This article has been written by Samiran Das from S.K. Acharya Institute of Law, University of Kalyani

Table of Contents

Introduction

In the dynamic realm of commercial law, two fundamental concepts “caveat emptor“ and “implied contracts”, play a pivotal role in shaping the landscape of buyer and seller relationships. These principles underscore the importance of transparency, responsibility, and mutual understanding in the marketplace.

Caveat emptor a Latin phrase meaning “buyer beware”, conveys the idea that purchasers bears the responsibility to thoroughly inspect and evaluate a product or service before making a transaction. Historically rooted in common law, this principle places the onus on buyers to be vigilant , recognizing that the sellers may not always disclose all information.

In the case of Ward v. Hobbs,[1878]¹, in which pigs were sold “ matter to all faults”, and these pigs being contaminated , caused typhoid to other healthy pigs of the buyer , it was held that the seller was not bound to compose identified that the pigs were ill. This rule of law was caveat emptor and the last buyer is found liable.

Also in the case of Wall v. Russel², the court held that the rule of caveat emptor implies that the “buyer must take care and be aware”. It applies to buying of those things ahead of which the buyer can implement his individual skill and judgment, like notebooks, clothes, etc.

The doctrine of caveat emptor is an integral part of the Sale Of Goods Act. It translates the buyer to beware . it is specifically defined in section 16 of the Act.

A seller makes his goods available in the market. The buyer previews all his options and then buy the product accordingly. But if the product turns out to be defective and faulty then after buying the product the seller cannot hold the seller liable for the sale of faulty product. Since there is an implied contract between the buyer and seller that the buyer will obviously inspect the product before buying it.

Actually the phrase caveat emptor is the short form for the Latin maxim – “caveat emptor, quia ignorance non debuit quod jus alienum emit” which literally translates to “ let the purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party”. That means the buyer should assure that the seller had the right to sell it, as opposed to receiving stolen property.

Under the principle of caveat emptor the buyer could not recover damages from the seller for defects on the property unfit for ordinary purposes . the only exception was if the seller actively conceals the latent defects or otherwise made material misrepresentations amounting to fraud.

Exceptions to Caveat Emptor:

Fitness of the product for the buyers ‘ purpose of purchase [section 16(1)]-

If the buyer informs the seller about his purpose behind purchasing the goods and the seller does not sell the goods according to that knowingly, it relieves the buyer from the responsibility. In this case, it becomes the duty of the seller to supply the right goods to the buyer. For example, A informs B, who is a shoe seller, that he wishes to purchase shoes for running. If B still sells the shoes that are not meant for running to him, then B can be held responsible.

Sale by sample inspection-

The doctrine of caveat emptor does not apply if the buyer purchases the goods after careful inspection of a sample of the goods he wants to buy and the seller supplies goods from different from that sample.

Sale of goods under trade name–

If the buyer purchases a branded product sold under a trading name, then he is assured of the quality that is associated with the brand name. the seller in this case cannot be held responsible. Also the buyer is not relying on the skill or judgment of the seller but on the implied quality standards that the brand offers.

Merchantable quality of goods [section16(2)]-

The seller must provide goods of merchantable quality to the buyer. This means that the goods must be fit for resale in the market and must pass market standards. When the buyer purchases the goods from a seller based on a description the seller deals in the goods of that description, then the goods must be of merchantable quality. If the goods are not of merchantable quality , then the seller can be held liable.

Trade usage-

The rule of caveat emptor does not apply if the seller deviates from informing the buyer about the quality , fitness of the goods or products.

Fraudulent representation by the seller-

If the seller provides fraudulent information about the goods or conceals some important information about them, the buyer is not responsible.

Caveat Emptor to Caveat Venditor³:

The principle of caveat emptor has been a part of the common law since the 17^th century. It preaches the idea that the consumer who is seeking to buy the product is presumed that he knows and has inspected thoroughly the product or service he is going to buy. In India, legislations like the Transfer of Property Act, 1882; The Consumer Protection Act, 1930, have incorporated within them the principle of caveat emptor.

However as a result of several consumer rights movements across the country and the world, the maxim of caveat emptor has weakened over the last few decades. Even though it continues to be a part of the common law but its status is now of more of some exception than any rule.

The post independence legislations such as the prevention of food adulteration act 1954, Drugs (control) Act, 1950, Essential Commodities Act 1955 and the bureau of Indian standard act 1986 bear the increasing testimony to the increasing emphasis on protection of consumer rights and interests. A high point of this trend was the enactment of the Consumer Protection Act , 1986.

The act categorically aimed at balancing the power equation between the consumers and the powerful merchants and businesses, by providing a speedy , inexpensive alternative to traditional courts devoid of the procedural complexities of a civil litigation.

Caveat venditor is a Latin maxim which means sellers beware. Law Lexicon defines the maxim as, “if the sellers wishes to secure himself from future responsibility in case the article sold should afterwards be found to be different in kind or quality from what the party supposed it to be , he must take care or provide against such responsibility by a particular agreement with the purchaser.”

The Consumer Protection Act 1986 was repealed by the Consumer Protection Act, 2019 which further strengthens the concept of ‘caveat venditor’ by imposing additional responsibilities on manufacturers ,sellers , service providers and endorsers. As per the Ministry of Consumer Affairs, Food and Public distribution, “ the Act aims to ease the overall process of consumer grievance redressal” by strengthening the existing consumer rights institutions and imposing greater legal responsibilities upon the manufacturer , service provider and seller.

It also mandates the establishment of a Central Consumer Protection Authority and consumer Mediation Cells.

Case laws relating to caveat emptor:

Commissioner of Customs v. Aafloat Textiles (2009)⁴

In this case the buyer had purchased gold by obtaining the a special import license. However , it was discovered that the Special Import License had been forged. Thus a penalty was imposed on the buyer for purchasing gold under such forged license.

The buyer pleaded that he did not have knowledge of the forged license. The revenue department on the other hand, pleaded that the principle of caveat emptor applies to the present case.

The Supreme Court of India by applying the principle of caveat emptor held that, the buyer was under a duty to inquire into the genuineness of the Special Import License before making the purchase, if the buyer would have shown proper ad due diligence , then he would have found out that the license has bed forged. Due to the absence of such due diligence on the part of the buyer, the buyer would be deemed to have actual and constructive knowledge of the defect in his purchase.

M/S Emami Limited v. Nikhil Jain.⁵

In this case, a consumer court has imposed a penalty of Rs 15 lakhs on Emami Limited for misrepresentation to the public about its fairness cream for men. The company’s advertisements claim that the cream makes the skin of the user farer. The District Consumer Disputes Redressal Forum (central) Delhi, held that Emami had adopted unfair trade practices by claiming through its advertising campaign that their product “fair and handsome cream” can make men with darker complexion fair.

Raghaba menon v. Kullapam Nair⁶

In this case, the Plaintiff purchased a wrist watch from the Defendant. The watch did not give satisfactory service in spite of the fact that the seller had tried to set it right a number of times. Plaintiff sued the seller for the replacement of the watch or the refund of the price. It was held that the seller was bound to replace the watch or, in alternative, to pay back its price. It was observed that, “the Plaintiff is a layman and he approaches a fairly reputed firm like the Defendant dealing in watches and purchases a watch from them, not for any special purpose, but for the common purpose of knowing the correct time. In such a case, Section 16 (1) of Sales of Goods Act, 1930 must apply because the buyer makes known to the seller, by implication, the purpose for which he purchased the watch and also relies on the seller’s skills or judgment.

Implied contract:

The word implied contract has not been given in the Indian Contract Act, 1872. However, in section 9 of the same Act it has been tried to explain in the guise of implies promises.

With the interpretation of section 9 of the Indian Contract Act, it can be said that the implied contract is a type of contract in which he proposal is given by the offeror ad the acceptance is not through any verbal or written communication , rather through the conduct of the other party.

For example: A was riding a bus and he has not made any written or expressive contract with the taxi driver and the person. Sitting inside the bus both the bus conductor and the passenger have agreed on the legally enforceable contract of reaching the destination point as per the choice of A, and in return he has to pay the bus fare.

Section 9 of the Indian Contract Act, 1872:-

Section 9 of the Indian Contract Act, 1872, talks about the promises that are expressed and implied to agree.

There are two types of implied contracts:

Implied contract by fact: which means that the acceptance and proposal of the contract have occurred due to the conduct or the actions of the parties involved in the contract. This type of contract establishes an obligation between the parties depending on the circumstances facts. Whether the conduct of the parties or the circumstances implies that they had an arrangement or understanding that created an obligation, the law would conclude that they had an in fact implied contract.
Implied contract by law: which means that the offer and the acceptance of the contract are binding on both the parties to make a contract by the rule of law on them. An implied contract by law imposes a duty to perform and will enforce a contract even against the will of an individual , if the conditions are such that without this remedy one party will be disproportionately be rewarded by the action of the another party. In this case one party is entitled to restitution for the services rendered, even though there has never been any effort on the part of either of the party to sign an agreement.

Theory of Unjust Enrichment and Quantum Meruit:

An implied contract by law is an legal invention used by the courts to avoid an unjust enrichment of an individual at the detriment of another. In such cases , the court uses the theory of quasi-contracting to ensure a just outcome.

The contracts implied by law are not subject to the Contract Disputes Act. As a result , a person can have hard time convincing a contract appeals court or agency board to grant relief on quasi-contractual grounds. Nevertheless, such relief ay in some cases be sought from the agency itself or from the general Accounting Office. The most common example here is the ratification of an illegal undertaking,. An approved contracting official approves or ratifies in a ratification , a contractual agreement that was illegal and was thus unenforceable at the time it was made.

When any entity does not ratify any illegal agreement or cannot ratify it , relief might still be available on a quantum meruit basis. Quantum meruit is an egalitarian doctrine according to which the equal value of the benefit conferred can be credited to a party which confers a benefit on the another.

Four elements that must be established in favor of a quantum meruit claim:

The products or services would have been a legitimate procurement if appropriate procedures had been followed.
The government must have provided and approved a benefit.
The contractor or the other performing party must have behaved in good faith.
The amount charged must reflect the fair value of the benefit received.

Case laws relating to the doctrine of implied contract:

Hutton v. Warren [1836]⁷

In this particular case , the question was raised that whether custom could become an implied term of a lease where the lease is silent? Hutton who was a farmer and used to work on the land of Warren was given a notice to stop and insisted he continued to farm the land through the notice period. But Hutton continued to farm the land during the last year of his tenancy expending his own expenses and by his own labor. But when he quit and ask for his expenses , Warren refused to pay him. The court held that the custom was implication imported into the lease. Where a commercial contract is silent, extrinsic evidence of customary practice and usage is admissible. And Hutton was successful in his claim.

Rhodes v. For wood [1876]⁸

In this case, the contract was of sole agency, the agent was confined to a specific area , the agent was given the task of selling and he would get commission from the sales. The contract was fixed for a fixed period determinable earlier by either party on notice and there was no express term obliging the principal to send any goods to the agent to sell in his area. The House of Lords held that under this type of contract, no implied contract , binding the principle to supply the agent with goods could be discovered.

Relationship between the Doctrine of caveat emptor and implied contract:⁹

The doctrine of caveat emptor vests the responsibility upon the buyer to inspect the product thoroughly before buying it. Therefore in a contract for sale of a good where the caveat emptor applies there is an implied term in the contract which tells the buyer to inspect the goods before buying.

Implied terms in a contract are a type of compulsion , for instance if the buyer of a product is buying the product he will at that situation assume that his product is free from general defects, if the seller is aware of the frequent mechanical issues with that product , implied terms implied terms In a contract would compel them to make those issues clear with the party.

On the other hand implied contracts allows parties to skip as many negotiations or writings certain terms in the contract because it is legally presumed at the time of entering into the contract .

In legislations like the Sale of Goods Act, 1979 we find that contract implies terms that the goods are reasonably fit for their purpose, conform to their description, the seller has th right to sell and the buyer does not have any undisclosed rights over the goods.

Thus though may sound similar the concept of implied terms in a contract like in case of caveat emptor, does not bear any relation with each other. Implied contract is a form of contract where the basis of the transaction is communicated through the conduct of the parties, for example if person who has born in the soil of that very country becomes impliedly a citizen of that country.

Implied terms of any contract may be associated with any form of contract whether it is implied or express so being a part of a contract not being a separate contract.

Conclusion:

The doctrine of caveat emptor has served as a vital principle by being the advocate of every aware consumers and buyers. Originating from the common law I has helped as a guiding principle in many landmark cases. Also incorporated in the Indian legal system it has played a vital role in the consumer rights movements. With the development in the field of consumer rights and its protection now that doctrine seems to be somewhat replaced by the doctrine of caveat venditor which translates to – if the sellers wishes to secure himself from future responsibility in case the article sold should afterwards be found to be different in kind or quality from what the party supposed it to be , he must take care or provide against such responsibility by a particular agreement with the purchaser.

Thus in the present scenario is not only the responsibility for the buyer to be aware but there is also an adjoining responsibility and liability on the part of the seller to sell goods which are devoid of general defects which the buyer with due diligence can spot upon inspection.

The doctrine of implied contract is an important aspect of the contract law because there are many transactions that occurs impliedly between the parties. These transactions also comes under the purview of a contract. These contracts bears all the essentials of a valid contract and are legally enforceable but they must not be confused with implied terms in a contract.

Also there are two types of implied contract which are implied contract by law and implied contract by fact. In the Indian context, the section 9 of the Indian Contract Act, 1872 deals with and defines implied contracts and its types.