Chapter 7

Marketing, Advertising and Product

Safety-4
The Contractual Theory

 A 2nd theory is that the responsibility of manufacturers for

harm resulting from defective products is that specified in
a sales CONTRACT
 The relation between buyer and seller is viewed in this
theory as a contractual relation which is subject to the
terms of a contract
 Even in the absence of an explicit, written contract, there
may still be implied, understood contract between the
two parties that is established by their behaviour
Terms Implied into a Sale of Goods
Contract by the SOGA
 S14 to s17 SOGA imply certain terms into every contract of sale as
follows: -
 As to title, namely the seller has the right to sell and the buyer has the
right to enjoy quiet possession and to have the goods free from charge
or encumbrances (s14)
 As to goods supplied, then they correspond with their description or
sample (s15)
 As to the quality or fitness for purpose of goods supplied (s16)
 As to goods supplied, that they correspond to the sample where a sale of
goods is by sample (s17)
The Contractual Theory

 Example: -
 A product – acceptable level of quality and fit for the

purpose for which it is ordinarily used

 Manufacturers have both a moral and a legal obligation,
therefore, by virtue of their contractual relation, to offer
only products free from dangerous defects
 A person who buys a new car is entitled to assume that it
will perform as expected and that nothing in the design
makes it especially hazardous in the event of an
accident
The Contractual Theory

 There is also an implied warranty of fitness for a purpose

when the buyer is relying on the seller’s expertise in the
selection of the product
 The ethical basis for the contractual theory is fairness in
commercial dealings
 Agreements to buy or sell a product are fair only when
they are entered into freely by the contractual parties
 Freedom in such agreements entails among other things
that both buyers and sellers have adequate information
about the product in question
The Contractual Theory

 Consumers know that the use of many products involves

some danger, and they voluntarily assume the risk when
the nature and extent of the hazards are revealed to
them
 Manufacturers may not take unfair advantage of
consumers by exposing them the risk of harm from
hazards that are not disclosed
 Selling a product that the manufacturer knows to be
dangerous, without informing consumers, is a form of
deception, because crucial information is either
suppressed or misrepresented
The Contractual Theory

 Even when the manufacturer is unaware of a defect, the

cost of any accident caused by a defective product still
ought to be borne by the manufacturer, because the
product was sold with the understanding that it posed no
hazards except those already revealed to consumers
The Contractual Theory

 In your opinion what are the problems with this theory?

Objections to The Contractual
Theory
 Understandings in a sales agreement (implied/express
terms) are not very precise
 Acceptable quality / fit for the purpose – extremely vague
 In practice, the theory leaves consumers with little
protection except for grossly defective products and
products for which the manufacturer makes explicit
claims that constitute express warranties
 Exclusion / limiting clauses
The Strict Liability Theory

 A third theory, now gaining wider acceptance in the

courts, holds that manufacturers are responsible for all
harms resulting from a dangerously defective product
even when due care has been exercised and all
contracts observed
 In this view, which is known in law as strict liability , a
manufacturer need not be negligent nor be bound by any
implied or express warranty to have responsibility
 The mere fact that a product is put into the hands of
consumers in a defective condition that poses an
unreasonable risk is sufficient for holding the
manufacturer liable
The Strict Liability Theory

 The ethical arguments

 Efficiency & Equity

 Utilitarian – greatest amount of protection for

consumers at the lowest cost

 Fairest way of distributing the costs involved in the

manufacture and use of products

The Strict Liability Theory

 In your opinion what are the objections to this theory?

Objections to Strict Liability Theory

 Product liability covers many different kinds of accidents

and the most efficient or equitable system for one kind
may not be efficient or equitable for another
 Companies may be able to distribute the burden of strict
liability to consumers
 Prevents innovation
Q&A