Courts and the Tort-Contract Boundary in Product Liability

Abstract:     
In this Article I address the appropriate source of liability in cases of injury between parties with a pre-injury contractual relationship. This applies to product liability (for direct purchasers, not for injured third parties) and also to medical malpractice. Since the parties do have a pre-injury relationship, they could contract ex ante for damages and liability standards through warranties and disclaimers; if they did so, then they would probably choose standards so that many fewer cases would be filed. The current legal system, behaving consistently with arguments made by Atiyah and Gilmore, instead treats these injuries as torts and handles them through product liability, leading to many additional cases. This means that consumers and producers are forced to accept the terms imposed by the courts, and there is no room for variation. The literature arguing for contractual treatments of such injuries is voluminous as is the literature arguing for the now traditional treatment as a tort, a very small sample of which is discussed below.

JEL Classification: K1

Accepted Paper Series