DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY

LUCKNOW

Academic Session: 2017-18

LAW OF CONTRACT PROJECT

DOCTRINE OF CAVEAT-VENDITOR

UNDER THE GUIDANCE OF: SUBMITTED BY:

Mrs. VISALAKSHI BHAIRAV GAUTAM

FACULTY OF LAW ROLLS NO: 165

DR. RAM MANOHAR LOHIYA SECTION ‘B’

NATIONAL LAW UNIVERSITY B.A. LLB (Hons.), SEMESTER II

SIGNATURE OF PROFESSOR SIGNATURE OF STUDENT

I owe a great many thanks to a great many people who helped and supported me during
the writing of this case analysis.

Words are inadequate in offering my deep sense of gratitude to my Professor for his
precious guidance.

With his enthusiasm, his inspiration and his great efforts to explain things clearly and
simply, he helped throughout my analysis of work with lots of encouragement, sound
advice, and good innovation.

I would also like to thank the librarians of Dr. Madhu Limaye Library who extended their
assistance to me by helping me out consult the relevant books.

I know that despite my best efforts some discrepancies might have crept in which I believe
my humble Professor would forgive.

Thanking You All

Bhairav gautam
 TABLE OF CONTENTS

1. INTRODUCTION:

Caveat venditor is the latin term which means "lets the seller beware"
caveat venditor forces the seller to take responsiblity for the product and discourages the seller
from selling the products of inferiour quality. It refers to the sale of something of value in which
the seller does not disclaim responsiblity priour to the sale. in this situation, the seller assumes
liablity to the buyer for any deviation from the specification stated in the written sales contracts.
caveat venditor gives special benefits to consumer as now consumer is no more afraid of the
seller as if the seller sell any product of bad or inferiour quality then the seller is responsible for
it and he/she have to pay for it to the consumer. the consumer also have the right to file a suit
against the seller and can claims for the damage, because of caveat venditor seller are more
aware then a consumer as if their is any compromise in the quality then seller is responsible for
that at all.

2. Origin of caveat venditor:

For the reasons stated above, the rule of caveat emptor, as far as judicial precedents goes, for the
first time suffered a blow by the case of Priest v. Last wherein1 for the first time, the reliance
placed by the seller for the purposes of buying a ‘hot water bottle’ was taken into account for the
purposes of allowing the buyer to reject the goods. This decision was the first traceable decision
in common law which gave importance to the reliance placed by the buyer on the seller’s skill
and judgment. This proposition of law, however is a settled principle of law today.

The Priest decision however, was just a beginning of what could certainly be termed as the
diminishing process of the rule of caveat emptor. Where in this decision, the purpose was
expressly mentioned and then taken into account, the courts in subsequent cases, opined that the
need/purpose of the contract would be evident from the nature of the contract , or might be

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known to the seller from the course of negotiations between the parties. Thus express mention of
the purpose behind a purchase of goods was no longer considered a requisite for proving reliance
on the skill and judgment of the seller, which signified a further shift of law in favor of the
buyer.

This imposition of obligations upon the seller was also not a smooth process in itself. If one
refers to the decisions like that of the House of Lords in the case of Ashington Piggeries Ltd v.
Christopher Hill Ltd2, where on one hand the majority opined that a generalized purpose
should be shoehorned within the meaning of a particular purpose thereby meaning that when the
buyer purchases food-stuff meant for animals, he need not mention specifically the type of
animals he would feed with the food-stuff. On the other hand the dissenting opinion of Justice
Diplock, while rejecting the majority opinion, clearly said that ‘the swing from caveat emptor to
caveat venditor had gone too far.’ Another decision, which goes with the opinion of Justice
Diplock, is the decision of New Zealand Court of Appeal in the case of Hamilton v.
Paparika3 wherein the court refused to accept the contention that a water supplier supplying
water to horticulture farms should ensure that its water would not harm a specific crop i.e soil
less cherry tomato. The court opined that since the water was serving the generalized purpose in
the given case, so any particular purpose should have been communicated to the seller and he
could not have known the same by implication.

It is submitted that the valid argument which can be construed out of these case laws is that
concerning the variation between the nature of the particularized purpose and the generalized
purpose.’ But this has an equally sound counter-argument, which is that it should be incumbent
upon the seller to specify that his product, which is sold for a generalized purpose would not suit
a particular purpose. Or that the product would have to be used in a particular manner in order to
serve a particular purpose. This counter-argument is where one can trace the origin of caveat
venditor i.e. the need for disclosure on the seller’s part.

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3. DEVEPOLMENT OF CAVEAT VENDITOR:

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 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.

4. RULES FOR SALE UNDER CAVEAT VENDITOR:

 1. Know your buyer.

Before you make your first sale, obtain the correct legal composition of your customer. The best
source is a copy of a check.

2. Advance Sales Protection.

Have the buyer sign a credit application with adequate terms of sales and have the principal of
the debtor sign a personal guaranty.

You need two separate signatures: one for the corporation and one for the guarantor.

"In modern times most commercial business is done between corporations, everyone in business
knows that an individual stockholder or officer is not liable for his corporation's engagements
unless he signs individually, and where individual responsibility is demanded the nearly
universal practice is that the officer signs twice--once as an officer and again as an individual."
(Salzman Sign Co., Inc. v. Beck, 10 N.Y.2d 63, 67, 217 N.Y.S.2d 55.)

When a guarantor signs a guaranty and adds his corporate office following his signature, he can
raise a defense in a lawsuit on brought to enforce the guaranty that he signed the guaranty in a
corporate capacity and should not be held personally liable. Two recent decisions in the
Appellate Division, First Department, have said that the addition of the guarantor's corporate
office following his signature on the guaranty is merely descriptive and does not affect the
guarantor's liability on the guaranty, Chemical Bank v. Kaufman, 142 A.D.2d 526. 530 Appellate
Division, First Department, have said that the addition of the guarantor's corporate office
following his signature on the guaranty is merely descriptive and does not affect the guarantor's
liability on the guaranty, Chemical Bank v. Kaufman, 142 A.D.2d 526. 530 N.Y.S.2d 583
(1988), and Chemical Bank v. Masters, 176 A.D.2d 591, 874 N.Y.S.2d 754 (1991). Nevertheless,
to avoid that defense, we urge our client-vendors to have the guaranty signed by the guarantor
only in his individual name without the addition of a corporate title.

Members of the Bar only are invited to copy the firm's form Application for Credit with
Subjoined Personal Guaranty that can be found on the firm's website by clicking on the FAQs
button and scrolling down to the Clients' Corner, clicking, and proceeding to Forms. The
password necessary to enter Forms can be obtained by faxing your firm's letterhead to our office
and then by telephoning Attorney Joel Cohen.

3. Preserve your rights.

When a payment is received by check with a notation on the front or the reverse side that the
check is given in full payment, you can deposit the check, if--and only if--you preserve your
right to pursue payment for the balance due. On the reverse side of the check below the
customer's notation, you MUST stamp, write or type in the following language: This check is
deposited under protest, without prejudice, and with preservation of all rights of the payee
against the drawer of this check pursuant to UCC § 1-207. Place your bank endorsement
below this notation. You should then photocopy both sides of the check before you deposit it.
Endorsement of the suggested notation on the reverse side of the check will avoid the defense of
accord and satisfaction in New York state and, as of 1985, most likely in the states of Missouri,
Alabama, Florida, Oregon, and North Carolina. The New York rule is the minority rule. Vendors
outside of New York State should consult their local attorneys before depositing a check for an
amount that is less than the full amount due. The rule of law that permits the reservation of rights
under the Uniform Commercial Code (UCC) was established in New York in Horn
Waterproofing Corp. v. Bushwick Iron & Steel Co., 66 N.Y.2d 321, 497 N.Y.S.2d 310 (1985).

The Horn case, at p. 326-327 of 66 N.Y.2d, describes a creditor's difficult decision:

"Offering a check for less than the contract amount, but 'in full settlement' inflicts an exquisite
form of commercial torture on the payee. If the offer is reasonable it creates a marvelous anxiety
in some recipients: 'Shall I risk the loss of $9,000 for the additional $1,000 that the bloke really
owes me?' In general the law has authorized such drawer behavior by regarding such a check as
an offer of accord and satisfaction which the payee accepts if he cashes the check. Traditionally
the payee could write all manner of disclaimers over his indorsement without avail; by cashing
the check he was held to have accepted the offer on the drawer's terms. Even if he scratched out
the drawer's notation or indorsed it under protest he was deemed to have accepted subject to the
conditions under which the drawer offered it.*** "Indeed, the common-law doctrine of accord
and satisfaction creates a cruel dilemma for the good-faith creditor in possession of a full
payment check. Under that rule, the creditor would have no other choice but to surrender the
partial payment or forfeit his right to the remainder."

So the Horn case changed the doctrine of accord and satisfaction by permitting a creditor to
reserve its right to pursue payment of the remainder of the monies due and still accept a
customer's check for a lesser sum. The Horn case did say that "[s]uch words as 'without
prejudice', 'under protest' or the like are sufficient" to preserve the vendor's rights. But this law
firm prefers use of more expansive language. The Horn rule applies both to performance of
services and the sale of goods.

4. Monitor sales activity.

5. Prepare for suit.

When a customer has failed to pay invoices timely, suit should be anticipated. Suit delayed is
collection denied, when you seek recovery from a business customer.

Our law firm can bring lawsuits to collect from your customers located in the five boroughs of
New York City--Manhattan, Bronx, Queens, Brooklyn, and Staten Island, known as New York,
Bronx, Queens, Kings and Richmond Counties, respectively--and in the Counties of Nassau and
Suffolk to the west of New York City and in the county of Westchester to the north of New York
City.

Our firm has on-line computer access to corporate names, corporate trade styles, and trade styles
of partnerships and of sole proprietorships, Uniform Commercial Code filings, judgment filings,
records of pending lawsuits, property records, and bankruptcy records, for the entire State of
New York. But, if you follow rule 1, initiation of the lawsuit will be expedited. The fastest way
to collect a judgment is to restrain the debtor's bank account.

Safeguard your invoices and your signed delivery receipts. Creditors who deliver goods using
common carriers should be warned that these carriers (including UPS) do not retain signed
proofs of delivery for more than one year. When you are ready to authorize suit, you should
immediately request a signed proof of delivery from your common carrier(s) for each and every
invoice that remains unpaid. In your lawsuit to recover the balance due for goods sold and
accepted, you must be able to prove receipt of the goods by your customer.

 DETAILED SALES PROTECTION

 AVOID PITFALLS

Under the Uniform Commercial Code's Statute of Frauds, every sale of goods of $500.00 or
more must be in a writing signed by the buyer or its authorized agent or broker, UCC § 2-201[1].
The writing must, of course, describe the goods and the prices and the terms of sale. The section
says, however, that, if a written confirmation of the order is sent to the buyer and retained for
tens days without objection, a signature is not required. A signature is not required either (a) if
the goods are to be specially manufactured for the buyer and are not suitable for sale to others in
the ordinary course of the seller's business and the seller, before notice of repudiation is received
and under circumstances which reasonably indicate that the goods are for the buyer, has made
either a substantial beginning of their manufacture or commitments for their procurement; (b) if
the party against whom enforcement is sought admits in his pleading, testimony or otherwise in
court that a contract for sale was made, but the contract is not enforceable under this provision
beyond the quantity of goods admitted or (c) with respect to goods for which payment has been
made and accepted or which have been received and accepted.

In a commercial lawsuit for goods sold and accepted, the aim is to reduce the claim to judgment
while the buyer remains in business and is able to pay the judgment. To accomplish this
objective, a vendor must avoid pitfalls that will delay entry of a judgment in its favor.

In the normal sales situation, a buyer calls his vendor, orders goods and receives delivery at the
buyer's POB within a few business days of the order. There is no signed confirmation of the
order. But the UCC § 2-201 exception for goods received and accepted obviates a Statute of
Frauds defense.

Under the Uniform Commercial Code, every sale of goods is made comes with whatever express
warranties are made by the vendor, UCC § 2-313 and with the UCC § 2-314 Implied Warranty of
Merchantability and the UCC § 2-315 Implied Warranty of Fitness for Particular Purpose. If
there is a breach of warranty by the vendor, then the vendor is liable to the buyer under UCC § 2-
715 for the buyer's Incidental and Consequential Damages. UCC § 2-316 permits the. Exclusion
of these two warranties and all implied warranties and UCC § 2-719 provides for a Contractual
Modification by permitting the vendor to limit the buyer's remedies to return of the goods and
repayment of the price or to repair and replacement of non-conforming goods or parts, so long as
the vendor honors this limited remedy and the limitation is not unconscionable. Of course, if the
vendor does not honor the limited remedy, the contractual limitation is forfeited and the UCC
damages are restored.
This problem is well-illustrated in Empire Municipal Supply Corp. v. T.I.J. Materials Corp., 205
A.D.2d 1030, 613 N.Y.S.2d 786, (3rd Dept. 1994). The operative facts are that in July 1985
Iberia Road Marking Corporation (IBERIA) placed an order with defendant T.I.J. Materials
Corporation (TIJ), a distributor of highway safety products, for 100,000 feet of lane marking tape
to be used for a job on the Staten Island Expressway in New York City. TIJ attempted to order
the tape from plaintiff, a wholesaler of paint and marking supplies, but was informed by the
plaintiff that it would not sell the tape to TIJ on credit until payment was received for a prior
order, shipped earlier that month. The plaintiff agreed to fill the order if it could bill IBERIA.
IBERIA agreed that it could be billed directly for the order. Plaintiff ordered the tape from its
manufacturer to be delivered directly to IBERIA, and after receiving a bill of lading, billed
IBERIA for $105,600, the agreed-upon amount. IBERIA received the tape in August 1985.
When plaintiff sought payment from IBERIA, on November 4, 1985, plaintiff received a letter
from IBERIA stating that the tape was defective in that it did not meet the required standards of
adhesion, that IBERIA was not plaintiff's customer but TIJ's, and that plaintiff should therefore
look to TIJ for payment. After a jury trial, in December 1991 IBERIA was found to have
agreed to assume primary responsibility for payment of the invoice issued to it. The Appellate
Court held that the record supported the finding that IBERIA's promise to pay, which was clearly
made to induce plaintiff to ship the goods for IBERIA's use, was supported by new consideration
flowing primarily to IBERIA and constituted a new, independent contract between plaintiff and
IBERIA. The Appellate Court also confirmed the finding that rejected IBERIA's claim that the
tape did not adhere properly to the road surface and was therefore worthless.

So the vendor-plaintiff prevailed in the lawsuit without a purchase order or other memorandum
containing terms and conditions of sale signed by the buyer. But at what cost? It took the vendor
over three years from the sale to get a judgment after a jury trial and a full nine years from the
sale to receive payment after an appeal by the buyer.

If the vendor had obtained a signed Application for Credit with terms and conditions of sale prior
to shipping to its customer, these defenses of breach of warranties and counterclaims arising
therefrom could still have been raised as a defense and counterclaim by the vendor in the lawsuit,
but then they would have been dealt with by a motion for summary judgment. An excellent
example of the summary disposition of the defenses and counterclaim by a summary judgment
motion can be found in Belden-Stark Brick Corp. v. Morris Rosen & Sons., 39 A.D.2d 534, 331
N.Y.S.2d 59, (1st Dept. 1972), aff'd 31 N.Y.2d 884, 340 N.Y.S.2d 186 (1972)), where the
Appellate Court reversed the Supreme Court, New York County, and granted summary judgment
to the plaintiff-vendor on its cause of action for goods sold and dismissed the defense and
counterclaim arising from a claimed breach of warranty.