Page 145 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
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 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
Contd...

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