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APPLICABILITY OF THE CAVEAT EMPTOR IN THE MODERN ERA VIS-A-VIS THE SALES OF GOODS ACT, OF 1930


This Article is wrtiten by Palak Rastogi, Student at School of Law, NMIMS, Navi Mumbai, Maharashtra, India.


Abstract:

The Caveat Emptor theory operates as a deterrent enough to regulate purchasers' preferences and subsequently gives no recourse against the seller if goods do not fulfil or meet the wants and desires of the consumers. This is one of the key branches of the contract that the Sale of Goods Act, of 1930, deals with, notably the transferable goods with the general public the globe encounters on the daily basis. The Caveat Emptor doctrine must be applied with skill and judgement on the buyer's part and profit-oriented thinking on the seller's part. This idea is similar to a coin with two sides, either side benefits the sellers in the end. The researcher examines the vulnerability that enforces the buyer's obligations and acts accordingly for the seller's gain. The application of caveat emptor with regards to the Sales of Goods Act, 1930 in contemporary times subsequently has a significant impact on customers both in conventional and online purchases. In furtherance of this, the paper recognizes the Caveat venditor replaces caveat emptor as the dominant approach to start educating the sellers about their duties towards the buyer by upholding the principle of ‘Customer is God’ in the market. The doctrine necessitates the changes and hence, equipped them to understand the weak position of the buyer in the transactional world. In growing corporates and enhancement of big companies, the sellers’ obligation must be broadened by putting a stop to fake, misleading and dubious transactions. Thus, the paper attempts to address the issues and fixes associated with caveat emptor through the analysis of the Sales of Goods Act.


Keywords: Caveat Emptor, Sales of Goods Act 1930, Caveat Venditor and Application in Modern Era.


Introduction:

Every buyer in a business transaction must exercise caution while selecting the goods that best suit their desires, and a Customer inspection of the goods is required by the seller before finalising the sale agreement. In the current global capitalist environment, the vendor does not have to disclose every flaw in their products if the consumer does not inquire about them or ask for them. The buyer should properly inspect the goods for his or her intended use, and if, during this process, he or she cannot blame the seller or place the blame elsewhere. "Caveat emptor" refers to this buyer's duty and supports the discretion of the sellers. This common law principle focuses on the vigilant participation of law enforcement rather than being dormant and practising in nature. The paper establishes the legal urgency to support the new wave of Caveat Venditor to ensure the accuracy of justice and fairness towards buyers in this competitive and transactional market.


Research Objectives:

  • To analyse the caveat emptor principle concerning the Sales of Goods Act, of 1930.

  • To determine the paradigm shift from Caveat Emptor to Caveat venditor in Contemporary times.

  • To concentrate on how Caveat Emptor can be applied in various market sectors.

Research Questions:

  • Is the doctrine of Caveat emptor replaced by the Caveat Venditor approach in contemporary times?

  • How well-protected is the buyer in a competitive market by the exceptions outlined in SGA, 1930?


Research Methodology:

The research outcome supports the Doctrinal Legal Research Method through the analysis of the Sales of Goods Act of 1930 statute law and used various cases by the application of reasoning. The emphasis is on the analysis of the statute, legal rules and doctrines. The research focuses on the holistic manner of findings and locates the discussion based on textbooks, law journals and Legal Articles.



Understanding the Doctrine of ‘Caveat Emptor’

Studying the Latin Doctrine of Caveat Emptor means let the buyer beware. The applicability of these doctrines places the burden on the buyer to reasonably examine the property before purchasing. The historical interpretation of this concept is always considered to be rigid and inflexible towards buyers since governed by the Act of 1893. This rule reiterates the seller's obligations on the need for disclosure when a product is sold is visible and unmistakable. There was no obligation on the seller to disclose information, and in furtherance, it puts the buyer in a position to properly inspect the items which were seen as superseding all other obligations. The principle focuses on developing a sense of duty among the buyers that they must show due diligence and conduct that is necessary to ensure the goods are in satisfactory condition and can meet their required needs. A key necessity of contract law and the business world is the caveat emptor rule. It works on the Legal Latin maxim "Caveat Emptor quia ignorare non-debuit quod us alienum emit" which 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.’ can be understood through Common Law landmark Case of Goddard vs Hobbs (1878). It was decided that the seller in this case was not required to disclose that the pigs were unwell even though they were sold "as it is" and the buyer's other healthy pigs contracted typhoid as a result of the infected pigs. As a result, Caveat Emptor is the law. Consequently, the Buyer was made accountable. The concept of Caveat emptor ensures, if the purchased item shows significant defects and the purchaser does not act appropriately, they will not be entitled to any damages or remedies under Section 16 of the Sales Of Goods Act 1930 which firmly states: “that there is no implicit warranty or condition regarding the quality or fitness for any particular purpose of goods supplied under a contract of sale.”


Section 11(1)(c) of the Act mentioned above also made a strong assertion, stating that when ‘specific’ items were sold, the buyer was not permitted to reject the goods for any reason. As a result, it is clear that the law was biased in favour of selling at the time, and it was impossible to develop a rule that would have placed the burden of proof on the seller.


Section 16 in the SGA puts buyers in a situation to prove their actions to maintain equity and guarantee the accuracy of justice by the seller. This principle predominated in its purely absolute form. Therefore, a buyer would not have any legal remedy if he failed to verify the suitability of the items for his purposes before purchasing the goods. The seller is not responsible if the buyer later discovers that the products are unsuitable for his/her needs, and thus has no recourse against such a fallacy. Researchers in the legal and philosophical realms, Thomas Aquinas, argued that the seller is not legally obligated to warn the buyer of any known defects in the goods if the customers purchase it regardless of whether those problems are logically obvious. Therefore, the caveat emptor tenet will be in effect, instigating the need for a paradigm shift in the doctrine in contemporary times.


Exceptions to Caveat Emptor: Frequently Overlooked

The Statement of Caveat emptor incorporates certain Exceptions under Sec 16 of SGA,(1930) fundamentally under circumstances where the caveat emptor concept does not relevant. These exceptions provide the buyer to stand in a position to get relief and legal remedy in some instances which are beyond his/ her prudent skills and judgement while purchasing the goods. In the landmark case of Common law Wallis v. Russel (1902), the court stated, “In the broad sense, caveat emptor means that the buyer must ‘take care’ rather than ‘take a risk’ It applies only if the buyer chooses to purchase voluntarily. The buyer shall not rely on the skill or judgement of the seller; this is a condition of the contract. But the following provisions under the act help the buyers to plead a defence under a contract of sale:

  • Fitness for Buyers Purpose[Section 16(1)]: The exception specifies that The buyer tells the seller of the specific justification for the purchase and suggests that the buyer rely their decision to buy on the seller's knowledge or discretion. As a result, the items must be of a type that the seller regularly supplies as part of his field of work.

  • Merchantable quality [Section 16(2)]: This is another exception that states When things are purchased for personal use, they must be suitably appropriate for that use. In one of the leading cases, “The plaintiff purchased a hot water bottle, which is typically used to apply heat to a person. The plaintiff's wife was scalded when the bottle burst. The seller was made accountable.”

  • Conditions implied by trade usage[Sec. 16(3)]: Under SGA,1930 this exception guarantees an implicit warranty or condition regarding the quality or suitability for the specific purpose through a specific trade to the buyer. It was established in the case of Peter Darlington Partners Ltd v Gosho Co Ltd that a contract for the sale of canary seed was held according to the trade practice, the buyer would receive a price reduction for defects in the seed but would not reject the items.

  • Express Terms [Section 16(4)]: Lastly, Unless the express terms are incompatible with the implicit conditions, this exception provides an express warranty or condition that does not nullify a warranty or condition implied by the Act under the contract of sale. In the landmark case of Bombay Burmah Trading Corpn Ltd v Aga Mohamed(1910-11). It was decided that the requirement that sleepers supplied to a railway corporation must be authorised by its experts did not eliminate the implied condition of marketability

The shortfalls of this principle stated under SGA, 1930 are still prevalent beside the exceptions stated under the Act as they broadly lack to consider the growing origin of Caveat Venditor and frequently overlook the caveat emptor exceptions in commercial real estate transactions. With the advent of exceptions, the following case Real estate transactions are generally subject to the doctrine of caveat emptor which prevents the buyer from receiving a remedy for any flaws or shortcomings found in the property. There are additional exceptions to safeguard the interest of sellers, though, as Justice Ballance J. noted in Cardwell v. Perthen, 2006:

  • The principle of caveat emptor has been described as acting passively because the vendor is not required to take any action to understand the condition of the property being sold or any defects; rather, this responsibility falls on the buyer. As a result, a vendor is under no obligation to assess the property's condition so that they can inform potential buyers of which parts need to be repaired, are outdated, were built to the highest standards or are terrible. Although caveat emptor first seems to give a vendor a complete defence against any allegations made by a buyer regarding property faults, the theory has been mitigated by several exceptions.

  • In Rawson v. Hammer (1982), a house that was still being built was purchased. Some necessary permissions and certifications were lacking from the vendor/builder. The house was subsequently condemned as a result of the resulting flaws. The Court determined that these were latent flaws that the customer could easily notice. The nature of the problem, its significance to the buyer, and the scope of the inspection and inquiry that would be both reasonable in the circumstances and required to inform them of the defect must therefore be taken into consideration. Thus, the above-mentioned case firmly highlights the shortcomings of the doctrine even after justifying the exceptions.


Application of Caveat Emptor in Online Purchases

In today's online sales and purchases, Caveat emptor, a common law principle, is still in force. In general, there are four stages to an internet purchase: information, negotiation, payment, and delivery. These phases involve the buyer's efforts to make due diligence and act vigilant as there are no face-to-face interactions with the seller. It is clear from the internet purchasing procedure that it is completely different from a traditional in-person transaction, encounters and Customers cannot touch, examine, scrutinise, and evaluate the suitability of the goods before making a purchase, which raises the danger of fraud. The caveat emptor concept, founded in the case of Chandelor v. Lupos (1603), urges customers to be meticulous and cautious before making a purchase. In addition, buyers have no alternative but to evaluate the items personally and must rely on the advertisement provided by sellers. According to the case's ruling, the seller, named the defendant, was not responsible for any obvious flaws or any reasonable opportunity to check the goods before selling them to the plaintiff. During Online purchases, the rule of Caveat emptor implies because they solely rely on the information that sellers provide through the buying platform, customers have less negotiating leverage when making an online purchase than do sellers. An informational imbalance in contracting may result from this condition. Deceptive and confusing advertisements from sellers may also cause issues.

These instances demonstrate why it is inappropriate to apply the caveat emptor principle to online sales and buy contracts because customers are powerless to guarantee that the transaction complies with the purchase requirement even after the exceptions specified in the Sales of Goods Act, of 1930. The caveat emptor according to Paul Sinha (2017), is not relevant for online sale and buy contracts because of the consumer's constraints. Therefore, the vendor should be held accountable under contracts, and the customers' responsibility to always be vigilant while making purchases should be transferred to the sellers. It allows retailers to profit handsomely from customers through a variety of dishonest methods, including as poor product quality, receiving items that are different from what was bought, and making deliveries late.


Examining the Effect of Caveat Emptor in the Execution of Sales or Lease Contracts

In special contracts, i.e. Sales of Execution or Lease Agreements a common legal principle where the buyers are obligated to reasonably inspect the property before purchasing the "Caveat Emptor" clause. A client who breaches this responsibility is not entitled to reimbursement for any flaw in the property that may have been discovered had the breach not occurred. In the case of England v. Clark, The English court ruled that the caveat emptor principle applied in those instances where the purchaser was seeking restitution from the execution creditor. Instead, only the levying officer or the judgement debtor whose debt has been satisfied by the advancement of purchasers deny the buyer of equity and may grant relief to the judgement debtor. In furtherance, most business people apply the caveat emptor doctrine concerning the Landlord-Tenant relationship. The landlord act on the part of the seller in asserting its obligation towards the tenant which lacks the principle of fairness in the market.

In many instances, a tenant's interests in the commercial sector are in danger in a manner akin to that of a buyer. For example, a tenant signs a lease, but the City of Austin decides the next year that all buildings must have sprinkler heads spaced 100 feet apart. Originally, they were to be 150 feet apart according to the building code. The landlord will be forced to make the necessary alterations to comply with the new city regulation and will charge the renter for them. Depending on how many square feet the renter is renting, compliance might be very expensive. Most of the time, the tenant disregards this possible risk and is responsible for the upgrades. Being aware of nuances and hidden consequences is essential for the renter to obtain an equitable contract. At that point, the tenant's exclusive contract with a transactional seller can be extremely disadvantageous and compromise the fairness of justice. This increasing role of Caveat Emptor in Lease agreements encourages the unethical and biased behaviour of Sellers and further recognizes the need for change and shift to caveat venditor to boost consumer confidence largely to uphold the exceptions under Section 16 of the SGA.


Caveat Venditor: Is This the Emerging Trend?

Is there a paradigm change from Caveat Emptor to Caveat Venditorin the laws governing the Sales of goods contracts in India? The answer to this question is contemporary to the times when the sale and purchase of goods depend on, the Common law doctrine of Caveat Venditor where the buyer's reliance on the vendor's knowledge and competence is given weight. The origin of this rule got established through the case of Priest v. Last, where the buyer was required to rely on the seller's knowledge and judgement, and the buyer was given the right to initially reject the goods. In this case, the customer put their faith in the seller's knowledge and discretion and purchased a hot water bottle. It was found that a buyer will be able to return an item if there is a problem if they buy anything relying on the seller's expertise and judgement.This was the first decision in the history of common law to take into account the buyer's reliance on the seller's knowledge and competence. Thus, in this case, the fallacy in the concept of Caveat Emptor was recognized and this is how it changed into Caveat Venditor to ensure the seller’s obligation to avoid the burden on buyers and upheld the provisions of the Consumer Protection Act, 1986.

The development of the seller’s obligation is necessary to justify the principle of equity. The caveat venditor replaced the caveat emptor approach as this rule has been more well-known, and the seller's obligations have been properly shaped along with numerous statutes and the caveat emptor rule is limited by case law to "reasonable examination" Examples such as beer contaminated with arsenic suffice to demonstrate that courts have been gracious enough to exempt the buyer from the requirement to inspect the goods where the faults could not have been detected under normal circumstances. There are two tests accepted by the Law Commission of India on Unfair Terms in Contracts. In the case of Australian Knitting Mills v. Gran, Justice Dixon stated the first test, ​​which required the goods to be in a real state where the buyer is fully aware of the facts, is aware of any hidden defects, is not restricted to the goods' apparent condition, and would purchase the goods at the total price that is obtainable for such goods if in reasonably sound order and condition and without any special conditions imposed by the seller. The other test was the "usability test," which was inspired by the ruling in the famous common law case Kendall v. Lillico & Sons Ltd., in which Lord Reid questioned the vagueness of Section 16(2) of the 1930 Sales of Goods Act regarding what is meant by "merchantable quality"? The decision notes that the items were not sellable under the description under which they were sold because they were not useful for any use for which goods that complied with the description under which these things were sold were typically used. As a result, due to broadening the meaning of legislation regarding Section 16 of the SGA, 1930, the buyer is prevailing. It is argued that the seller's obligation should be independent of his knowledge and expertise because what matters is not what he possesses but what is expected of him. In favour of the new caveat venditor concept, which is geared toward a new Consumer Protection System in the new wave, the venerable caveat emptor principle may now be rendered obsolete and conservative.


Analysis and Conclusion

The researcher puts forward the following analysis of the current position of buyers in the commercial world. It recognizes the doctrine of Caveat Emptor as a ‘draconian law’ which puts the burden on the buyer if the products/goods purchased do not fulfil his/her demand. Moreover, the paper establishes the need for a subsequent shift from Caveat Emptor to Caveat Venditor in contemporary times to ensure the acceptability of a broader sense of view towards the customer's preferences and their behaviour in the market by putting a reasonable restriction on the contract of sale to balance out the equilibrium between the 1930 Sales of Goods Act's rights and obligations for both the vendor and the buyer. The study also concludes that, in addition to the exception mentioned, more comprehensive legal measures are needed to satisfy buyers who are concerned about the seller's experience and expertise. The paper enshrines that the rule of caveat emptor is absolutely against the laissez-faire concept because the buyer is also contracting for business purposes, this principle does not apply. Where there is a power imbalance between the seller and the buyer, such as when major corporations are entering into a contract with a client, the caveat vendor principle can be justified.


References

Statutes:

  • The Sales of Goods Act, 1930, No.3, Acts of Parliament, 1930(India)

  • The Sale of Goods Act 1979, No. 54, Elizabeth II, 1979(Independent India)

  • The Consumer Protection Act, 2019, No. 35 Of 2019(India)


Books:


Cases:

  • Goddard v. Hobbes (1878), 4 AC 13.

  • Henry Kendall Ltd v William Lillico Ltd [1969] 2 AC 31

  • Priest v Last (1903,)2K.B.148.

  • Chandelor v Lopus (1603), 79 ER 3.

  • Cardwell v. Perthen (2007), 243 B.C.A.C. 135 (CA),401 W.A.C. 135

  • Rawson v. Hammer (1982), 19 Alta. L.R. 22 at 25 (Q.B.).

  • Peter Darlington Partners, Ltd. V. Gosho Company, Ltd.(1964),1 Lloyd's Rep. 149.

  • Wallis v. Russell (1902), 2 IR 585.

  • Goddard v. Hobbes (1878), 4 AC 13.


Articles:

  • Singh, S.K. (2018). The Concept of Caveat Emptor and Caveat Venditor Still Govern the International Commercial Transaction in the 21st Century. International Journal of Trend in Scientific Research and Development, Volume-2(Issue-5), pp.957–961. doi:10.31142/ijtsrd17007.

  • Shriram, R. and Ramu, M. (2018). A Study on Caveat Emptor (Let the Buyer Beware) and How it Does not Protect Investors. International Journal of Pure and Applied Mathematics, [online] 119, pp.519–528. Available at: https://acadpubl.eu/hub/2018-119-17/1/47.pdf

  • Malek, A., Begum, A. M. A. and Hoque, K. A. (2016) “Doctrine of Caveat Emptor (Buyer be aware) in Common Law and the Doctrine of Khiyar al -aib (Option of the defect) in Islamic Law: A Comparative Study”, IIUC Studies, 10, pp. 201–216. doi: 10.3329/iiucs.v10i0.27436.

  • Adnan, A.M., Manap, N.A. and Zakaria, Z. (2021). Analysis of Caveat Emptor Application in Online Purchases. Journal of Legal, Ethical and Regulatory Issues. [online] Available at: https://www.abacademies.org/articles/analysis-of-caveat-emptor-application-in-online-puchases-12931.html [Accessed 8 Apr. 2022].

  • ‌Rattan, B. (2020). Implied Conditions And Warranties: Caveat Emptor. [online] Available athttps://www-livelaw-in.svkm.mapmyaccess.com/columns/implied-conditions-and-warranties-caveat-emptor-157329 [Accessed 8 Oct. 2022].

  • ‌Gilman, J. (n.d.). Rethinking the Role of Caveat Emptor in Execution Sales Rethinking the Role of Caveat Emptor in Execution Sales. [online] Available at: https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=2389&context=caselrev [Accessed 10 Oct. 2022].

  • ‌Agarwal, A. (n.d.). Caveat Emptor and its Exceptions. Jurisperitus The law journal, [online] 5(2), pp.84–85.[Accessed 7 Oct. 2022].

  • Admin (2021). The doctrine of Caveat Emptor. [online] Indian Society for Legal Research. Available at: https://indiansocietyforlegalresearch.in/2021/08/26/doctrine-of-caveat-emptor/ [Accessed 6 Oct. 2022].

  • ‌student.manupatra.com. (n.d.). Sale of Goods - Chapter 4 - Conditions and Warranties. [online] Available at: http://student.manupatra.com/Academic/Abk/Sale-of-Goods/Chapter4.htm#Uptowhatextentabuyer [Accessed 10 Oct. 2022].



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