Sales Contracts and Products Liability

Sales Contracts and Products Liability Law Article Review

O'Reilly, James T. (Summer 2003) "Product Recalls & the Third Restatement: Consumers Lose Twice from Defects in Products and in the Restatement Itself." The Memphis Law Review. Pp.1-6. Retrieved by FindArticles. Full Text Available at http://www.findarticles.com/p/articles/mi_qa3843/is_200307/ai_n9252476

This article demands more stringent and protective legislation for consumers regarding product recalls. A product recall is almost always designed to prevent a future injury from a product that is known or suspected to be harmful to future consumers. A product recall is the removal from the market of a product, including a consumer's home where necessary, that is suspected of posing an acute risk of injury to consumers because of manufacturing or design defect, or a lack of warning label. Currently, companies must recall a product if the product is in violation of current government regulations regarding consumer safety and also if a 'reasonable person' might see that the product would cause harm. If they do not, companies are legally liable for consumer injuries. The author belives that the law should be changed and companies must be liable and held responsible for recalling a product that harms consumers if the company had knowledge the product might cause harm, given their insider's greater knowledge of the product's design.

Legal Issue

According to the author, the product recall provisions of the Restatement of Torts: Products Liability (Third Restatement) are dangerous to the health and security of the innocent consumer. (O'Reilly, 2003, p.1) "A refusal to protect the consumer from post-sale harm is reprehensible and the law should penalize such inactivity. The issue represents a classic case in which a tort remedy is needed to augment the deficient regulatory regime. A duty to protect consumers from known risks should be recognized in the recall context. Conventional negligence principles would serve the public far better than this new approach permitted under the Third Restatement." (O'Reilly, 2003, p.1) Currently, the law makes the company legally liable for harm to persons or property caused by the seller's failure to recall a product after the time of sale or distribution if a governmental directive under the Uniform Commerical Code is not obeyed or the seller or recaller does not act as "a reasonable person" regarding product risks. (O'Reilly, 2003, p.2) But the company is not legally liable if it did all necessary testing, warning, and reasonable evaluation of safety, if for example, an unexpected result occurs through the use of the product.

O'Reilly finds the reasonable person standard troubling, as the reasonable 'average' consumer will not have specialized knowledge that a manufacturer should have about the product he or she is selling. He believes government agencies have too much responsibility to monitor product safety (O'Reilly, 2003, p.3) Also, there is little incentive for CEOs to acknowledge harm and incurr potential lawsuits.

Not only is there negative publicity for consumers, but for corporate investors as well, because of the financial losses that ensue after a recall. For example, the article cites a medical diagnostics company, which failed to satisfy FDA inspectors regarding the quality controls of its factory, recalled thirty products. The company's annual corporate report listed recall costs of $181,000 and overall costs, including inventory write-off and impairment of assets, that totaled $12,752,000..(O'Reilly, 2003, p.1)

Managerial Perspective