BUSINESS LAW TODAY
Essentials 9th Ed.
Roger LeRoy Miller - Institute for University Studies, Arlington, Texas
Gaylord A. Jentz - University of Texas at Austin, Emeritus
Chapter
13
Warranties, Product
Liability, and Consumer Law
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Learning Objectives
 What factors determine whether a seller
or lessor’s statement constitutes an
express warranty or mere puffery?
 What implied warranties arise under the
UCC?
 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?
 What are the major federal statutes
providing for consumer protection in
credit transactions?
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Warranties of Title
 Warranties of Title – automatic in most
sales contracts:
Good Title.
No Liens.
No Infringements.
Disclaimer of Title Warranty.
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Express Warranties
 Representations of fact about quality,
condition, description or performance.
 Goods must conform to model or
sample.
 Warranty must be “basis of the bargain”.
 Statements of opinion or value do not
create express warranties.
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Implied Warranty of Merchantability
 Merchantable Goods: reasonably fit for

ordinary purposes for which goods are
used.
Merchantable Food: fit to eat, based on
reasonable consumer expectations.
 CASE 13.1 Webster v. Blue Ship Tea Room, Inc.
(1964). Fish chowder with bones is NOT a breach of
warranty because the bones did not render the food
unfit to eat.
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Implied Warranty of Fitness
for a Particular Purpose
 Arises when a seller (merchant or
nonmerchant):
Knows the particular purpose for which the
buyer will use the good, and
Knows that the buyer is relying on the seller’s
skill and judgment.
 Implied warranties can also rise (or be
excluded or modified) based on previous
dealings or trade usage.
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Overlapping Warranties
 When two or more warranties are made
in a single transaction:
UCC rule holds warranties as cumulative.
If warranties are in conflict, courts determine
which warranty is most important as follows:
• Express warranties displace inconsistent implied
warranties (except for particular purpose).
• Samples take precedence over general descriptions.
• Exact or technical specifications displace
inconsistent samples.
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Warranty Disclaimers
 Disclaimer of Express Warranties:
Courts view unfavorably.
Must be conspicuous.
Buyer must be aware of disclaimer at time of
sale.
 Implied Warranties:
Disclaimer of Implied Warranty of
Merchantability.
Disclaimer of the Implied Warranty of Fitness.
(“As Is” or “With All Faults”).
 Buyer’s Refusal to Inspect.
 Unconscionability.
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Magnuson-Moss Warranty Act
 Federal law to prevent deception in
warranties by making them easier to
understand.
 Enforced by Federal Trade Commission.
Full Warranty (free repair/replacement).
Limited Warranty.
Implied Warranties arise under UCC -- not
Magnuson-Moss.
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Lemon Laws
 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.
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.
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Product Liability
 NEGLIGENCE: Manufacturers, sellers
and lessors of goods can be liable for a
defective good that causes injury.
Privity of contract not required.
Manufacturers must exercise due care in:
designing the product, selecting materials,
production process, assembly, providing
adequate warning labels. Adequate
warning label for ordinary person.
 Misrepresentation.
Intentional mislabeling or concealment.
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Strict Product Liability
and Public Policy
 Liability without regard to fault or standard of


care.
Injured party can be 3rd party (not the buyer).
Assumption that:
 Consumers should be protected against unsafe
products.
 Manufacturers and distributors should not escape
liability for defective products, and
 Manufacturers and sellers are in a better position to
bear the costs of injury.
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Requirements for Strict Liability






Product must be in a defective condition when
sold.
Defendant must be engaged in selling that
product
Product must be “unreasonably dangerous”:
product is dangerous beyond ordinary
expectation or less dangerous alternative not
used.
Plaintiff must incur injury to self or property by
use or consumption of the product
Defective condition must be cause
Goods have not substantially changed from time
of sale.
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Requirements for Strict Liability
 Proving a Defective Condition.
Plaintiff does not need to show how product
became defective, but only prove that when it left
the seller it was “unreasonably dangerous” and
that condition hasn’t changed.
 ‘Unreasonably Dangerous’ Products.
Products cannot be absolutely safe but courts
may determine product is unreasonably
dangerous if:
• Product is dangerous beyond ordinary consumer
expectations.
• Less dangerous alternative was economically feasible
for manufacturer who failed to produce it.
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Product Defects--Restatement
(Third) of Torts
 Manufacturing Defects.
 Design Defects.
Plaintiff must show a reasonable alternative design
was available.
 Inadequate Warnings.
Manufacturer must warn if foreseeable misuse will
cause injury.
Factors: user groups, content of message.
CASE 13.2 Wyeth v. Levine (2009). Injured party
can bring state-action product liability claim based on
inadequate warning approved by FDA.
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Strict Product Liability
 Market Share Liability.
Multiple Defendants involved are liable based
on the share of the market.
 Other Applications.
All courts extend liability of manufacturers and
other sellers to injured bystanders.
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Defenses to Product Liability
 Assumption of Risk.
 Product Misuse.
Severely limited.
 Comparative Negligence (Fault).
 Commonly Known Dangers.
Sharp knives and guns.
 Knowledgeable User Defense.
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Consumer Law
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Consumer Law
 Areas of Consumer Law Regulated by
Statutes:
Deceptive Advertising.
Labeling and Packaging.
Sales.
Credit Protections.
Consumer Health and Safety.
State Consumer Protection.
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Deceptive Advertising
 Puffery.
Vague generalities and obvious exaggerations
are permissible and not considered deceptive.
CASE 13.3 Federal Trade Commission v.
QT, Inc. (2008). Claims of the Ionized
Bracelet were deceptive and QT was ordered
to create a $16 million fund for customer
refunds.
 Bait and Switch Ads.
The advertising of a product at an attractively
low price to lure customers in to buy more
expensive items.
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Deceptive Advertising
 Online Deceptive Advertising.
Same rules apply.
To satisfy the “clear and conspicuous”
requirement, disclosures must be close (only
hyperlink if lengthy).
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FTC Actions Against Deceptive Ads
 The FTC, charged with enforcing federal
laws against deceptive advertising, can,
in appropriate circumstances:
Issue cease and desist orders.
• With respect to a particular product or
advertisement.
• With regard to multiple product orders.
Impose counter-advertising.
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Telemarketing and Fax Advertising
 The Telephone Consumer Protection Act


(TCPA) prohibits automated solicitation using
automatic telephone dialing system or a
prerecorded voice.
Consumers have a private civil cause of
action and can recover $500 for each
violation of actual damages. Court can treble
damages if willful violation.
Telemarketer must remove a consumer’s
name from its list of potential contacts if
requested.
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Labeling and Packaging
 Labeling must be accurate, and

must use words that are easily
understood by the ordinary
consumer.
Product labeling and packaging
are regulated by:





Wool Products Labeling Act of 1939.
Fur Products Labeling Act of 1951.
Flammable Fabrics Act of 1953.
Fair Packaging and Labeling Act of 1966.
Smokeless Tobacco Health Education Act of
1986.
 Nutrition Labeling and Education Act of 1990.
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Sales
 Forms of Sales :
Door-to-Door Sales. 
Mail Order Sales. 
Telephone and Mail-Order Sales. 
Unsolicited Receipt of Merchandise. 
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Door-to-Door Sales
 Most states requires that, for door-todoor sales, consumers have a post-sale
“cooling-off” period during which they
can cancel their purchase without
obligation.
 Consumers are given the most
favorable benefits of the FTC rule and
their own state statutes.
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Telephone and Mail Order Sales



Sellers can be subject to federal mail and wire
fraud statutes.
FTC Rules require:
 shipment orders within the time promised in their
catalogues and advertisements,
 to notify consumers when orders cannot be shipped on
time, and
 to issue timely refunds when orders cannot be shipped.
The Postal Reorganization Act of 1970 provides
that unsolicited merchandise sent by U.S. mail
may be retained, used, discarded, or disposed
of in any manner deemed appropriate, without
the recipient’s incurring any obligation to the
sender.
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Health and Safety
 Pure Food and Drugs Act (1906), then
Federal Food, Drug and Cosmetic Act
(1938).
 Enforced by Food and Drug
Administration.
 Consumer Product Safety.
Consumer Product Safety Act 1972.
Consumer Product Safety Commission.
Notification by distributors.
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Credit Protection
 Consumer Credit is protected by:
Truth in Lending Act.
Fair Credit Reporting Act.
Fair Debt Collection Practices Act.
Wage Garnishment.
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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).
 Equal Credit Opportunity: requires that
credit be extended without regard to
race, sex, color, national origin, age, or
marital status.
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Truth in Lending Act
 Credit Card Rules: limits consumer
liability to $50 for credit card debt in
cases of stolen cards.
 Consumer Leasing Act: requires that
leasors of consumer items valued at
less than $25,000 make certain
disclosures.
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Fair Credit Reporting
 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 in a
consumer’s credit record.
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Fair and Accurate
Credit Transactions Act
 To combat identity theft.
 FACT:
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 identify theft some assistance.
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Fair Debt Collection Practices Act
 Prohibits Collection Agencies from the
following:
Type, times, and places that debt collectors
can contact debtors.
Contacting third parties about payments.
Using harassment or intimidation or employing
false misleading information.
Contact debtor after notice of payment refusal.
 Requires that collectors provide
validation notice to the debtor, at the
time of first contact.
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