Twomey  Jennings
Anderson’s Business Law and the Legal Environment, Comprehensive 20e
Anderson’s Business Law and the Legal Environment, Standard 20e
Business Law: Principles for Today’s Commercial Environment 2e
Chapter 25
Product Liability:
Warranties and Torts
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
General Principles:
Theories of Liability
• There are five theories to protect parties
from loss caused by nonconforming
goods. They are:
– (1) express warranty,
– (2) implied warranty,
– (3) negligence,
– (4) fraud, and
– (5) strict tort liability.
Copyright © 2008 by West Legal Studies in Business
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General Principles:
Theories of Liability
• Theories of product liability are not
mutually exclusive. A given set of
facts may give rise to liability under
two or more theories.
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Who is Liable in
Product Liability?
• The idea of privity of contract (only the
parties to the contract have warranty
protection) has been widely rejected.
• The law usually allows any person harmed
by an improper product to sue anyone who
is in any way responsible.
– The buyer, user and even bystanders may
become plaintiffs in an action.
– The seller, manufacturer, or distributor may
become defendants in such actions.
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Copyright © 2008 by West Legal Studies in Business
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Warranties
• Warranties may be express or implied.
– Both have the same effect and operate as
though the defendant had made an express
guarantee.
• A warranty made after a sale does not
require consideration; it is regarded as a
modification of the sales contract.
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Express Warranties
• Express warranties are regulated by
federal statute and the FTC.
• These warranties must be labeled as full
or limited warranties and must conform
to certain standards.
• Seller’s Opinion or Statement of Value.
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Express Warranties
• A distinction is made between a merchant
seller and a casual seller.
– A merchant seller is responsible for a greater
range of warranties.
• Magnuson-Moss Warranty Act and
Federal Trade Commission enforce
warranties.
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Implied Warranties
• A seller makes a warranty of title (that the
seller actually owns the item) unless such
warranty is excluded.
• A warranty against encumbrances assures
the buyer that the item does not have a
lien against it.
• Warranty of fitness for a particular
purpose is enforceable if the seller knew
of the buyer’s intended use.
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Implied Warranties of
Merchant-Seller
• Unless otherwise agreed, merchant sellers
warrant that the goods are free of patent,
copyright or trademark infringement.
• A merchant seller warrants that the goods
are fit for their normal use (warranty of
merchantability).
• Particular Sales:
– Sale on Buyer’s Specifications.
– Sale of Used Goods.
– Sale of Food or Drink.
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Disclaimer of Warranties
• Warranties may be disclaimed by
agreement provided the disclaimer is
not unconscionable.
• To disclaim the implied warranty of
merchantability, the term
merchantability or language like “as
is,” must be used.
• Post-sale disclaimers have no effect
on warranties that arose at the time of
the sale.
Copyright © 2008 by West Legal Studies in Business
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Other Theories of
Product Liability
• Negligence 
• Fraud 
• Strict Tort Liability 
– Without regard to whether injured party is
purchaser or bystander.
• Theories are not Cumulative 
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Negligence and Fraud
• If an injured person can show that the
defendant was negligent in the
manufacture or design of a product, he
may prevail in an action.
• Negligence also includes the failure to
provide adequate instructions for use or
safety warnings.
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Negligence and Fraud
• A person defrauded by a manufacturer or
distributor’s false statements about a
product can generally recover damages
sustained because of the
misrepresentations.
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Strict Tort Liability
• A manufacturer or distributor of a
defective product is liable to anyone
injured by the product – buyer, user,
innocent bystander.
• The plaintiff must show there was a
defect in the product at the time it left
the control of the defendant.
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Strict Tort Liability
• No negligence need be established on
the part of the defendant, nor is the
plaintiff’s contributory negligence a
defense.
• The defendant may show that the
injured party assumed a known risk.
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Cumulative Theories
When goods are
defective and
cause harm or loss,
the person harmed
has a claim for
product liability.
Guarantee
Strict Tort
Liability
Negligence
Not
Mutually
Exclusive
Implied
Warranty
Fraud
Express
Warranty
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Warranties
Name of Warranty
Creation
Express
Affirmation of fact or
promise of performance
(includes samples,
models, descriptions)
Implied Warranty
of
Merchantability
Given in every sale of
goods by a merchant
(“fit for ordinary
purposes”)
Implied Warranty
of Fitness for a
Particular Purpose
Seller knows of
buyer’s reliance for a
particular use (buyer
is ignorant)
Title
Given in every sale
Magnuson-Moss
(Federal Consumer
Product Warranty
Law)
Only consumer
product of $15
or more
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Disclaimer
Restriction
Must be part of the
basis of the margin
Only given by
merchants
Cannot make a
disclaimer
inconsistent with an
express warranty
(1) Must use “merchantability”
or general disclaimer of “as
is” or “with all faults”
(2) If written, be conspicuous
Seller must have
Knowledge;
Buyer must rely
(1) Must be in writing
(2) Must be conspicuous
(3) Also disclaimed with
“as is” or “with all faults”
Does not apply when
apparent warranty
is not given
Must say “There is
no warranty of title”
Must label “Full” or
“Limited”
None
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