In this blogpost, Harsha Jeswani, Student, National Law Institute University, writes about what is caveat emptor and the exceptions to the rule.
INTRODUCTION
The “old rule” of caveat emptor had been superseded by caveat venditor such change being “rendered necessary by the conditions of modern commerce and trade.” LORD WRIGHT
In expression ‘Caveat Emptor’ usually finds a place in laws related to business. The phrase Caveat Emptor means “let the buyer beware.” The doctrine of caveat emptor is enshrined in Section 16 of the Sale of Goods Act, 1930. This provision corresponds to Section 14 of the English Act of 1893. This doctrine of caveat emptor is based on the fundamental principle that once a buyer is satisfied with the product’s suitability, then he has no subsequent right to reject such product. The objective of introducing this provision was to ensure that the buyer purchases the product at his own risk after being assured of the quality of the product. He is required to use his own skill and judgment except in cases of fraud where the doctrine of caveat emptor does not apply.
Statement Of Caveat Emptor
Section 16 of the Sale of Goods Act 1930 incorporates the principle of caveat emptor which reads as-
“Subject to the provisions of this act or any other law for the time being in force there is no implied condition or warranty as to quality or fitness for any particular purpose of goods supplied.”
Scope Of Caveat Emptor
In Ward v. Hobbes (1878) 4 AC 13, the House of Lords held that a vendor cannot be expected to use artifice or disguise to conceal the defects in the product sold, since that would amount to fraud on the vendee; yet the doctrine of caveat emptor does not impose duty on vendor to disclose each and every defect in the product. The caveat emptor imposes such obligation on vendee to use care and skill while purchasing such product.
In Wallis v. Russel (1902) 2 IR 585, the Court of Appeal explained the scope of caveat emptor-
“Caveat emptor does not mean in law that the buyer must “take a chance,” it means he must “take care.” It applies to the purchase of specific things, e.g. a horse, or a picture, upon which the buyer can, and usually does, exercise his own judgment; it applies also whenever the buyer voluntarily chooses what he buys; it applies also whereby usage or otherwise it is a term of the contract, that the buyer shall not rely on the skill or judgment of the seller.”
Exceptions To The Rule Of Caveat Emptor- Section 16 of The Sale of Goods Act, 1930
- Section 16(1) – Fitness for buyers purpose
Sub section (1) of Section 16 of the said Act prescribes the circumstances in which the seller is obliged to supply goods to the buyer as per the purpose for which he intends to make a purchase. It states that when the seller either expressly or by necessary implication is aware of the purpose for which buyer makes purchase thereby relying on seller’s skill and judgment and the goods to be purchased are of a description which the seller in his ordinary course of business supply, then there is as implied condition that the goods shall be reasonably in accordance with the purpose
Requirements of the Section 16(1) are as follows:-
- The buyer should make the seller aware of the particular purpose for which he is making purchase;
- The buyer should make purchase on the basis of seller’s skill or judgment;
- The goods must be of a description which it is in the course of the seller’s business to supply.
In the case of Shital Kumar Saini v. Satvir Singh[1], the petitioner purchased a compressor with one year warranty. The defect appeared within three months. The petitioner asked for a replacement. The seller replaced it but without providing any further warranty. The State Commission allowed it to be rejected stating that there was an implied warranty guaranteed under Section 16 of the Sale of Goods Act, 1930 that the goods should be reasonably fit for the purpose for which they are sold.
Sale under Trade Name [Proviso to S. 16 (1)]
Sometimes a buyer purchases goods not on the basis of skill and judgment of the seller but by relying on the trade name of the product. In such case, it would be unfair to burden the seller with the responsibility for quality. The proviso to Section 16 of the Sale of Goods Act, 1930 deals with such cases. The proviso says:
“Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to the fitness for any particular purpose.”
Merchantable quality [Section 16(2)]
The second important exception to the doctrine of caveat emptor is incorporated in Section 16(2) of the Act. The Section provides that the dealer who sells the goods has a duty to deliver the goods of merchantable quality.
Sub-Section (2) which contains this exception says:
“Where the goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of the merchantable quality.”
Meaning of Merchantable Quality: Merchantable quality means that if the goods are purchased for resale they must be capable of passing in the market under the name or description by which they are sold.
Merchantable quality depends on two factors:-
- Marketability- Merchantability does not merely mean that the goods shall be marketable, but that they shall be marketable at their full value. “Merchantability does not mean that the things are saleable in the market because it looks all right; it is not merchantable in that event if it has defects unfitting it for its only proper use but not apparent on ordinary examination.”[2]
- Reasonable fitness for general purposes- “Merchantable quality” means, in the second place, that if the goods are purchased for self-use, they must be reasonably fit for the purpose for which they are generally used. Example: The plaintiff bought a hot-water bottle which is ordinarily used for application of heat to the human The bottle burst scalding the plaintiff’s wife. The seller was held liable.[3]
Examination by buyer [Proviso to S.16(2]
The proviso to section 16(2) declares that “if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed. The requirement of the proviso is satisfied when the seller gives the buyer full opportunity to examine the goods and whether the buyer made any use of the opportunity or not should make no difference.[4]
Conditions implied by trade usage [ Sec. 16(3)]
Sub-Section (3) of section 16 gives statutory force to conditions implied by the usage of a particular trade. It says:
“An implied warranty or condition as to the quality or fitness for the particular purpose may be annexed by the usage of trade.”
In another case of Peter Darlington Partners Ltd v Gosho Co Ltd[5], where 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.
However, an unreasonable custom will not, however, affect the parties’ contract.
Express Terms [ Section 16(4)]
It is open to the parties to include any express conditions or warranties in their contract. But an express warranty or condition does not negative a warranty or condition implied by the Act unless the express terms are inconsistent with the implied conditions. Thus, where sleepers supplied to a railway company were required to be approved by its experts, it was held that it did not exclude the implied condition of merchnatableness.[6]
Origin Of Caveat Venditor:
In the twentieth century with the enactment of English Sale of Goods Act, 1893 and later modified by English Sale of Goods Act, 1979 the exceptions to the rule of caveat emptor have become more prominent than the rule itself. Further, on account of the complex structure of modern goods, it is only the sellers who can assure the contents and the quality of the goods. For these reasons, it became necessary to restrict the rule of caveat emptor by grafting a few exceptions upon its scope. There is a duty now to deliver appropriate goods and also to provide appropriate information about them. Thus, it has led to the birth of ‘caveat venditor’ which means ‘let the seller beware’ in contrast to caveat emptor.
Caveat Venditor:The development of seller’s obligation
It has been observed: “Caveat emptor is dying or so it is often supposed. And this death is thought to be no isolated event, but to exemplify the death of freedom of contract generally. Contracting parties are no longer free to set what terms they wish, except, in particular, tightly-defined market, sellers, can no longer abuse their freedom by selling sub-standard goods and relying on exclusion clauses. The benevolent hand of law has replaced the harsh rule of the market.[7]
With its origin being traced in the need for disclosure of information for the purpose of facilitating the reason for purchase of the buyer, gradually this rule has gained prominence and the obligations of the seller have been given proper shape along with various statutes and case laws limiting the rule of caveat emptor to ‘reasonable examination’. Examples like beer contaminated with arsenic, milk-containing typhoid germs are good enough to establish that courts have been generous enough to exempt the buyer from the duty to examine the goods where the defects could not have been traced in ordinary circumstances
The first test which was accepted by the Law Commission was the statement of Justice Dixon in Australian Knitting Mills v. Gran[8]t, that the goods should be in such an actual state that the buyer fully acquainted with the facts and, therefore, knowing that hidden defects existed and not being limited to their apparent condition would buy them without abatement of price obtainable for such goods if in reasonably sound order and condition and without any special terms. The second test was the ‘usability test’ by the Law Commission comes from the verdict of Lord Reid in the case of Kendall v. Lillico & Sons Ltd, what sub-section (2) now means by ‘merchantable quality’ is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold normally to be used, and hence not sellable under that description.
Conclusion
Thus, by legislation, the pendulum is moving in favor of the buyer. The age old principle of caveat emptor may now disappear in the favor of the new principle of caveat venditor that is directed towards a new Consumer Protection System. Such a change will not only balance between rights and obligations of the seller and the buyer. But it should be noted that if this trend of change is taken too far, we might end up in retarding transaction due to the approach then becoming extremely pro-buyer who might misuse the protection under the law. Thus, doctrine of caveat emptor will be applied only when firstly, the seller have all knowledge about all implied conditions and warranties, secondly, the seller would be liable for loss on account of sale if the goods do not come up to the standard required by law even though he has taken all possible care, thirdly, the seller must disclose all the facts regarding product in order to avoid conflict. The principle of Caveat Venditor can be justified where there is disproportionate of power between the seller e.g. big companies contracting with a consumer) but it is totally against the principle of laissez-faire when this principle is not present because the buyer is also contracting in the course of the business.
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[1] (2005) 1 CPR 401
[2] Grant v Australian Knitting Mills, 1936 AC 85
[3] Priest v Last, [1903] 2 KB 148
[4] Thornett and Fehr v Beers & Sons [1919] 1 KB 486
[5] [1964] 1 Lloyd’s Rep 149
[6] Bombay Burmah Trading Corpn Ltd v Aga Mohamed,(1910-11) 38 1A 169
[7] Steve Hedley, “Quality of Goods, Information , and the Death of Contract”, (2001) JBL 114
[8] (1936) A.C. 562
