-79

4.0 PRODUCT DURABILITY ENHANCEMENT MEASURES

This Section presents those legislative and administrative means which could be utilized to increase product liability.

4.1 Background Considerations

The protection of the consumer in his contractual transactions with business entities has been an area of growing judicial and legislative concern, primarily with respect to the safety of products but also with respect to their durability and fitness. There is general agreement that the common law rules of contract and traditional commercial law are inadequate to protect the consumer's legitimate interests. However, in the area of product durability and fitness, where the negative effects of governmental protection and regulation may outweigh the gains, there is as yet no consensus on what specific reforms must or should be made in the legal system.

The general problem of product durability was well summarized in the Federal Trade Commission's Report on Automobiles (November 1968). It was found that the consumer was being misled by existing warranties; the manufacturers and dealers were not living up to their promises; large numbers of consumers were unhappy with warranty coverage and performance; quality control in manufacturing was being neglected in favor of

-80

marketing considerations; businesses had failed to develop

good information regarding consumer complaints; and business had failed to develop or adopt effective systems for answering complaints.

Other problems which inherently influence product durability are as follows:

a.

The "lemon" which is an inevitable by-product of
mass manufacturing. Each part that goes into an
automobile or other appliance is manufactured to
specifications which permit certain deviation from
the norm, known as tolerances. By the laws of prob-
ability certain consumer goods will contain a large
number of maximum tolerance parts and will therefore
not perform as well as most other goods of the same
model. The consumer is dissatisfied, while the manu-
facturer considers the product to operate within
acceptable tolerance levels and to comply with the
manufacturers design. From an economic standpoint
the system operates so that a few random consumers
(rather than the manufacturer) bear the loss inherent
in most manufacturing.

b. Good will which plays an important role in giving good

warranty service, particularly in the sales of automobiles.

-81

c.

Consumers who purchase in quantity or who purchase frequently generally receive good servicing while the converse usually meets with opposite results. Warranty coverage in terms of the expenses caused the consumer by malfunction which are not recoverable from the manufacturer or dealer (e.g., car towing, loss of time, rental of substitute equipment, etc.); and if malfunction caused by a manufacturing defect in a particular part causes further malfunction in other parts, themselves properly manufactured, only the part that was defectively manufactured will be repaired free of charge under the service warranty. Apparently, some dealers will repair all the parts in order to maintain good will of their own customers -- a fact which benefits some consumers, but clearly discriminates against others

less fortunate in their choice of dealers.

d. Protection of the repairman under the law. Traditionally warranty protection has been limited to sales of goods where title passed to the consumer. For example, food sold in a store had a warranty of fitness, while food "sold" in a restaurant did not because under the common law title to food served by an innkeeper did not

-82

pass to the consumer; instead what occurred was a service transaction, including a license for the customer to eat as much as he wished. The same legal problem arises as to repair services. Based on various court decisions it has been held that warranties are limited to sales of goods and that no warranty attaches to the performance of a service.

4.2 Review of Proposed Congressional Bills

The following brief review of bills proposed during the 92nd Congressional Session will be helpful in placing our suggested legislative and administrative alternatives in proper perspective:

a. Consumer's Warranty Act (HR 18056)

The intent of this bill is to require full and non-
deceptive disclosure. The bill is to be enforced
by the FTC and the Attorney General with rulemaking
power in the FTC confined strictly to matters con-
cering disclosure and the requirement that minimum
information be made available. The bill's only
warranty standard is to prohibit a manufacturer or
dealer from disclaiming the implied warranty of fit-

ness if terms such as "warranty" or "guarantee" are

-83

b. Consumer Full Warranty Protection Act (HR 10690) This bill authorizes the FTC to set standards guaranteeing comprehensive warranty protection and to establish the terms of implied warranties. As is the case of the above bill, manufacturers and dealers would be prohibited from disclaiming implied warranties, such as the warranty of fitness. The bill also requires the seller to disclose information specified in the bill at the time of the sale. Enforcement would be maintained by the Attorney General in the Federal courts. Civil penalties could be as high as $5,000 if the manufacturer unreasonably delays in fulfilling the warranty obligation.

c. Consumer Products Warranty and Guarantee Act (S3074) This bill is similar to the Consumer's Warranty Act (HR 18056) in that the thrust of the bill is to require full and non-deceptive disclosure. Other provisions concerning the FTC, the Attorney General and the prohibition of a disclaimer of implied warranty are also similar. However, this bill also contains

a scheme for minimum warranty standards which details the minimum duties of a supplier.