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Chapter 11
Warranties, Product Liability
and Consumer Law
Learning Objectives
 What factors determine whether a Seller’s statement
constitutes an express warranty versus “puffery”?
 What are implied warranties under UCC?
 Can a manufacturer be held liable by a person injured
by the manufacturer’s product?
 What defenses can be raised in a product liability
lawsuit?
 When will advertising be deemed deceptive?
 What are the major federal statutes providing for
consumer protection?
Warranties
Warranties of Title – automatic in
most sales contracts
Good Title
No Liens
No Infringements
Disclaimer of Title Warranty
Warranties
Express Warranties--Representations
of fact about quality, condition,
description or performance.
Warranty must be “Basis of the
Bargain.”
Statements of Opinion do not create
express warranties.
Implied Warranties
UCC/Law derives from implication or
inference of circumstances.
Implied Warranty of Merchantability
Merchantable Goods
Merchantable Food
Implied Warranty of Fitness for a
Particular Purpose
Other Warranties
 Overlapping (or Cumulative) Warranties
 Third Party Beneficiaries of Warranties
 Warranty Disclaimers
 Express Warranty:
• Courts view unfavorably
• Must be conspicuous
• Buyer must be aware of disclaimer at time of sale.
 Implied Warranty:
• “As Is” or “With All Faults”
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.
Product Liability
 Manufacturers, sellers and lessors of
goods can be liable for a defective good
that causes injury.
 Negligence in:
 Designing the product
 Selecting materials
 Production Process and Assembly
 Adequate warning label for ordinary person
 Privity of Contract Not Required
Strict Product Liability
 Liability without regard to fault or
standard of care.
 Injured party can be a 3rd party
 Assumes:
 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.
Strict Product Liability
 Six Requirements:
 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.
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.
Restatement (Third) of
Torts: Product Liability
Manufacturing Defects
Design Defects
Warning Defects
Manufacturer must warn if foreseeable
misuse will cause injury.
Factors: user groups, content of message
Defenses to Product Liability
Assumption of Risk
Product Misuse
Severely limited
Comparative Negligence
Commonly Known Dangers
Sharp knives and guns
Knowledgeable User Defense
Consumer Protection Laws
 Areas of Consumer Law Regulated by
Statutes:
 Deceptive Advertising (including online).
 Labeling and Packaging.
 Sales.
 Credit Protections.
 Consumer Health and Safety.
 State Consumer Protection.
Deceptive Advertising
Puffing: 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.
Online Deceptive Advertising
 Same rules apply
 To satisfy the “clear and conspicuous” requirement,
disclosures must be close (only hyperlink if lengthy).
Telemarketing and
Electronic 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. If willful, treble damages.
 Telemarketer must remove a consumer’s name
from its list of potential contacts if requested.
FTC Actions
Against Deceptive Advertising
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.
Labeling and Packaging
Labeling must be accurate & use words
that are easily understood by consumers.
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.
Sales
Forms of Sales:
Door-to-Door Sales.
Mail Order Sales.
Telephone and Mail-Order Sales.
Unsolicited Receipt of Merchandise.
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.
Telephone and Mail-Order Sales
Sellers can be subject to federal mail and wire
fraud statutes.
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.
Credit Protection
Consumer Credit is protected by:
Truth in Lending Act.
Fair Credit Reporting Act.
Fair Debt Collection Practices Act.
Wage Garnishment.
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
 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
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.
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.