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A SHIFT FROM CAVEAT EMPTOR TO CAVEAT VENDITOR
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A SHIFT FROM CAVEAT EMPTOR TO
CAVEAT VENDITOR
AUTHORED
BY - UMAR JAVED
ABSTRACT:
The doctrine
of caveat emptor, which puts the onus on the buyer to examine goods before purchase, has seen a steady erosion in
modern commerce. As transactions grow more complex,
there is a discernible shift towards caveat venditor - where sellers have an
ethical and legal obligation to
disclose all material facts about their products to facilitate informed buyer decisions. This evolution is reflected in statutory provisions like the Sale of Goods Act, 1930 and the Consumer Protection Act, 2019
in India, which impose liabilities on sellers for defective goods or misleading representations. Case laws too
recognize the seller's duty of due
diligence and full disclosure, with silence or concealment amounting to fraud.
The transition signals diminishing relevance
of caveat emptor
in favour of greater
consumer protection by mandating transparency from sellers. However,
it does not absolve buyers from reasonable examination of goods.
The shift balances the inherent asymmetry between
buyers and sellers, promoting fairness and nurturing confidence in commercial transactions.
KEYWORDS: Caveat Emptor, Caveat
Venditor, Contract, Sale of Goods Act
I.
INTRODUCTION
The term Caveat Emptor
is a part of a longer statement: ‘Caveat Emptor, quio ignorare non debuit quod jus emit’,
which eans 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 means a buyer
is bound by actual as well as constructive knowledge of any fault in the thing purchased, which is evident,
or which might
have been known by proper
diligence.
However, the
increase in the density of modern commerce has placed the buyer at a disadvantage with the rule of Caveat
Emptor. There has been a decline in the concept of Caveat Emptor as the trend is moving from consumer oriented to
consumer sovereignty. The first
traceable decision in common law, which gave significance to the trust placed
by the buyer on the seller's skill
and judgement and which marked
as a blow to Caveat . In the case the buyer purchased
a hot water bottle from the seller, a retail chemist. The supplied bottle burst after a few days use
and injured the buyer's wife. The court held that seller was liable
for the breach
of implied condition
because buyer had made known to the Chemist
the purpose for which he was in need of the bottle[1].
However, this was just the beginning of what could be termed
as the thinning process of the rule of Caveat
Emptor.
While the doctrine of caveat emptor
has historically placed
the burden on buyers to examine
goods before purchase, the increasing complexity of modern products and transactions necessitates a shift towards
caveat venditor, where sellers have an
ethical and legal obligation to disclose all material information about their goods and services
to facilitate truly informed consumer
decisions.
II.
CAVEAT EMPTOR
UNDER SALE OF GOODS
ACT, 1930:
The doctrine
of caveat emptor
has also been incorporated under Indian law through
the Sale of Goods Act, 1930. Section 16 [2]of
the Act states that when a product is sold under a contract of sale, the law would not presume
that the seller sold it under an implied warranty
of fitness and quality. It is the consumer who has to examine the quality of the product and satisfy himself that
the product is fit to meet his expectations and serve the purpose
for which it is purchased. So long as the seller does not commit
an fraud and does not provide any express warranty for the product’s condition or fitness, the
buyer will have no remedy against the seller for any defect in the product.
A.
EXCEPTION TO THE RULE OF CAVEAT EMPTOR
For the protection of buyer’s interest
from the globalization of trade and commerce some restricts were carved out which are as follows:
a. Implied condition as to quality or fitness
Sec. 16(1)[3] provides
certain requirements, which when satisfied, is considered to be an implied condition from the side of the seller that the goods
supplied shall be reasonably fit for the purpose for which the buyer wants them.
i.
Buyer must expressly or impliedly makes
known to the seller the purpose
of his purchase. Thus, if the case of Andrew Yule and Co The buyer had informed
the seller that he needed the hessian cloth for
packing purpose, he could reject the cloth if he found that the same was unsuitable for that purpose.
ii.
Buyer
shall be dependent on seller’s skill or judgement. The goods are of a
description which the seller supplies
in his official course of business. In Raghava Menon v. Kuttappan
Nair [4], it was observed that ‘‘the
plaintiff is a layman and he approaches a fairly reputed firm like the defendant dealing in watches and purchases a
watch from them, not for any special
purpose , but for the common purpose of knowing the correct time. In such a
case, sec.16(1) of Sales of Goods
Act must apply, by implication, the purpose for which he purchases the watch and also relies on the seller’s
skill or judgement.’’
Proviso to Sec.16 (1) provides that when the sale is for specified
goods under the patent or trademark
of such goods, the concept of implied condition as to the fitness does not
exist. The proviso deals with the
cases where the buyer relies on the trade name of the product and not on the skill of the seller.
b. Implied condition of Merchantable quality
Section 16 (2) provides
for this. Though
the term ‘merchantable’ quality has not been defined
in the Act, but, the term ‘merchantable’ means the goods must be capable
of passing in the market in the name or description by which they are sold. Where-
i.
The goods are brought
by description.
ii.
From a seller who deals in the goods of that description.
iii.
There is an implied
condition that the goods shall be of merchantable quality.
In Grants v.
Australian Knitting Mills[5]
the underwear contained certain chemicals which could cause skin disease
to a person wearing them next to skin, it was held that because
of such a defect, the underwear were not of merchantable quality.
Proviso to
Sec. 16(2)- According to this, where the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have
revealed. So, the proviso divides the defect into two kinds, patent and
latent. The defects which be found on examination by a person
of ordinary prudence
with exercise of due care and
attention are called ‘patent defect’ and the defects which are hidden are
called ‘latent defects’.
Implied condition
is negatived on examination if the defects,
the implied condition of merchantability continues in spite of the examination of the goods.
c. Usage of trade
Section 16
(3)gives a statutory force to the condition implied by the usage of a
particular trade. It says that when a seller is aware of the usage of trade.
It says that when a seller is aware
of the usage of trade i.e. purpose for which goods will be used, then there is
an implied condition that seller
must warrant the quality or fitness of the goods.
d. Express terms
Under Section
16 (4), the parties in a contract
of sale can agree to any express
conditions or warranties as to
the liabilities for the defect in the goods. But such warranty or condition implied
by law unless such express
terms are inconsistent with the implied
conditions.
i. Fraud or misrepresentation If the seller
in a contract, obtains the consent of a buyer by fraud or misrepresentation, then, the seller will be held liable.
ii. Sale
by description and sample In this case, the responsibility will be on the seller
if the goods do not resemble such sample and/or description
B.
CASES RELATED TO
CAVEAT EMPTOR
In M/s Emami lmt. v. Nikhil
Jain[6], a consumer
court has imposed
a penalty of 15
lakh rupees on Emami lmt. For misrepresentating’ to the public
about its fairness
cream for men. The company’s advertisements claim
the cream makes skin fairer. The district consumer
disputes redressal forum (central), Delhi, held that Emami had adopted unfair trade practices by claiming through
its advertisements that its product ‘Fair and Handsome cream’
would give men fairer skin in three weeks.
In Benjamin
Careathers v. Red Bull North America, Inc[7].,
court ordered that Red Bull will pay
$10 customers disappointed, the drink didn't actually give them ‘wings’. The
lawsuit accusing it of false
advertising its energy drinks as providing functional benefits above and beyond what might be obtained
from ‘a sample cup of a coffee
or a caffeine pill’. In Wallis v. Russel[8],
the court while explaining the scope of the doctrine said that Caveat Emptor
only implies that a buyer must take care . It does not mean that a buyer shall take a chance. The doctrine
applies where a buyer exercises his own judgement and voluntarily chooses the product
he needs to buy
III.
EVOLUTION OF CAVEAT EMPTORRECENT TRENDS
A.
NECESSITY OF AWARENESS OF TERMS OF CONTRACT
Emerging cases
expressed a view that it is not necessary for the buyer to express in clear terms the use of product or service in the
contract as it is evident from the nature of contract or in the course of negotiations the reason behind the purchase.
With its origin being traced in the
need for disclosure of information for the purposes of facilitating the reason
for purchase of the buyer,
little by little
this rule has gained importance and the obligations of the seller have been given more importance
along with various statutes and case laws limiting the rule of Caveat Emptor
to reasonable examination. For example, milk containing typhoid germs or beer contaminated with
arsenic do not come under reasonable examination. With the above obligation of the seller to make proper disclosure,
the question arises what would be the
position of a seller if he himself is not aware of the defect in goods. This
situation is explained in Harlingdon
and Leinster v. Christopher Hull Fine Art Ltd. [9],
the claimant purchased a painting
from the defendant. The painting was described in the auction catalogue as being of a German
impressionist artist Gabrielle Munter. The sellers were not experts on German paintings while the
buyers specialized in German paintings. The buyers sent their experts
to study the painting before
approving to purchase. Subsequent to the sale the buyers discovered that the painting
was a fake and was worth less than half the amount paid. They filed a case based on Sale of Goods Act, 1979,
Section 13, that the painting was not
as described. But it was held that by sending their experts to inspect the
painting, the sale was no longer by
description. Section 13 of Sale of Goods Act applies only to goods sold by description and therefore the
buyers had no protection. Later this proposition was opposed by Justice Smith saying that it is the duty of the
seller to be aware of the conditions of the goods being sold and making the buyer aware about the same.
B.
INDIAN TEST FOR MERCHANTABLE QUALITY
The Law
Commission of India has come up with its own test for merchantable quality
after considering the above cases.
Merchantable quality means the goods tendered in performance of the contract shall be of such type and quality
and in such condition that, having
regard to the circumstances, as well as the value and description under which
the goods are sold, a purchaser with
full information of the quality and characteristics of the goods, including knowledge of any flaw,
would accept the goods in performance of the
agreement. In simple words it means that the buyer having full
information including the defects in the goods would be acting reasonably to buy the same. So, it is the seller’s
duty to make the
buyer aware of all the defects
in the goods being sold
and all information relating to the usage
of the goods[10].
C.
CONCEPT AND APPLICATION OF DUE DILIGENCE
Another aspect
which comes into the picture while dealing with the concept of caveat emptor is due diligence and the role it plays
in formation of contracts. Most commercial agreements contain representations and warranties. Representations provide
the underlying past and present facts
about the business and compliance record of the target company on the basis of which the other party enters into the
transaction and warranty is a written guarantee, issued to the purchaser of an article by its manufacturer,
promising to repair or replace it if necessary
within a specified period of time. The findings in a due diligence can impact
the valuation and/or structure of a
contract, give rise to specific indemnities and assist in determining the conditions on the basis of
which the contract would be effectuated. Another function of a due diligence is established through Section 12 of
The Indian Contract Act, 1872[11]
i.e. to ensure that there is
consensus ad idem between the parties about the obligations thereby ensuring that free
consent is not vitiated. A due diligence cannot be seen as a substitute for representations and warranties since the due diligence report provides the purchaser
with the basic facts to enable him to make an informed choice about the transaction, while the representations and
warranties act as an assurance that these facts are true.
D.
DISCLOSURE OF RELEVANT INFORMATION
English law has traditionally taken the view that it is not the duty of the parties to a proposed
contract to give information to each other except in exceptional
circumstances where the law or
relationship between the parties (which could be fiduciary) requires such
disclosure. Each party must make up
their own mind and exercise their own judgment in deciding whether to contract or not, and it is not the duty of
either party to put before the other facts in his knowledge which may influence the other in deciding whether to
enter into the contract or not.
The English
law position is reflected in the Indian Contract Act, 1872, the explanation to Section
17 of the Act, which deals with fraud, provides
that mere silence
as to facts likely to affect
the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person keeping silence
to speak, or unless his silence is, in itself,
equivalent to speech.
The principle
that there is no duty to disclose in every contract appears to rest on the view that each party
must obtain necessary information for themselves and cannot expect
it to be, supplied by the
other, even when the other is aware of their ignorance and could easily put the other right.[12]
However, there are special duties of disclosure in particular classes of contracts viz. in contracts between an
insurer and insured, where one party stands in a fiduciary relationship with the other. In such types of othronly
to speak and state truly whatever is
stated, but also divulge with candour and completeness, facts regarding which there is no obligation to disclose
at all in transactions which do not fall within the recognized class. It was held that the concealment of the true
nature and effect of an arbitration
agreement by a person standing in a fiduciary position to another, and
obtaining consent of the latter,
amounted to fraud. The duty of a person to speak is fact specific and arises only when the silence can be
construed as misleading. Interestingly, Illustration (a) to Section 17 of the Indian Contract Act
provides that if A sells, by auction, to B, a horse which A knows to be unsound and A says nothing
about the horse’s unsoundness, A has not committed
fraud. Illustration (c) provides that if B says to A, If you do not deny it, I
shall assume that the horse is sound
and A says nothing, A’s silence is equivalent to speech and fraud has been perpetrated[13].
Further, the
exception to Section 19 of the Contract Act, which deals with void ability of agreements, provides that if consent was
caused by misrepresentation or by silence, fraudulent within
the meaning of Section 17 of the Contract Act, the contract, nevertheless, is not voidable, if the party whose consent
was so caused had the means of discovering the
truth with ordinary diligence. Ordinary
diligence has been defined by Pollock and Mulla as: “...
such diligence as a prudent man would consider appropriate to the matter,
having regard to the importance of
the transaction in itself and of the representation in question as affecting its results.”[14]
A possibility
of discovering the truth by inquiries involving trouble or expense out of proportion to the value of the whole
subject-matter would not, it is conceived, be means of discovering the truth with ordinary diligence. Whether ordinary
diligence has been exercised by the
purchaser is also fact specific. In LIC v. Manjula Mohanlal Joshi [15]
, even though the contract involved
was a contract of insurance, the Odisha High Court held that the contract, which was entered into by the assured
by concealing the fact that she had hydrocele,
could not be avoided by the insurer due to the provisions of the exception to Section 19 since the insurer had its own
medical officer examine the assured and submit a confidential report. In John Minas
Apcar v. Louis
Caird Malchus[16] , the facts
involved the respondent sought to avoid a contract of purchase of a part
of a property which the appellant had falsely claimed
to be valued at a greater rate than it actually was. Further, the appellant
caused his friend to write letters to the solicitors of the appellant quoting
high prices, which the property was
actually not worth, merely to give it a fictitiously high value. Upholding the decision of the trial court
granting rescission in favor of the respondent, the Court, observed that there was deliberate fraud and of such a
nature as a person with ordinary diligence
could not be expected to discover.
IV. TRANSFORMATION TO CAVEAT VENDITOR:
The doctrine
of caveat emptor has lost its relevance in the modern technological age. In today’s
age, there is stiff and neck-to-neck competition between large corporations to satisfy consumers. One of the mechanisms employed
by these corporations to please the consumers
is to sell the products with express conditions and warranties. Thus, the
contract of sale itself states that
the consumers would be entitled to a replacement or refund if the product turns out to be defective. Thus,
the exceptions carved out under Section 16 of Sale of Goods Act, 1930 have lost their relevance, rather become
completely obsolete. The doctrine of
caveat emptor has also lost its relevance due to the enactment of the Consumer Protection Act, 2019.
The Consumer
Protection Act clearly
embraces the doctrine
of caveat venditor.
Section 84 of the
Consumer Protection imposes a liability on the manufacturer for any defect in
the manufacturing of the product or
for any deviation from the prescribed manufacturing standards. Moreover, if the product fails to meet the standards
laid down by the express warranty or
the product does not contain proper instructions relating to its usage, then
the manufacturer would be held liable
for any loss or injury suffered by the buyer. Section 86 of the Act provides that even sellers who
have not manufactured the product can be held liable for a defective product in the following cases. If he (the
seller) had substantial control over the
product design, testing, packaging or labelling of the product. ii. The harm
was caused to the buyer due to the modification or alteration made to the product by the seller.
iii. The seller
provided an express
warranty, but the product does not conform
to the express warranty[17].
Thus, the
various provisions of the Consumer Protection Act, by imposing the liability on
the seller or the manufacturer for
the defective product, have adopted the doctrine of caveat venditor. This also signals the declining
In Smt. Rekha Sahu vs The Uco Bank,[18] the petitioner had purchased a plot
through an auction. However, later he found that there were certain encumbrances (electricity dues) attached to the
plot and filed a suit before the Court
seeking a direction to the respondent auctioneers to free the property from the encumbrances. The petitioner pleaded that
as per the sale certificate, the property was
supposed to be free from all encumbrances. The auctioneers relied
on the doctrine of caveat
emptor and pleaded that the petitioner should have made a proper enquiry
before purchasing the plot. However,
the Allahabad High Court held that the Indian jurisprudence has witnessed a shift from the doctrine
of caveat emptor
to the doctrine of caveat
venditor.
Thus, the auctioneers were liable to pay the electricity dues.
V. CONCLUSION:
The trajectory of consumer protection laws and judicial
precedents has demonstrated a clear movement
away from the traditional caveat emptor doctrine
towards the more buyer-friendly
caveat venditor approach. This shift acknowledges the inherent imbalance of
information and bargaining power that often exists between
buyers and sellers,
particularly in complex
transactions involving goods or services
with intricate specifications or potential defects.
While the
doctrine of caveat emptor is still applicable in certain situations, such as
when buyers intentionally disregard reasonable efforts by sellers
to disclose relevant
information, the overarching
trend is towards placing greater responsibility on sellers to ensure transparency and accuracy in their
representations. This evolution reflects the changing dynamics of consumer markets, where buyer protection and
fostering trust in commercial transactions have become paramount considerations
References-
Statutes:
·
Consumer Protection Act, 2019
·
Indian Contract Act, 1872
·
The Sale of Goods Act, 1930
Case Laws:
·
Andrew, Yule And Co. v. Unknown, AIR 1932 CAL
879.
·
Australian Knitting Mills Limited v. Grant,
(1933) 50 CLR 387.
·
Benjamin Careathers v. Red Bull North America,
Inc, 2015 U.S. Dist. LEXIS 97533.
·
Harlingdon and Leinster v. Christopher Hull
FineArt Ltd., 1991.
·
John Minas Apcar v. Louis Caird Malchus, AIR
1939 CAL 473.
·
LIC v. Manjula Mohanlal Joshi, AIR 1975 ORI 1-1.
·
M/S Emami Ltd. vs Nikhil Jain, AIR 2017 Del 479.
·
Raghava Menon v. Kuttappan Nair, Proprietor, AIR
1962 KER 318.
·
Smt.Rekha Sahu v. The Uco Bank, 2013 (7) ADJ
642.
·
Wallis v. Russell, (1902) 2 IR 585.
Books:
·
Pollock & Mulla, The Indian Contract Act,
1872 (16th ed. 2021).
·
Rajesh Kapoor, Avtar Singh's Law of Contract
& Specific Relief (13th ed. 2020).
Websites:
·
Ayush Verma, Doctrine of Caveat Emptor,
IPleaders (Dec. 2, 2023) https://blog.ipleaders.in/doctrine-of-caveatemptor/.
·
Law Commission of India, Quality Control and
Inspection of Consumer Goods. http://lawcommissionofindia.nic.in/101-169/report105.pdf
[1] Ayush Verma, Doctrine of Caveat
Emptor, IPleaders (Dec. 2, 2023),
https://blog.ipleaders.in/doctrine-of-caveatemptor/.
[2] The Sale of Goods Act, 1930, §16
[3] The Sale of Goods Act, 1930, §16
(1)
[4] Raghava Menon v. Kuttappan Nair,
Proprietor, AIR 1962 KER 318.
[5] Grants v. Australian Knitting
Mills [1935] UKPC 62
[6] M/S Emami Ltd. vs Nikhil Jain, AIR
2017 Del 479.
[7] Benjamin Careathers v. Red Bull
North America, Inc, 2015 U.S. Dist. LEXIS 97533.
[8] Wallis v. Russell, (1902) 2 IR
585.
[9] Harlingdon and Leinster v.
Christopher Hull Fine Art Ltd., 1991.
[10]
Law Commission of India, Quality Control and Inspection of Consumer Goods.
http://lawcommissionofindia.nic.in/101-169/report105.pdf
[11] Indian Contract Act, 1872 § 12
[12] Rajesh Kapoor, Avtar Singh's Law
of Contract & Specific Relief (13th ed. 2020).
[13] Indian Contract Act, 1872, § 17
[14] Pollock & Mulla, The Indian
Contract Act, 1872 (16th ed. 2021).
[15] LIC v. Manjula Mohanlal Joshi, AIR
1975 ORI 1-1.
[16] John Minas Apcar v. Louis Caird
Malchus, AIR 1939 CAL 473.
[17] Consumer Protection Act, 2019, §
86
[18] Smt.Rekha Sahu v. The Uco Bank,
2013 (7) ADJ 642.
Article Information
A SHIFT FROM CAVEAT EMPTOR TO CAVEAT VENDITOR
Authors: UMAR JAVED
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/06/29
- Issue 7
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