RULE OF CAVEAT EMPTOR ALONG WITH ITS EXCEPTIONS
Author: Janaki Nair
The following article is about a topic that is intricately connected to the Sale of Goods Act established in the year 1930. When the Act came to be, it was common for laws to favour the seller of goods rather than the buyer. Caveat Emptor, therefore, emerged from a situation that benefits the seller and the goods sold by him/her/them. The term Caveat Emptor originates from the Latin word Cavere, which means caution, and Emptor, which means buyer. Put together, the Latin maxim basically states that “buyers beware”. As can be seen from its relationship with the 1930 Act, this maxim is majorly used in business and other commercial transactions both in India and around the world. It is also safe to say that the world market with regards to commercial trade is still mostly governed by this maxim.
RULE OF CAVEAT EMPTOR
As mentioned earlier, S 16 of the Sale of Goods Act (hereinafter referred to as ‘SOGA’ Act), 1930 talks about this widely used doctrine. According to this section, subject to any provision of law, it should be noted that the goods supplied does not have any implied condition or warranty with reference to its quality or fitness for any kind of purpose. The basic premise of this section is that the buyers should not be able to reject or disregard a product after being content with its suitability. As you can see, its principal aim is to protect the integrity of the sellers from being unable to sell their goods. It is in the buyer’s own risk that s/he/they would be purchasing the product, and s/he/they are expected to exercise his/her/their own judgement skills on whether s/he/they want to purchase the product. This doctrine ensures that the buyers themselves are responsible by checking, examining and even testing the product before they buy it. They cannot be wholly ignorant about a product that they are buying.
The most important case law on this is the English case of Ward v. Hobbes where the House of Lords pronounced that, unless the seller is engaging in fraud to disguise something about the product that s/he/they are selling, the Caveat Emptor does not thrust upon the seller a duty to disclose every single defect of a product. It is the duty of the buyer to become a prudent person and scan the product for any defects before purchase. Similarly, in an Indian case Phulchand Ram, the court stated that if individual purchases any kind of property under conditions where the Latin maxim applies, the individual does it at his/her/their own risk, and if the individual suffers a loss, it is their own fault. Once again, as reiterated in the case Aafloat Textiles, the rule of Caveat Emptor is a settled maxim that applies to a buyer who is bound to know the actual or constructive defect of the product purchased or a defect which the buyer should have known had s/he/they used his/her/their proper diligence.
EXCEPTIONS OF THE LATIN MAXIM
This implied power to the sellers does not come with its own set of duties and obligations and restrictions. Section 16 of the SOGA Act and its provisions talk about these exceptions that apply to the rule of Caveat Emptor.
Subclause (1) of Section 16 states that the seller is dutybound to sell the goods to the buyer if:
1. The buyer relies upon the seller the purpose for purchasing the good,
2. The buyer conducts the purchase based on the skill and judgement of the seller,
3. The good purchased should be of a description that is included in the seller’s business of supply,
then there is an implication that the goods shall be in accordance with the purpose of the buyer.
In the case of Shital, where a compressor that was purchased by the petitioner had a 1-year warranty and it proved to be defective after just 3 months, and once the seller replaced it with another one but without any further warranty, the court decided that there was an implied condition that the replaced good would also have the same 1-year warranty as to the old compressor.
However, the proviso to S.16 (1) states that if it is a situation where the buyer did not make the purchase based on the seller’s skills or judgement, but by the fact that the product comes under a particular trade name, then implied burden to the seller to take responsibility for the product would not apply.
S.16 (2) of the SOGA Act states that the seller, no matter whether he is the manufacturer of the specific good or not, has the responsibility to sell a merchantable quality good. A merchantable quality good would be one where the good is marketable as well as reasonably fit for all common purposes that the good would be used for.
In the English case of Last, the plaintiff purchased a hot – water bottle which is commonly used for heating the human body. However, upon use by the plaintiff’s wife, the water bottle burst to spray hot water on her. The seller was held responsible for this mishap.
However, the proviso to this sub-section states that if the seller had given all the necessary freedom to thoroughly inspect the product before purchase, then this sub-section does not hold valid. For ex: In the above case, if the seller had given the plaintiff all the reins to thoroughly check everything about the water-bottle, then the former may have not been held responsible.
S.16 (3) of the SOGA Act talks about how this implied warranty is subject to the usage of trade rules and annexures.
In the English case of Peter Darlington, the court stated that, wherein, a contract for the sale of a type of seed was subjected to the trade custom which states that for impurities present in the seed, the buyer would get a rebate but would not be able to reject the goods, it was held that the trade custom was valid. An unreasonable custom, would, quite clearly, not affect the contract.
S.16 (4) of SOGA Act states that the parties are absolutely free to include any terms and conditions in the contract but that does not mean that it can nullify any implied warranty in the Act.
COPRA ACT AND CAVEAT VENDITOR
When it was realized that only the sellers can ensure some sort of legal safety, the focus began to be shifted onto the buyers, and the establishment of the Consumer Protection Act of 1986 only further strengthened this need. According to this Act, the consumers have been given certain fundamental rights that they can furnish during a commercial transaction. The advent of this Act was mainly to shift the focus from Caveat Emptor to Caveat Venditor, which means that the sellers should beware now. The buyers can even seek redressals and monetary compensation from the sellers at this point.
Thus, new legislations are springing up that are more in favour towards the buyer than the seller. The introduction of this new consumer-based system would ensure a more balanced manner of rights and duties from both the parties, but it can also be misused by the consumers themselves if certain checks and balances are not placed upon it. Thus, the principle of Caveat Emptor should be carefully used and the principle of Caveat Venditor should be only used when there is a disproportionate use of power in a commercial transaction.
S.16, Sale of Goods Act (1930). Ward v. Hobbes, (1878) 4 AC 13. Phulchand Ram Marwari and Anr. v. Naurangi Lal Marwari, 172 Ind Cas 225. Commissioner of Customs (Preventive) v. M/s. Aafloat Textiles (I), Civil Appeal No. 2447 of 2007. Shital Kumar v. Satvir Singh, (2005) 1 CPR 401. Priest v Last, (1903) 2 KB 148. Peter Darlington v. Gosho Co. Ltd., (1964) 1 Lloyd’s Rep 149.