PowerPoint Slides to Accompany
ESSENTIALS OF BUSINESS AND
ONLINE COMMERCE LAW
1st Edition
by Henry R. Cheeseman
Chapter 12
Warranties, Product Liability,
and Consumer Protection
Slides developed by
Les Wiletzky
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved
Introduction (1 of 2)
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Article 2 of the Uniform Commercial Code
(UCC) establishes certain warranties that
apply to the sale of goods
Article 2A of the UCC establishes warranties
that apply in lease transactions
Consumers and others can sue to recover
damages caused by breach of warranty
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12 - 2
Introduction (2 of 2)

Warranty
A buyer’s or lessee’s
assurance that the
goods meet certain
standards

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Products Liability
The liability of
manufacturers, sellers,
and others for the
injuries caused by
defective products
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Warranties of Quality

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Seller’s or lessor’s assurance to buyer or
lessee that the goods meet certain standards
of quality
If the goods fail to meet a warranty, the buyer
or lessee can sue the seller or lessor for
breach of warranty
Warranties may be expressed or implied
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Express Warranties (1 of 2)
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Created when a seller or lessor makes an
affirmation that the goods he or she is selling
or leasing meet certain standards of quality,
description, performance, or condition [UCC
2-313(1); UCC 2A-210(1)]
It is not necessary to use formal words such
as warrant or guarantee to create an express
warranty [UCC 2-313(2); UCC 2A-210 (2)]
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Express Warranties (2 of 2)

Sellers and lessors are not required to make
such warranties

Statements of Opinion – sales “puffing” by
salespersons usually does not create an
express warranty; it is merely a statement of
opinion [UCC 2-313(2)]
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Implied Warranty of Merchantability
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Unless properly disclosed, a warranty is
implied when sold or leased goods are fit for
the ordinary purpose for which they are sold
or leased, and other assurances [UCC 2314(1); UCC 2A-212(1)]
The implied warranty of merchantability does
not apply to sales or leases by nonmerchants or casual sales
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Implied Warranty of Merchantability:
Standards That Must Be Met
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The goods must be fit for the ordinary purposes for which they
are used
The goods must be adequately contained, packaged, and
labeled
The goods must be of an even kind, quality, and quantity within
each unit
The goods must conform to any promise or affirmation of fact
made on the container or label
The quality of the goods must pass without objection in the trade
Fungible goods must meet a fair average or middle range of
quality
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Implied Warranty of Fitness for Human
Consumption (1 of 2)

A warranty that applies to food or drink
consumed on or off the premises of:
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Restaurants
Grocery stores
Fast-food outlets
Vending machines
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Implied Warranty of Fitness for Human
Consumption (2 of 2)
Consumer Expectation
Test
 A test to determine
merchantability based
on what the average
consumer would expect
to find in food products
Foreign Substance Test

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A test to determine
merchantability based
on foreign objects that
are found in food
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Implied Warranty of Fitness for a
Particular Purpose
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A warranty that arises where a seller or lessor
warrants that the goods will meet the buyer’s
or lessee’s expressed needs
The warranty is breached if the goods do not
meet the buyer’s or lessee’s expressed needs
The warranty applies to both merchant and
nonmerchant sellers and lessors
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12 - 11
Summary: Express and Implied
Warranties of Quality (1 of 2)
Type of Warranty
How Created
Description
Express warranty
Made by the seller or
lessor
Affirmation that the goods meet
certain standards of quality,
description, performance, or condition
[UCC 2-313(1); UCC 2A-210(1)]
Implied warranty for Implied by law
fitness for a
particular purpose
Implied that the goods are fit for the
purpose for which the buyer or lessee
acquires the goods [UCC 2-315; UCC
2A-213]
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12 - 12
Summary: Express and Implied
Warranties of Quality (2 of 2)
Type of Warranty
How Created
Implied warranty of Implied by law if the
merchantability
seller or lessor is a
merchant
Description
Implied that the goods:
1.
Are fit for the ordinary purposes for
which they are used
2.
Are adequately contained,
packaged, and labeled
3.
Are of an even kind, quality, and
quantity within each unit
4.
Conform to any promise or
affirmation of fact made on the
container or label
5.
Pass without objection in the trade
6.
Meet a fair average or middle range
of quality for fungible goods [UCC 2314(1); UCC 2A-212(1)]
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Damages Recoverable for Breach of
Warranty

Compensatory Damages:
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Damages that are generally equal to the difference
between the value of the goods as warranted and the
actual values of the goods accepted at the time and place
of acceptance [UCC 2-714(2), UCC 2A-508(4)]
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Warranty Disclaimers
Warranties can be disclaimed or limited
 If an express warranty is made, it can only be
limited if the disclaimer and the warranty can
he reasonably construed with each other
 All implied warranties of quality may be
disclaimed by expressions like as is, with all
faults, or other language that makes it clear to
the buyer that there are no implied warranties

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Conspicuous Display of Disclaimer
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Written disclaimers must be conspicuously
displayed to be valid
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Conspicuous – construed by the courts as
noticeable to a reasonable person [UCC 2316; UCC 2A-214]
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12 - 16
Magnuson-Moss Warranty Act (1 of 2)
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Federal statute that regulates express full and
limited warranties made by sellers and
lessors
The Act does not require a seller or lessor to
make express written warranties
However, persons who do make such
warranties are subject to the provisions of the
Act
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Magnuson-Moss Warranty Act (2 of 2)
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The Act does not create any implied
warranties
However, sellers or lessors who make
express written warranties relating to
consumer products are forbidden from
disclaiming or modifying the implied
warranties of merchantability and fitness for a
particular purpose
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Product Liability Based on Fault:
Misrepresentation
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A buyer or lessee who is injured because a seller or lessor
fraudulently misrepresented the quality of a product can sue
the seller under the tort of intentional misrepresentation
Seller or lessor either:
 Affirmatively misrepresents the quality of a product, or
 Conceals a defect in it
Recovery is limited to persons who were injured because they
relied on the misrepresentation
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Product Liability Based on Fault:
Negligence
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Negligence – a tort related to defective products where the
defendant has breached a duty of care and caused harm to the
plaintiff
Failure to exercise due care includes:
 Failing to assemble the product carefully
 Negligent product design
 Negligent inspection or testing of the product
 Negligent packaging
 Failure to warn of the negligent propensities of the product
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12 - 20
Landmark Case:
McPherson v. Buick Motor Company
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The court held that an injured consumer could
recover damages from the manufacturer of a
product even though he or she was only in
privity of contract with the retailer from whom
he or she had purchased the product
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12 - 21
Strict Liability
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In Greenmun v. Yuba Power Products, Inc.,
the California Supreme Court adopted the
doctrine of strict liability in tort as a basis for
product liability actions
Most states have adopted this doctrine as the
basis for product liability actions
Removes many of the difficulties for the
plaintiff associated with other theories of
product liability
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Strict Liability: Chain of Distribution
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All parties in the chain of distribution of a
defective product are strictly liable for the
injuries caused by that product
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All manufacturers, distributors, wholesalers,
retailers, lessors, and subcomponent
manufacturers may be sued under this
doctrine (doctrine of strict liability in tort)
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Doctrines of Negligence and Strict Liability
Compared
Strict Liability
Manufacturer
Negligence Lawsuit
Defendant
(negligent)
Defendant
Lawsuit
Defective product
Distributor
Defendant
Negligent party is
liable
Retailer
Negligence
lawsuit
Consumer
Defendant
Strict liability
lawsuit
Defective product causes injury
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All in the chain of
distribution are
liable
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Strict Liability:
Parties Who Can Recover
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Privity of contract is not required for a plaintiff
to sue for strict liability
The doctrine applies even if the injured party
had no contractual relations with the
defendant
The damages recoverable in a strict liability
action vary by jurisdiction
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12 - 25
Strict Liability: Damages Recoverable

Punitive damages are often awarded in strict
liability lawsuits if the plaintiff proves that the
defendant either:
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Intentionally injured him or her; or
Acted with reckless disregard for his or her
safety
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The Concept of Defect

To recover for strict liability, the injured party
must first show that the product that caused
the injury was somehow defective
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Plaintiffs can allege multiple product defects
in one lawsuit
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Common Types of Defects
1. Defects in
Manufacture
2. Defects in
Design
3. Defects in
Packaging
4. Failure to Warn
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Crashworthiness Doctrine
The courts have held that automobile
manufacturers are under a duty to design
automobiles so they take into account the
possibility of harm from a person’s body
striking something inside the automobile in
the case of a car accident.
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12 - 29
Other Product Defects
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Failure to provide adequate instructions
Inadequate testing of products
Inadequate selection of component parts or
materials
Improper certification of the safety of a
product
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Defenses to Product Liability
1. Supervening Event
5. Misuse of the Product
2. Generally Known Dangers
6. Statute of Limitations and
Statute of Repose
3. Assumption of the Risk
4. Government Contractor
Defense
7. Contributory and
Comparative Negligence
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Landmark Law: Federal Food, Drug, and
Cosmetic Act (FDCA) of 1938 (as amended)
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Provides the basis for the regulation of much
of the testing, manufacture, distribution, and
sale of foods, drugs, cosmetics, and
medicinal products and devices in the United
States
Administered by the Food and Drug
Administration (FDA)
The FDA is empowered to regulate food, food
additives, drugs, cosmetics, and medicinal
devices
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Regulation of Food
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The FDCA prohibits the shipment,
distribution, or sale of adulterated food
The FDCA prohibits false and misleading
labeling of food products
It mandates affirmative disclosure of
information on food labels
A manufacturer may be held liable for
deceptive labeling or packaging
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Food Labeling
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Nutrition Labeling and Education Act:
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A federal statute that requires food
manufacturers and processors to provide
nutritional information on most foods and
prohibits them from making scientifically
unsubstantiated health claims
The law applies to packaged foods, fruits,
vegetables, and raw seafood
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United Nations Biosafety Protocol for
Genetically Altered Foods

A United Nations sponsored protocol that
requires signatory countries to place the label
“may contain living modified organism” on all
genetically engineered foods
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Regulation of Drugs (1 of 2)
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The FDCA gives the FDA the authority to
regulate the testing, manufacture, distribution,
and sale of drugs
The Drug Amendment to the FDCA gives the
FDA broad powers to license new drugs in
the United States
The manufacture, distribution, or sale of
adulterated or misbranded drugs is prohibited
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Regulation of Drugs (2 of 2)
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The law requires all users of prescription and
nonprescription drugs to receive:
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Proper directions for use
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Including method and duration of use
Adequate warnings about any related side
effects
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Regulation of Cosmetics (1 of 2)
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The FDA has issued regulations that require
cosmetics:
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To be labeled
To disclose ingredients
To contain warnings if they are carcinogenic or
otherwise dangerous to a person’s health
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Regulation of Cosmetics (2 of 2)
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The manufacture, distribution, or sale of
adulterated or misbranded cosmetics is
prohibited
The FDA may remove from commerce
cosmetics that contain unsubstantiated claims
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e.g., preserving youth
e.g., growing hair
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Regulation of Medicinal Devices
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The Medicinal Device Amendment to the
FDCA gives the FDA authority to regulate
medicinal devices and equipment
The mislabeling of medicinal devices is
prohibited
The FDA is empowered to remove “quack”
devices from the market
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12 - 40
Regulation of Product Safety:
Consumer Product Safety Act (1972)

Federal statute that regulates potentially
dangerous consumer products

Created the Consumer Product Safety
Commission (CPSC)
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Regulation of Product Safety: Consumer
Product Safety Commission
Independent federal regulatory agency
empowered to:
1. Adopt rules and regulations to interpret and
enforce the Consumer Product Safety Act
2. Conduct research on safety
3. Collect data regarding injuries
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