranty's parameters. The term of the
contract calls for the transmission to be free from defects for the
first 3 years or 60,000 kilometers, or it will be repaired without
cost to the customer. If the transmission fails and the warranty is
not honored, the customer can point to the words on a page that
give rise to its claim.
A products claim arising from a breach of an implied term can be
described as something that is common sense. It is a term that does
not appear in the language of the agreement, but that is of such
fundamental importance that the agreement does not make commercial
sense without it. For example, when you order a pint of draft beer
you may not specify that it will come in a glass, but it is likely
an implied term, since the alternatives (putting your head under
the tap, cupping your hands and trying not to spill) do not make
commercial sense. We do not expect most of the things we buy to
explode, poison us or wear out immediately. Even if there is not a
clear written term in a contract that a chair will not collapse, a
flat screen television will stop working about 10 hours of
watching, or that a new vehicle will not burst into flames when it
is parked in an empty garage, these things are expected. It makes
no sense for a consumer to buy a chair that one cannot sit on, a
television that does not display programs or a vehicle that burns
the owner's house down.
Those are simple examples of breaches of implied terms. They can
also be nuanced. Every recent truck commercial contains fine print
qualifying what is being portrayed. A truck is not supposed to
break, but while it likely makes commercial sense that a truck is
sturdy and can handle a day's work, that does not mean it can
function as one of the vehicles seen in The Expendables franchise.
The bigger a leap of common sense an implied term claim takes, the
less likely it is to succeed.
Examples of a product's failure to function as intended are
a leaky water bottle or a roof rack that rips off if anything is
attached to it. Naturally, the roof rack exists so that the driver
can affix items to it and the water bottle is intended to store
water. That does not mean that the roof rack has to be
indestructible, but only that it is capable of functioning as
intended. These claims commonly occur when a customer buys a
product and the agreement contains certain specifications. If I buy
a ladder that expressly states it has a working load of 400 lbs.,
and the ladder breaks well below that threshold, that gives rise to
a product liability claim. This is similar to an express term of
the contract, but the key difference is whether the exact
specification was mentioned in the contract. When someone goes to a
hardware store and buys a ladder, (s)he rarely says "I agree
to buy this ladder for the listed price on the condition that it
has a working limit of 400 pounds." The customer buys the
ladder saying, at most, "I'll take this one." But if
the ladder is clearly rated to work a certain way, and it fails to,
that likely constitutes a failure to work as intended and gives
rise to a products claim.
We saved the easiest one for last. If there is a law in force
that requires new vehicles to have a certain safety feature, and
after the requirement comes in force a new vehicle is sold without
it, that creates potential liability. This is highly unlikely to
happen because a manufacturer did not get the memo that seatbelts
and airbags are required in new vehicles. It is more likely to
happen as a result of after-market modifications. You will face
potential liability if your employees install media components that
compromise a vehicle's safety features.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
The recent decision of the Ontario Court of Appeal in BMW Financial Services Canada, a Division of BMW Canada Inc. v. McLean provides some useful insight into the relationship between automobile dealers and the financing arms of the manufacturers for whom those dealers are franchisees.
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