According to my old business law textbook, the UCC presents three ways to interpret the rights of third-party beneficiaries of warranties:
Which of these options does Nevada's implementation of the UCC use?
According to my old business law textbook, the UCC presents three ways to interpret the rights of third-party beneficiaries of warranties:
The seller's warranties extend to the buyer's household members and guests.
The seller's warranties extend to any reasonable and foreseeable user.
The seller's warranties extend to anyone injured by the good.
Which of these options does Nevada's implementation of the UCC use?
Short Answer
Nevada has adopted the first, most narrow, option of the three.
Long Answer
The relevant statute in Nevada is Nevada Revised Statutes § 104.2318, last amended in 1965, which states:
Third-party beneficiaries of warranties express or implied
A seller's warranty whether express or implied extends to any natural person who is in the family or household of the seller’s buyer or who is a guest in his or her 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.
The official commentary to this section states:
UNIFORM COMMERCIAL CODE COMMENT
The last sentence of this section does not mean that a seller is precluded from excluding or disclaiming a warranty which might otherwise arise in connection with the sale provided such exclusion or modification is permitted by Section 2-316. Nor does that sentence preclude the seller from limiting the remedies of his own buyer and of any beneficiaries, in any manner provided in Sections 2-718 or 2-719. To the extent that the contract of sale contains provisions under which warranties are excluded or modified, or remedies for breach are limited, such provisions are equally operative against beneficiaries of warranties under this section. What this last sentence forbids is exclusion of liability by the seller to the persons to whom the warranties which he has made to his buyer would extend under this section.
The purpose of this section is to give certain beneficiaries the benefit of the same warranty which the buyer received in the contract of sale, thereby freeing any such beneficiaries from any technical rules as to “privity.” It seeks to accomplish this purpose without any derogation of any right or remedy resting on negligence. It rests primarily upon the merchant-seller's warranty under this Article that the goods sold are merchantable and fit for the ordinary purposes for which such goods are used rather than the warranty of fitness for a particular purpose. Implicit in the section is that any beneficiary of a warranty may bring a direct action for breach of warranty against the seller whose warranty extends to him [As amended in 1966].
The first alternative expressly includes as beneficiaries within its provisions the family, household, and guests of the purchaser. Beyond this, the section in this form is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, given to his buyer who resells, extend to other persons in the distributive chain. The second alternative is designed for states where the case law has already developed further and for those that desire to expand the class of beneficiaries. The third alternative goes further, following the trend of modern decisions as indicated by Restatement of Torts 2d § 402A (Tentative Draft No. 10, 1965) in extending the rule beyond injuries to the person [As amended in 1966].
Point 1: Sections 2-316, 2-718 and 2-719.
Point 2: Section 2-314.
“Buyer”. Section 2-103.
“Goods”. Section 2-105.
“Seller”. Section 2-103.
Two cases in Nevada (a federal trial court decision in 1981 which is only persuasive authority and a 1977 decision of the Nevada Supreme Court which is binding precedent) have interpreted this statute since 1965:
Zaika v. Del E. Webb Corp., 508 F.Supp. 1005 (1981) (Gambling casino guest, who allegedly sustained gambling losses because of an extra five of spades in deck of cards used at casino's blackjack table, had no right of action against card manufacturer for breach of warranty as he was not within the class of persons protected by Nevada warranty statute; While Nevada does not require vertical privity in actions for personal or property injury caused by defective products, it still requires the horizontal privity mandated by statute.)
Hiles Co. v. Johnston Pump Co. of Pasadena, Cal., Nev. 73, 560 P.2d 154, 93 (1977) (Vertical privity is not required in actions for personal or property injury caused by defective products; Lack of privity between buyer and manufacturer did not preclude action against manufacturer for recovery of economic losses allegedly caused by breach of warranties.)
In litigation for more than trivial stakes, because this is based upon a national model statute meant to be interpreted in a consistent manner from state to state, one would also include case law interpreting the laws of other states that have chosen this option and thus have a statute with identical language, in the event that this language and Nevada's own thin case law was not sufficiently clear.
