Warranties, Product Liability, and Consumer Law

1. BUSINESS LAW TODAYEssentials 9th Ed.Roger LeRoy Miller - Institute for University Studies, Arlington, TexasGaylord A. Jentz - University of Texas at Austin, Emeritus Chapter 13 Warranties, Product Liability, and Consumer Law

2. 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?

3. Warranties of Title • Warranties of Title – automatic in most sales contracts: • Good Title. • No Liens. • No Infringements. • Disclaimer of Title Warranty.

4. 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.

5. 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 13.1Webster 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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 13.2Wyeth v. Levine (2009).Injured party can bring state-action product liability claim based on inadequate warning approved by FDA.

16. 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.

17. Defenses to Product Liability • Assumption of Risk. • Product Misuse. • Severely limited. • Comparative Negligence (Fault). • Commonly Known Dangers. • Sharp knives and guns. • Knowledgeable User Defense.

18. Consumer Law

19. Consumer Law Consumer Law • Areas of Consumer Law Regulated by Statutes: • Deceptive Advertising. • Labeling and Packaging. • Sales. • Credit Protections. • Consumer Health and Safety. • State Consumer Protection.

20. Deceptive Advertising Deceptive Advertising • Puffery. • Vague generalities and obvious exaggerations are permissible and not considered deceptive. • CASE 13.3Federal 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.

21. Deceptive Advertising • Online Deceptive Advertising. • Same rules apply. • To satisfy the “clear and conspicuous” requirement, disclosures must be close (only hyperlink if lengthy).

22. 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.

23. 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.

24. 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.

25. Sales • Forms of Sales : • Door-to-Door Sales.  • Mail Order Sales.  • Telephone and Mail-Order Sales.  • Unsolicited Receipt of Merchandise. 

26. 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.

27. 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.

28. 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.

29. Credit Protection • Consumer Credit is protected by: • Truth in Lending Act. • Fair Credit Reporting Act. • Fair Debt Collection Practices Act. • Wage Garnishment.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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.