APPLICABILITY OF CAVEAT EMPTOR IN THE PRESENT ERA WITH REFERENCE TO THE SALE OF GOODS ACT, 1930
The term ‘caveat emptor’ is not only an essential concept for buyers but also for sellers as it absolves a seller from any further liability after a particular transaction is completed. The Latin phrase ‘caveat emptor’ in simple language means “let the buyer beware”, and in legal parlance, it means a doctrine that requires purchasers to buy at their own risk. This phrase provides absolute immunity to sellers from any legal liability even if they are aware of any defects in the goods offered or services rendered and they choose to remain silent about it unless explicitly enquired by the buyer or the purchaser. It is a common fact that not every buyer is wary of all the details that should ideally be taken care of, by them while purchasing products or hiring services and their ignorance is what accrues unreasonable profits to sellers, most of the time. Despite of various demerits of this concept, it should be understood that the principal merit lies in the fact that it inculcates alertness of mind and awareness amongst buyers while making purchases thereby inducing within them, the habit of responsible purchases. In order to understand the concept of caveat emptor in light of the provisions of the Sale of Goods Act, 1930, it is pivotal to understand what do the terms ‘buyer’ and ‘seller’ mean. Under the said Act, buyer means a person who either buys or agrees to buy goods and seller means a person who either sells or agrees to sell goods.
The Sale of Goods Act, 1930 is one of the chief legislations that deals with sale of goods (movable property except for actionable claims and money) in India. Section 16 of the Act lays down the doctrine of caveat emptor which says that there can be no implied warranty of the quality of goods that are being sold subject to few exceptions listen within the concerned section. The intention of the legislators behind enacting this provision was to ensure that, except in cases of fraud by the seller, the buyer uses his diligence, skill and judgment while making purchases after he is assured of the quality of the goods.
Another principal term with regards to sale and purchase of goods is that of ‘Caveat Venditor’ which means “let the seller beware”. Almost a decade prior, sellers occupied a superior position in the sale and purchase business while customers or consumers were expected to exercise caution while making purchases. The concept of after sale services was not a common phenomenon which means that the sellers were not accountable for anything after the ownership of a good was transferred to the buyer. However, this is not how these businesses operate now. With globalization, the Indian markets have come in synchrony with the global leaders and therefore, the businesses here have started realizing that consumers or the buyers occupy a superior position now. Providing buyers or consumers with delightful experiences helps the sellers to sustain the competition in the market. Caveat Venditor was introduced to make sellers responsible for what they sell and ensuring that the seller refrains from selling any inferior quality products.
Consumers becoming the focal point of all businesses gave rise to consumer protection laws and regulations across globe. Caveat Venditor as a doctrine was also established to invigorate the importance of preserving consumer rights, amongst the sellers. It is pivotal to note that businesses today have adopted the doctrine of Caveat Venditor in India however, The Sale of Goods Act, 1930 does not include this doctrine. As a result of this, sellers tend to place all the responsibility on the buyer only. In absence of any explicit provision for Caveat Venditor under The Sale of Goods Act, 1930, there are no legal sanctions for sellers who attempt to misuse the doctrine of Caveat Emptor to their advantage. Therefore, analyzing the applicability of caveat emptor in 21st century with reference to The Sale of Goods Act, 1930 is important. The researcher has attempted to study the doctrine of Caveat Emptor in the light of The Sale of Goods Act, 1930.
2. COMPREHENSIVE UNDERSTANDING OF CAVEAT EMPTOR
In the words of Justice Sanghi, Caveat Emptor qui ignorare debuit quod jus alienum emit means that let the buyer beware because he is not supposed to be ignorant as he is purchasing the rights of another. He further opines that this is a well-established maxim in law that requires a purchaser to have actual as well as constructive knowledge about the goods that he is purchasing. This shows that in the opinion of Indian courts, the doctrine of Caveat Emptor places an absolute responsibility of exercising caution while purchasing goods, on the buyers and relieves the sellers of any accountability after the goods have been sold.
It should be noted that this doctrine confers responsibility on both the parties. It mandates the buyer to scrutinize the goods before purchasing them. In addition to this, it also require the seller to let the buyer examine the goods in their entirety. It is also pertinent to note that the seller is under no obligation to disclose faults or defects in the goods unless enquired by the purchaser. The courts have also emphasized on the fact that the buyers ought not to be negligent or ignorant of the goods and the nature of such goods while making purchases. In the case of Pawittar Singh Walia v Union Territory, Chandigarh Justice Malik was of the opinion that the petitioners in the case never enquired about the commercial site for the sale of which he entered into a contract with the original allottee who is also the respondent of this case. Therefore, they did not exercise caution while purchasing the plot. Justice Malik explicitly mentioned that such a case mandatorily attracts the principle of Caveat Emptor thus dismissing the petition in the present case.
The doctrine of Caveat Emptor is not explicitly mentioned within the verbatim of the Sale of Goods Act, 1930 but can be identified within the verbatim of section 16 of the Act. Contract of sale of goods was earlier a part of Indian Contract Act, 1872 however it was later inserted within a separate act. Caveat Emptor is an integral part of section 16 of the Sale of Goods Act, 1930 and it also enshrines few exceptions to this doctrine. It should be understood that this section essentially is against the consumer rights however the exceptions appended to this section absolves the buyers of this absolute burden of exercising caution to some extent. The courts have time and again re iterated on the fact that vendors are not duty bound to disclose any defects in goods unless by his conduct or representation of any kind, the vendor or the seller communicates that such a defect or fault does not exist. Furthermore, caveat emptor has been held to be a common rule under contract law of the country. Therefore, it can be asserted that caveat emptor as a doctrine is implied in any contract of sale and purchase and a buyer must investigate the subject of sale in detail before paying a price for the same.
A careful perusal of section 16 of the Sale of goods Act, 1930 suggests that the doctrine of caveat emptor exerts responsibility on the buyers except in cases where there is a warranty on the goods that are the subject of sale. Another exception to the provision under this section says that in a circumstance where the buyer explicitly communicates the purpose for which he requires those goods from the seller, it is implied that the buyer is relying on the seller’s judgment of the good since he is dealing in these goods from a very long period of time. In such a case, the seller is absolutely liable if the goods that are lent, exhibit default or defect at a later stage.
It should be noted that in order to take defense under exception 1 of section 16 of the Sale of goods Act, 1930, there are certain conditions that have to be mandatorily fulfilled by the buyer. In the case of Bengal Corporation Private Ltd v The Commissioners for the Port of Calcutta, Justice Basu laid down the three conditions that have to be fulfilled. He mentioned that firstly the buyer, either expressly or impliedly has to bring into the notice of the seller, the purpose for which the goods are required. Secondly, the phrase “making known to the seller” would mean that the buyer trusts the judgment of the seller with respect to the goods. Lastly, the goods in question should be a part of the seller’s regular course of supply.
Analyzing the doctrine of Caveat Emptor, one can gauge the intention of common law back in 19th century when this was first introduced. In the opinion of the researcher, the intention of the legislators was to inculcate a habit of careful purchasing amongst the buyers maybe because of lack of robust statutes like Consumer Protection Act which was later introduced in the year 1986. However, developments in law is certainly important because of changing dimensions of the commercial laws and regulations in the country.
3. IS CAVEAT EMPTOR STILL RELEVANT TO CONTRACTS OF SALE OF GOODS IN THE 21ST CENTURY
Contracts in 21st Century have been progressive in nature, so much so that there is an emergence of Electronic Contracts now. The rights and obligations of parties to a contract are largely governed by The Indian Contract Act, 1872. However, the courts have often interpreted certain doctrines in a way that the newly formed meanings of these doctrines do not surpass the basic framework of a statute but they append a new meaning in addition to the one that is already in place. Contracts of sale of goods in India are governed by the Sale of Goods Act, 1930. One very crucial and an integral component of this act is the Doctrine of Caveat Emptor which in simple words means “let the buyer beware”.
In the recent years, the consumers have grown wary of their rights and obligations towards the sellers and the society as a whole. Therefore, there has been a paradigm shift from Caveat Emptor to Caveat Venditor which in simple words means “let the seller beware”. The primary reason behind enactment of Consumer Protection Act, 1986 was to save the consumers from exploitation and section 16 of the sale of goods act was one of such provisions under law. Caveat Venditor was another way of making the sellers accountable for the wrong committed by them.
Application of Caveat Emptor was feasible in the middle eras where the quantity of goods sold at a time was less and of similar type unlike now, when large quantities of distinctively different goods are sold at one point of time. It is nearly impossible for the buyer to examine the latent defects in the goods that they are purchasing. Moreover, no party should be allowed to enrich themselves at the cost of another.
In order to understand whether Caveat Emptor should be exercised in the present era with respect to sale of goods or should Caveat Venditor take over the former completely, we must understand the doctrine of Caveat Venditor comprehensively with the help of some case laws that would set the stage for any further discussions.
3.1 Doctrine of Caveat Venditor
As discussed in the early segments of this paper, the emerging doctrine of Caveat Venditor simple means “let the seller beware” as against the conventional doctrine of Caveat Emptor which has been in use by common law since the 19th century. As a matter of fact, the doctrine of Caveat Venditor has taken over the ancient maxim of Caveat Emptor in the commercial world today. Courts in India have also come to realize that Caveat Venditor, as a concept, is being exercised more than Caveat Emptor. In the case of Poysha power generation v Debts recovery tribunal, justice Subbiah and justice Pugalendhi opine that the principle of Caveat Venditor is now rising as against the outdated principle of Caveat Emptor. Therefore, it can be said that a modern buyer ought not to be extremely cautious while making purchases and he can rely on what newspaper advertisements or other kinds of promotions exhibit to him.
The Sale of Goods Act was enacted in the year 1930 with a primary aim of governing all the sale of goods related contracts. However few of its provisions, for instance the one under section 16 of the Act work against the interests of consumers in India. It is due to this provision that buyers are prone to deceptions by the sellers while entering into contracts related to sale of goods (movable property). The Consumer Protection Act was introduced in the year 1986 so as to safeguard consumer rights. Caveat Venditor was another maxim that was introduced in the legal fraternity to help consumers or the buyers against the corrupt practices of sellers or the vendors.
The legal background of countries across the globe, have transitioned from regulation free contracting system that prevailed in the 19th century to a well regulated contracting system. Revisiting the evolution of Caveat Venditor under common law, one comes across the landmark case of Ward v Hobbs that was crucial for the decline of Caveat Emptor as a prevalent doctrine in International Commercial transactions. In the case, the seller sold pigs who were suffering from Typhoid. He was aware of the disease yet he did not communicate the same. But, he was not held liable because mere silence does not amount to misrepresentation as per the doctrine of Caveat Emptor.
Another reason that led to decline of the application of Caveat Emptor in commercial transactions, especially the contracts involving sale of goods was that this doctrine, as enshrined under section 16 of the Sale of Goods Act, 1930 does not protect the consumers from the wilful misrepresentations made by the sellers, particularly in cases where there are contracts based out of utmost good faith. Here, in order to take defense, the buyer himself has to prove that he acted on good faith and he communicated the same to the seller, either expressly or impliedly.
Caveat Venditor is a maxim which is not only limited to legal fraternity but is also used as a common term under social science as well. It is interesting to note that Caveat Venditor is more of an ethic rather than a legal provision since it cannot be traced as a separate concept under any of the statutes. However, it becomes the basis of the Consumer Protection Act that was initially enacted in 1986 and subsequently amended in the year 2019.
3.2 Caveat Emptor or Caveat Venditor now? – The need for Caveat Venditor
The choice between Caveat Emptor and Caveat Venditor in the modern-day commercial transactions has been a controversial debate since the evolution of the latter within the legal fraternity. Since this project focuses on the applicability of Caveat Emptor as laid down under The Sale of Goods Act, 1930, “Caveat Emptor” used in all the further segments of this paper shall have the same meaning as alluded by section 16 of the Sale of Goods Act, 1930.
For the purpose of understanding the applicability of Caveat Emptor, one needs to understand section 16 of the Sale of Goods Act, 1930 in depth. This section talks about all those conditions with reference to the quality of the goods that are to be carried along, when any person enters into a contract of sale. Firstly, the title itself encourages absolute immunity to vendors in such contractual relations. It fixes the responsibility of mindful purchasing on one party while allowing the other to act negligently. In the present era where goods are transacted in bulk, there is a mutual obligation towards such transactions. The researchers have often opinionated that exceptions laid down within the section take cognizance of the rights of the buyer. Therefore, it becomes pivotal to understand the exceptions along with the provision.
Exception 1 which has already been discussed priorly, is based out of the concept of contracts of utmost good faith. Exception 2 attempts to preserve consumers in cases where there is a description attached to the goods that are being transacted. In such a circumstance, the buyer may presume that the goods are of a standard quality. Here, the sellers cannot plead defense under the section if subsequently, the good is undermined. However, it is pertinent to draw attention to another condition that is laid down along with exception 2. The condition absolves the buyer from seeking protection under this exception as it clearly mentions that there shall be no implied condition if the buyer has previously examined these goods and could not identify the defects in the same. Here, it should be understood that buyers may not be able to ascertain or identify the defects in goods, especially if they are concealed within the good. With relevance to the modern transactions, checking each good for defects, if any is not feasible for the buyer and also, most of the times, the buyer is not aware of the technicalities of the goods and their functions. This exception requires them to equip themselves with the intricate details of the goods which is certainly not possible when there are goods in bulk that have to be purchased or if there is a time stipulation that has to be met.
In opinion of the researcher, this particular exception of section 16 requires amendments to suit the contemporary contracts involving sale of goods. Interpreting Exception number 3 of section 16, it can be deduced that the provision of implied warranty with respect to the quality of good being sold will no longer remain implied if the nature of trade is such that the vendor is duty bound to disclose the defects in goods, if any.
There have been many cases in India, which pertained to the exceptions to section 16 of the Sale of Goods Act, 1930. Most of them revolved around the issue of utmost good faith that buyers put in vendors while purchasing goods for them. It should also be known that this faith is exercised only where the buyer is aware of the expertise of that vendor with respect to particular kind of trade that the vendor deals in.
Exercising the doctrine of Caveat Emptor was feasible during the 19th century because of the prevalence of physical market places where buyers and sellers met and entered into contracts of sale there itself. These marketplaces allowed the parties to examine the goods of sale. However, the present commercial transactions happen over internet where there is no physical presence of both the parties yet they enter into contracts with the same rights and liabilities. Here, Caveat Emptor fails to rescue buyers against any deceptive practices adopted by the sellers which the buyers are absolutely unaware of, on account of lack of physical meeting of minds. Here, caveat Emptor comes into play. This is essentially why Consumer protection laws were enacted so as to protect the rights of consumers even if they contract virtually. The Consumer Protection Act, 1986 was amended and a new Act was introduced in the year 2019 to ensure that online buyers are protected. Under the newly enacted Consumer Protection Act, 2019, buying goods includes both online as well as offline transactions so that all sorts of purchases have a remedy against the deceptive practices.
With loads of competition in the market and abundance of contractual relations that are entered into on a routine basis, the controversial question of Caveat Emptor or Caveat Venditor has for long, remained unanswered. Although Indian courts have ratified the fact that application of Caveat Venditor is escalating. In the case of Mandava Krishna Chaitanya v UCO Bank, Asset Management, Justice Sanjay Kumar opined that the rule of Caveat Emptor has become insignificant instead the doctrine of Caveat Venditor has gained momentum within the commercial contracts. However, with the help of detailed interpretation of the relevant sections of the statute along with perusal of some of the landmark judgments by the Indian judiciary, it can be said that Caveat Venditor has relieved consumers from exercising utmost caution and has essentially divided the responsibility between both the parties. In the opinion of the researcher, the doctrine of Caveat Emptor should not be eradicated but should be kept under vigilance by way of intervention by doctrine of Caveat Venditor within the statutes.
Problems of goods being transacted in abundance, upsurge in the number of online purchases, lack of expert knowledge with respect to the goods and stipulation of time in certain contracts, makes the doctrine of Caveat Emptor unsuitable when applied in isolation. The legislature has already exhibited their stand when they introduced The Consumer Protection Act back in 1986. However, a more pressing change is required within the statute to effectuate the desired result.
With the enactment of Consumer Protection Act, 2019, the legislature corroborated the rights of buyers as against the misleading and delusive practices of the vendors. However, provisions like those stated within section 16 of The Sale of Goods Act, 1930, render unreasonable and unrestricted protection to these vendors thus leaving buyers in a feeble position. Thus, it has become important to modify all those provisions that can provide enrichment to one party at the cost of another.
Although, there are many provisions scattered amongst different statutes, this project explores the concept of Caveat Emptor under The Sale of Goods Act, 1930. The Indian Courts have often emphasized on the fact that Caveat Venditor is now an emerging doctrine as against the traditional concept of Caveat Emptor. The various cases that have been discussed in the paper have already considered Caveat Venditor as an established practice in domestic as well as international commercial transactions. Thus, it can be concluded that there is a significant need for insertion of Caveat Venditor as a separate provision under the Sale of Goods Act, 1930.
Furthermore, it has been established that goods being transacted in large numbers and online purchases are two of the most crucial reasons behind why Caveat Emptor in isolation will not be feasible for modern day contracts. However, this does not mean that Caveat Emptor should be eradicated in absolute sense. A blend of both the doctrines should be applied to ensure that the blanket immunity which the doctrine of Caveat Emptor places on the sellers is being restricted with the help of Caveat Venditor which confers accountability on sellers as well.
Therefore, it is concluded that the Null Hypothesis that is “the doctrine of Caveat Emptor as enshrined under the Sale of Goods Act, 1930 is not applicable in the present era” is accepted whereas the Alternate Hypothesis that is “the doctrine of Caveat Emptor as enshrined under the Sale of Goods Act, 1930 is applicable in the present era” is rejected.
1. The Sale of Goods Act, 1930, Act No.3 of 1930, §§ 1-66 (1930).
2. The Consumer Protection Act, 2019, Act No.35 of 2019, §§1-107 (2019).
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NAME: Meghna Bhatt
YEAR OF STUDY- 2nd Year Of BBA.LLB (Hons.)
INSTITUTION NAME: SVKM’S NMIMS Kirit P. Mehta School of Law, Mumbai