Product liability developed as an extension of the law of contracts. Contract law provides that the seller of goods makes certain promises about the quality of the goods. These promises are called warranties. If the product fails to live up to the warranties, the buyer has a remedy against the seller.

The law of warranty works well to protect the buyer of goods. If the product is defective, the buyer can recover for any losses under the contract. This approach presents two problems, however. First, if the defective product was resold, as in a manufacturer to distributor to consumer transaction, the consumer had no right to recover from the manufacturer if the product was not as promised. This impediment is called the requirement of privity of contract. Second, if the product caused actual physical injury, even a party in privity of contract with the manufacturer is not allowed to recover for those injuries. This is because contract law only addresses the benefit of the bargain and not damages outside the original agreement between the parties. The development of product liability law addresses both of these issues and allows persons injured by manufactured goods to recover from the manufacturer under theories of negligence, breach of warranty, and strict liability.

Product liability claims based on negligence arise in one of three ways. The manufacturer of the product may fail to use ordinary care in designing the product. This results in a design defect claim that the product could have been made safe by a change in the design. Another negligence claim is the manufacturing defect claim. This claim stems from a safe product design that is improperly manufactured. These claims usually center on quality assurance methods and the selection of component materials. Finally, the manufacturer can be negligent in failing to warn of the hazards involved in the use of the product. The presence of warning labels on a product is an effort to forestall a failure to warn claim.

These same claims can arise as strict liability claims. The premise of a strict liability claim in the product liability area is that the product was unreasonably dangerous when it left the hands of the manufacturer. The dangerous aspect of the product can be the result of a design defect, a manufacturing defect, or a failure to warn of a known hazard in the use of the product. Strict liability claims are a favorite of plaintiffs because they impose liability without regard to fault.

Product liability claimants can also assert breach of warranty claims. These claims are variations of the contractual claims based on the promises about the quality of the product. Every manufacturer warrants that the product is of merchantable quality. Merchantable quality is not perfect quality, but acceptable quality in the industry. Where the manufacturer or seller has reason to know of the specific use the consumer has in mind for the product, the seller may also warrant that the product is fit for that intended use. A seller who knows that the buyer intends to use an aluminum ladder for use near power lines may be responsible if the ladder causes injury during that use and the seller did not caution the buyer.