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Chapter 12 Warranties, Product Liability, and Consumer law. Learning Objectives. What implied warranties arise under the UCC? Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product? . Learning Objectives.

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Chapter 12 Warranties, Product Liability, and Consumer law

Learning objectives
Learning Objectives

  • What implied warranties arise under the UCC?

  • Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product? 

Learning objectives1
Learning Objectives

  • What are the elements of a cause of action in strict product liability?

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

  • When will advertising be deemed deceptive?


  • A warranty is an assurance or guarantee by the seller or lessor of certain facts concerning the goods being sold or leased.

  • If seller breaches a warranty, buyer can recover damages, or rescind the contract.


  • Warranties automatically arise in most commercial sales transactions.

  • Normally warranties can be disclaimed or modified with specific language in the contract. 


  • Warranties of Title.

    • UCC-312 can create three express warranties at sale:

      • Good Title.

      • No Liens.

      • No Infringements.


  • Express Warranties.

    • Representations concerning quality, condition, description, or performance potential of goods.

    • Can be created by:

      • Any Affirmation or Promise.

      • Any Description.

      • Any Sample or Model.


  • Express Warranties.

    • Basis of the Bargain.

      • Seller does not have to use the words “guarantee” or “warranty.”

      • Buyer must rely on warranty when he enters into contract. 


  • Express Warranties.

    • Statements of Opinion and Value. Only statements of fact create express warranties.

      • Exception for Statements of Opinion by Experts.

      • Puffery versus Express Warranties.


  • Implied Warranties.

    • Inferred at law based on the circumstances or nature of the transaction. 


  • Implied Warranty of Merchantability.

    • Merchantable Goods:

      • Are average, fair, or medium-grade.

      • Are adequately packaged and labeled.

      • Conform to promises on label.

      • Have a consistent quality and quantity among the commercial units. 


  • Implied Warranty of Merchantability.

    • Merchantable Food: based on consumer expectations.

      • CASE 12.1 Webster v. Blue Ship Tea Room, Inc. (1964). Was the soup fit to eat on the basis of consumer expectations?


  • Implied Warranty of Fitness for a Particular Purpose.

    • Arises by any Seller who:

      • Knows the particular purpose for which the goods are being bought; and

      • Knows the buyer is relying on seller’s skill and judgment to select suitable goods.


  • Implied Warranty of Fitness for a Particular Purpose.

    • Particular vs. Ordinary Purpose: Differs from ordinary purpose of merchantability. Goods can be merchantable but unfit for a particular purpose. 


  • Implied Warranty of Fitness for a Particular Purpose.

    • Knowledge and Reliance Requirements: seller must have reason to know purpose, and buyer must have relied on the recommendation.


  • Implied Warranty from Prior Dealings or Trade Custom.

    • Arises when both parties to a contract have knowledge of a well-recognized trade custom. Courts infer that both meant this custom to apply to their transaction.

Overlapping warranties
Overlapping Warranties

  • Occurs when two or more warranties are made in a single transaction:

    • When Warranties are Consistent: they are construed as cumulative. 

Overlapping warranties1
Overlapping Warranties

  • When Warranties are Inconsistent:

    • First: implied warrant of fitness for a particular purpose.

    • Samples take precedence over inconsistent descriptions.

    • Exact or technical specifications displace inconsistent samples or descriptions.

Warranty disclaimers
Warranty Disclaimers

  • Express Warranties can be disclaimed:

    • If they were never made (evidentiary matter).

    • If a clear written disclaimer in contract with specific, unambiguous language and called to Buyer’s attention (BOLD CAPS UNDERLINED).

Warranty disclaimers1
Warranty Disclaimers

  • Implied Warranties.

    • Unless circumstances indicate otherwise, warranties of fitness and merchantability can be disclaimed with the words “As Is,” “With All Faults.” 

Warranty disclaimers2
Warranty Disclaimers

  • Implied Warranties.

    • Disclaimer of the Implied Warranty of Merchantability: must use the word merchantability.

    • Disclaimer of the Implied Warranty of Fitness: must be in writing and conspicuous.

Warranty disclaimers3
Warranty Disclaimers

  • Buyer’s or Lessee’s Examination or Refusal to Inspect.

    • Warranties are disclaimed as to defects that could reasonably be found on examination.

  • Warranty Disclaimers and Unconscionability.

Magnuson moss warranty act
Magnuson-Moss Warranty Act

  • Modifies UCC for consumer sales.

    • Only applies when written warranties are made by Seller (including a service contract).

    • If goods > $25 label must state either a “full” or “limited” warranty. 

Magnuson moss warranty act1
Magnuson-Moss Warranty Act

  • Full Warranty: Seller must repair or replace.

  • Limited Warranty must be conspicuous.

    • If limit of time only must say, e.g., “full twelve-month warranty.” 

Magnuson moss warranty act2
Magnuson-Moss Warranty Act

  • UCC Implied Warranties:

    • May not be disclaimed, but can be limited, but must correspond with time of express warranty.

    • Requires document of all warranties in “readily understood language.”

Lemon laws
Lemon Laws

  • Apply to cars that are “lemons” and cannot be repaired properly.

  • Lemon Laws:

    • Provide remedies to consumers whose automobiles under warranty fail to meet value or performance. 

Lemon laws1
Lemon Laws

  • Lemon Laws:

    • Seller has reasonable attempts to fix the defect (usually 4). If not, buyer has remedy of a new car, replacement of defective parts, or return of all consideration paid.

  • Arbitration is usual process.

Product liability
Product Liability

  • Product Liability is not a new tort.

  • Liability can be based on:

    • Negligence; 

    • Misrepresentation; 

    • Strict Liability; 

    • Warranty Theory. 

Product liability1
Product Liability

  • Negligence.

    • Claim based on a manufacturer’s breach of the reasonable standard of care.

    • Due Care Must Be Exercised in: design, selection of materials, using appropriate production process, assembling and testing, adequate warnings, inspection, and testing. 

Product liability2
Product Liability

  • Negligence.

    • Privity of Contract Not Required. No privity of contract required between Plaintiff and Manufacturer. Liability extends to any person’s injuries caused by a negligently made (defective) product.

Product liability3
Product Liability

  • Misrepresentation.

    • Occurs when fraud committed against consumer or user of product. Fraud must have been made knowingly or with reckless disregard for safety.

    • Plaintiff does not have to show product was defective.

Strict product liability
Strict Product Liability

  • Strict Liability holds people liable for results of their acts, regardless of their intentions or exercise of reasonable care. 

Strict product liability1
Strict Product Liability

  • Strict Liability and Public Policy.

    • Consumers should be protected from unsafe products;

    • Manufacturers and distributors should be liable to any user of the product;

    • Manufacturers, sellers and distributors can bear the costs of injuries. 

Strict product liability2
Strict Product Liability

  • Requirements for Strict Liability:

    • Product must be in defective condition when sold.

    • Defendant is in the business of selling the product.

    • Product must be unreasonably dangerous. 

Strict product liability3
Strict Product Liability

  • Requirements for Strict Liability:

    4. Plaintiff must be physically harmed

    5. Defective condition must be proximate cause of injury.

    6. Goods are in substantially same condition.

Strict product liability4
Strict Product Liability

  • Requirements for Strict Liability.

    • Proving a Defective Condition.

      • Plaintiff does not need to show product or in what manner the product become defective.

      • But plaintiff must show product was defective and “unreasonably dangerous” to the user. 

Strict product liability5
Strict Product Liability

  • Requirements for Strict Liability.

    • Unreasonably Dangerous Products.

      • The product was dangerous beyond the expectation of the ordinary consumer.

      • A less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it.

Product defects restatement 3 rd of torts
Product Defects—Restatement (3rd) of Torts

  • Three types of product defects:

    • Manufacturing Defects. 

    • Design Defects. 

    • Warning Defects. 

Product defects restatement 3 rd of torts1
Product Defects—Restatement (3rd) of Torts

  • Manufacturing Defects.

    • Occurs when a product “departs from its intended design even though all possible care was exercised in the preparation and marketing of the product.”

Product defects restatement 3 rd of torts2
Product Defects—Restatement (3rd) of Torts

  • Design Defects.

    • Product is manufactured correctly, but defect is based on design.

    • Test for Design Defects: plaintiff must show defendant’s failure to use a reasonable alternative design rendered the product not reasonably safe. 

Product defects restatement 3 rd of torts3
Product Defects—Restatement (3rd) of Torts

  • Design Defects.

    • Factors to be Considered.

      • Magnitude and probability of foreseeable risks.

      • Relative advantages and disadvantages of product.

      • Most courts use “risk-utility” analysis.

Product defects restatement 3 rd of torts4
Product Defects—Restatement (3rd) of Torts

  • Inadequate Warnings.

    • Content: a product may be defective because of inadequate warnings or instructions.

    • Liability based on foreseeability that proper instructions/labels would have made the product safe to use. 

Product defects restatement 3 rd of torts5
Product Defects—Restatement (3rd) of Torts

  • Inadequate Warnings.

    • CASE 12.2 Johnson v. Medtronic, Inc. (2012).

    • Obvious Risks: no duty to warn.

Strict product liability6
Strict Product Liability

  • Other Applications of Strict Liability.

    • Virtually all courts extend strict liability to injured bystanders.

    • Strict liability also applies to suppliers of component parts.

Defenses to product liability
Defenses to Product Liability

  • Preemption.

    • Government regulations preempt claims for product liability.

  • Assumption of Risk.

    • Some courts do not allow AR to be used in strict product liability claims. 

Defenses to product liability1
Defenses to Product Liability

  • Product Misuse.

    • Plaintiff does not know the product is dangerous for a particular use.

  • Comparative Negligence (Fault).

    • Defendants may be able to limit damages by apportioning fault. 

Defenses to product liability2
Defenses to Product Liability

  • Commonly Known Dangers.

  • Knowledgeable User.

Consumer law1
Consumer Law

  • Deceptive Advertising.

    • Occurs if a reasonable consumer would be misled by the advertising claim.

    • Puffery: Vague generalities and obvious exaggerations are permissible and not considered deceptive.

    • Half-Truths: information is true, but incomplete.

Consumer law2
Consumer Law

  • Deceptive Advertising.

    • Bait and Switch Ads: the advertising of a product at an attractively low price to lure customers in to buy more expensive items. 

Consumer law3
Consumer Law

  • Deceptive Advertising.

    • Online Deceptive Ads: same rules apply. To satisfy the “clear and conspicuous” requirement, disclosures must be close (only hyperlink if lengthy).

      • CASE 12.3 Hypertouch, Inc. v. ValueClick, Inc. (2011). What makes an email deceptive?

Consumer law4
Consumer Law

  • Deceptive Advertising.

    • Federal Trade Commission (FTC) Actions. The FTC can:

      • Issue cease and desist orders. With respect to a particular product or advertisement.

      • With regard to multiple product orders.

      • Impose counter-advertising.

Consumer law5
Consumer Law

  • Telemarketing Sales Rule (TSR).

    • FTC’s TSR requires a telemarketer to identify the seller, described the product being sold, and disclose all material facts related to the sale.

    • Do Not Call registry.

Consumer law6
Consumer Law

  • Labeling and Packaging.

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

    • Fuel Economy on Automobiles.

    • Food Labeling.

    • Menu Labeling Regulations.

Consumer law7
Consumer Law

  • Sales.

    • FTC and many states require that consumers have a three business day “cooling-off” period during which they can cancel their purchase without obligation. 

Consumer law8
Consumer Law

  • Protection of Health and Safety.

    • Food and Drugs.

      • Pure Food and Drugs Act (1906), then Federal Food, Drug and Cosmetic Act (1938), enforced by Food and Drug Administration.

Consumer law9
Consumer Law

  • Protection of Health and Safety.

    • Consumer Product Safety.

      • Consumer Product Safety Act (1972) regulates matters affecting consumer safety; established the Consumer Product Safety Commission.

Consumer law10
Consumer Law

  • Protection of Health and Safety.

    • Health Care Reforms.

      • 2010, Congress passed the Patient Protection and Affordable Care Act.

      • Expanded Coverage for Children and Seniors.

      • Controlling Costs of Health Insurance.

Credit protection
Credit Protection

  • Consumer Credit is protected by:

    • Truth in Lending Act.

    • Fair Credit Reporting Act.

    • Fair Debt Collection Practices Act.

    • Wage Garnishment.

Credit protection1
Credit Protection

  • Truth-in-Lending Act.

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

Credit protection2
Credit Protection

  • Truth-in-Lending Act.

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

Credit protection3
Credit Protection

  • Truth-in-Lending Act.

    • Credit Card Rules: limits consumer liability to $50 for credit card debt in cases of stolen cards.

    • Amendments to Credit-Card Rules (2010).

Credit protection4
Credit Protection

  • Fair Credit Reporting Act.

    • Limits the activities of credit reporting agencies.

    • Consumers have the right to access information contained about them in a credit reporting agency’s files and to require credit reporting agencies to delete unverifiable information.

Credit protection5
Credit Protection

  • FACT: combat identity theft.

    • Created the National Fraud Alert system so that consumers can place fraud alert in their credit files.

    • Requires credit companies to give customers free credit reports each year.

    • Gives victims of identity theft some assistance.

Credit protection6
Credit Protection

  • Fair Debt-Collection Practices Act.

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

    • Prohibits collection agencies from:

      • Contacting debtor at work.

      • Contacting third parties about payments.

Credit protection7
Credit Protection

  • Fair Debt-Collection Practices prohibits collection agencies from:

    • Using harassment or intimidation or employing false misleading information.

    • Contact debtor after notice of payment refusal.