Is the move away from contract and towards tort in product liability cases desirable?

Introduction

The approach taken with product liability cases has shifted over time. The Sale of Goods Act (1893) was an act put in place to state the terms and conditions of the contracts for the buying and selling particular goods. This act was later reformed in 1979, which fundamentally followed the same rules; the buying and selling of good were regulated by contractual agreements between the buyer and the seller. However as time progressed the sale of goods and product liability is moving from contracts and more towards tort liability. Contracts are legal promises between the buyer and seller in which the buyer promises to pay for a product that the seller must promise adheres to the standard expected from the product. A breach of contract includes that the buyer does not pay the right amount, or the more likely breach that the product has a design or manufacture defect that causes injury to the buyer. Tort liability instead simply makes the manufacturer responsible for any ‘injuries’ that the product causes the consumer. The idea behind this was because the seller is simply the agent of the manufacturer who has no part in the production process of the good sold.

In this essay we will explain why product liability is starting to shift from contracts to tort. We will also discuss how tort law has developed over time focusing on the negligence rule and strict liability. Product liability law has become a very effective tool for consumer protection. However an injured consumer would still have to prove that a defected product in fact directly caused their injury. Does tort law make it easier to deal with product liability cases over contractual law? Or does tort make it more complex to solve this type of case?

The History of Product Liability

The law of product liability has developed overtime when the United States Court began imposing implies warranty in the purchase of products in the 19th Century. It was understood that the buyer would have privity with the seller. That is, the buyer has a contractual agreement with the seller in which reparations will be received from the seller should the product cause injury. This however also omits any other party not within that contract from suing or being sued. Note that being an injurer does not necessarily mean one was physically harmed but can simply mean that the product did not fit the expectation understood upon purchase. This meant that the manufacturer was not liable for any damages because they are not in privity with the consumer. The manufacturer would have had to sell the good directly to the consumer in order for them to be liable. However at this time manufacturers were beginning to rely on shop owners to sell their product and so recovery for a breach of warranty from manufacturers were difficult to realize due to the lack of privity of contract.

This particularly became a problem when a consumer was harmed as a result of manufacture’s negligence; but due to contractual agreement, were protected from liability. However later into the 19th century developments to this rule were coming to pass. The privity rule became nullified if it as discovered that the manufacturer disguised the faults with the product that put the plaintiff in harms way. This was usually evident in product liability cases that included the selling of firearms or pharmaceuticals. Some courts put this offense down to ‘fraud’ with ‘invitation’ for the plaintiff to use the product. This occurred in the negligence case of Macpherson V Buick Motor Co. in 1916. The motor vehicles Buick sold were dangerous and became a case of negligence when they knowingly sold defective cars. They failed their duty of selling a product safe for human consumption. This led to the privity rule being eliminated in this case because it as very clear that Buick Motors was the party that committed negligence, not the car dealer. This case soon became a staple in product liability law that led to public sympathy for people who were victims of manufacturer negligence and more cases being won by consumers due to the dismissal of the lack of privity rule.

By the mid 20th century after many cases were won by abandoning the privity rule, the California Supreme Court fully embraced the strict tort liability approach to product liability cases due to the Greenman V Yuba Power Products Inc. case of 1963 that won because of strict liability. Furthermore, the American Law Institute passed a law that product liability cases were to be settled using tort law, which makes the manufacturer liable instead of the selling agent. This was called the Restatement of Torts, 1965. Tort law was becoming a more and more popular medium for solving Product Liability cases mainly due to the rule of strict liability.

Negligence V Strict Liability

The negligence rule is based on the assumption that people act reasonably. Therefor for a person to act negligent is to commit an action below the standard of normal behavior that puts people at risk of harm. However in order for a negligence case to take place, the plaintiff must prove four things. One has to prove that the defendant had a duty to the plaintiff, the plaintiff breached that duty by failing to act under the standard of conduct, the defendants actions was the cause of harm to the plaintiff and finally that the plaintiff was actually harmed. An example of a negligence case is a car driver that ran a red light and collided with another car driver and injured that person. A negligence case is present because the victim can prove the four points. The defendant had a duty to follow road regulations thus driving safely for other drivers; the defendant breached those rules by running the red light, the defendant’s rule breach was the reason for the collide and the victim was injured as a result. However negligence cases can sometimes be very difficult to prove. There are many factors that can be present that affect the outcome of the verdict. Consider the same scenario with the driver running the red light and colliding with another driver. The difference in this case however is that the plaintiff was not wearing a seatbelt or there were no airbags installed in the car. This will make it hard to prove that the defendant’s reckless driving in fact directly caused the plaintiff’s injuries. In product liability these complications are present regularly in a negligence case.

The move from contract to tort in product liability has meant that a negligence case has to be proven. A consumer proving that a manufacturer was negligent can be difficult for reasons such as the manufacturer being unaware of the fault. In a lot of incidents the manufacturer has the means to hire the best and most expensive legal representation and so the plaintiff is not able to win the case. Reasons such as this are why strict liability was introduced. Strict liability means that the manufacturer is absolutely liable for the injuries one suffers from a defective product making it easier for the general public to win in a product liability case. The plaintiff does not have to have warranty present. Neither does one have to prove that the defendant was even negligent. All that the plaintiff has to prove is that a defective good was the cause of the injury.

There are a number of reasons why strict liability was adopted. Firstly a manufacturer is the only party that can prevent accidents as they have the most information about the product they supply. Secondly the manufacturer usually has the monetary power to bare the losses of product liability cases. Another reason is that the manufacturer is usually in a position to exploit market power and strict liability takes some power away from them. The advantage of strict liability is that it gives the manufacturer the incentive to better ensure that the product is safe for human consumption. Thus could come in the form of spending extra time to check and re-check completed goods or to add proper instruction guides or warnings. However a significant problem with warnings is that manufactures can over compensate with the warnings just to make sure legal action cannot be taken should the product somehow causes injury. This way, manufacturers are protected from prosecution even if they were negligent. Another problem however can come from the plaintiff as they can commit moral hazard. For example a consumer who has insurance on a mobile phone is likely to be more careless with that good knowing they can get a replacement phone if it breaks.

Conclusion

Strict Liability is an easier approach for the general public to win a public liability case however it is clear that is also has its downfalls. Landes and Posner (1987) state that a major issue is that “the existence of multiple victims raises the odds that the defendant will be unable to pay”. Landes and Posner also stated, “that when injuries occur only after long and uncertainty latency periods, proof of liability is difficult and sometimes impossible”. Although strict liability eliminates many problems that contracts created and moreover the rules of negligence, it also produces its own problems. One example is when consumers are too aware of the strict liability rule that they create situations where someone else is paying for injuries they caused on themselves. We have all heard of events whereby pedestrians purposely jump in front of moving cars in order to claim for compensation. However I think for the most part tort is more desirable because of its most important factor, the manufacturer. It is an incentive for the manufacturer to make safety in the products it produces a priority. Another advantage is that it decreases administrative costs for the court and for the plaintiff, making verdicts for product liability cases more efficient. It is obvious that strict tort liability is vastly favourable as this rule has become very popular over the world and as of 2003, became the law in all but a few states in the United States.

References

Carstensen. P.C, 1988, Explaining Tort Law: The Economic Theory of Landes and Posner, The Michigan Law Review Association pp.1161-1184

Coleman. K.R & Logan. O.C, 2010, Products Liability: Protection for the “Innocent” seller in Texas, The National Law Review

Cupp. R.L & Polage. D, 2002, The Rhetoric of Strict Products Liability Versus Negligence: An Emperical Analysis, New York University Law Review

Kinzie. M.A, 2002, Product Liability Litigation, West/Thomson Learning

Landes. W.M & Posner. R.A, 1987, The Economic Structure of Tort Law, Harvard University Press, pp. 329

Moore. M.J, 2001, Product Liability Entering the Twenty-First Century: The US Perspective, AEI- Brooking Joint Center for Regulatory Studies

Shavall. S, 1980, Strict Liability Versus Negligence, Legal Studies, vol. 1, pp. 2-3

Walter. Y, 1984, Tort Law as a Regulatory Regime: A Comment on Landes and Posner, The Journal of Legal Studies, pp. 435-440