CAVEAT EMPTOR: PRO BUYER OR PRO SELLER?

This Article has been authored by Pragyanshu Gautam, a student at Hidayutullah National Law University, Raipur

Introductory Remarks

Caveat emptor is the contract law principle that controls the sale of real property after the date of closing but it may also be applied to the sale of other goods. It has its origin in Common law and the concept has undergone major changes with time as the rules have been given a concrete shape. In short, it is the disclaimer of liability for the ‘buyer’s disappointment’ that is, the buyer typically has less information than the seller about the goods or service they are purchasing. Moreover, the defects in the goods or services may be hidden from the buyer, and only known to the seller.

The rule of Caveat Emptor has to be simply balanced from both sides in order to avoid gratifying one side. This article discusses its meaning, short history, and sections of Sale of Goods Act, 1930 involved. In addition to this, the court pronouncements regarding the same, fallacy in the concept of caveat emptor and the need for introducing other related terms such as caveat venditor, caveat lector, and caveat auditor have been analysed along with the exceptions.

Legal Maxim and Short History

The legal maxim ‘qui ignorare non debuit quod jus alienum emit’ means “let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party.” It simply means that a buyer should be assured of himself that the product is good and that the seller has the right to sell it, as opposed to receiving stolen or fraudulent property. In this case, the buyer has no remedy against the seller for any defect in the goods not covered by some condition or warranty. Hence, the buyer should take utmost care while engaging in such goods and services.

As far as the origin of caveat emptor is concerned, it is based on the philosophy of the reliance placed by the buyer on his own judgment or skill. Followed by the fundamental principle that once a buyer satisfies himself as to the suitability of the product for his use, he, afterward, has no right to reject the same. If one carefully reads the English Sale of Goods Act, 1893 (English Common Law), it is not only noticeable but quite obvious that the seller’s duties to disclose is mandatory when a product is sold at a minimum amount. On the other hand, the buyer’s examination of the product is over and above any duty upon the seller to provide information. But concepts like ‘merchantability’ and ‘fitness of the goods’ could not be used as a burden for quality and fitness on the seller. The other proposition which was present in Section 11(c), necessitated that in cases where there was sale of ‘specific’ goods, the buyer could not reject the goods on any ground. Thus, it can be seen that since the enactment, the law has been in the favor of the seller and there was no corresponding rule which would put the burden on the seller (caveat venditor).

Section 16 of Sale of Goods Act, 1930

The principle of caveat emptor is explained in Section 16 of the Sale of Goods Act, 1930 which states that “there is no implied condition or a warranty as to quality or fitness for any particular purpose of goods supplied by the seller.”

Ingredients of Section 16(1) are as follows:

1. The buyer needs to explain the particular purpose for which he is making the purchase to the seller.

2. The buyer should rely on the seller’s judgment, skill, and knowledge for the purpose of making a purchase.

3. The goods purchased should be of a description which the seller should, in the ordinary course of business, supply.

Express and Implied Conditions and Warranties under Sale of Goods Act, 1930

The conditions and warranties may be expressed or implied. Express Conditions is the essential to the main function of the contract, expressly stated in written or oral at the will of the both parties so that one party may repudiate a contract in whole or claim damages. Implied Conditions (Section14-17 Sale of Goods Act, 1930) is presumed by the law in the contract, though it is not expressly stated. Express Warranties is the stipulation collateral to the ground of the contract in a definite written statement, the breach gives rise to claim for a damage. Implied warranties are based on the circumstances and presumption in due course of contract, not declared or known to the buyer before the contract of sale.

A common way to address information asymmetry between seller and purchaser is through a legally binding warrantysuch as a guarantee of satisfaction. Section 14(2) of Sale of Goods Act, 1930 talks about warranty. With regard to the conditions and warranties, Section 16(4) covers express warranty which says that when the parties ‘expressly’ agree to such stipulation and they are inconsistent with the implied conditions and warranties, the express conditions and implied warranties will prevail and the implied ones in Section 14-17 will be negative.

Section 14-16 specifies the implied conditions and warranties connected with the subject matter of sale of goods which may or may not be mentioned in the contract.

1. Implied condition as a title: Section 14(a) states that ‘in the case of a sale’, he has the right to sell the goods and in the case of an agreement to sell, he will have the right to sell the goods at a time when the property is to pass. In the case of Rowland v, Divall the claimant, a car dealer, purchased a car from the defendant for £334. He was compelled to return the car (as later it came to be known that it was a stolen car) to the true owner after having used it for a while. The claimant sued the defendant for paid money since the defendant did not receive the consideration as per the ‘condition of the title of ownership.’

2. Implied warranty of quiet possession: Section 14(b) of the Act talks about an implied warranty which means that the buyer shall have and enjoy quiet possession of the goods unless the circumstances of the case show different intention. But if the buyer is disturbed either by the seller or any other person claiming a superior title of the goods, then in such a case the buyer is entitled to claim the compensation and damages from the seller as a breach of an implied warranty.

3. An implied warranty is against any encumbrances: Under Section 14(c), there is an implied warranty that the goods sold shall be free from any charge or encumbrances in favour of the third party but if it is not so and not declared to the buyer while entering into the contract, the buyer is entitled to compensation and damages from the seller.

Judicial Pronouncements

Unless there are circumstances where a warranty may be implied from the mere fact of sale, there is no warranty of quality arising from the act of sale of goods. Also, where there has been no fraud, a buyer who has obtained an express warranty takes all the risk of the defects in the goods. In the case of Commissioner of Customs (Preventive) v. M/s. Aafloat Textiles the Court held that caveat emptor is the settled legal maxim that applies to a purchaser who is bound by both actual and constructive knowledge of any defect in the goods purchased which is obvious, or which might have been known by proper diligence. If a person purchases a property under circumstances where caveat emptor applies to him, then he does so at his own risk and if the loss is suffered, then he alone will be responsible as in the case of Phulchand Ram Marwari and Anr. v. Naurangi Lal Marwari.

The Fallacy in Caveat Emptor and the Need for Change

Caveat emptor in its absolute form would have certainly been detrimental to the buyer’s cause (to the trade and commerce) because till then the concept of ‘reasonable examination’ was not introduced. Thus, this is the first reason that a buyer does not have any recourse against a seller who, in spite of being aware of a latent defect, (one which cannot be reasonably apprehended) does not inform the buyer which certainly discourages commercial transactions. Second reason is the adequate protection accorded to the buyer purchasing in good faith which has been recognised in judicial decisions as ‘reliance on the skill and judgment of the seller.’ Therefore, the rule of caveat emptor was subsequently diluted as there was no proper recognition between buyer and seller and also to generate a situation where commercial transactions are encouraged by the means of proper checks.

Origin of Caveat Venditor (Let the Seller Beware)

There have been exemptions of caveat emptor from reasonable examination by the statutes and case laws. For instance, alcohol contaminated with arsenic, milk-containing typhoid germs are enough to exempt the buyer from examination as the courts observe that these defects could not have been traced in ordinary circumstances.

Consequently, the ‘duty’ of the seller gave rise to the concept of ‘caveat venditor’ which means that the seller should be aware of all the defects being sold and all information relating to the goods.

Other Variants Such As Caveat Lectors and Caveat Auditor

Caveat lectors (let the reader beware) simply means that when reading something, the reader should take careful notes of the contents and should employ due diligence to evaluate whether the content is reliable, authentic, accurate and so forth. Caveat auditor (let the listener beware) means that a buyer should be careful or aware when listening to oral messages. For example, a radio advertisement.

Exceptions to the Rule of Caveat Emptor

1. Consent was taken through fraud or misrepresentation: Where a false statement is made by the seller with an intention to deceive the buyer and the buyer relies on it, caveat emptor will not apply.

2. Fitness or quality of the good for the buyer’s purpose (Section 16(1)): Where the buyer informs the seller that the goods or services are required for a particular purpose and then he relies upon the skill of the seller, an implied warranty and a condition arises that the goods shall be reasonably good for that particular purpose. In Shital Kumar Saini v. Satvir Singh, a compressor was purchased by the petitioner having one year warranty but a defect in the product appeared in the three months. When the petitioner asked for a replacement of the compressor, though the seller replaced it, he did not provide any further warranty. The State Commission stated that an implied warranty was guaranteed under S. 16 of the Sale of Goods Act, 1930, and therefore allowed it to be rejected as the goods should be reasonable for the purpose for which they are sold.

3. Merchantable quality (Section 16(2)): It means that the goods purchased by the buyer should be of merchantable quality as per their demand. The goods must be capable of being passed as per their market under the name for which they are sold.

4. Sale by sample: The rule of caveat emptor does not apply if the bulk of goods received does not correspond to the sample given earlier.

5. Implied conditions by trade usage (Section 16(3)): Section 16(3) gives statutory force to the conditions implied by trade usages. It states that “an implied condition or warranty as to the quality or fitness for any particular purpose may be annexed by the usage of trade.” In the case of Peter Darlington Partners Ltd v. Gosho Co Ltd, a contract for the sale of canary seed was held subject to the custom of the trade that for impurities in the seed, the buyer would get a rebate on the price, but would not reject the goods.

Concluding Observations

Caveat Emptor is an accepted principle around the world but it should be noted that if this principle is taken in a strict manner, it might result in becoming more favourable for the buyer which might lead to the misuse of powers protected under the law. Warranty has to be proved by the buyer beyond all reasonable doubts. Moreover, the seller should also not violate any of the conditions of the contract in which he is a party with the buyer. But, at the end of the day, it’s the buyer who is going to buy the product from the sellers and expect what he actually wants.