Case Fact:

Pankhuri was a very busy business women based in Gurgaon.

She was worried about the exorbitant rent she was paying and decided
to buy a flat for herself.
Pankhuri happened to see a glossy brochure of Fantasy Living, who
was a property developer in Gurgaon, featuring their affordable range of
flats.
Without thorough inspection of the flat she bought the flat paying the full
amount.
The flat was poorly constructed with cheap items.

Concept of Caveat Emptor

Caveat Emptor means "Let the purchaser beware." (Advanced Law Lexicon by P.
Ramanatha Aiyar, 3rd Edition. 2005 at page 721)
"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." See Wallis v. Russell [1902] 2 IR
585
Generally, caveat emptor is the contract law principle that controls the sale of real
property after the date of closing, but may also apply to sales of other tangible goods.

Usually buyers often have less information about the good or service they are
purchasing, while the seller has more information. Defects in the good or service may
be hidden from the buyer, and only known to the seller information asymmetry
As the maxim applies, not only to the quality of, but also to the title to, land which is
sold, the purchaser is generally bound to view the land and to enquire after and
inspect the title-deed.
Under the principle of caveat emptor, the buyer could not recover damages from
the seller for defects on the property that rendered the property unfit for ordinary
purposes.

Exception to Caveat Emptor

Section 16 of The Sale of Goods Act,1930 is an exception to the rule of
Caveat Emptor.
The 2 most important exception clauses are as follows1. When the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are required, so as to show that the
buyer relies on the sellers skill or judgement, and the goods of are of a
description which is in the course of the sellers business to supply, there
is an implied condition that the goods shall be reasonably fit for such
purpose.

2. Where goods are bought by description from a seller who deals in goods of that
description (whether he is the manufacturer or producer or not),there is an
implied condition that the goods shall be of merchantable quality: Provided
that ,if the buyer has examined the goods, there shall be no implied condition
as regards defects which such examination ought to have revealed.

Highlights Section 16 (1)

Condition 1 : Article purchased for a particular purpose and the buyer made the
purpose known to the seller expressly or by implication.
Condition 2 : Making known to the seller the purpose shows that buyer relies on
sellers skill and judgement
Condition 3 :Goods are of description which is in the course of sellers business.
Example:
Mr. Gaurav went to market and purchased a bike to take a part in Bike race
competition. But he did not tell the seller that for which purpose he is buying.
When he reached home, he came to know that this bike is not suitable for bike
race competition. Due to the principal of Caveat Emptor Mr. Gaurav can neither
reject the bike nor can claim for compensation.

When these 3 conditions are satisfied in amounts to implied

warranty as per law that the goods should be reasonably fit for
that purpose.

Highlights Section 16 (2)

The word Merchantable not defined in this section, it is as meant by normal usage
2 types of defectsPatent defect: Defects which can be found out through examination by a person of
ordinary prudence with the exercise of due care & attention.
Latent defect: those defects which cannot be discovered on such tests.
Implied condition from sellers part is that the goods are free from latent defects.

Highlights Section 15
If there is a contract for the sale of goods by description, there is an implied
condition that goods shall correspond with the description.

If the goods do not conform to the description, there is no performance of the

contract at all.
Example :- Mr. Ghumun sells the butter to Mr. Rakha saying that it is a pure butter and
there is no any mixing in it. When Mr. Rakha uses it, he comes to know that there is

adulteration in it. Now Mr. Ghumun will be held responsible

Other Exceptions to Caveat Emptor

3. Misrepresentation By Seller :The seller will be liable for compensation if he sells goods to buyer by making
misrepresentation.

4. Concealment By Seller :If a seller does not disclose the defects of the goods to the buyer which could
not be discovered after a proper examination this principal does not apply.
5. Bulk According to Sample :The principal of Caveat Emptor does not apply the bulk of the goods does not
correspond with the sample.

Pankhuris (Plaintiff) Contentions

1. She purchased the flat by studying the catalogue. Catalogue can be
considered as an invitation to offer. It covers the part of sellers skill and
judgement when selling to a layman like Pankhuri. Again when she is selecting
from catalogue the particular purpose part is also implied even if she doesnt
express that. Her case is valid under the exception of implied
warranty/condition under section 16(1)
2. The goods (flat) is in the course of business of the seller Fantacy Living .
3. The description is also right because she has got a flat that is same as the
object of the contract.
4. It is expected to have the merchantable quality and fit.
5. The seller has to take the responsibility of the latent defect as per section
16(2) .As per common understanding if the raw materials used to build a house
is of poor quality then it is not visible readily, it takes some time to undergo
damages like cracks, sippage, damp etc. Thus the latent defects are more
relevant than patent defect in this case.

Fantacy Livings (Defendant) Contentions

It is case of caveat emptor because the buyer,Pankhuri didnt even see the flat
(the goods) before she purchased it.

The Judgement:
In this case builder uses sub-standard material in construction of a building or
makes false misleading representations about the condition of the house then it is
denial of the facility or benefit of which a consumer is entitled to claim value.
The end product delivered to the plaintiff is basically deficiency in services.
Last but not the least Implied Merchantability is not fulfilled . Here merchantability
means goods do not differ from the normal quality of the described goods including
,under the term quality, the state or condition as required by the contract and the
goods should be immediately saleable under the description by they are known in
the market.

In such cases the consumer forums will order the builders to

remove the defects and also pay compensation to the
allottee. The allottee also has an option to file a civil suit
against the builder claiming damages for breach of
obligations.

Section 16 of The Sale of Goods

Act,1930 is an exception to the rule
of Caveat Emptor

Eternit Everest Ltd. vs

Abraham on 27 May, 2003
Citation: AIR 2003 Ker 273

Facts of the Case:

The plaintiff Mr. Abraham(1st respondent) had constructed a new

cinema theatre and for the roofing of the above theatre, the plaintiff
purchased asbestos sheets and accessories manufactured by
Everest Building Products Ltd., Coimbatore, TN(1st Defendant)

Mr.Abraham expressed his purpose of purchase and then placed

an order to the agent, Haridas Bhagath and Co. (P) Ltd.
Coimbatore(2nd Defendant) on 6.11.1985 for Rs: 45815/-

When the monsoon started in June, 1986,

asbestos sheets were found leaking and
installations. So the plaintiff filed a suit
ottapalam in Palakkad, KL and claimed a
50565/- towards damages.

During the pendency of the suit the 1st defendant company was
taken over by the Eternit Everest Ltd., Coimbatore (3rd defendant)

the recently installed

damaging the other
with the sub court,
total amount of Rs.

1st- Defendants claim:

No Ventilation at the rigid
level.

The dripping of water was

due to the condensation of
the moisture inside the
structure
during
rainy
season and it could be
rectified by providing proper
ventilations.
The
officials
of
the
manufacturer
further
advised for providing lime
coating to arrest the water
leakage completely.

1st- Respondents action:

Accordingly the ventilations
were provided at the rigid
level.
Accordingly, the plaintiff
purchased sufficient number
of radial exhausts on
23.7.1986 and those were
installed.

Accordingly, the plaintiff

provided lime coating over a
portion on an experimental
basis.

But then the leakage could not be fixed by the

manufacturer.

Before filing a suit

1st Defendant claim:

The 1st defendant, the manufacturer, filed a written statement

contending that the court below had no territorial jurisdiction for
considering the above claim as the sale was made and the goods
were delivered at Coimbatore.

The argument advanced by 1st defendant was that the 1st

respondent had filed the suit for damages Rs: 50565/- after using
and retaining the articles.

The sheets were devoid of any manufacturing defects and the

dripping was due to the improper and defective construction of the
theatre.
There was no implied warranty as alleged.

The 2nd defendant and the 3rd defendant adopted the above
contentions put forward by the 1st defendant

Whether the court has jurisdiction to try the suit?

The article (asbestos roofing sheets) were sold for being
used at Shornur. Only by the use of the article the latent
defect of the material could be ascertained and thereby
the cause of action for damages arose. Therefore the
court below found that it had jurisdiction to decide the
matter.

Whether the plaintiff is entitled to any and if so to

what damages?
The entire value of the goods had been claimed towards
damages, the court below allowed only 75% of the value
of the goods. Further some amount was allowed towards
the expenditure met by the 1st respondent in arranging
additional facilities for avoiding leakage. Accordingly the
sail was decreed for an amount of Rs. 39111.25 with
interest at 6%.
In this case where the 1st respondent was entitled to
compensation under Sub-section (2) of Section 59.

Whether there is any implied warranty of title in respect of

the goods purchased by the plaintiff?
The asbestos sheets were purchased not in its trade name so as to
attract the proviso, but it was purchased disclosing the purpose of
purchase. (sec.16 of sales of goods act- applies)
An implied warranty of merchantability of the goods, ie., the goods
must be free from latent defects. Hence there was a breach of the
implied warranty.

Is there is any defect in the construction of the theatre itself?

Sri. T.R. Ajayan (PW3), Executive Engineer, Palakkad, was
appointed as the Commissioner to inspect the theatre and to file a
C1 report in presence of architect Sri. U.K.Rajaram.
The Commissioner had noticed fissures in several sheets and had
opined that such fissures would occur due to defective
curing(manufacturing process) of the sheets.
He was of the definite opinion that the leakage and dripping of water
was not due to any structural defect of the theatre, but was solely
due to the defective quality of the asbestos sheets.

Exception to the rule of Caveat Emptor :

Practical purpose known to the seller.
Bulk purchase according to sample.
Merchantable quality or fitness.
Concealment by seller.

Facts : Yanala Malleshwari And Ors. vs Ananthula

Sayamma And Ors.
It is the case of the petitioner that her husband purchased Flat dated 12.01.1994,
together with undivided share in the land admeasuring 100 square yards.
There was a dispute between the builder on one side and respondents on the
other side, who were seeking redressal before various authorities.

The petitioner alleged that all the owners of the apartments in the Ashwood Villa
formed into an association, spent money for construction of compound wall,
landscaping, provision for drain water pipes and for lighting of the stilt.
The builder contravened the sanction plan and on apprehension, the petitioner
and others approached various forums for regularization of constructions. The
builder with the connivance of respondents (owners of the land), made
constructions in deviation of the sanctioned plan.

Facts (Contd..): Yanala Malleshwari And Ors. vs Ananthula

Sayamma And Ors.
When the enquiry was pending before the Commissioner, Municipal Corporation
of Hyderabad, respondents 4 and 5 produced copies of cancellation deed
cancelling the registered sale deed executed in favour of the petitioner. The
execution and registration of cancellation deed at the Office of the Sub Registrar is
a fraud committed by respondents 3, 4 and 5 in active collusion with the officials.

The cancellation deed was executed on the ground that the petitioner did not pay
the sale consideration and therefore, the sale could not be completed. By the said
cancellation deed, the sale deed executed in favour of the petitioner on 12.01.1994
was cancelled, which is illegal and contrary to the provisions of Registration Act
and Transfer of Property Act, 1882 (TP Act)

Questions to be answered :Yanala Malleshwari And

Ors. vs Ananthula Sayamma And Ors.

These cases have thrown up a couple of interesting questions of law having far
reaching consequences:
Whether a person can nullify the sale by executing and registering a
cancellation deed?
Whether a Registering Officer, like District Registrar and/or Sub-Registrar
appointed by the State Government, is bound to refuse registration when a
cancellation deed is presented?
When cancellation deed is registered how the grievance, if any, is to be
redressed in law?

Doctrine of Caveat Emptor :-

It means that buyer should be very careful in a contract of sale. While purchasing
the goods the buyer should check the goods carefully.
If a buyer purchases the goods and after it he comes to know that these are
defective. In this case seller will not be responsible for this defect.
The object of this principle is to make the buyer more careful in purchasing. It is
his duty that he should check the quality and fitness of the commodity which he
needs.
This law is framed to save the buyer from the expected loss in future.
The rule of 'caveat emptor' applies whenever the buyer voluntarily chooses what
he buys. But it does not mean that the buyer should 'take chance' but it means he
should 'take care'.