Chapter 22 Warranties and Product Liability. All Answers

Chapter 22 Warranties and Product Liability N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A question modified fro ...

Chapter 22 Warranties and Product Liability N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A question modified from the previous edition of the Test Bank. = A question included in the previous edition of the Test Bank. A1. In most sales, sellers warrant that they have good and valid title to the goods sold. T PAGE: 421 TYPE: N NAT: AACSB Analytic AICPA Legal A2. A warranty is an assurance by the buyer to the seller that he or she will pay valid con¬sideration for a product. F PAGE: 421 TYPE: = NAT: AACSB Analytic AICPA Legal A3. Promises of fact made during the bargaining process are not express warranties. F PAGE: 422 TYPE: = NAT: AACSB Analytic AICPA Legal A4. Express warranties can be found in a seller’s brochure T PAGE: 422 TYPE: N NAT: AACSB Analytic AICPA Legal A5. To be merchantable, goods must be at least average, fair, or medium-grade quality. T PAGE: 423 TYPE: N NAT: AACSB Analytic AICPA Legal A6. Every sale or lease by a merchant who deals in goods of the kind sold or leased automatically gives rise to an implied warranty of merchantability. T PAGE: 423 TYPE: + NAT: AACSB Analytic AICPA Legal A7. Goods that are merchantable are fit for any purpose. F PAGE: 425 TYPE: N NAT: AACSB Reflective AICPA Legal A8. Every seller is required to provide a written warranty for consumer goods sold. F PAGE: 426 TYPE: + NAT: AACSB Analytic AICPA Legal A9. Implied warranties can arise as a result of a course of dealing. T PAGE: 426 TYPE: N NAT: AACSB Analytic AICPA Legal A10. Generally, the implied warranties of merchantability and fitness for a particular purpose cannot be disclaimed. F PAGE: 428 TYPE: N NAT: AACSB Analytic AICPA Legal A11. A product liability action based on negligence requires the injured plaintiff and the negligent defendant-manufacturer to be in privity of contract. F PAGE: 429 TYPE: + NAT: AACSB Analytic AICPA Legal A12. A product liability action may be based on warranty theories. T PAGE: 429 TYPE: = NAT: AACSB Analytic AICPA Legal A13. The majority of states limit the application of strict product liability theory to situations involving personal injuries. F PAGE: 430 TYPE: N NAT: AACSB Analytic AICPA Legal A14. A public policy underlying the imposition of strict product liability is that consumers should be protected against unsafe products. T PAGE: 430 TYPE: = NAT: AACSB Analytic AICPA Legal A15. Sellers or lessors are liable only for products that are reasonably dangerous. F PAGE: 430 TYPE: N NAT: AACSB Analytic AICPA Legal A16. An action in strict product liability requires that the product not be in a defective condition when the defendant sells it. F PAGE: 430 TYPE: N NAT: AACSB Analytic AICPA Legal A17. An action in strict product liability requires that the defendant fail to exercise reasonable care. T PAGE: 430 TYPE: + NAT: AACSB Analytic AICPA Legal A18. The types of product defects that have traditionally been recognized in product liability law include inadequate warnings. T PAGE: 431 TYPE: N NAT: AACSB Analytic AICPA Legal A19. Courts in many jurisdictions will consider the negligent actions of both the plaintiff and the defendant when apportioning liability in a product liability action. T PAGE: 436 TYPE: + NAT: AACSB Analytic AICPA Legal A20. A statute of limitation may restrict the time within which an action in product liability may be brought. T PAGE: 437 TYPE: N NAT: AACSB Analytic AICPA Legal MULTIPLE CHOICE QUESTIONS A1. City Cab Company and Dave’s Autos enter into a contract for a sale of motor vehicles. City assures Dave’s that it has valid title to the vehicles. Under the UCC, warranties of title arise a. automatically in most sales contracts. b. only if the buyer asks for such a warranty. c. only if the seller expresses such a warranty. d. only in conjunction with lease contracts, not sales contracts. A PAGE: 421 TYPE: = NAT: AACSB Reflective AICPA Legal A2. Concrete Products, Inc., assures Deepwater Construction Company (DCC) that Concrete’s cement will not crack within a certain range of pressure. DCC uses the product. When cracks develop within the stated range, DCC files a suit against Concrete. The court is most likely to rule in favor of a. Concrete, because its statement was an expression of opinion. b. Concrete, because DCC chose Concrete’s product voluntarily. c. DCC, because Concrete’s statement was an express warranty. d. DCC, because Concrete’s statement constituted puffery. C PAGE: 422 TYPE: + NAT: AACSB Reflective AICPA Legal A3. Sari buys a new sport utility vehicle (SUV) from ‘Tastic Cars & Trucks, Inc. The most important factor in determining whether an ex¬press war¬ranty is created is whether a. Sari expresses to ‘Tastic what she wants warranted. b. Sari’s desire for the SUV becomes part of her motivation to deal. c. ‘Tastic expresses to Sari what it expects of its customers. d. ‘Tastic’s promise becomes part of the basis of the bargain. D PAGE: 422 TYPE: = NAT: AACSB Reflective AICPA Legal A4. Rent-all Trucks & Trailers, Inc. (RT&T), and United Delivery Service enter into a contract for a lease of trucks. RT&T is a merchant who deals in goods of the kind leased. Under the UCC, an implied warranty of merchantability arises a. automatically in lease contracts. b. only if the lessee asks for it. c. only if the lessor does not expressly disclaim it. d. only in conjunction with sales contracts, not lease contracts. A PAGE: 423 TYPE: = NAT: AACSB Reflective AICPA Legal A5. Dependable Appliances, Inc., and Elain enter into a contract for a sale of kitchen appliances. Dependable, a merchant who deals in goods of the kind sold, notes that its goods come with an implied warranty of merchantability. Under the UCC, this means that the goods are reasonably a. fit for the buyer’s particular purpose. b. fit for the ordinary purpose for which such goods are used. c. suitable for resale at an acceptable price. d. the best quality that money can buy. B PAGE: 423 TYPE: = NAT: AACSB Reflective AICPA Legal A6. Olga, a salesperson for Pre-owned Cars & Trucks, Inc., tells Quincy, “This is the best car I’ve ever seen.” This statement is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery. D PAGE: 423 TYPE: = NAT: AACSB Reflective AICPA Legal A7. Neil goes to Oil Shop to change the oil in his car. Pat, the service tech¬ni¬cian, learns that Neil plans to take a trip and advises the use of a certain type of oil. The oil breaks down during the trip, damaging the car. Neil may recover from Oil Shop for breach of a. an express warranty. b. an implied warranty of fitness for a particular purpose. c. an implied warranty of merchantability. d. a warranty of title. B PAGE: 425 TYPE: = NAT: AACSB Reflective AICPA Legal A8. Woodgrain Products Company and Sylvia enter into a contract for a sale of lumber. Woodgrain knows the purpose for which Sylvia will use the goods. Under the UCC, an implied warranty of fitness of a particular purpose arises a. if the buyer is relying on the seller to select suitable goods. b. if the buyer asks for it. c. if the seller is a merchant who deals in goods of the kind sold. d. in conjunction with lease contracts, not sales contracts. A PAGE: 425 TYPE: N NAT: AACSB Reflective AICPA Legal A9. Mountain Bikes, Inc. (MBI), and Nero enter into a contract for a sale of a mountain bike. MBI, a merchant who deals in goods of the kind sold, makes implied and express warranties in connection with the sale. The Magnuson-Moss Warranty Act was designed to prevent deception in warranties by a. displacing the UCC as the primary source of warranty rules. b. making warranties easier to understand. c. prohibiting disclaimers of warranties. d. requiring sellers to give written warranties for consumer goods. B PAGE: 426 TYPE: = NAT: AACSB Reflective AICPA Legal A10. Longlast Tools, Inc., sells power tools, power tool parts, and related supplies under “full” warranties. Under the Magnuson-Moss Warranty Act, this means that Longlast must provide a. free repair or replacement of any defective part. b. a toll-free number for a Longlast-approved service company. c. a complete catalog of products and parts available for sale. d. repair or replacement of any defective part at a reduced charge. A PAGE: 426 TYPE: + NAT: AACSB Reflective AICPA Legal A11. Imported Carpets Store and Jill enter into a contract for a sale of an Oriental rug. Imported Carpets, a merchant who deals in goods of the kind sold, generally describes the goods, details technical specifications, and shows a sample. Under the UCC, if these are inconsistent a. the general description displaces the sample. b. the general description displaces the technical specifications. c. the sample takes precedence over the general description. d. the sample takes precedence over the technical specifications. C PAGE: 426 TYPE: = NAT: AACSB Reflective AICPA Legal A12. GR8 Skates Company makes and sells a pair of skates to Homer. GR8 fails to exercise “due care” to make the skates safe, and Homer is injured as a result. GR8 is most likely liable for a. assumption of risk. b. knowledgeable use. c. negligence. d. foreseeable misuse. C PAGE: 429 TYPE: + NAT: AACSB Reflective AICPA Legal A13. Farm Equip, Inc., makes farm¬ing machinery. Gail discovers that her Farm Equip tractor is defective and sues the maker for product liability based on negligence. To win, Gail must show that a. Farm Equip sold the tractor to Gail. b. Gail knew and appreciated the risk caused by the defect. c. Gail suffered an injury caused by the defect. d. the “defect” was a commonly known danger. C PAGE: 429 TYPE: = NAT: AACSB Reflective AICPA Legal A14. Green Glass Corporation makes glass bottles for food and beverage makers to package their products for wholesale distribution and retail sale. Liability may be imposed on Green Glass based on a. the “reasonableness” of the manufacturer’s quality control efforts. b. the type of the manufacturer’s insurance coverage. c. a manufacturing defect. d. the opinion and testimony of non-experts. C PAGE: 431 TYPE: N NAT: AACSB Reflective AICPA Legal A15. Welding Systems, Inc. (WSI), makes welding torches, masks, and related products. A WSI product may be unreasonably danger¬ous due to a. a defect in its design. b. the expectations of its seller. c. the intentions of its distributor. d. the method of accounting of its maker. A PAGE: 431 TYPE: N NAT: AACSB Reflective AICPA Legal A16. Safe-T-Made Company makes electrical cords and other connectors for elec-tronic devices. Rowena files a product liability suit against Safe-Rite, alleg-ing a warning defect. Under the Restate¬ment (Third) of Torts: Products Liability, in deciding whether to hold Safe-T-Made liable, the court may consider a. the expectations of the seller. b. the identities of the company’s owner. c. the intentions of the manufacturer. d. the characteristics of expected users. D PAGE: 432 TYPE: N NAT: AACSB Reflective AICPA Legal A17. Pharma Company, Quitox Corporation, and Renal, Inc., are drug makers. Med Sales Company and National OTC, Inc., are drug dis¬tribu¬tors. In a suit against all of these parties in which market-share li¬ability is imposed, most likely to be liable are a. neither the distributors nor the makers. b. the distributors and the makers. c. the distributors only. d. the makers only. B PAGE: 434 TYPE: = NAT: AACSB Reflective AICPA Legal A18. Fun Toyz Corporation makes skateboards, which it sells to con¬sumers, including Gitana. Gitana is injured due to a defect in the board that causes an accident in which Haley, a bystander, is also injured. In a product liability suit based on strict product liabil¬ity, Fun Toyz may be liable to a. Gitana and Haley. b. Gitana only. c. Haley only. d. no one. A PAGE: 435 TYPE: + NAT: AACSB Reflective AICPA Legal A19. Grady, an obese individual, files a suit against Fry Fast Food Corporation (FFFC), alleging that FFFC’s food is unhealthy because, as Grady knows, it contains high levels of cholesterol and saturated fat. Grady is most likely to a. lose, because Grady assumed the risk when he bought FFFC’s food. b. lose, because Grady knows of the food’s unhealthiness. c. win, because FFFC’s food poses an unhealthy risk to Grady. d. win, because Grady knows of the food’s unhealthiness. B PAGE: 437 TYPE: + NAT: AACSB Reflective AICPA Legal A20. Air Navigation, Inc., makes aviation guidance systems. Ollie is in¬jured in a crash caused by a defective Air Navigation product. A statute re¬stricts the time within which Ollie may file a product liability suit against Air Navigation regardless of when he was injured. This is a statute of a. limitations. b. preemption. c. repose. d. suspension. C PAGE: 437 TYPE: = NAT: AACSB Reflective AICPA Legal ESSAY QUESTIONS A1. Darrow purchases a new car from Slippery Motors. The retail installment contract states immediately above the buyer’s signature in large, bold type: "There are no warranties that extend beyond the description on the face hereof" and "There are no express warranties that accompany this sale unless expressly written in this contract." Before purchasing the car, Darrow specifically informed Slippery's salesperson that he wanted a car that could be driven in a dusty area without needing mechanical repairs. Slippery's salesperson said to Darrow, "Nothing will go wrong with this car, but if it does, return it to us, and we will repair it without cost to you." Neither this statement nor any similar statement appears in the retail sales contract. Darrow drives the car into a dust storm. The air filter gets plugged up, and the car engine overheats, causing motor damage. Slippery Motors refuses to repair the engine under any warranty. Darrow claims that Slippery is liable for breach of the implied warranty of fitness for a particular purpose, that the Magnuson-Moss Warranty Act prohibits disclaiming this implied warranty, and that the salesperson’s express warranty has also been breached. What are the problems with Darrow’s claims? A2. Delta Company makes and sells table saws, which are designed to be safe if used properly. Erin buys a Delta saw and lends it to her neighbor Frank. To reach a toolbox on a high shelf in his garage, Frank props the saw at an angle against a cabinet and climbs onto the saw. Frank loses his footing, slips off the saw, falls on the blade, and is injured. He files a product liability suit against Delta, on the ground of negligence. On what basis could Delta prevail?