Learning Objectives
• What factors determine whether a Seller’s
statement constitutes an express warranty or
mere “puffing”?
• What implied warranties under the UCC?
• Can a manufacturer be held liable by a person
injured by a manufacturer’s negligently made
product?
• What defenses can be raised in a product
liability lawsuit?
• What are the major federal statutes providing
for consumer protection?
CHAPTER 13
Warranties, Product
Liability and
Consumer Law
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© 2005 West Legal Studies in Business
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Warranties
Express Warranties
• Warranties of Title – automatic in most
sales contracts:
• Representations of fact about quality,
condition, description or performance.
• Goods must conform to model or sample.
– Good Title.
– No Liens.
– No Infringements.
– Disclaimer of Title Warranty.
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– Henley v. Philip Morris, Inc. (2004).
• Warranty must be “Basis of the Bargain.”
• Statements of Opinion do not create
express warranties.
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Implied Warranties
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Warranty Disclaimers
• Express Warranty:
• UCC/Law derives from implication or
inference of circumstances.
• Implied Warranty of Merchantability:
– Courts view unfavorably.
– Must be conspicuous.
– Buyer must be aware of disclaimer at time of
sale.
– Merchantable Goods.
– Merchantable Food.
•Webster v. Blue Ship Tea Room, Inc. (1964).
• Implied Warranty of Fitness:
– “As Is” or “With All Faults”.
• Implied Warranty of Fitness for a Particular
Purpose.
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• Buyer’s Refusal to Inspect.
• Unconscionability.
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Magnuson-Moss Warranty Act
Negligence Product Liability
• Federal law to prevent deception in
warranties by making them easier to
understand.
• Enforced by Federal Trade Commission.
• Manufacturers, sellers and lessors of goods can be
liable for a defective good that causes injury.
• Negligence:
– Due care in designing the product.
– Selecting materials.
– Production Process.
– Assembly.
– Adequate warning label for ordinary person.
– Privity of Contract Not Required.
– Full Warranty (free repair/replacement).
– Limited Warranty.
– Implied Warranties arise under UCC -- not
Magnuson-Moss.
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Strict Product Liability
Requirements for Strict Liability
• Liability without regard to fault or standard of
care.
• Injured party can be 3rd party (not the buyer).
• Assumption that:
• 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 be substantially changed from
time of sale.
– 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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Product Defects:
Restatement (Third) of Torts
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Strict Product Liability
• Market Share Liability.
• Manufacturing Defects.
• Design Defects.
• Warning Defects.
– Multiple Defendants involved are liable based
on the share of the market.
– Manufacturer must warn if foreseeable misuse
will cause injury.
– Factors: user groups, content of message.
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• Other Applications.
– All courts extend liability of manufacturers and
other sellers to injured bystanders.
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Defenses to Product Liability
Consumer Protection Laws
• Assumption of Risk.
• Product Misuse.
• Areas of Consumer Law Regulated by
Statutes:
– Deceptive Advertising.
– Labeling and Packaging.
– Sales.
– Credit Protections.
– Consumer Health and Safety.
– State Consumer Protection.
– Severely limited.
• Comparative Negligence.
• Commonly Known Dangers.
– Sharp knives and guns.
– Pelman v. McDonald’s Corp. (2003).
• Knowledgeable User Defense.
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FTC Actions Against
Deceptive Advertising
Deceptive Advertising
• Puffing.
•The FTC, charged with enforcing
federal laws against deceptive
advertising, can, in appropriate
circumstances:
– Vague generalities and obvious exaggerations are
permissible and not considered deceptive.
• Bait and Switch.
– The advertising of a product at an attractively low
price to lure customers in to buy more expensive
items.
– Issue cease and desist orders.
•With respect to a particular product or
advertisement.
•With regard to multiple product orders.
• 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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– Impose counter-advertising.
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Telemarketing and Electronic
Advertising
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Labeling and Packaging
• 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 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 of 1990.
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Sales
Door-to-Door Sales
• Most states requires that, for door-to-door
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.
• Forms of Sales :
– Door-to-Door Sales.
– Mail Order Sales.
– Telephone and Mail-Order Sales.
– Unsolicited Receipt of Merchandise.
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• Pure Food and Drugs Act (1906), then
Federal Food, Drug and Cosmetic Act
(1938).
• Enforced by Food and Drug Administration.
• Consumer Product Safety.
• 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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Credit Protection
– Consumer Product Safety Act 1972.
– Consumer Product Safety Commission.
– Notification by distributors.
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Truth in Lending Act
• Consumer Credit is protected by:
• 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.
• Credit Card Rules: limits consumer liability 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.
– Truth in Lending Act.
– Fair Credit Reporting Act.
– Fair Debt Collection Practices Act.
– Wage Garnishment.
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Health and Safety Protection
Telephone and Mail Order Sales
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Fair Debt Collection
Practices Act
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 in a consumer’s
credit record.
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• 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.
• Johnson v. MBNA America Bank, N.A. (2004).
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