Privity and Warranty I
Prof. Bill Long 3/10/05
Even though we have covered sections 2-313 to 2-316 in some detail and have examined the limitation of remedies provisions in 2-718(1) and 2-719, we have not touched upon the most confusing subject in warranty law: the issue of privity. It is not confusing because it is difficult to explain or understand; the confusion comes in when you realize that 50 different states have each attempted to breach the "citadel of privity" in different ways for different kinds of warranties. Thus, the most helpful thing I can do in this and the next few pages is to lay out some of the issues involved in the privity debate and illustrate how the Code (2-318) works under different scenarios.
Privity is a concept that dominated the common law. You have discussions of "privity of contract vs. privity of estate" in real property law. Privity enters into tort law, even though the language of proximate cause and reasonable expectations took over in the 20th century. Finally, privity was a big subject in contract law. In contract law privity of contract means that that buyer is in direct contractual relationship with a seller. Under the CLC you could only sue the person with whom you were in privity. Thus, the concept of privity functioned as a common law limitation of remedy.
The social and economic realities assumed by the privity of contract doctrine have long disappeared, even though the doctrine still continues to have life. What I mean is that most transactions now do not simply take place between a buyer and seller. There are third parties involved (distributors, manufacturers, component manufacturers) who had much more to do with the safety or merchantability of the product than the actual seller. Under the CL, if such a product was defective, one could not directly sue the manufacturer of the product. You had to sue the seller who in turn would sue the manufacturer, if your case was not thrown out along the way. Products liability law grew up after WWII as an attempt to cut the heart out of the privity problem with respect to tort law, but privity simply didn't go away for contract law. It was a major concern of the drafters of Article 2.
Understanding Privity and Article 2
The first thing to understand is the difference between vertical and horizontal privity. Vertical privity is helpfully illustrated through the Randy Knitwear case (p.333), and consists of the chain or ladder of entities from the seller through the distributor, manufacturer and component manufacturer(s). Horizontal privity, on the other hand, refers to the buyer, the buyer's family or those in the buyer's household, and reaches to whoever might reasonably make use of the goods. The intention of the drafters of Article 2 was to address the issue of horizontal privity through 2-318, while leaving to the courts the "assault" on the "citadel" of vertical privity. The langauge of two of the alternatives to 2-318 permits a vertical reading, however, even if the intention of the drafters was primarily to address issues of horizontal privity.
Thus, the question posed by the privity issue or privity debate is to what extent a particular jurisdiction has relaxed the CL privity rule when transactions in goods are in view. In that regard, you should use the following observations to "get your bearings."
1. Courts are generally more reluctant to eliminate the privity requirement for purely economic loss than for injury to the person.
2. Courts are generally more reluctant to eliminate the privity requirement for implied rather than express warranties.
3. Courts are generally more supportive of consumer attempts to eliminate the privity boundaries than for business buyers.
4. The older the goods are, the less willing a court is to breach the walls of privity.
5. Most states have enacted one of the three alternative versions of 2-318. Take care to read the three to see how they differ from each other. Alternative A, adopted by about 1/2 the states, gives the narrowest protection for the consumer, while Alternative C (adopted by 6 states, as is Alternative B) gives the largest protection. Several states have drafted their own laws that are not derived from the UCC Drafting Committee's suggestions. Some state courts also hold that even if their state has adopted a particular alternative, such as Alternative A, it becomes the "floor" rather than the "ceiling" of coverage. The court, accordingly, may feel free to expand the notion of "family" even in an Alternative A jurisdiction.
Thus, if you are examining a fact pattern where the issue of privity is in view, analyze as follows. First, ask yourself what kind of privity is involved? Then, ask what kind of warranty is in view? Further ask what kind of harm is in view? Then, look to the type of statute that the jurisdiction has. You ought to be able to give a "more likely than not"-type of analysis if I provide you the statutory alternative selected by a particular state. Of course, when you set up your legal shop, you need to be familiar with the law of your jurisdiction.
Copyright © 2004-2007 William R. Long