Express and Implied Warranties Section 14.1. Understanding Business and Personal Law Express and...

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Express and Implied Warranties Section 14.1

Transcript of Express and Implied Warranties Section 14.1. Understanding Business and Personal Law Express and...

Page 1: Express and Implied Warranties Section 14.1. Understanding Business and Personal Law Express and Implied Warranties Section 14.1 The Importance of Warranties.

Express and Implied Warranties Express and Implied Warranties Section 14.1Section 14.1

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Section 14.1Section 14.1Express and Implied Warranties Express and Implied Warranties

Section 14.2Section 14.2Exclusion of Warranties, Privity, Exclusion of Warranties, Privity,

and Duty to Notify and Duty to Notify

1414ChapterChapter The Importance ofThe Importance ofWarrantiesWarranties

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What You’ll Learn

How to describe the three ways an How to describe the three ways an express warranty can be made (p. 294)express warranty can be made (p. 294)

How to state the obligations of merchants How to state the obligations of merchants under the Magnuson-Moss Warranty Act under the Magnuson-Moss Warranty Act (p. 297)(p. 297)

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What You’ll Learn

How to contrast a limited warranty with a How to contrast a limited warranty with a full warranty (pp. 297, 298)full warranty (pp. 297, 298)

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What You’ll Learn

How to differentiate between the implied How to differentiate between the implied warranty of fitness of a particular purpose warranty of fitness of a particular purpose and the implied warranty of and the implied warranty of merchantability (pp. 301, 302)merchantability (pp. 301, 302)

How to explain the warranty of titleHow to explain the warranty of title(p. 303)(p. 303)

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Why It’s Important

Understanding warranties will keep you from Understanding warranties will keep you from losing money.losing money.

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Legal Terms

warranty (p. 294)warranty (p. 294)express warranty (p. 294)express warranty (p. 294)full/limited warranty (pp. 297, 298)full/limited warranty (pp. 297, 298)implied warranty (p. 301)implied warranty (p. 301)

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Legal Terms

warranty of fitness for a particular purpose warranty of fitness for a particular purpose (p. 301)(p. 301)warranty of merchantability (p. 302)warranty of merchantability (p. 302)usage of trade (p. 303)usage of trade (p. 303)warranty of title (p. 304)warranty of title (p. 304)

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Law of Warranties

Express Warranties Statement of Fact or PromiseAvailability before SaleAdvertising Express Warranties

Section OutlineSection Outline

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Express Warranties, continued Magnuson-Moss Warranty ActDescription of the GoodsSample or Model

Section OutlineSection Outline

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Implied WarrantiesWarranty of Fitness for a Particular PurposeWarranty of MerchantabilityUsage of Trade

Warranty of Title

Section OutlineSection Outline

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Pre-Learning Question Pre-Learning Question

What is a warranty?

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The UCC provides protection under its The UCC provides protection under its law of warranties for situations such as:law of warranties for situations such as:

Law of Warranties Law of Warranties

Products that don’t work after you Products that don’t work after you buy them.buy them.Impurities in foods in restaurants.Impurities in foods in restaurants.Technical problems with computers.Technical problems with computers.

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A A warrantywarranty is another name for a is another name for a guarantee. guarantee.

A breach of warranty is a breach of A breach of warranty is a breach of contract.contract.

Law of Warranties Law of Warranties

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Pre-Learning Question Pre-Learning Question

What is an express warranty?

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An An express warrantyexpress warranty is an oral or is an oral or written statement, promise, or other written statement, promise, or other representation about the quality, representation about the quality, ability, or performance of a product. ability, or performance of a product.

Express warranties apply to goods Express warranties apply to goods that are sold or leased.that are sold or leased.

Express Warranties Express Warranties

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Express warranties are conveyed in Express warranties are conveyed in three ways:three ways:

Express Warranties Express Warranties

1.1. By a statement of fact or promise By a statement of fact or promise made by the sellermade by the seller

2.2. By a description of the goodsBy a description of the goods3.3. By the use of a sample or model By the use of a sample or model

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An express warranty is created when An express warranty is created when a private party or a merchant sells a private party or a merchant sells goods and makes a statement of fact goods and makes a statement of fact or a promise about the goods to the or a promise about the goods to the buyer.buyer.

Statement of Fact or Promise Statement of Fact or Promise

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An express warranty may be a An express warranty may be a statement of fact or a promise of statement of fact or a promise of something that may happen in the something that may happen in the future.future.Express warranties are often found Express warranties are often found in sales brochures, circulars, and in sales brochures, circulars, and advertisements.advertisements.

Statement of Fact or Promise Statement of Fact or Promise

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Written warranties on consumer Written warranties on consumer products costing more than $15 must products costing more than $15 must be made available before you buy the be made available before you buy the product.product.

Availability before Sale Availability before Sale

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An advertisement stating that a An advertisement stating that a product is warranted must tell you how product is warranted must tell you how to get a copy of the warranty before to get a copy of the warranty before you buy the product.you buy the product.

Advertising Express Warranties Advertising Express Warranties

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The Magnuson-Moss Warranty Act is The Magnuson-Moss Warranty Act is a law affecting only the sale of goods a law affecting only the sale of goods sold in interstate commerce (business sold in interstate commerce (business activities that touch more than one activities that touch more than one state).state).

Magnuson-Moss Warranty Act Magnuson-Moss Warranty Act

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This federal act gives added This federal act gives added protection to consumers when written protection to consumers when written express warranties are made. express warranties are made.

Magnuson-Moss Warranty Act Magnuson-Moss Warranty Act

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When a written warranty is offered on When a written warranty is offered on consumer goods costing more that consumer goods costing more that $10 and sold in interstate commerce, $10 and sold in interstate commerce, the warranty must be labeled as full or the warranty must be labeled as full or limited.limited.

Magnuson-Moss Warranty Act Magnuson-Moss Warranty Act

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A A full warrantyfull warranty promises to fix or promises to fix or replace a defective product at no replace a defective product at no charge to the consumer. charge to the consumer.

Full Warranty Full Warranty

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A full warranty: A full warranty:

Full Warranty Full Warranty

Must be honored within a Must be honored within a reasonable amount of time.reasonable amount of time.Is good for the period mentioned in Is good for the period mentioned in the warranty, regardless of who the warranty, regardless of who owns the item when it breaks.owns the item when it breaks.

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A A limited warrantylimited warranty is any written is any written warranty that does not meet the warranty that does not meet the requirements for a full warranty.requirements for a full warranty.

Limited Warranty Limited Warranty

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A limited warranty:A limited warranty:

Limited Warranty Limited Warranty

Does not promise free repair or Does not promise free repair or replacement.replacement.Commonly covers only parts, not Commonly covers only parts, not labor.labor.May offer a partial refund.May offer a partial refund.

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A limited warranty:A limited warranty:

Limited Warranty Limited Warranty

May require you to pay shipping.May require you to pay shipping.May only apply to the original buyer.May only apply to the original buyer.Must be labeled “limited warranty.”Must be labeled “limited warranty.”

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Any description of the goods that is Any description of the goods that is part of a transaction also creates an part of a transaction also creates an express warranty. express warranty.

The seller warrants that the goods will The seller warrants that the goods will be the same as the description.be the same as the description.

Description of the Goods Description of the Goods

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Any sample or model that is part of a Any sample or model that is part of a transaction creates an express transaction creates an express warranty. warranty.

When displaying a sample or model, When displaying a sample or model, the seller warrants that the goods sold the seller warrants that the goods sold will be the same.will be the same.

Sample or Model Sample or Model

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Pre-Learning Question Pre-Learning Question

What is an implied warranty?

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An An implied warrantyimplied warranty is a guarantee of is a guarantee of quality imposed by law.quality imposed by law.

Implied Warranties Implied Warranties

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An implied warranty:An implied warranty:

Implied Warranties Implied Warranties

Is not in writing.Is not in writing.Applies only to goods that are sold, Applies only to goods that are sold, not services contracted.not services contracted.

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There are three types of implied There are three types of implied warranties:warranties:

Implied Warranties Implied Warranties

1.1. Warranty of fitness for a particular Warranty of fitness for a particular purposepurpose

2.2. Warranty of merchantabilityWarranty of merchantability3.3. Warranty that comes from a Warranty that comes from a

course of dealing or usage of trade course of dealing or usage of trade

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What is the difference between an express and an implied warranty?

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ANSWERANSWER

Express: provided by the seller; implied: imposed by law.

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A A warranty of fitness for a warranty of fitness for a particular purposeparticular purpose is created when is created when the seller knows the purpose for which the seller knows the purpose for which the goods are needed.the goods are needed.

Warranty of Fitness Warranty of Fitness for a Particular Purpose for a Particular Purpose

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The seller advises the buyer in making The seller advises the buyer in making a purchase, and the buyer relies on a purchase, and the buyer relies on the seller’s knowledge and advice. the seller’s knowledge and advice.

Warranty of Fitness Warranty of Fitness for a Particular Purpose for a Particular Purpose

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In this way, the seller warrants by In this way, the seller warrants by implication that the goods will be fit for implication that the goods will be fit for the purpose for which they are to be the purpose for which they are to be used. used.

Warranty of Fitness Warranty of Fitness for a Particular Purpose for a Particular Purpose

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This warranty exists whether the seller This warranty exists whether the seller is a merchant or a private party.is a merchant or a private party.

Warranty of Fitness Warranty of Fitness for a Particular Purpose for a Particular Purpose

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Under an implied Under an implied warranty of warranty of merchantabilitymerchantability, the merchant , the merchant warrants that the goods being sold are warrants that the goods being sold are merchantable.merchantable.

Warranty of Merchantability Warranty of Merchantability

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This warranty is given only when the This warranty is given only when the seller regularly sells goods of that seller regularly sells goods of that kind. kind.

Unless disclaimed, retailers, Unless disclaimed, retailers, wholesalers, and manufacturers imply wholesalers, and manufacturers imply such a warranty in every sale.such a warranty in every sale.

Warranty of Merchantability Warranty of Merchantability

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This gives assurance that their This gives assurance that their products are fit for the purpose for products are fit for the purpose for which they are purchased.which they are purchased.

Warranty of Merchantability Warranty of Merchantability

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Private parties do not provide the Private parties do not provide the warranty of merchantability.warranty of merchantability.

Warranty of Merchantability Warranty of Merchantability

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Another implied warranty arises from Another implied warranty arises from the customary ways in which the the customary ways in which the parties have dealt in the past, or the parties have dealt in the past, or the usage of tradeusage of trade. .

Usage of Trade Usage of Trade

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Pre-Learning Question Pre-Learning Question

What is a warranty of title?

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When a merchant or a private party When a merchant or a private party sells goods, the seller warrants that sells goods, the seller warrants that the title being conveyed is good and the title being conveyed is good and that the transfer is lawful. that the transfer is lawful.

This is called the This is called the warranty of titlewarranty of title..

Warranty of Title Warranty of Title

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Reviewing What You Learned

1. What are the three ways an express warranty can be made?

Section 14.1 Assessment

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Reviewing What You Learned

By a statement of fact or promise made by the seller, by a description of the goods, and by the use of a sample or model.

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Answer

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Reviewing What You Learned

2. What are the obligations of merchants under the Magnuson-Moss Warranty Act?

Section 14.1 Assessment

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Reviewing What You Learned

Merchants must label written warranties as either “full” or “limited” for consumer products costing more than $10.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

3. What is difference between a limited warranty and a full warranty?

Section 14.1 Assessment

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Reviewing What You Learned

A limited warranty is one that does not meet all of the requirements for a full warranty.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

4. What is the difference between the implied warranty of fitness for a particular purpose and the implied warranty of merchantability?

Section 14.1 Assessment

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Reviewing What You Learned

A warranty of fitness for a particular purpose is created when the seller knows about a particular purpose for which the goods are needed.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

The seller advises the buyer in making a purchase and the buyer relies on the seller’s advice. This warranty exists whether the seller is a merchant or a private party.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

In contrast, sellers who regularly sell goods of a particular kind imply a warranty of merchantability in every sale, assuring that their products are fit for the purpose for which they are purchased.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

Private parties do not provide the warranty of merchantability.

Section 14.1 Assessment

Answer

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Reviewing What You Learned

5. What is the warranty of title?

Section 14.1 Assessment

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Reviewing What You Learned

Guarantees that the title being conveyed is good, and the transfer is lawful.

Section 14.1 Assessment

Answer

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact A statement of fact by a seller about a product is a warranty; a seller’s opinion is not. Talk with another class member and compare the following pairs of statements.

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact Classify each statement as fact or opinion.

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact

1.1. These goods are 100 percent wool.These goods are 100 percent wool.

This is the finest wool around.This is the finest wool around.

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Section 14.1 Assessment

Critical Thinking Activity AnswerOpinion or Fact 1.1. These goods are 100 percent wool. These goods are 100 percent wool.

(fact)(fact)This is the finest wool around. This is the finest wool around. (opinion)(opinion)

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact 2.2. This truck has never been in an This truck has never been in an

accident.accident.This truck is solid.This truck is solid.

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Section 14.1 Assessment

Critical Thinking Activity AnswerOpinion or Fact 2.2. This truck has never been in an This truck has never been in an

accident. (fact)accident. (fact)This truck is solid. (opinion)This truck is solid. (opinion)

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact 3.3. This ink will not stain clothes.This ink will not stain clothes.

This ink is safe to use.This ink is safe to use.

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Section 14.1 Assessment

Critical Thinking Activity AnswerOpinion or Fact 3.3. This ink will not stain clothes. (fact)This ink will not stain clothes. (fact)

This ink is safe to use. (opinion)This ink is safe to use. (opinion)

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Critical Thinking ActivityOpinion or Fact 4.4. This is an IBM-compatible computer.This is an IBM-compatible computer.

This computer is as good as any This computer is as good as any IBM.IBM.

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Section 14.1 Assessment

Critical Thinking Activity AnswerOpinion or Fact 4.4. This is an IBM-compatible computer. This is an IBM-compatible computer.

(fact)(fact)This computer is as good as any This computer is as good as any IBM. (opinion)IBM. (opinion)

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Section 14.1 Assessment

Critical Thinking ActivityOpinion or Fact 5.5. This watch is waterproof.This watch is waterproof.

This watch is durable. This watch is durable.

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Section 14.1 Assessment

Critical Thinking Activity AnswerOpinion or Fact 5.5. This watch is waterproof. (fact)This watch is waterproof. (fact)

This watch is durable. (opinion)This watch is durable. (opinion)

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Section 14.1 Assessment

Legal Skills in ActionWritten Guarantees Turner is planning to sell his computer system to Lynne. It is only two years old and has a modem, color monitor, and CD-ROM drive. According to Turner, the system has never had a problem.

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Section 14.1 Assessment

Legal Skills in ActionWritten Guarantees Lynne is a little nervous about buying a used system and wants a written guarantee. In groups of two, help Turner write a warranty on his computer system.

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Section 14.1 Assessment

Legal Skills in Action AnswerWritten Guarantees Warranties will vary, but should recognize that Turner need only provide Lynne with a warranty of fitness for a particular purpose.

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Express and Implied Warranties Express and Implied Warranties End of Section 14.1End of Section 14.1

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Express and Implied Warranties Express and Implied Warranties Section 15.1Section 15.1

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Section 15.1Section 15.1Consumer Protection Consumer Protection

Section 15.2Section 15.2Product Liability Product Liability

1515ChapterChapter Consumer Protection Consumer Protection and Product Liabilityand Product Liability

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What You’ll Learn

How to explain the main differences How to explain the main differences between state and federal consumer between state and federal consumer protection law (p. 316)protection law (p. 316)

How to describe two unfair and deceptive How to describe two unfair and deceptive practices (p. 317)practices (p. 317)

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What You’ll Learn

How to recognize bait and switch How to recognize bait and switch advertising (p. 321)advertising (p. 321)

How to identify four Federal Trade How to identify four Federal Trade Commission rules that protect Commission rules that protect consumers (p. 321)consumers (p. 321)

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Why It’s Important

Knowledge of consumer protection laws will Knowledge of consumer protection laws will prevent you from falling victim to fraud and prevent you from falling victim to fraud and deception.deception.

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Legal Terms

caveat emptorcaveat emptor (p. 316) (p. 316)caveat venditorcaveat venditor (p. 316) (p. 316)consumer (p. 316)consumer (p. 316)unfair and deceptive practice (p. 317)unfair and deceptive practice (p. 317)fraudulent misrepresentation (p. 318)fraudulent misrepresentation (p. 318)

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Legal Terms

cease and desist orders (p. 320)cease and desist orders (p. 320)bait and switch (p. 321)bait and switch (p. 321)cooling-off rule (p. 322)cooling-off rule (p. 322)telemarketers (p. 323)telemarketers (p. 323)

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The Development of Consumer Protection Law

Federal and State Consumer Protection Laws

Section OutlineSection Outline

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Fraudulent MisrepresentationWork-at-Home SchemesUnordered Merchandise

Unfair and Deceptive Practices Section OutlineSection Outline

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Bait and Switch Advertising

False Advertising Section OutlineSection Outline

Negative Option RuleThe Cooling-Off Rule

FTC Trade Regulation Rules

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Telemarketing Sales Rule900-Telephone-Number RulesShopping by Mail, Telephone, Fax, or

Internet

FTC Trade Regulation Rules, continued

Section OutlineSection Outline

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Pre-Learning Question Pre-Learning Question

How did consumer protection laws develop?

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Years ago, Years ago, caveat emptorcaveat emptor, which , which means “let the buyer beware,” means “let the buyer beware,” reflected society’s attitude toward reflected society’s attitude toward consumers. consumers.

The Development of Consumer The Development of Consumer Protection Law Protection Law

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There were few ways to seek There were few ways to seek compensation for damages and those compensation for damages and those injured had no recourse due to privity injured had no recourse due to privity of contract.of contract.

The Development of Consumer The Development of Consumer Protection Law Protection Law

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Today, however, society demands Today, however, society demands that manufacturers be held that manufacturers be held responsible for foreseeable injuries to responsible for foreseeable injuries to people who use their products. people who use their products.

The Development of Consumer The Development of Consumer Protection Law Protection Law

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Caveat venditorCaveat venditor, which means “let , which means “let the seller beware,” now guides the seller beware,” now guides consumer transactions.consumer transactions.

The Development of Consumer The Development of Consumer Protection Law Protection Law

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Pre-Learning Question Pre-Learning Question

To whom do consumer protection laws apply?

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Federal and State Consumer Federal and State Consumer Protection Laws Protection Laws

Consumer protection laws apply to Consumer protection laws apply to transactions between consumers and transactions between consumers and people conducting business.people conducting business.

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Federal and State Consumer Federal and State Consumer Protection Laws Protection Laws

A A consumerconsumer is someone who buys or is someone who buys or leases goods, real estate, or services leases goods, real estate, or services for personal, family, or household for personal, family, or household purposes. purposes.

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The Importance of Warranties

Federal and State Consumer Federal and State Consumer Protection Laws Protection Laws

Consumer protection laws do not Consumer protection laws do not protect you if: protect you if:

You acquire a product from another You acquire a product from another consumerconsumerYou buy a product to use in a You buy a product to use in a business business

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What is the difference between caveat emptor and caveat venditor?

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ANSWERANSWER

Caveat emptor is Latin for “let the buyer beware” and means that the buyer is the responsible party. Caveat venditor is Latin for ”let the seller beware” and means that the seller is responsible.

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State Consumer Protection State Consumer Protection

State consumer protection offices State consumer protection offices provide information and help provide information and help enforce state consumer protection enforce state consumer protection laws.laws.Offices may assist consumers with Offices may assist consumers with individual problems.individual problems.

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The Importance of Warranties

Federal Consumer Protection Federal Consumer Protection

Federal consumer protection law Federal consumer protection law applies to businesses that sell real applies to businesses that sell real estate, goods, or services in interstate estate, goods, or services in interstate commerce, or business activity that commerce, or business activity that touches more than one state.touches more than one state.

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Federal Consumer Protection Federal Consumer Protection

The Federal Trade Commission (FTC) The Federal Trade Commission (FTC) is the U.S. government agency that is the U.S. government agency that promotes free and fair trade promotes free and fair trade competition in the American economy. competition in the American economy. The Bureau of Consumer Protection The Bureau of Consumer Protection safeguards consumers against unfair, safeguards consumers against unfair, deceptive, or fraudulent practices.deceptive, or fraudulent practices.

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Federal Consumer Protection Federal Consumer Protection

Both organizations investigate Both organizations investigate violations of federal consumer violations of federal consumer protection law.protection law.

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Pre-Learning Question Pre-Learning Question

What do you think are unfair and deceptive practices?

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Unfair and Deceptive Practices Unfair and Deceptive Practices

An An unfair and deceptive practiceunfair and deceptive practice is is an act that misleads consumers. Most an act that misleads consumers. Most states have enacted some kind of states have enacted some kind of unfair and deceptive trade practice unfair and deceptive trade practice law. law.

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Unfair and Deceptive Practices Unfair and Deceptive Practices

Examples include:Examples include:

Work-at-home schemesWork-at-home schemesUnordered merchandiseUnordered merchandiseFalse advertising False advertising

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Unfair and Deceptive Practices Unfair and Deceptive Practices

If you feel you are the victim of an If you feel you are the victim of an unfair or deceptive practice:unfair or deceptive practice:

Speak to the business owner or Speak to the business owner or manager about the problemmanager about the problemWrite a complaint letter to the Write a complaint letter to the company.company.

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The Importance of Warranties

Elements of a Complaint Letter Elements of a Complaint Letter

Description of purchaseDescription of purchaseProduct name and serial and model Product name and serial and model number or servicenumber or serviceStatement and history of problemStatement and history of problemAsk for specific action, state Ask for specific action, state reasonable time for actionreasonable time for action

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The Importance of Warranties

Elements of a Complaint Letter Elements of a Complaint Letter

Copies of documentsCopies of documentsYour address and work and home Your address and work and home phone numbersphone numbers

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Fraudulent Misrepresentation Fraudulent Misrepresentation

A A fraudulent misrepresentationfraudulent misrepresentation is is any statement that deceives the any statement that deceives the buyer. A fraudulent misrepresentation buyer. A fraudulent misrepresentation usually occurs when a seller misstates usually occurs when a seller misstates the facts about something that is the facts about something that is important to the consumer.important to the consumer.

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Work-at-Home Schemes Work-at-Home Schemes

Home employment schemes are Home employment schemes are among the oldest kind of advertising among the oldest kind of advertising fraud. fraud.

They often promise big incomes They often promise big incomes without explaining the costs.without explaining the costs.

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Unordered Merchandise Unordered Merchandise

Under state and federal laws, Under state and federal laws, unordered merchandise may be unordered merchandise may be considered a gift. You can keep it considered a gift. You can keep it without paying for it. without paying for it.

It is illegal for anyone who sends free It is illegal for anyone who sends free samples to include a bill.samples to include a bill.

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What does FTC stand for and what does it do?

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ANSWERANSWER

The Federal Trade Commission is the agency of the U.S. government that promotes free and fair trade competition in the U.S. economy.

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Pre-Learning Question Pre-Learning Question

What is an example of false advertising?

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False Advertising False Advertising

The FTC regulates false advertising The FTC regulates false advertising on the national level and has the on the national level and has the power to issue power to issue cease and desist cease and desist ordersorders. . These orders are legally binding These orders are legally binding orders to stop a practice that would orders to stop a practice that would mislead the public.mislead the public.

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Bait and Switch Bait and Switch

One example of false advertising is One example of false advertising is bait and switchbait and switch advertising. advertising.

This happens when a store advertises This happens when a store advertises bargains that do not really exist to lure bargains that do not really exist to lure customers in hopes that they will buy customers in hopes that they will buy more expensive merchandise.more expensive merchandise.

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Pre-Learning Question Pre-Learning Question

What are some FTC trade regulation rules?

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FTC Trade Regulation Rules FTC Trade Regulation Rules

The FTC has established trade The FTC has established trade regulation rules for interstate regulation rules for interstate commerce to correct wrongdoing in commerce to correct wrongdoing in the marketplace.the marketplace.

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FTC Trade Regulation Rules FTC Trade Regulation Rules

They include:They include:

The negative option ruleThe negative option ruleThe cooling-off ruleThe cooling-off ruleThe telemarketing sales ruleThe telemarketing sales rule900-telephone-number rules900-telephone-number rulesRules for shopping by mail, Rules for shopping by mail, telephone, fax, or Internettelephone, fax, or Internet

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Negative Option Rule Negative Option Rule

When you subscribe to a magazine or When you subscribe to a magazine or CD club or other plan that sends CD club or other plan that sends products regularly, the negative option products regularly, the negative option rule applies. rule applies. Under such plans, the seller sends Under such plans, the seller sends you announcements describing the you announcements describing the current selection.current selection.

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Negative Option Rule Negative Option Rule

If you want the selection, you do If you want the selection, you do nothing; the seller will ship it nothing; the seller will ship it automatically. automatically.

If you do not want it, you must tell the If you do not want it, you must tell the seller not to send it, and there is a seller not to send it, and there is a deadline for notification.deadline for notification.

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The Cooling-Off Rule The Cooling-Off Rule

The The cooling-off rulecooling-off rule gives you three gives you three days to cancel contracts for most days to cancel contracts for most purchases made away from the purchases made away from the seller’s regular place of business. seller’s regular place of business.

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The Cooling-Off Rule The Cooling-Off Rule

The rule applies to purchases of The rule applies to purchases of $25 or more made at the buyer’s $25 or more made at the buyer’s home, workplace, or dormitory. home, workplace, or dormitory. It does not apply to contracts for It does not apply to contracts for real estate, insurance, securities, or real estate, insurance, securities, or emergency home repairs.emergency home repairs.

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Telemarketing Sales Rule Telemarketing Sales Rule

The Telemarketing Sales Rule The Telemarketing Sales Rule protects you from abusive protects you from abusive telemarketerstelemarketers, the people who try to , the people who try to sell you products by telephone.sell you products by telephone.

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900-Telephone-Number Rules 900-Telephone-Number Rules

Unlike 800-telephone-numbers, if you Unlike 800-telephone-numbers, if you dial a 900-area-code telephone dial a 900-area-code telephone number, you are charged for the call.number, you are charged for the call.

Sometimes consumers are charged Sometimes consumers are charged excessively for 900-number calls. excessively for 900-number calls.

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Protect Yourself Against Protect Yourself Against 900-Number Scams 900-Number Scams

Deal only with reputable companies.Deal only with reputable companies.Think twice before calling a 900-Think twice before calling a 900-number for a “free gift.”number for a “free gift.”

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Protect Yourself Against Protect Yourself Against 900-Number Scams 900-Number Scams

Know precisely what the 900-call Know precisely what the 900-call will cost—before you make the call.will cost—before you make the call.Don’t confuse 900-numbers with Don’t confuse 900-numbers with toll-free 800-numbers.toll-free 800-numbers.

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Shopping by Mail, Telephone, Shopping by Mail, Telephone, Fax, or Internet Fax, or Internet

The FTC has established rules to The FTC has established rules to protect you when ordering goods by protect you when ordering goods by mail, telephone, fax, and the Internet.mail, telephone, fax, and the Internet.

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Shopping by Mail, Telephone, Shopping by Mail, Telephone, Fax, or Internet Fax, or Internet

Sellers must ship goods within the Sellers must ship goods within the time they promise in the advertising.time they promise in the advertising.If shipping time is not stated, they If shipping time is not stated, they must ship within 30 days after must ship within 30 days after receiving an order.receiving an order.

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Shopping by Mail, Telephone, Shopping by Mail, Telephone, Fax, or Internet Fax, or Internet

You have the right to cancel and get You have the right to cancel and get your money back if time limits are your money back if time limits are not met.not met.Sellers must notify you of any delay Sellers must notify you of any delay in shipment.in shipment.

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Reviewing What You Learned

1. What are the main differences between state and federal consumer law?

Section 15.1 Assessment

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Reviewing What You Learned

State consumer law provides information and helps protect consumers in the state in which they live. They sometimes assist consumers with individual problems.

Section 15.1 Assessment

Answer

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Reviewing What You Learned

Federal consumer protection law applies to businesses that sell real estate, goods, or services in interstate commerce.

Section 15.1 Assessment

Answer

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Reviewing What You Learned

2. Describe two unfair and deceptive practices.

Section 15.1 Assessment

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Reviewing What You Learned

False advertising and work-at-home schemes.

Section 15.1 Assessment

Answer

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Reviewing What You Learned

3. What is bait and switch advertising?

Section 15.1 Assessment

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Reviewing What You Learned

Bait and switch advertising is an illegal practice in which nonexistent bargains are advertised to lure customers to more expensive merchandise.

Section 15.1 Assessment

Answer

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Reviewing What You Learned

4. What are four FTC rules designed to protect consumers?

Section 15.1 Assessment

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Reviewing What You Learned

Answers include the negative option rule, the cooling-off rule, the telemarketing sales rule, 900-telephone-number rules, and rules for shopping by mail, telephone, fax, or Internet.

Section 15.1 Assessment

Answer

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Critical Thinking ActivityBait and Switch How do you think bait and switch advertising got its name? What is the bait? What is the switch?

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Answers will vary. Bait is what one uses to lure or catch something, as a worm is bait for catching fish. A business advertises a bargain to lure customers into the store.

Critical Thinking Activity AnswerBait and Switch

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The switch occurs when the salesperson tries to convince the customer to buy other, more expensive items.

Critical Thinking Activity AnswerBait and Switch

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Legal Skills in ActionThe Federal Trade Commission Merta has been a member of a CD club for two years. She has made several unsuccessful attempts to cancel her membership.

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Legal Skills in ActionThe Federal Trade Commission Roberto suggested she file a complaint with the Federal Trade Commission. Merta needs to know more information.

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Legal Skills in ActionThe Federal Trade Commission Help Merta research the history of the FTC. Next, help her to find out how to file a complaint with the FTC.

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Legal Skills in Action AnswerThe Federal Trade Commission Answers will vary, but research could include the FTC Web site at www.ftc.gov.

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Express and Implied Warranties Express and Implied Warranties End of Section 15.1End of Section 15.1

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Express and Implied Warranties Express and Implied Warranties Section 15.2Section 15.2

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What You’ll Learn

How to differentiate between product How to differentiate between product liability and strict liability (p. 327)liability and strict liability (p. 327)

How to describe the purpose of the How to describe the purpose of the Consumer Product Safety Act (p. 329)Consumer Product Safety Act (p. 329)

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What You’ll Learn

How to identify the prohibitions contained How to identify the prohibitions contained in the Food, Drug, and Cosmetic Act in the Food, Drug, and Cosmetic Act (p. 329)(p. 329)

How to determine where to get consumer How to determine where to get consumer protection assistance (p. 330)protection assistance (p. 330)

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Why It’s Important

Learning about product liability law will help Learning about product liability law will help you take effective action if you or a family you take effective action if you or a family member suffers injury from faulty products.member suffers injury from faulty products.

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Legal Terms

product liability (p. 327)product liability (p. 327)strict liability (p. 327)strict liability (p. 327)adulterated (p. 329)adulterated (p. 329)intrastate sales (p. 330)intrastate sales (p. 330)

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What is Product Liability? Strict Liability

Section OutlineSection Outline

Federal and State Consumer Protection Laws

Consumer Product Safety ActFood, Drug, and Cosmetic ActState and Local Laws

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Consumer Protection Assistance Section OutlineSection Outline

Better Business Bureau

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Pre-Learning Question Pre-Learning Question

What do you think product liability is?

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Under Under product liability product liability law, someone law, someone who is injured from a product’s unsafe who is injured from a product’s unsafe or defective condition may recover or defective condition may recover damages. Manufacturers, sellers, and damages. Manufacturers, sellers, and suppliers of goods can all be held suppliers of goods can all be held responsible.responsible.

What Is Product Liability? What Is Product Liability?

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You do not have to prove a negligent You do not have to prove a negligent act on the part of the manufacturer or act on the part of the manufacturer or seller if you are hurt using a defective seller if you are hurt using a defective product. product.

Strict Liability Strict Liability

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Strict liabilityStrict liability makes manufacturers makes manufacturers or suppliers responsible for selling or suppliers responsible for selling goods that are unreasonably goods that are unreasonably dangerous. dangerous.

Strict Liability Strict Liability

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People who are injured or who suffer People who are injured or who suffer property damage from a defective property damage from a defective product may recover from the product may recover from the manufacturer or seller if they can manufacturer or seller if they can prove all of the following:prove all of the following:

Strict Liability Strict Liability

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The manufacturer or seller was The manufacturer or seller was engaged in the business of selling engaged in the business of selling the product.the product.The product was unreasonably The product was unreasonably dangerous to the user or consumer.dangerous to the user or consumer.

Strict Liability Strict Liability

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The defective condition was the The defective condition was the cause of the injury or damage.cause of the injury or damage.The defective condition existed The defective condition existed when the product left the hands of when the product left the hands of the manufacturer or seller.the manufacturer or seller.

Strict Liability Strict Liability

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The consumer suffered physical The consumer suffered physical harm or property damage as a harm or property damage as a result of using the product.result of using the product.

Strict Liability Strict Liability

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Pre-Learning Question Pre-Learning Question

What are some federal and state consumer protection laws?

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Both the federal and state Both the federal and state governments pass laws to protect governments pass laws to protect consumers in the marketplace. consumers in the marketplace.

Federal and State Consumer Federal and State Consumer Protection Laws Protection Laws

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Two federal laws are the:Two federal laws are the:

Federal and State Consumer Federal and State Consumer Protection Laws Protection Laws

Consumer Product Safety ActConsumer Product Safety ActFood, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

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This law protects you from This law protects you from unreasonable risk of injury while using unreasonable risk of injury while using consumer products that are sold in consumer products that are sold in interstate commerce. interstate commerce.

Consumer Product Safety Act Consumer Product Safety Act

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Defects in products are divided into Defects in products are divided into three categories:three categories:

Consumer Product Safety Act Consumer Product Safety Act

1.1. Manufacturing defectsManufacturing defects2.2. Poor designPoor design3.3. Inadequate instructions and Inadequate instructions and

warnings about the safe use of the warnings about the safe use of the productproduct

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This law prohibits the manufacture This law prohibits the manufacture and shipment of faulty products in and shipment of faulty products in interstate commerce. interstate commerce. Faulty products include any food, Faulty products include any food, drug, cosmetic, or health-related drug, cosmetic, or health-related device that is injurious, adulterated, or device that is injurious, adulterated, or misbranded.misbranded.

Food, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

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A food or drug is said to be injurious if A food or drug is said to be injurious if it contains any substance that may it contains any substance that may make it harmful to health.make it harmful to health.

Food, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

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An An adulteratedadulterated food or drug is one food or drug is one that contains any substance that will that contains any substance that will reduce its quality or strength below reduce its quality or strength below minimum standards.minimum standards.

Food, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

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A food or drug is misbranded if its A food or drug is misbranded if its labeling or packaging is false or labeling or packaging is false or misleading.misleading.

Food, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

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The government uses other methods The government uses other methods to discourage the sale of goods to discourage the sale of goods considered harmful to the public considered harmful to the public health. They include:health. They include:

Food, Drug, and Cosmetic Act Food, Drug, and Cosmetic Act

Unusually high taxesUnusually high taxesLabeling and packagingLabeling and packagingOutright prohibition Outright prohibition

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15.215.2

Warning Labels Warning Labels

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True or False: A food or drug is said to be injurious if it contains any substance that may make it harmful.

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ANSWERANSWER

True

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If goods are manufactured and sold If goods are manufactured and sold only within the boundaries of a state, only within the boundaries of a state, the federal government has no control the federal government has no control over the goods. over the goods. For this reason, many states have For this reason, many states have enacted their own product liability enacted their own product liability laws.laws.

State and Local Laws State and Local Laws

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These laws apply to These laws apply to intrastate salesintrastate sales (sales within a state). (sales within a state).

Nearly all states and localities license Nearly all states and localities license and regulate establishments that sell and regulate establishments that sell food.food.

State and Local Laws State and Local Laws

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True or False: The federal government applies unusually high taxes on harmful products in order to raise enough money to warn consumers of its dangers.

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ANSWERANSWER

False

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Pre-Learning Question Pre-Learning Question

Where can you go to get consumer protection assistance?

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Many state and local governments Many state and local governments have offices of consumer affairs to have offices of consumer affairs to educate consumers and help protect educate consumers and help protect them against fraud.them against fraud.

Consumer ProtectionConsumer ProtectionAssistanceAssistance

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The federal Consumer Product Safety The federal Consumer Product Safety Commission establishes safety Commission establishes safety standards for consumer products. standards for consumer products. For information or to report unsafe For information or to report unsafe products you can call its hotline at products you can call its hotline at 1-800-638-CPSC.1-800-638-CPSC.

Consumer ProtectionConsumer ProtectionAssistanceAssistance

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The Better Business Bureau (BBB) is The Better Business Bureau (BBB) is an example of a nongovernment an example of a nongovernment agency that hears consumer agency that hears consumer complaints at the local and state complaints at the local and state levels. Its mission is to promote high levels. Its mission is to promote high ethical relationships between ethical relationships between businesses and the public.businesses and the public.

Better Business Bureau Better Business Bureau

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The BBB provides services that The BBB provides services that include the following:include the following:

Better Business Bureau Better Business Bureau

Provides information on a Provides information on a business’s past dealingsbusiness’s past dealingsHelps resolve complaintsHelps resolve complaintsProvides information on charitable Provides information on charitable organizationsorganizations

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Publishes consumer publications, Publishes consumer publications, videos, and Internet advisoriesvideos, and Internet advisoriesAlerts businesses, consumers, and Alerts businesses, consumers, and law enforcement agencies about law enforcement agencies about current scams and fraudscurrent scams and fraudsProvides Internet reliability and Provides Internet reliability and privacy “Trustmark” sealsprivacy “Trustmark” seals

Better Business Bureau Better Business Bureau

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True or False: Intrastate sales involve the buying and selling of merchandise within a state, not across state lines.

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ANSWERANSWER

True

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Reviewing What You Learned

1. What is the difference between product liability and strict liability?

Section 15.2 Assessment

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Reviewing What You Learned

Manufacturers and sellers have product liability when they place defective, unhealthy, or unsafe items on the market. They are strictly liable, without regard to fault, when they sell unreasonably dangerous products.

Section 15.2 Assessment

Answer

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Reviewing What You Learned

2. What is the purpose of the Consumer Product Safety Act?

Section 15.2 Assessment

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Reviewing What You Learned

Protects consumers from unreasonable risk of injury from using consumer products.

Section 15.2 Assessment

Answer

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Reviewing What You Learned

3. What prohibitions are contained in the Food, Drug, and Cosmetic Act?

Section 15.2 Assessment

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Reviewing What You Learned

It prohibits the manufacture and shipment of faulty products in interstate commerce.

Section 15.2 Assessment

Answer

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Reviewing What You Learned

4. Where can you find consumer protection assistance?

Section 15.2 Assessment

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Reviewing What You Learned

From state and local consumer protection agencies, such as the Consumer Product Safety Commission and the Better Business Bureau.

Section 15.2 Assessment

Answer

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Section 15.2 Assessment

Critical Thinking ActivityConsumer Protection Why do you think so many consumer protection laws are necessary?

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Critical Thinking Activity AnswerConsumer Protection Answers will vary. Students will probably propose that laws are necessary to protect consumers from unethical businesses and unsafe products.

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Section 15.2 Assessment

Legal Skills in ActionProduction Information Labels Olivia has taken nonprescription allergy medication for several years. Recently, the medication was taken off the market because of an ingredient called PPA.

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Section 15.2 Assessment

Legal Skills in ActionProduction Information Labels Now Olivia wonders if any other dangerous ingredients were in the medication that she took.

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Section 15.2 Assessment

Legal Skills in ActionProduction Information Labels In groups of two or three, investigate and review the ingredients on the labels of some of the products you use and the food you eat at school.

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Legal Skills in ActionProduction Information Labels You can review products such as soda, snack items from vending machines, chewing gum, and cosmetics. Make a list of the ingredients you are not familiar with.

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Section 15.2 Assessment

Legal Skills in ActionProduction Information Labels Will you continue eating the food and using the products? Why or why not?

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Section 15.2 Assessment

Legal Skills in Action AnswerProduction Information Labels Lists will vary but could include ingredients such as xanthan gum, stearic acid, partially hydrogenated cottonseed oil, and maltodextrin.

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Express and Implied Warranties Express and Implied Warranties End of Section 15.2End of Section 15.2