Essentials of Business Law
and the Legal Environment, 10th edition
by Richard A. Mann
& Barry S. Roberts
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Topics Covered Chapter 22:
Product Liability
I. Warranties
A. Types of Warranties
B. Obstacles to Warranty Actions
II. Strict Liability in Tort
A. Requirements of Strict
Liability
B. Obstacles to Recovery
C. Restatement of Torts (Third):
Products Liability
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Types of Warranties
Definition of Warranty – an obligation
of the seller to the buyer concerning
title, quality, characteristics, or
condition of goods.
 Warranty of Title – the obligation of a
seller to convey the right to ownership
without any lien (in a lease the
warranty protects the lessee's right to
possess and use the goods).

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Types of Warranties
Express Warranty – an affirmation of
fact or promise about the goods or a
description, including a sample, of the
goods that becomes part of the basis of
the bargain.
 Implied Warranty – a contractual
obligation, arising out of certain
circumstances of the sale, imposed by
operation of law and not found in the
language of the sales contract.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Implied Warranty


Merchantability – warranty by a merchant
that goods are reasonably fit for the ordinary
purpose for which they are intended, pass
without objection under the contract
description, and are of average quality.
Fitness for Particular Purpose – warranty by
any seller that goods are reasonably fit for a
particular purpose if, at the time of contracting,
the seller had reason to know the buyer's
particular purpose and that the buyer was
relying on the seller's skill and judgment to
furnish suitable goods.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Obstacles to Warranty Actions
Disclaimers of Warranties –
negations of warranties.
 Express Warranty – not usually
possible to disclaim.
 Warranty of Title – may be excluded
or modified by specific language or by
certain circumstances, including
judicial sale or a sale by a sheriff,
executor, or foreclosing lienor.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Requirements for Disclaimers



Implied Warranty of Merchantability – must
mention “merchantability” and, in the case of a
writing, must be conspicuous (in a lease the
disclaimer must be in writing).
Implied Warranty of Fitness for a Particular
Purpose – must be written and conspicuous
Other – may also be disclaimed (1) by expressions
like “as is,” “with all faults,” or other similar
language; (2) by course of dealing, course of
performance, or usage of trade; or (3) as to defects
an examination ought to have revealed where the
buyer has examined the goods or where the buyer
has refused to examine the goods.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Warranties
Type of
Warranty
How Create d
What is Warrante d
How Disclaimed
Title
• Seller contracts to
sell goods
• Good title
• Rightful transfer
• Not subject to lien
• Specific language
• Circumstances giving reason to know that
seller does not claim title
Express
•
•
•
•
• Conform to affirmation
• Conform to promise
• Conform to sample
model, or description
• Usually not possible
Merchantability
• Merchant sells
goods
• Fit for ordinary
purposes
• Adequately contained,
packaged, and labeled
•
•
•
•
•
Must mention “merchantability”
If in writing must be conspicuous
As-is sale
Buyer examination
Course of dealing, course of performance,
usage of trade
Fitness for a
particular
purpose
• Seller knows buyer
is relying on seller
to select goods
suitable for buyer’s
particular purpose
• Fit for particular
purpose
•
•
•
•
•
No specific words necessary
In writing and conspicuous
As-is sale
Buyer examination
Course of dealing, course of performance,
usage of trade
Affirmation of fact
Promise
Description
Sample or model
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Federal Legislation

The Magnuson-Moss Warranty Act
protects purchasers of consumer
goods by providing that warranty
information be clear and useful and
that a seller who makes a written
warranty cannot disclaim any implied
warranty.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Privity of Contract



A contractual relationship between parties
required by common law to maintain a lawsuit.
Horizontal Privity – doctrine determining who
benefits from a warranty and who therefore
may bring a cause of action; the Code
provides three alternatives.
Vertical Privity – doctrine determining who in
the chain of distribution is liable for a breach
of warranty; the Code has not adopted a
position on this.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Plaintiff's Conduct
Contributory Negligence – is not a
defense.
 Voluntary Assumption of the Risk –
is a defense.
 Notice of Breach – if the buyer fails to
notify the seller of any breach within a
reasonable time, she is barred from
any remedy against the seller.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Strict Liability in Tort

General Rule – imposes tort liability on
merchant sellers for both personal
injuries and property damage for
selling a product in a defective
condition unreasonably dangerous to
the user or consumer.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Manufacturing Defect




By failing to meet its own manufacturing
specifications, the product is not properly
made
Design Defect – the product, though made
as designed, is dangerous because the
design is inadequate.
Failure to Warn – failure to provide
adequate warnings of possible danger or to
provide appropriate directions for use of a
product.
Unreasonably Dangerous – contains a
danger beyond that which would be
contemplated by the ordinary consumer.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Obstacles to Recovery

Contractual Defenses – defenses such
as privity, disclaimers, and notice
generally do not apply to tort liability.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Plaintiff's Conduct




Contributory Negligence – not a defense in
the majority of States.
Comparative Negligence – most States have
applied the rule of comparative negligence to
strict liability in tort.
Voluntary Assumption of the Risk –
express assumption of risk is a defense to an
action based upon strict liability; some states
apply implied assumption of risk to strict
liability cases.
Misuse or Abuse of the Product – is a
defense.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Plaintiff's Conduct



Subsequent Alteration – liability exists only
if the product reaches the user or consumer
without substantial change in the condition in
which it is sold.
Statute of Repose – limits the time period
for which a manufacturer is liable for injury
caused by its product.
Limitations on Damages – many States
have limited the punitive damages that a
plaintiff can collect in a product liability
lawsuit.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Restatement (Third) of Torts:
Products Liability



General Rule – One engaged in the business
of selling products who sells a defective
product is subject to liability for harm to
persons or property caused by the defect.
Manufacturing Defect – seller is strictly liable
when product departs from its intended
design.
Design Defect – a product is defective when
the foreseeable risks of harm posed by it
could have been reduced or avoided by the
adoption of a reasonable alternative design.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Restatement (Third) of Torts:
Products Liability

Failure to Warn – a product is
defective because of inadequate
instructions or warnings when the
foreseeable risks of harm posed by the
product could have been reduced or
avoided by the provision of reasonable
instructions or warnings.
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
Product Liability
Merchantability*
Strict Liability in Tort
Condition of Goods Creating
Liability
Not fit for ordinary purposes
Defective condition, unreasonably
dangerous
Type of Transaction Covered
Sales; some courts apply to leases
and bailments of goods
Sales, leases, and bailments of
goods
Disclaimer
Must mention “merchantability.” If Not possible in consumer
in writing, must be conspicuous.
transactions; may be permitted in
Must not be unconscionable.
commercial transactions
Subject to Magnuson-Moss Act.
Notice to Seller
Required within reasonable time
Not required
Causation
Required
Required
Who May Sue
In some states, buyer and the
Any user or consumer of product;
buyer’s family or guests in home;
also, in most states, any bystander
in other states, any person who may
be expected to use, consume, or be
affected by goods
Compensable Harms
Personal injury, property damage,
economic loss
Personal injury, property damage
Who May Be Sued
Seller who is a merchant with
respect to the goods sold
Seller who is engaged in business
of selling such a product
*The warranty of fitness for a particular purpose differs form the warranty of merchantability in the following respects: (1) the condition that
triggers liability is the failure of the goods to perform according to the particular purpose described in the warranty, and (2) a disclaimer need not
mention “fitness for a particular purpose.”
Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.