Rule of Caveat Emptor

KEY TAKEAWAYS

1. The principle of caveat emptor literally translates to “buyer beware”.
2. The buyer has the responsibility to ensure that the product they are purchasing fits their requirements and that it is free from any defects.
3. If the seller initiated the purchase through fraudulent means, the principle of caveat emptor would not apply and the seller can be held liable for the same by the buyer.
4. If the seller is aware of the purpose for which the product is being bought by the buyer, and if the buyer is dependent on the skill and experience of the seller for such purchase, it is expected from the seller to ensure that the product being sold is of merchantable quality.

INTRODUCTION

Every seller has the responsibility to ensure that the products he sell are upto a certain standard of merchantability. This is a well accepted fact in our general community. But what about the responsibilities of the buyer? Does he not have any responsibility to ensure that the product he buys meets his needs and is free from defects?
The principle of caveat emptor deals with this very responsibility that the buyer must be aware of and must keep in mind. No buyer should raise a ruckus after realizing that the product he bought does not meet his needs or that it contains some defect. When the seller offers no warranty over his goods, this principle prevents the buyer creating any dispute for a defect he found later in the product.

MEANING

The literal meaning of the maxim caveat emptor is “let the buyer beware”. It places a certain responsibility on the buyer to ensure that the product he is about to purchase meets his needs and that it is free from any inherent defects. Unless the product was sold to the buyer through means of fraud, the buyer cannot raise any dispute over a defect he found later in the product.
Often used in legal contracts as a type of disclaimer, this maxim finds most use in real estate transactions. It prevents the buyer from troubling the seller with unnecessary disputes when the buyer clearly had the responsibility to ensure that the property he was about to buy was free from defects. The buyer is expected to exercise due diligence and to inform himself as to its quality and encumbrances.
In the case of Walt v. Russel (1902), the intention behind this maxim was further clarified as: “Caveat emptor does not mean either in law or in Latin that the buyer must take chances. It means that the buyer must take care.” A seller is under no liability to communicate the existence of even latent defects, and he cannot be tried for the same, unless he by act or implication states the non-existence of such defects.

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Unless the seller offers a warranty to his product, either express or implied, the buyer can seek no recourse if he finds a fault in the product after purchase. In a bare contract of sale, there is no promise or warranty given to a product, in that situation, it is the sole responsibility of the buyer to ensure the quality and usability of the product, and they shall therefore take all responsibility for any defect in the goods.
This principle was the common rule for any kind of purchase before the Industrial Revolution. It is part of a longer statement; Caveat emptor, quia ignorare non debuit quod jus alienum emit, which when translated means “Let the purchaser beware, for they ought not to be ignorant of the nature of the property which they are buying from another party.” There were barely any consumer protection legislation at that time, which meant that sellers were under no responsibility to ensure the quality of their products.

LANDMARK JUDGEMENTS

WALLIS V. RUSSEL (1902)
This was one of the most landmark judgments on caveat emptor. In this case, the plaintiff’s granddaughter had purchased crabs from a seller after confirming from him that they are of good quality. They thus relied on the skill and experience of the seller before making the purchase. When they reached home and ate the crabs, the plaintiff and her family fell very ill.
The issue was whether the seller was liable for the defective crabs, to which the Court replied that the doctrine of caveat emptor applied to those cases where the skill and judgment of the buyer were of importance. In the case of such goods, the seller bore no responsibility for any defects that were found in them.
The Court held that in this case, the seller was apprised of the purpose for which the product was being bought and that the buyer relied on the skills and expertise of the seller while choosing the crabs. The buyer thus genuinely believed that the crabs were fit for human consumption as assured by the seller. This is therefore a case of implied warranty which the seller breached and they were thus held liable to pay compensation to the buyer.

PAWITTAR SINGH WALIA V. UNION TERRITORY (2012)
The respondent in this case was allotted a plot for which they were supposed to pay in three installments. Although they paid the first, they failed to pay the rest of the installments. They thus lost their title over this property due to breach of contract. The respondent then sold this property to the plaintiff even though they had no title over it.
Although the plaintiff paid the consideration for the plot, they were later denied possession of the same. This is when they approached the Court seeking possession of the plot, to which the Court applied the principle of caveat emptor and held that the plaintiff was liable for their own losses.
The Court held that the buyer had the responsibility to act with reasonable care during the purchase of the plot and should have thus obtained a No Objection Certificate from the concerned authorities before proceeding with the purchase. Their carelessness during this process led to their loss, and therefore the buyer is solely responsible for all the losses incurred by them due to the purchase of the plot.

ETERNIT EVEREST LTD. V. ABRAHAM (2003)
The plaintiff had in this case purchased asbestos sheets and other accessories manufactured by the defendant for the purpose of roofing the theater that they owned. At the time of monsoon, the plaintiff learned that the sheets were leaking water into the theater, and they complained about this to the defendant. The defendant replied that adding more ventilation would solve the issue.
Although the plaintiff did as they were told to by the defendant, the issue was not resolved, and it was later learned that the leaks were due to a manufacturing defect in the sheets. The issue in the case was whether a seller would be held liable if they were aware of the purpose for which the product was being bought, if defects in the product were found.
The High Court of Kerala held that as per Section 16 of the Sale of Goods Act, when the seller was aware of the purpose for which a product was being bought, an implied warranty was formed, which placed a responsibility on the seller to ensure that the product was of merchantable quality, since the buyer was reliant on the skills and experience of the seller.

EXCEPTIONS TO THE DOCTRINE
An exception to the doctrine of caveat emptor stems from illegal and immoral practices of the seller. If the seller had practiced fraud to induce the buyer into purchasing the plot, the doctrine of caveat emptor would not apply and the seller can thus be held liable. The principle of ex dolo malo non oritur actio applies, meaning that the seller cannot raise any action against the buyer.

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The legal maxim dolus malus which literally translates to “bad faith” also applies in this scenario, which vitiates any and all transactions that were affected due to fraud. Any transaction, whose root cause was fraud, cannot have any legal validity. The seller cannot hold the buyer liable, and instead, the buyer has all right to hold the seller liable for their misconduct.
The case of Eternit Everest Ltd v. Abraham (2003) led the High Court of Kerala to clarify that Section 16 of the Sale of Goods Act applies in cases where the buyer makes known to the seller the purpose for which the particular product is being bought. When the seller is apprised of the purpose, an implied warranty is created, which places a responsibility on the seller to ensure that the goods put for sale are of merchantable quality.

CONCLUSION

Every buyer has the responsibility to ensure that the product being purchased by them fits their purpose and that it is free from any defects, so that no future dispute may arise. If the buyer raises any issue against the seller regarding a defect that was found after the purchase, the seller cannot be held liable as per the principle of caveat emptor. As per this principle, every seller is required to exercise due vigilance when purchasing a product as they should be aware of the nature of the product that they are buying.
An exception to this rule is when the transaction happened due to an illegal act from the seller, such as fraud. If the seller purposefully hid some detail about the product and instead lied about such detail to ensure that the buyer proceeds with the purchase, the buyer can hold the seller liable for fraud, and get their money returned by the seller.
Section 16 of the Sale of Goods Act is another exception to this rule, wherein it is stated that if the seller is aware of the purpose for which their product is being bought by the buyer, there is an implied warranty on the product by the seller as the buyer is reliant on the skill and experience of the seller. The seller is expected to ensure that the product being sold is of merchantable quality. The case of Wallis v. Russel (1902) is a prime example of this exception.

FREQUENTLY ASKED QUESTIONS

1)    What is an exception to the rule of caveat emptor?
ANS: An exception to the principle of caveat emptor is when the purchase happened due to fraudulent practices of the seller. If the seller lies about a certain quality or character of the product to ensure that the product is purchased by the buyer, the seller can be held liable by the buyer for this practice. The buyer can demand that they be compensated for their loss after they return the purchased product.

2)    What is the principle of caveat emptor?
ANS: The principle of caveat emptor literally translates to “let the buyer beware.” This means that there is a certain responsibility placed on the buyer to ensure that the product being purchased by them fits their purpose and that they are free from any defects. If the buyer finds any defect in the product after the purchase, they cannot hold the seller liable as they are protected by this principle.

3)    If the purchased product did not fit the purpose or if it was defective, although the seller was aware of the purpose for which the product was being purchased, can the seller be held liable?
ANS: The Sale of Goods Act, in its Section 16, prescribes an exception to the rule of caveat emptor. It states that if the seller is aware of the purpose for which the product is being bought, and yet if the product does not fit this purpose or if it turns out to be defective, the seller can be held liable. When the buyer is buying the product out of sheer trust on the seller, the seller has the responsibility to ensure that the product being sold is of merchantable quality.

4)    What is the full statement of the principle of caveat emptor?
ANS: The full statement of the principle of caveat emptor is “caveat emptor, quia ignorare non debuit quod jus alienum emit,” which literally translates to “Let the purchaser beware, for they ought not to be ignorant of the nature of the property which they are buying from another party”. This statement places the onus of ensuring the quality and fitness of purpose of the product on the buyer, and precludes any chance of dispute against the seller if a defect is found post-purchase.

5)    What is the principle of caveat emptor used for in the modern world?
ANS: The principle of caveat emptor is used as a disclaimer in legal contracts, especially in the real estate sector, to place a responsibility on the buyer to be aware of all the defects of a product before the purchase. If the buyer finds any defect post-purchase, the seller cannot be held liable for the same. Using this principle as a disclaimer in contracts helps put a certain level of pressure on the buyer to ensure that they exercise due diligence while purchasing a product.