CONSUMER & COMPETITION LAW

TOPIC- CAVEAT EMPTOR (Analysis)

MADE BY – KASHISH KHAN

ENROLLMENT NO: 2023-342-057

SUBMITTED TO: PROF.SAMREEN WARSI

BATCH – 2023-2028

SECTION- A

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 Table of Contents

1. Introduction

2. Meaning and Origin of Caveat Emptor

3. Legal Framework

4. Examples and Application in Real Life

5. Exceptions to Caveat Emptor

6. Transition to Caveat Venditor

7. Conclusion

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Introduction

Caveat emptor is a Latin term that means "let the buyer beware." Similar to the phrase
"sold as is," this term means that the buyer assumes the risk that a product may fail to meet
expectations or have defects. In other words, the principle of caveat emptor serves as a warning
that buyers have no recourse with the seller if the product does not meet their expectations.

The term is actually part of a longer statement: Caveat emptor, quia ignorare non
debuit quod jus alienum emit ("Let a purchaser beware, for he ought not to be ignorant of the
nature of the property which he is buying from another party.") The assumption is that buyers
will inspect and otherwise ensure that they are confident with the integrity of the product (or
land, to which it often refers) before completing a transaction. This does not, however, give
sellers the green light to actively engage in fraudulent transactions.

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.”

As defined in Common Law: The position in Common Law is almost same to that of India
scenario. In Ward v. Hobbes1, the House of Lords held that a vendor cannot be expected to
use deception 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. Russel2, 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.”

1 (1878) 4 AC 13
2 (1902) 2 IR 585

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 Under the principle of caveat emptor, for example, a consumer who purchases a
coffee mug and later discovers that it has a leak is stuck with the defective product. Had they
inspected the mug prior to the sale, they may have changed their mind.

A more common example is a used car transaction between two private parties (as
opposed to a dealership, in which the sale is subject to an implied warranty). The buyer must
take on the responsibility of thoroughly researching and inspecting the car—perhaps taking it
to a mechanic for a closer look—before finalizing the sale.

If something comes up after the sale, maybe a transmission failure, it is not the seller's
responsibility. Garage sales offer another example of caveat emptor, in which all sales are final
and nothing is guaranteed.

It means that buyer should be very careful in a contract of sale. While purchasing the
goods the buyer should check the goods carefully. If a buyer purchases the goods and after it
he comes to know that these are defective. In this case seller will not be responsible for this
defect. The object of this principle is to make the buyer more careful in purchasing. It is his
duty that he should check the quality and fitness of the commodity which he needs.

Example: - Mr. Krishna went to market and purchased a bike to take a part in Bike race
competition. But he did not tell the seller that for which purpose he is buying. When he reached
home, he came to know that this bike is not suitable for bike race competition. Due to the
principal of Caveat Emptor Mr. Krishna can neither reject the bike nor can claim for
compensation.

Protection of Buyers i.e. Exceptions to the Rule

The Sale of Goods Act protects consumers if the seller sells in the course of a business as it
restricts the use of the ‘caveat emptor’ rule, however this protection varies if the seller is a
private seller as the rule may still apply. Therefore, it could be said that the amended sale of
goods Act 1979 may not protect all consumers from dangerous and shoddy goods, as private
sellers are not included and the consumer may not always be protected. Therefore in order to
ensure that the consumer is adequately protected there must be a clear distinction between a
‘sale in the course of a business’ and the sale not in the course of a business. S.14(5) makes it
clear that if someone is selling in the course of a business as an agent for a private seller, then
the seller must make this clear to the buyer in order to avoid liability.

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Section 16(1) – Fitness for Buyer’s Purpose

Sub section (1) of Section 16 of the Sale of Goods 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 Singh3, 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.”

3 (2005) 1 CPR 401

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Merchantable quality [Section 16(2)]

The second important exception to the doctrine of caveat emptor is incorporated in

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.” 4

• 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. In the case of Priest v Last5 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.

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

4 Grant v Australian Knitting Mills, 1936 AC 85

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opportunity to examine the goods and whether the buyer made any use of the opportunity or
not should make no difference.6

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 7, 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 8.

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

6 Thornett and Fehr v Beers & Sons [1919] 1 KB 486

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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.

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. Grant 9, 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.

9
(1936) A.C. 562

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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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