CHAPTER 13 Warranties, Product Liability and Consumer Law

© 2005 West Legal Studies in Business

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CHAPTER 13CHAPTER 13Warranties, Warranties, Product Liability Product Liability and and Consumer LawConsumer Law

2© 2005 West Legal Studies in Business


• What factors determine whether a What factors determine whether a Seller’s statement constitutes an Seller’s statement constitutes an express warranty or mere “puffing”?express warranty or mere “puffing”?

• What implied warranties under the UCC?What implied warranties under the UCC?• Can a manufacturer be held liable by a Can a manufacturer be held liable by a

person injured by a manufacturer’s person injured by a manufacturer’s negligently made product?negligently made product?

• What defenses can be raised in a What defenses can be raised in a product liability lawsuit?product liability lawsuit?

• What are the major federal statutes What are the major federal statutes providing for consumer protection?providing for consumer protection?

Learning ObjectivesLearning Objectives



WarrantiesWarranties• Warranties of Title – automatic in Warranties of Title – automatic in

most sales contracts:most sales contracts:– Good Title.Good Title.– No Liens.No Liens.– No Infringements.No Infringements.– Disclaimer of Title Warranty.Disclaimer of Title Warranty.



Express WarrantiesExpress Warranties• Representations of fact about quality, Representations of fact about quality,

condition, description or performance.condition, description or performance.• Goods must conform to model or Goods must conform to model or

sample.sample.– Henley v. Philip Morris, Inc.Henley v. Philip Morris, Inc. (2004). (2004).

• Warranty must be “Basis of the Warranty must be “Basis of the Bargain.”Bargain.”

• Statements of Opinion Statements of Opinion do notdo not create create express warranties.express warranties.



Implied WarrantiesImplied Warranties• UCC/Law derives from implication or UCC/Law derives from implication or

inference of circumstances.inference of circumstances.• Implied Warranty of Merchantability:Implied Warranty of Merchantability:

– Merchantable Goods.Merchantable Goods.– Merchantable Food.Merchantable Food.

•Webster v. Blue Ship Tea Room, Inc.Webster v. Blue Ship Tea Room, Inc. (1964).(1964).

• Implied Warranty of Fitness for a Implied Warranty of Fitness for a Particular Purpose.Particular Purpose.



Warranty DisclaimersWarranty Disclaimers• Express Warranty:Express Warranty:

– Courts view unfavorably.Courts view unfavorably.– Must be conspicuous.Must be conspicuous.– Buyer must be aware of disclaimer at Buyer must be aware of disclaimer at

time of sale.time of sale.• Implied Warranty of Fitness:Implied Warranty of Fitness:

– ““As Is” or “With All Faults”.As Is” or “With All Faults”.• Buyer’s Refusal to Inspect.Buyer’s Refusal to Inspect.• Unconscionability.Unconscionability.



Magnuson-Moss Magnuson-Moss Warranty ActWarranty Act• Federal law to prevent deception in Federal law to prevent deception in

warranties by making them easier to warranties by making them easier to understand.understand.

• Enforced by Federal Trade Enforced by Federal Trade Commission.Commission.– Full Warranty (free repair/replacement).Full Warranty (free repair/replacement).– Limited Warranty.Limited Warranty.– Implied Warranties arise under UCC -- Implied Warranties arise under UCC --

not Magnuson-Moss.not Magnuson-Moss.



Negligence Product Negligence Product Liability Liability • Manufacturers, sellers and lessors of goods Manufacturers, sellers and lessors of goods

can be liable for a defective good that can be liable for a defective good that causes injury.causes injury.

• Negligence:Negligence:– Due care in designing the product.Due care in designing the product.– Selecting materials.Selecting materials.– Production Process.Production Process.– Assembly.Assembly.– Adequate warning label for ordinary person.Adequate warning label for ordinary person.– Privity of Contract Not Required.Privity of Contract Not Required.



Strict Product LiabilityStrict Product Liability• Liability without regard to fault or standard Liability without regard to fault or standard

of care.of care.• Injured party can be 3Injured party can be 3rdrd party (not the party (not the

buyer).buyer).• Assumption that:Assumption that:

– Consumers should be protected against unsafe Consumers should be protected against unsafe products.products.

– Manufacturers and distributors should not Manufacturers and distributors should not escape liability for defective products, andescape liability for defective products, and

– Manufacturers and sellers are in a better Manufacturers and sellers are in a better position to bear the costs of injury.position to bear the costs of injury.



Requirements for Strict Requirements for Strict LiabilityLiability• Product must be in a defective condition Product must be in a defective condition

when soldwhen sold• Defendant must be engaged in selling that Defendant must be engaged in selling that

productproduct• Product must be “unreasonably dangerous”: Product must be “unreasonably dangerous”:

product is dangerous beyond ordinary product is dangerous beyond ordinary expectation or less dangerous alternative not expectation or less dangerous alternative not used.used.

• Plaintiff must incur injury to self or property Plaintiff must incur injury to self or property by use or consumption of the productby use or consumption of the product

• Defective condition must be cause Defective condition must be cause • Goods have not be substantially changed Goods have not be substantially changed

from time of sale.from time of sale.



Product Defects: Product Defects: Restatement (Third) of Restatement (Third) of TortsTorts• Manufacturing Defects.Manufacturing Defects.• Design Defects.Design Defects.• Warning Defects.Warning Defects.

– Manufacturer must warn if Manufacturer must warn if foreseeable foreseeable misusemisuse will cause injury. will cause injury.

– Factors: user groups, content of Factors: user groups, content of message.message.



Strict Product Liability Strict Product Liability • Market Share Liability.Market Share Liability.

– Multiple Defendants involved are liable Multiple Defendants involved are liable based on the share of the market.based on the share of the market.

• Other Applications.Other Applications.– All courts extend liability of All courts extend liability of

manufacturers and other sellers to manufacturers and other sellers to injured bystanders.injured bystanders.



Defenses to Product Defenses to Product LiabilityLiability• Assumption of Risk.Assumption of Risk.• Product Misuse.Product Misuse.

– Severely limited.Severely limited.• Comparative Negligence.Comparative Negligence.• Commonly Known Dangers.Commonly Known Dangers.

– Sharp knives and guns.Sharp knives and guns.– Pelman v. McDonald’s Corp.Pelman v. McDonald’s Corp. (2003). (2003).

• Knowledgeable User Defense.Knowledgeable User Defense.



Consumer Protection Consumer Protection LawsLaws• Areas of Consumer Law Regulated Areas of Consumer Law Regulated

by Statutes:by Statutes:– Deceptive Advertising.Deceptive Advertising.– Labeling and Packaging.Labeling and Packaging.– Sales.Sales.– Credit Protections.Credit Protections.– Consumer Health and Safety.Consumer Health and Safety.– State Consumer Protection.State Consumer Protection.



• Puffing.Puffing.– Vague generalities and obvious exaggerations Vague generalities and obvious exaggerations

are permissible and not considered deceptive.are permissible and not considered deceptive.• Bait and Switch.Bait and Switch.

– The advertising of a product at an attractively The advertising of a product at an attractively low price to lure customers in to buy more low price to lure customers in to buy more expensive items.expensive items.

• Online Deceptive Advertising.Online Deceptive Advertising.– Same rules apply.Same rules apply.– To satisfy the “clear and conspicuous” To satisfy the “clear and conspicuous”

requirement, disclosures must be close (only requirement, disclosures must be close (only hyperlink if lengthy).hyperlink if lengthy).

Deceptive AdvertisingDeceptive Advertising



FTC Actions Against FTC Actions Against Deceptive AdvertisingDeceptive Advertising• The FTC, charged with enforcing The FTC, charged with enforcing

federal laws against deceptive federal laws against deceptive advertising, can, in appropriate advertising, can, in appropriate circumstances:circumstances:– Issue Issue cease and desist orderscease and desist orders..

•With respect to a particular product or With respect to a particular product or advertisement.advertisement.

•With regard to multiple product orders. With regard to multiple product orders. – Impose Impose counter-advertisingcounter-advertising..



Telemarketing and Telemarketing and Electronic AdvertisingElectronic Advertising• The Telephone Consumer Protection Act (TCPA) The Telephone Consumer Protection Act (TCPA)

prohibits automated solicitation using prohibits automated solicitation using automatic telephone dialing system or a automatic telephone dialing system or a prerecorded voice.prerecorded voice.

• Consumers have a private civil cause of action Consumers have a private civil cause of action and can recover $500 for each violation of and can recover $500 for each violation of actual damages. Court can treble damages if actual damages. Court can treble damages if willful violation.willful violation.

• Telemarketer must remove a consumer’s name Telemarketer must remove a consumer’s name from its list of potential contacts if requested.from its list of potential contacts if requested.



• Labeling must be accurate, and must use Labeling must be accurate, and must use words that are easily understood by the words that are easily understood by the ordinary consumer.ordinary consumer.

• Product labeling and packaging are Product labeling and packaging are regulated by:regulated by:– Wool Products Labeling Act of 1939.Wool Products Labeling Act of 1939.– Fur Products Labeling Act of 1951.Fur Products Labeling Act of 1951.– Flammable Fabrics Act of 1953.Flammable Fabrics Act of 1953.– Fair Packaging and Labeling Act of 1966.Fair Packaging and Labeling Act of 1966.– Smokeless Tobacco Health Education Act of 1986.Smokeless Tobacco Health Education Act of 1986.– Nutrition Labeling and Education Act of of 1990.Nutrition Labeling and Education Act of of 1990.

Labeling and PackagingLabeling and Packaging



SalesSales• Forms of Sales :Forms of Sales :

– Door-to-Door Sales.Door-to-Door Sales.– Mail Order Sales.Mail Order Sales.– Telephone and Mail-Order Sales.Telephone and Mail-Order Sales.– Unsolicited Receipt of Merchandise.Unsolicited Receipt of Merchandise.



• Most states requires that, for door-Most states requires that, for door-to-door sales, consumers have a to-door sales, consumers have a post-sale “cooling-off” period post-sale “cooling-off” period during which they can cancel their during which they can cancel their purchase without obligation.purchase without obligation.

• Consumers are given the most Consumers are given the most favorable benefits of the FTC rule favorable benefits of the FTC rule and their own state statutes.and their own state statutes.

Door-to-Door SalesDoor-to-Door Sales



• Sellers can be subject to federal mail and wire fraud Sellers can be subject to federal mail and wire fraud statutes.statutes.

• FTC Rules require:FTC Rules require:– shipment orders within the time promised in their catalogues shipment orders within the time promised in their catalogues

and advertisements, and advertisements, – to notify consumers when orders cannot be shipped on time, to notify consumers when orders cannot be shipped on time,

and and – to issue timely refunds when orders cannot be shipped.to issue timely refunds when orders cannot be shipped.

• The Postal Reorganization Act of 1970 provides that The Postal Reorganization Act of 1970 provides that unsolicitedunsolicited merchandise sent by U.S. mail may be merchandise sent by U.S. mail may be retained, used, discarded, or disposed of in any retained, used, discarded, or disposed of in any manner deemed appropriate, without the recipient’s manner deemed appropriate, without the recipient’s incurring any obligation to the sender.incurring any obligation to the sender.

Telephone and Mail Order Telephone and Mail Order SalesSales



Health and Safety Health and Safety ProtectionProtection• Pure Food and Drugs Act (1906), then Pure Food and Drugs Act (1906), then

Federal Food, Drug and Cosmetic Act Federal Food, Drug and Cosmetic Act (1938).(1938).

• Enforced by Food and Drug Enforced by Food and Drug Administration.Administration.

• Consumer Product Safety.Consumer Product Safety.– Consumer Product Safety Act 1972.Consumer Product Safety Act 1972.– Consumer Product Safety Commission.Consumer Product Safety Commission.– Notification by distributors.Notification by distributors.



Credit ProtectionCredit Protection• Consumer Credit is protected by:Consumer Credit is protected by:

– Truth in Lending Act.Truth in Lending Act.– Fair Credit Reporting Act.Fair Credit Reporting Act.– Fair Debt Collection Practices Act.Fair Debt Collection Practices Act.– Wage Garnishment.Wage Garnishment.



• TILATILA is basically a disclosure law. Requires all is basically a disclosure law. Requires all consumer lenders to compute the cost of a consumer lenders to compute the cost of a loan the same way and to advertise it as an loan the same way and to advertise it as an Annual Percentage Rate (APR). Annual Percentage Rate (APR).

• Equal Credit OpportunityEqual Credit Opportunity: requires that credit : requires that credit be extended without regard to race, sex, color, be extended without regard to race, sex, color, national origin, age, or marital status.national origin, age, or marital status.

• Credit Card Rules: limits consumer liability for Credit Card Rules: limits consumer liability for credit card debt in cases of stolen cards.credit card debt in cases of stolen cards.

• Consumer Leasing ActConsumer Leasing Act: requires that leasors of : requires that leasors of consumer items valued at less than $25,000 consumer items valued at less than $25,000 make certain disclosures.make certain disclosures.

Truth in Lending ActTruth in Lending Act



Fair Credit Reporting ActFair Credit Reporting Act• Limits the activities of credit Limits the activities of credit

reporting agencies.reporting agencies.• Consumers have the right to access Consumers have the right to access

information contained about them in information contained about them in a credit reporting agency’s files and a credit reporting agency’s files and to require credit reporting agencies to require credit reporting agencies to delete unverifiable information in to delete unverifiable information in a consumer’s credit record.a consumer’s credit record.



Fair Debt Collection Fair Debt Collection Practices ActPractices Act• Prohibits Collection Agencies from the Prohibits Collection Agencies from the

following:following:– Type, times, and places that debt collectors can Type, times, and places that debt collectors can

contact debtors.contact debtors.– Contacting third parties about payments.Contacting third parties about payments.– Using harassment or intimidation or employing Using harassment or intimidation or employing

false misleading information.false misleading information.– Contact debtor after notice of payment refusal.Contact debtor after notice of payment refusal.

• Requires that collectors provide Requires that collectors provide validation validation noticenotice to the debtor, at the time of first to the debtor, at the time of first contact.contact.

• Johnson v. MBNA America Bank, N.A.Johnson v. MBNA America Bank, N.A. (2004). (2004).

CHAPTER 13 Warranties, Product Liability and Consumer Law

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