This Term Paper / Assignment / Project has been submitted by

Mr. Apoorv Gupta

ID No: 212109

Date: 11 March 2013

Rule of Caveat Emptor:Evolution and

Limitations (Commercial Law)

During the Winter Session 2012-13

Rule of Caveat Emptor: Evolution and Limitations Page 0

 Rule of Caveat Emptor: Evolution and Limitations

I. Introduction

The common law doctrine of caveat emptor has governed the marketplace for a considerable
time. It has long been an integral part of sale transactions. But in the recent past the doctrine
has seen limited application due to a variety of reasons.

This paper, therefore shall attempt to identify the reasons for such limited application of the
doctrine by tracing its evolution. The paper shall look at the original principle with reference
to the changing socio-economic structure of society and analyse the various concretized
limitations of the doctrine which led to its decline.

II. Caveat Emptor: The Principle

The maxim “caveat emptor” translates to “let the buyer beware”. 1 The maxim is a general
rule of law which places upon the buyer a duty of care in selection of the goods and put forth
an appropriate inquiry regarding the same for it is he who assumes the responsibility/risk of
his purchase after its completion. The buyer is presumed to be acting on his own judgment2
and has no remedy in case a defect, whether patent or latent, is discovered after the
conclusion of the sale agreement. The is because the maxim imposes upon the seller an
obligation to provide every opportunity to the buyer before the sale to examine the goods so
as to ensure that the same are free from any defect3 and any defect found after the exercise of
such right and liberty will not bind the seller after the conclusion of the agreement in any
manner.4 But, the seller is not required to reveal any defect existing in his goods and has the
right to remain silent.5 Nor is he required to inform the buyer of his error in respect to the
inspection of goods which form the subject matter of the sale transaction.6 However, if the
seller has a fiduciary relationship with the buyer7 or knows the fact that the buyer is mistaken
as to the quality of goods which the seller intentionally represented, he is bound to reveal the

1
P. Ramanatha Aiyar, Law of Sales of Goods (9th edn, Universal Law Publishing 2010) 131.
2
Satish J Shah, Pollock and Mulla on the Sale of Goods Act (8th edn, LexisNexis 2011) 157.
3
Herbert Newman Mozley, E. R. Hardy Ivamy and George Crispe Whiteley, Mozley & Whiteley's law
dictionary (11th edn, Butterworths 1993).
4
Michael Philip Furmston, Cheshire Fifoot & Furmston’s Law of Contract (5th edn, Butterworths 1991) 136.
5
A.G. Guest, Anson’s Law of Contract (26th edn, OUP 1984) 210.
6
T.S. Venkatesa Iyer, The law of Contract (5th edn, Asia Law House 1990) 100.
7
See generally G.H. Treitel, An Outline of the Law of Contract (3rd edn, Butterworths 1984) 140.

Rule of Caveat Emptor: Evolution and Limitations Page 1

defects with respect to such transactions.8 Also, if the seller actively conceals the defects the
buyer is entitled to rescind the contract and the seller shall be guilty of misrepresentation.9

Under the Indian law, the doctrine is incorporated in the opening words of section 16 of the
Sales of Goods Act, 193010 and operates within a series of limitations which have been a
result of years of evolution.

III. The Evolution of the Doctrine

 Tracing the Origin

The principle of caveat emptor can be traced back to primitive Roman law.11 It originated in
agrarian societies where subject matters of transactions were so non-complex so as not to
require seller to divulge any information to identify any defects.12 The parties to the
transaction were generally well acquainted with the condition of the property and the
reputation of the seller in relation to the veracity of his claims.13 The entire economy was
based on face to face dealings where the buyer had every opportunity to inspect the goods
and relied on his own skill and judgement.14 The market place accordingly adjusted itself to
the principle of caveat emptor.15

The foundation stone of the doctrine in common law was laid down in Chandler v. Lopus.16 It
strengthened the proposition that English courts thought that fairness of a transaction and
other such matters should be handled by contracting parties themselves.17 By the seventeenth
century, the doctrine came to be applied to conveyances in real and personal property in
England.18 From the English common law, it later spread to other jurisdictions.

 The Limitations: Product of Evolution

8
Venkatesa (n 6) 100.
9
Guest (n 5) 211.
10
Mackenzie & Co. v Nagendra Nath ILR (1946) 1 C 225: 50 CWN 213.
11
A. Rogerson, ‘ Implied Warranty Against Latent Defects in Roman and English Law’ in David Daube (ed),
Studies in the Roman Law of Sale (1959) 112; William L. Burdick, Principles of Roman Law (1938) 445.
12
Alan M. Weinberger, ‘Let the Buyer Be Well Informed? – Doubting the Demise of Caveat Emptor’ 55 Md. L.
Rev. 387 (1996).
13
ibid.
14
ibid.
15
ibid.
16
(1603) Croke, Jac. 4.
17
P.S. Atiyah, The Rise and Fall of Freedom of Contract (Clarendon Press 1979) 179.
18
Weinberger (n 12) 393.

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As trade and commerce became more and more complex with the passing time, judges found
it difficult to continue with the doctrine without introducing certain limitations as it caused
injustice and hardship.19 Consequently, the law was modified and a series of implied
conditions and warranties found place in law.20 These modifications were later codified into
the law.

In stating the reasons for incorporating these implied conditions and warranties in the
legislation, the court in Chhedilal21 noted in relation to such terms, “its origin and use are to
promote high standards in business and to discourage sharp dealings. It rests upon the
principle that honesty is the best policy and it contemplates business transactions in which
both parties may profit.”22

The following have been identified as the limitation/exception to the doctrine under the
Indian law:

1. Implied condition as to fit for a particular purpose

This implied condition is statutorily embedded in section 16(1) of the Sale of Goods Act,
1930. Bengal23 case has laid down the three essential requirements for its application which
are as follows:

 Buyer makes known to the seller his requirement of goods for a particular purpose24
 He relies on seller’s skill and judgment
 Goods are of a description which is in seller’s course of business to supply25

19
Sorabji Hormusha Joshi and Company v V. M. Ismail and Another AIR 1960 Mad 520.
20
ibid.
21
Chhedilal Hariniwas v Brit-over Ltd. (1948) 52 Cal W N 45.
22
ibid.
23
Bengal Corporation v Commissioner for Port Trust of Calcutta AIR 1971 Cal 357.
24
Buyer’s communication of the purpose to the seller need not be express. The same may be inferred from the
circumstances of the case including the description provided by the buyer (Ranbir Singh Thakur v Hindustan
General Electric Corporation Ltd. AIR 1971 Bom 97). In case of multiplicity of purposes, no condition as to
fitness may be implied until the specific purpose is made known to the seller (T.S.R. Sharma v Nagendra Bala
Debi AIR 1952 Cal 879). Also, the implied condition does not extend to the peculiarities of the buyer (Ingham v
Emes (1955) 2 All ER 740). And, there is no need to put exclusive reliance on seller’s skill or judgment to
invoke this section; a substantial reliance is sufficient (Eastern Mining Contractors v Premier Automobiles
(1963) 65 Bom LR 183).
25
Regarding the third stipulation it can be stated that although the goods may take a special form in a particular
instance, it is in the course of business of the seller if they conform to the general description of the goods in
which he deals (In Re: Beharilal Baldeoprasad Firm of Merchants by partner Tagoor Prasad and Ors. AIR
1955 Mad 271).

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It is based on the principle that if one acts in reliance upon the skill and judgment of the
other, it is an implied condition that transaction shall be fit and proper for the purpose it was
entered into.26

There is, however, no implied condition as to fitness for a particular purpose when the sale is
made under Patent or other Trade Name.27 The reason is that the buyer no longer relies on the
skill and judgment of the seller.28 But if the buyer still relies on the skill or judgment of the
seller, the implied condition shall still be applicable.29

2. Implied condition as to merchantability30

This implied condition is contained in section 16(2) of the Sale of Goods Act 1930. The
essentials for applying this section were laid down in the Madanlal31 case which are as
follows:

 Goods must be bought by description

 Seller should deal in goods of the description

It is based on the principle that if the goods are not merchantable than what the buyer
contracted for has not been delivered and the default of the seller in such cases goes to the
root of the transaction entitling the buyer to reject the goods.32

However, there is no implied condition as to merchantability if the examination done by the

buyer ought to have revealed the defect.33 The seller shall be liable for both patent and latent
defects in the goods if there is no examination of them by the buyer. 34 But the liability of

26
In Re: Beharilal Baldeoprasad Firm of Merchants by partner Tagoor Prasad and Ors. AIR 1955 Mad 271.
27
The Sale of Goods Act 1930, Section 16(1) Proviso.
28
Aiyar (n 1) 151.
29
Baldry v Marshall (1924) All ER Rep 155.
30
Merchantability: The concept states that if the goods are fit for any one of the purposes which goods of that
kind are generally used for, they shall be of merchantable quality even if they don’t fulfil the purpose intended
by the buyer (Re Andrew Yule & Co (1932) 59 Cal 928). If only one quality of goods can answer its description
then only that quality shall be merchantable (The Board of Trustees of the Port of Calcutta v Bengal Corp Pvt
Ltd AIR 1979 Cal 142). Potentially harmful material or those requiring instructions for efficient usage shall be
unmerchantable if no provided with appropriate directions (Vacwell Engineering Co Ltd v BDH Chemicals Ltd
[1969] 3 All ER 1681). The goods should be compliant with the legal norms of the country where they are made
but it is not a condition that they shall be compliant to the laws of other country (Teheran Europe v S.T. Belton
(1968) 2 QB 545).
31
Madanlal Sohanlal v Bhagwandas Agarwalla ILR (1976) 1 Cal 228.
32
National Traders, a Firm of Merchants in Partnership v Hindustan Soap Works, a Firm of Merchant AIR
1959 Mad 112.
33
The Sale of GoodsAct 1930, section 16(2) proviso
34
Sorabji (n 19).

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patent defects shifts over to the buyer which such examination ought to have revealed. 35 The
seller has the responsibility to avail the buyer reasonable opportunity to inspect the goods.36
However, if the buyer does not avail the opportunity or avails it superficially, then the seller
shall not be liable for any patent defects.37

3. Implied condition as to correspondence with description

This principle is embodied in section 15 of the Act.38 It states that in a sale by description the
goods should correspond with the description and this undertaking is absolute.39 It is based on
the principle that there is no performance of the contract if the goods do not confer with the
description and this a breach relating to the essence of contract. 40 Supply of an article other
than the one promised is defective supply.41

In case of a sale by sample as well as by description, it is not sufficient that the sample
confers with bulk; the bulk must also confer with description.42 However, there is a need to
rethink this position.43

4. Implied conditions in relation to sale by sample

35
ibid.
36
ibid.
37
ibid.
38
The Sale of Goods Act 1930, section 15.
39
Kulsekharapatnam Hind March Works v Co-operative Cottage Industrial Society v Radhe Lal Lalloo Lal
1971 MPLJ 552.
40
National (n 32).
41
Cheethirala Pulliah v Alvalapati Chandra Reddy (1993) 2 CPJ 784.
42
Govindji Jewat & co v Cannanore Spinning and Weaving Mills Ltd. AIR 1968 Ker 310.
43
If the sample corresponds with the bulk in ever manner and it contains the same patent defect which is
discoverable on reasonable examination, then it is unfair to hold the seller still liable to answer the description.
The reasoning for this argument is based on comparison of section 15 of the act with section 16(2) and section
17. The concepts of description and merchantability mentioned in section 15 and section 16(2) are intrinsically
connected. If a good answers anyone of the several purposes defined by its description, it is merchantable. A
good which confers with the description has to be merchantable and a merchantable good has to confer with the
description. A description enlists a variety of purposes and merchantability is answering any one of those
purposes. The two concepts are inseparable and answering any of the purposes in the scope defined by
description shall answer both the description and merchantability. Moreover, examination of bulk is equivalent
to examination of sample which exactly confers with the bulk (LORD HERSCHELL in Drummond v. Van).
Also as per section 17, the buyer is not protected of patent defects discoverable on reasonable examination.
Since all these vital parameters are equal, there is no point is awarding relief to seller in section 16 for
committing an equal sin if not more than section 15. The proviso to section 16(2) should also be available for
section 15 in cases every sample containing patent defects confers exactly with the bulk. Authority for this
argument is found in two common law cases, i.e. MODY v. GREGSON and DRUMMOND v. VAN INGEN
in which lord HERSCHELL expressly says, “the implied warranty that the goods supplied are merchantable
was not absolutely excluded by the fact that the goods were sold by sample, and that the bulk precisely
corresponded with it, but was only excluded as regards those matters which the purchaser might, by due
diligence in the use of all ordinary and usual means, have ascertained from an examination of the sample.”
Therefore, the position of law needs reconsideration.

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The principle is covered by section 17(2) of the act. 44 The sample provided should
correspond with the bulk and it is no defence that the goods after a simple process shall
correspond with the bulk.45 The buyer should have the reasonable opportunity of inspecting
the bulk and if the opportunity is denied the buyer is entitled to rescind the contract.46 The
examination can be done before the delivery of the goods is offered under this sub-section or
at the time of offer of delivery under section 41 of the act.47 Also the goods should free of any
defects not identifiable on examination rendering them unmerchantable.48 If the sample
corresponds with the bulk and contains the same patent defect, then the buyer is not protected
under such circumstances as he got what he bargained for; however this shall not be the
outcome in case of latent defects.49

5. Condition implied by custom

Section 16(3) of the Act50 deals with this principle. It is based on the principle laid down is
Jones v Bowden51 which states that an implied condition or warranty may be established
proving usage. The usage must be reasonable and there has to be a uniformity of conduct for
a fairly long duration to establish usage.52 Consequently, by virtue of section 62 an implied
condition or warranty can be negative also.

6. Implied condition as to title

It is covered by section 14 of the Sale of Goods act, 1930. It is based on the maxim Nemo dat
quod non habet which means no can give you what he doesn’t own. It is an implied condition
that in case of sale the seller has the right to sell and in case of an agreement to sell he shall
have the right to sell; in case if he doesn’t have or doesn’t acquire that right there shall be a
total failure of consideration and buyer shall be entitled to claim the money from the seller.53

44
The Sale of Goods Act 1930.
45
Hibbert v Shee (1807) 1 Camp 113.
46
Larymer v. Smith (1822) 1 B&C 1.
47
Polenghi v. Dried Milk Co (1904) 10 Comp Cas 42.
48
The Sale of Goods Act 1930, section 17(2).
49
Drummond v Van Ingen (1887) 12 App Cas 284, 297.
50
The Sale of Goods Act 1930.
51
Jones v Bowden (1813) 4 Taunt 847.
52
ibid.
53
Vempada Appa Rao v Mani Konda Someswara Rao (1977) 1 Andh WR 440; Rowland v Divall (1923) 2 KB
500.

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Finally, an express warranty or condition does not negative the implied warranty or condition
unless it is inconsistent with the express provision.54

IV. Conclusion

The common law doctrine of caveat emptor which can be traced back to ancient Roman law
was a product of primitive agrarian economy. It thrived in such an environment but as trade
and commerce became increasingly complex application of the doctrine with introducing any
changes led to hardship and injustice. Consequently, the common law courts took upon the
task of amending it and over a period of time introduced a series of modifications which were
later codified into law. These modifications which took the form of implied conditions and
warranties have since constrained the application of the doctrine to such an extent so as make
it nearly non-existent in today’s complex business world.

54
Agha Mirza Nasarali Khoyee and Company v Gordon Woodroffe and Company, (Madras) Limited (1937) 2
MLJ 131.

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 INDEX OF AUTHORITIES

 LEGISLATION
 The Sale of Goods Act, 1930

 CASES CITED
 Mackenzie & Co. v Nagendra Nath ILR (1946) 1 C 225: 50 CWN 213.
 Chandler v Lopus (1603) Croke, Jac. 4.
 Sorabji Hormusha Joshi and Company v V. M. Ismail and Another AIR 1960
Mad 520
 Chhedilal Hariniwas v Brit-over Ltd. (1948) 52 Cal W N 45.
 Bengal Corporation v Commissioner for Port Trust of Calcutta AIR 1971 Cal
357.
 Ranbir Singh Thakur v Hindustan General Electric Corporation Ltd. AIR
1971 Bom 97.
 T.S.R. Sharma v Nagendra Bala Debi AIR 1952 Cal 879.
 Ingham v Emes (1955) 2 All ER 740.
 Eastern Mining Contractors v Premier Automobiles (1963) 65 Bom LR 183.
 In Re: Beharilal Baldeoprasad Firm of Merchants by partner Tagoor Prasad
and Ors. AIR 1955 Mad 271.
 Baldry v Marshall (1924) All ER Rep 155.
 Re Andrew Yule & Co (1932) 59 Cal 928.
 The Board of Trustees of the Port of Calcutta v Bengal Corp Pvt Ltd AIR
1979 Cal 142.
 Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1969] 3 All ER 1681.
 Teheran Europe v S.T. Belton (1968) 2 QB 545.
 Madanlal Sohanlal v Bhagwandas Agarwalla ILR (1976) 1 Cal 228.
 National Traders, a Firm of Merchants in Partnership v Hindustan Soap
Works, a Firm of Merchant AIR 1959 Mad 112.
 Kulsekharapatnam Hind March Works v Co-operative Cottage Industrial
Society v Radhe Lal Lalloo Lal 1971 MPLJ 552.
 Cheethirala Pulliah v Alvalapati Chandra Reddy (1993) 2 CPJ 784.

Rule of Caveat Emptor: Evolution and Limitations Page 8

  Govindji Jewat & co v Cannanore Spinning and Weaving Mills Ltd. AIR
1968 Ker 310.
 Hibbert v Shee (1807) 1 Camp 113.
 Larymer v. Smith (1822) 1 B&C 1.
 Polenghi v. Dried Milk Co (1904) 10 Comp Cas 42.
 Drummond v Van Ingen (1887) 12 App Cas 284, 297.
 Jones v Bowden (1813) 4 Taunt 847.
 Vempada Appa Rao v Mani Konda Someswara Rao (1977) 1 Andh WR 440;
Rowland v Divall (1923) 2 KB 500.
 Agha Mirza Nasarali Khoyee and Company v Gordon Woodroffe and
Company, (Madras) Limited (1937) 2 MLJ 131.
 Mody v Gregson (1868) L.R. 4 Ex. 49.

 BOOKS
 P. Ramanatha Aiyar, Law of Sales of Goods (9th edn, Universal Law
Publishing 2010).
 Satish J Shah, Pollock and Mulla on the Sale of Goods Act (8th edn,
LexisNexis 2011).
 Michael Philip Furmston, Cheshire Fifoot & Furmston’s Law of Contract (5th
edn, Butterworths 1991).
 A.G. Guest, Anson’s Law of Contract (26th edn, OUP 1984).
 T.S. Venkatesa Iyer, The law of Contract (5th edn, Asia Law House 1990).
 G.H. Treitel, An Outline of the Law of Contract (3rd edn, Butterworths 1984).
 P.S. Atiyah, The Rise and Fall of Freedom of Contract (Clarendon Press
1979) 179.

 ARTICLES
 A. Rogerson, ‘ Implied Warranty Against Latent Defects in Roman and
English Law’ in David Daube (ed), Studies in the Roman Law of Sale (1959)
112; William L. Burdick, Principles of Roman Law (1938).
 Alan M. Weinberger, ‘Let the Buyer Be Well Informed? – Doubting the
Demise of Caveat Emptor’ 55 Md. L. Rev. 387 (1996).

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  DICTIONARIES
 Herbert Newman Mozley, E. R. Hardy Ivamy and George Crispe Whiteley,
Mozley & Whiteley's law dictionary (11th edn, Butterworths 1993).

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