INTRODUCTION
Caveat Emptor is a Latin phrase that is translated as “let the buyer beware”. The phrase describes the concept in contract law that places the burden of due diligence on the buyer of a good or service. Caveat emptor is a fundamental principle in commerce and contractual relationships between a buyer and a seller.
The phrase or the concept of transferring the property on ‘as is where is’ basis pertains to a clause in any agreement which is a has the implication that the thing transferred to one person from another, in the then existing condition and the same has been accepted with all the defects, irrespective if such defects are not apparent in nature. This phrase finds its roots from the doctrine of caveat emptor. This doctrine attributes a duty or obligation upon the purchaser to carry out the requisite inspection of the property prior to entering into an agreement. If, such an inspection is not carried out, consequently, when the defects are identified in the property, it may not serve as a ground for revocation or for claiming the damages under the contract. Notice to the buyer, in such case, is usually presumed.
DOCTRINE OF CONSTRUCTIVE NOTICE
Constructive notice is the equity which treats a man who ought to have known a fact, as if he actually does know it. Constructive notice has been said to arise from an irrebuttable presumption of notice. Such a presumption, which is said to be irrebuttable, can arise only in a case in which the party seeking the benefit of that doctrine has acted innocently.
Reference to be made to a portion of section 3, Transfer of Property Act, 1882 (hereinafter referred as “TPA, 1882”) which is reiterated hereinbelow:
“A person is said to have notice” of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.
Explanation II: Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof.
However, TPA also provides for the duty attributed upon the seller under section 55: “to disclose to the buyer any material defect in the property or in the seller’s title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover.” This is, however, subject to the presence of contract to contrary between the parties.
The doctrine of Caveat Emptor finds its origin in a 17th century case of Chandelor v. Lupos, where it was held that the defendant being the seller of the store is not liable to the plaintiff for any defect thereon since the plaintiff was at liberty to inspect the same. The doctrine later on developed on the principle that “no man can be cheated except it be with his own consent.” On the other hand, ‘as is where is’ is a clause incorporated in the agreement generally by the seller in order to sell the property with defects, if any. At times this clause is also misused by the seller to escape their burden to disclose any material defect in the concerned property. In such cases the theory of Caveat Emptor becomes strongest.
It is significant to note that ‘as is where is’ clause adds a new dimension to Caveat Emptor rule and consequently in many cases the presence of this clause in an agreement discharges the seller of his duty as enshrined under section 55(1)(a) of TPA, 1882.
SELLER’S OBLIGATION UNDER SECTION 55(1)(A) OF TPA, 1882
A contract for sale of land is not a contract uberrima fidei; but although the duty of disclosure is not absolute, the seller is under an obligation to disclose latent defects of which he is aware. This is the same rule as in the sale of goods under section 16 of the Sale of Goods Act, 1930.
A latent defect is a defect which the buyer could not with ordinary care discover for himself. There is no duty to disclose defects of which the buyer has actual or constructive notice. As to the patent defects and defects of which the seller is unaware, the maxim of caveat emptor applies.
Even though section 55 of TPA, 1882, is subject to contract to the contrary between the parties, judicial interpretation to it has reflected that the disclosure of the material defects is an obligation on the part of the seller making the provision mandatory in nature and not directory.
However, in the commercial contract involving the clause of ‘as is where is’ basis, the courts have excused the seller of their statutory duty to disclose material defects and the title deeds. In the matter of V. Sambandan v. The Punjab National Bank (V. Sambandan case) where the sale was concluded on ‘as is where is’ basis and the seller citing the same did not provide the original title deed or the copy of any other documents and the purchaser, because of which, wilfully defaulted in making payments and claimed the refund of the amount already paid, the court dismissed the petition relying upon the Supreme Court decision in United Bank of India v. Official Liquidator and Others where it was held that the purchaser is deemed to have purchased property subject to all encumbrances, liens and claims where it has been sold on ‘as is where is’ basis.
CONCLUSION
TPA, 1882, as observed by J. Rankin is a conglomeration of English Common Law and the principle of Equity which must be kept in mind to develop a balanced construction between Section 3 of TPA, 1882 (which is the reflection of the doctrine of Caveat Emptor) and section 55(1)(a) of TPA, 1882, to prevent one party enjoying any unjust enrichment at the cost of other. Since it cannot be the case, and the legislature also could not have intended that in any circumstances, the onus of being prudent and awareness of all the facts of the concerned property is to be shifted to one person that being the purchaser in the cases where the sale is made on ‘as is where is’ basis. Therefore, such clauses should be adjudicated on the Principle of Equity considering the facts and circumstances of each case individually rather than turning to any rigid Positive Law. It is on this reasoning, the judicial approach to give a progressive interpretation to the concept of ‘as is where is’ is laudable, and that the plea of ‘let the buyer beware’ of any encumbrance on the property sold on the pretext of ‘as is where is’ is no longer an acceptable argument. Moreover, the duty of the purchaser or the transferee under the principle of Caveat Emptor should be restricted only to the extent of patent defects as discernible from the above discussion on the cases involving the commercial contract with the government and the party failing to which, cannot later seek judicial interpretation since it will be presumed that he entered into the contract with open eyes.
By Aastha Chaturvedi, Advocate, Delhi