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Doctrine of Caveat Emptor

Caveat Emptor: 7 Exceptions to The General Rule

Overview:

When seller displays their good in the open market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out to be defective he cannot hold the seller liable . The seller is in no way responsible for the bad selection of the buyer.

The seller is not bound to disclose the defects in the goods which he is selling. It is the Principle of law known as Caveat Emptor:

Example:

A bought 10 Hens from B . The Hens being suffering from bird flu, caused bird flu to other healthy hens of A. It was held that B was not bound to disclose that the hens were unhealthy.

Rule of Caveat Emptor

RELEVANT PROVISION:

Section 16 of the Sale of Goods Act, 1930

Explanation of the Rule of Caveat Emptor:

Emptor-Buyer-beware. A maxim of law on the sale of goods opens to inspection. The seller need not point out any defect in them but if he is asked about any defect he must truthfully give out. The proposition is contained under S.41 of the Sale of Goods Act, of 1930. Where the goods are delivered to the buyer that he has not previously examined, he is not deemed to have accepted them unless he has had a reasonable opportunity to examine them for the purpose of ascertaining whether they are in conformity with the contract. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity to examine the goods for the purpose of ascertaining whether they are in conformity with the contract.

Caveat Emptor means:

Caveat Emptor is a Latin Term, “Caveat” means “let him or her beware” and “Caveat Emptor” means “let the buyer beware’, or the buyer must take care.

According to Finance Strategists:

Caveat Emptor, Latin for “let the buyer beware,” is a principle of contract law that passes responsibility for discovering defects from the seller to the buyer. In effect, the seller does not have responsibility to provide information or make promises on the quality of an item being sold.

According to Black’s Law Dictionary; 

Caveat emptor is a doctrine holding that purchasers buy at their own risk.
Caveat emptor maxim means that the buyer while purchasing the goods of his requirements must be careful, examine the goods thoroughly, ensure that the goods being purchased are suitable for the purpose for which he wants them and the seller is not bound to disclose the defects in the goods he is selling.

General Rule (Caveat Emptor):

The general rule is that in a contract of sale, the seller does not guarantee the quality or fitness of the goods sold for any particular purpose. The buyer himself takes the risk as to the quality and condition of the goods. If the buyer depends upon his own skill and integrity and the goods are found defective, it is his own fault, and he cannot hold the seller responsible.

Section 16 of Sale of goods Act runs as follows:

Subject to the provisions of this act and of any other law for the time being in force, there is no implied warranty or condition as to quality or fitness for any particular purpose of goods supplied under a contract of sale.” This states the principle of Caveat Emptor (Let the buyer beware). Thus despite the existence of various implied conditions and warranties as contained in Sec. 16, the seller is not bound to supply goods fit for a particular purpose. Instead, buyer himself should be vigilant enough to scrutinize the goods while purchasing. Under the general doctrine the seller is not ordinarily bound to disclose any defect of which he may be aware, although silence may virtually operate to deceive the buyer. 

Application of Caveat Emptor:

Caveat emptor is a principle in commercial transactions, there being no warranty, and the buyer takes the risk of quality upon himself. The doctrine is embodied in Section 16 of the Sale of Goods Act, 1930. The principle of caveat emptor also applies to the court sale of immovable properties. 

Case Law:

“Caveat emptor does not mean in law or Latin that the buyer takes a chance; it means he must take care. It applies to the purchase of specific things, e.g., to a horse or picture upon which the buyer can and usually exercise his own judgment. It applies whenever by usage or otherwise it is a term of the contract, express or implied that the buyer shall not rely on the skill or the judgment of the seller. (Wallis Vs. Russel).
In simple words, Caveat Emptor doesn't mean that the buyer must "take chance”, it means he must take care. It applies to the purchase of specific goods e.g., a horse upon which the buyer can and usually does exercise his own judgment. It also applies if the buyer voluntarily chooses what he buys. He can't blame the seller for a bad selection. After all, seller is not supposed to know the particular purpose for which goods are required.

Explanation:

Purchaser is saddled with extraordinary responsibility of taking care and caution and to deeply scrutinize genuineness or originality of goods or legality of title before purchasing them under the principle of caveat emptor. Any infirmity or deficiency in title or in goods found later is precluded to subsequently raise plea of protection, rather he has to face rigors of his own committed negligence for non-conducting a bona fide and reasonable investigation into title and defects of the goods under the principle of caveat emptor.

Exceptions to the General Rule Of Caveat Emptor:

The rule of Caveat Emptor originated at a time when the selling and buying function was face-to-face and was conducted in the open market. Nowadays, trade has become global and making it difficult for buyers to examine goods beforehand, especially in the case of ‘mail-order-buying or “e-commerce”. Thus it becomes necessary to restrict the rule of Caveat Emptor by drafting some exceptions.

Section 16 provides the following exceptions:

(1) Goods bought by description (Fitness for Buyer’s Purpose):

If the buyer makes known to the seller the purpose for: 
Where the buyer, expressly or by implication, informs or make known to the seller, the particular purpose for; 
  • (i) which the goods are required.
  • (ii) If the buyer relies on the seller’s skill and judgment. 
  • (iii) If the goods are of a description in which the seller deals, the seller must supply goods that are fit for the buyer's purpose.

Illustration:

A purchased from a retailer two trousers manufactured by the retailer. The next day after wearing one of them he became ill. His illness was caused by a chemical irritant that the defendants had negligently failed to remove in the process of manufacture: 
Held: Sale was without exception of fitness for buyer's purpose. Where the goods are of more than one use, the buyer should inform the purpose to the seller. Where this is not done, condition as to fitness will not be implied.
Where goods are of more than one use, the buyer should inform the purpose to the seller. Where this is not done, condition as to fitness will not be implied.

(2) Implied conditions and warranties:

Implied conditions and warranties which the law incorporates into the contract, buyer can only rely upon them to avoid application of this doctrine.
In other words, the doctrine of Caveat Emptor does not apply in the following cases.
  • (i) Where goods bought by description do not correspond to description.
  • (ii) Where the bulk of the goods bought by description does not correspond to the sample. 
  • (iii) Where the goods bought by sample and description do not correspond to both.

(3) Sale under trade name:

Where specified goods are sold under its patent or trade name, there is no implied condition that the goods shall be reasonable fit for any particular purpose. In other words, mere intention of the name of a product or its trade name or mark does not exclude the condition. Even in such case buyer may rely on seller's skill and judgment.

Illustration:

A asked B, a car seller to supply him ‘Fiat car’, a trade name. This did not exclude the implied condition of fitness.

(4) Merchantable quality:

(Section 16(2))
Where the buyer has examined the goods, and has failed to reveal the defects which such examination ought to have revealed, there is an implied condition that the goods shall be merchantable quality. In other words, a dealer who sells goods by description is bound to deliver goods of a merchantable quality. 

Criterion of merchantable quality may be two:

  • (i) If the goods are purchased for resale, they must be capable of passing in the market under the name or description by which they resold.
  • (ii) Goods should be such that their sale on the market does not violate any applicable statute e.g., confectionary must contain only permitted colors. 
Illustration:
Milk was supplied by a dairyman. It was contaminated by germs of fever (typhoid). Buyer's wife was infected and died of it. The milk dealer was held liable in damages.

(5) Usage of Trade:

(Sec. 16(3))
An implied condition or warranty as to quality or fitness for a particular purpose may be annexed by the usage of Trade.

(6) Consent by fraud:

Where the consent of the buyer in a contract of sale is obtained by the seller by fraud, the doctrine of Caveat Emptor does not apply.

(7) Active concealment of defects:

Where the seller actively or knowingly conceals some latent defect (which could not be discovered by examination) in the goods, the doctrine of Caveat Emptor does not apply.

Principle of Caveat Emptor Disapproved by Islam:

The principle of "caveat emptor" was not approved by Injunctions of Islam as a vendor was required to disclose defects in sale commodities to the vendee.

The Holy Qur'an in very explicit terms says:

Woe to those who give short measure, those who, when they have to receive by measure from men, exact full measures, but when they have to give by measure or weight to men give less than due [(Sura Mutaffifeen) (83:1)]. [P L D 1999 Peshawar 75]
This Quranic philosophy was applied by the Honorable Supreme Court in case of Government of N.W.F.P. v. I.A. Sherwani reported as PLD 1994 SC 72.
Their Lordships, observed as follows:
"Although the word '.Tatfif' used in the Holy Verse literally means 'giving short measure' or 'short weight', yet, in the normal usage, it covers all the situations where a person gives too little and asked too much. Maulana Mufti Muhammad Shafi, while explaining this Verse, writes in his Ma'ariful Qur'an. 

CONCLUSION:

To conclude that caveat emptor maxim means that the buyer while purchasing the goods of his requirements must be careful, examine the goods thoroughly ensure that the goods being purchased are suitable for the purpose for which he wants them and the seller is not bound to disclose the defects in the goods he is selling.

Relevant Questions:

Important past questions of prominent universities related to our topic are as under:
  • What do you understand by the rule "Caveat Emptor"?
  • Are there any exceptions to this rule?
  • Write short note on Caveat Emptor.
  • State the doctrine of "Caveat Emptor".State exceptions to it.
  • What is meant by ‘Caveat Emptor’?
  • State the circumstances where the doctrine does not apply.
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