Legal Service India - Caveat Emptor or Caveat Venditor: Where are We Heading?
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Caveat Emptor or Caveat Venditor: Where are We Heading?

Written by: Trideep Raj Bhandari - Student, VI Semester, B.B.A.LL.B. - National Law University, Jodhpur
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Lord Wright commented long back in 1935: The "old rule" of caveat emptor had been superseded by caveat venditor, such change being "rendered necessary by the conditions of modern commerce and trade"

‘Let the buyer beware’ is not a phrase that judges use very often nowadays. The age-old rule of caveat emptor rule, which has its origin in common law, has over the times undergone major changes. As the rule was being given a concrete shape, its exceptions also grew with time. This article however, seeks to analyze the gradual death of the rule of caveat emptor and its replacement with a rule, which has subsequent origin i.e. caveat venditor (Seller beware). This analysis would center around the balancing point of the necessity of disclosure of information by the seller on one side and implications of reasonable inspections done by the buyer on the other.

II. The History: Caveat Emptor (When it Originated)

As one would trace by its origin, the philosophy behind the rule of caveat emptor was basically the reliance placed by the buyer on his own skill or judgment . It is based on the fundamental premise that once a buyer satisfies himself as to the suitability of the product for his use, he would subsequently have no right to reject the same. The rule of caveat emptor, as it prevailed at the times of its origin, was quite rigid.

If one peruses through the English Sale of Goods Act, 1893, it is not only noticeable but quite evident that the seller’s duties as to disclosure requirements when a product is sold was minimal. Buyer’s examination of the goods was considered over and above any duty upon the seller to provide information. Concepts like ‘fitness of goods’ and ‘merchantability’, which could be used to shift the burden as to quality and fitness on the seller, were not encouraged. Another strong proposition, which was present in the act, was in the form of Section 11(1)(c), which mandated that in cases where there was sale of ‘specific’ goods, the buyer could not reject the goods on any ground.

Thus it can be noted that the law being bent in the favor of the seller, and in those times, one could not even contemplate a corresponding rule, which would put the burden on the seller (caveat venditor).

III. The Fallacy & The Need For Change

The approach, which was being adapted when the rule of caveat emptor prevailed in its absolute form, was later characterized as one detrimental to the development of trade and commerce. It is submitted that their lordships were quite correct in saying so because; caveat emptor in its absolute from would certainly be detrimental to the buyer’s cause, because till then, the element of ‘reasonable’ examination was not introduced. Therefore a scenario wherein a buyer would not have any recourse against a seller who has in spite of being aware of a latent defect (one which cannot be detected by reasonable examination) not informed the buyer about the same, would certainly not encourage commercial transactions.

Another sound reason, which can be thought of for the dilution of the rule of caveat emptor, is to provide adequate protection to the buyer who buys the good in good faith, which case laws put as, ‘reliance on the skill and judgment of the seller’. Thus in order to give proper recognition to the relationship between the buyer and the seller and to generate a scenario wherein commercial transactions are encouraged by the means of proper checks , the rule was subsequently diluted.

IV. The Dilution Process & Origin of Caveat Venditor

For the reasons stated above, the rule of caveat emptor, as far as judicial precedents goes, for the first time suffered a blow by the case of Priest v. Last wherein for the first time, the reliance placed by the seller for the purposes of buying a ‘hot water bottle’ was taken into account for the purposes of allowing the buyer to reject the goods. This decision was the first traceable decision in common law which gave importance to the reliance placed by the buyer on the seller’s skill and judgment. This proposition of law, however is a settled principle of law today.

The Priest decision however, was just a beginning of what could certainly be termed as the diminishing process of the rule of caveat emptor. Where in this decision, the purpose was expressly mentioned and then taken into account, the courts in subsequent cases, opined that the need/purpose of the contract would be evident from the nature of the contract , or might be known to the seller from the course of negotiations between the parties. Thus express mention of the purpose behind a purchase of goods was no longer considered a requisite for proving reliance on the skill and judgment of the seller, which signified a further shift of law in favor of the buyer.

This imposition of obligations upon the seller was also not a smooth process in itself. If one refers to the decisions like that of the House of Lords in the case of Ashington Piggeries Ltd v. Christopher Hill Ltd, where on one hand the majority opined that a generalized purpose should be shoehorned within the meaning of a particular purpose thereby meaning that when the buyer purchases food-stuff meant for animals, he need not mention specifically the type of animals he would feed with the food-stuff. On the other hand the dissenting opinion of Justice Diplock, while rejecting the majority opinion, clearly said that ‘the swing from caveat emptor to caveat venditor had gone too far.’ Another decision, which goes with the opinion of Justice Diplock, is the decision of New Zealand Court of Appeal in the case of Hamilton v. Paparika wherein the court refused to accept the contention that a water supplier supplying water to horticulture farms should ensure that its water would not harm a specific crop i.e soil less cherry tomato. The court opined that since the water was serving the generalized purpose in the given case, so any particular purpose should have been communicated to the seller and he could not have known the same by implication.

It is submitted that the valid argument which can be construed out of these case laws is that concerning the variation between the nature of the particularized purpose and the generalized purpose.’ But this has an equally sound counter-argument, which is that it should be incumbent upon the seller to specify that his product, which is sold for a generalized purpose would not suit a particular purpose. Or that the product would have to be used in a particular manner in order to serve a particular purpose. This counter-argument is where one can trace the origin of caveat venditor i.e. the need for disclosure on the seller’s part.

V. Caveat Venditor: Development of the Seller’s Obligation

With its origin being traced in the need for disclosure of information for the purposes 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.

Another major debate which arises from the above obligation of the seller to make proper disclosure is concerning cases where the seller himself does not come to know of the defect. Where on one hand a learned scholar on sale of goods Benjamin has opined that the seller cannot take the excuse of himself not being aware of the defect in goods. Case laws like Harlingdon & Leinster Enterprises Ltd v. Christopher Hull Fine Art Ltd on the other hand suggest that where the buyer himself has more expertise in a given field than the seller, it would be wrong to suggest that the buyer could have the right to reject the painting sold to him on account of not being of the original painter (this proposition was also rejected in the dissent of Justice Smith in the same case).

It is however submitted that Benjamin’s opinion in this regard should be taken as over and above the mandate of judicial precedents, because when the buyer places reliance on the skill and judgment of the seller, the fact that the seller does not possess the same can nowhere be held as a justifiable excuse. Therefore a duty does lie by law on the seller to be aware of the conditions of the goods being sold and making the buyer aware of the same. The various tests for merchantable quality of goods also go on to indicate the same when they emphasize on the ‘full knowledge’ of the buyer as to the quality of the goods.
The first test which was accepted by the law commission was the the statement of Justice Dixon in Australian Knitting Mills v. Grant:
# (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 the 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 & Sons v. Lillico & Sons Ltd. :
# What subsection (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 goods which complied with he description under which these goods were sold normally to be used, and hence not sellable under that description.
On the basis of the above two tests, the Law Commission came up with its own test for merchantable quality, stating that, ‘‘Merchantable Quality’ means that 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, including the pricing and description under which the goods are sold, a buyer with the full knowledge of the quality and characteristics of the goods, including knowledge of any defects, would, acting reasonably, accept the goods in performance of the contract.

It is submitted that from the above mentioned three tests for merchantable quality, it can said that if the goods are supposed to be termed as those of merchantable quality, the buyer having ‘full knowledge’ about them, would ‘acting reasonably’ buy the same. Therefore the seller’s duty to make the buyer aware of all the defects in the goods being sold and all the information relating to the usage of the goods. This obligation of the seller, it is submitted, should be irrespective of his own knowledge and skill, because what matters is not what he has but what he is expected to have.

VI. Conclusion
Therefore it can be concluded from the above analysis that the rule of caveat emptor is dying a slow death and is being taken over by the subsequent rule of caveat venditor, the change being attributed to a more consumer oriented market wherein commercial transactions are being encouraged. Such a change, it is submitted will not only help create an appropriate balance between the 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 transactions due to the approach then becoming extremely pro-buyer who might misuse the protection under law.

The author can be reached at: trbraj1@legalserviceindia.com
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