When Contract Law developed in the nineteenth century, influenced by laissez-faire economics, underpinning it was the doctrine of ‘caveat emptor’ - meaning “let the buyer beware”^[1]. It has always been possible to rely on expressly drafted warranties, for example promising to repair or replace a faulty item if necessary within a specified period of time, but without these, purchasers bore the risk and could not claim compensation for defective purchases.^[2] However, what qualifies as a term has evolved - a representation may become a term if it appears “intended”^[3] to be one. Conflation of contractual terms^[4]  with pre-contractual representations and implying terms into a contract through statute signify a move towards enhanced consumer rights with wider recourse for buyers through breach of contract.

The notion enshrined in the principle of caveat emptor, that the buyer must discover defects, contrasts with the law of misrepresentation, which burdens the seller with not misrepresenting them. Even prior to the Misrepresentation Act 1967,^[5] misrepresentation at common law granted consumers protection against false statements. This is a move away from the imposition of the burden on the buyer to discover these inaccuracies. Collins draws our attention to the fact that English contract law places the emphasis on ‘reliance’ not consent, on caveat emptor, not paternalism and thus struggled with mistakes other than those induced by innocent or fraudulent misrepresentation^[6]. Whilst changes under the Misrepresentation Act 1967, such as the introduction of damages to compensate a victim of an innocent misrepresentation,^[7] undermine the principle of caveat emptor, the definitional shift occurred at common law. The Act simply furthered it, and gave way to a conflation of tort and contract in common law with regard to misrepresentation.

Fraudulent misrepresentation is relatively uncontroversial. Lobban explains that the decision of the House of Lords in Derry v Peek^[8] not to award damages where a company had misled shareholders negligently rather than deliberately firmly established the pre-eminence[9] of caveat emptor. He emphasised this represented considerable privileging of business interests – vital for securing Britain’s place as ‘the world’s finest capitalist system’.[10] The development of negligent misrepresentation^[11] has significantly altered this as it imposes a  “duty to use reasonable care”^[12] when making statements – which is at odds with caveat emptor.

Further, judicial opinion distinguishes between contracts of commercial entities and those of unequal bargaining power. This is appropriate as caveat emptor emerged when commerce occurred on the marketplace. Kessler writes contract terms were not “understood only in a vague way, if at all”.^[13] Today, an increasing prevalence of inequality of bargaining power presents a justification for a shift towards protecting consumer rights rather than affirming caveat emptor. Despite this, some argue freedom of contract is nevertheless consistent with the underlying idea behind caveat emptor - freedom of contract to expect this. Thal argued bargaining inequality poses a “direct threat”^[14] to freedom of contract. Further, Adam Smith wrote it “force[s] the other into a compliance with their terms”^[15] the weaker not being “in a position to shop around for better terms”^[16]. This argument is one supported by the Judiciary. Lord Denning voided a contract due to the lack equal bargaining power^[17] and his dissent in Mitchell v Finney argued there is only freedom for he who “had the use of the printing press”, none “for the little man.”^[18]. Clearly, the changing landscape of commerce has been noticed.

In addition to changes made by the Misrepresentation Act 1967 and case law, this blog considers consumer rights legislation as an albeit justifiable countermeasure to bargaining inequality - but argues caveat emptor has nevertheless dwindled.  

Under caveat emptor, buyers have the responsibility to inspect goods for quality. They have no protection in the case of a poor purchase unless the seller provides an “express guarantee”. Historically, a company bore no duty to exercise care and skill when making representations, shy of “a breach of that duty must be dishonest”,^[19]  which amounted to fraud, and had no general duty of disclosure. However, the law has since evolved; the silence rule is evidence of this.

It is true that “mere silence”^[20] cannot amount to misrepresentation. The onus remains on the buyer to discover faults. Blackburn J explained in Smith v Hughes that conduct (silence) should be interpreted objectively and assent is subject to the reasonableness test.^[21] Caveat emptor is preserved in that when a buyer relies on his own investigation which “turns unsound”,^[22] recourse is unavailable if there is no representation or warranty from the seller; the seller has no burden of extra diligence. Furthermore, the unavailability of specific performance where the claimant exploited the defendant’s ignorance^[23] balances caveat emptor with consumer rights, in that it restricts vexatious utilisation of misrepresentation.

However, exceptions to the silence rule:^[24] half-truths, changing circumstances^[25] and contracts made in ‘uberrimae fidei’^[26] demonstrate a balance of consumer rights with caveat emptor. In Dimmock v Hallett^[27] it was held a half-truth^[28] was good grounds for an action in misrepresentation, showing an albeit subtle shift from the buyers’ burden to discover defects. Secondly, Romer LJ^[29] stated when “B subsequently enters into the contract in ignorance of that change of circumstance” “A cannot hold B to the bargain”.^[30] Bigwood noted this upholds the principle that any change to a reason for contracting must be communicated^[31] even after performance, contrary to the principle of caveat emptor. However, regarding contracts made ‘uberrimae fidei’ (eg insurance contracts), Lord Mansfield iterated^[32]due to their “special facts”, “good faith forbids either party by concealing what he privately knows”. This contrasts with caveat emptor in that full disclosure is required. Strauss argued being in the “utmost” rather than simple “good faith”, a “higher standard”^[33] is imposed. Although not the trend, these exceptions requiring full disclosure are directly at odds with caveat emptor.

Nevertheless, some weight was given to caveat emptor regarding general duty of disclosure in Attwood v Small. When the purchasers of a mine were told exaggerated statements about its earning capacity, they were no longer able to make a claim for misrepresentation since they had carried out and relied upon their own incorrect inspections prior to purchase – not the seller’s representations. Finding fault with the buyer’s substandard inspection rather than the representor’s statements adheres to the principle of caveat emptor in that sellers are free to make statements, often called “mere puff”, to induce purchase - but distinct from representations - which mean “nothing at all”.^[34]  Under this, buyers bear the burden of discovering faults.  

Conversely, in Redgrave v Hurd,^[35] where before buying a practice a solicitor had relied on misrepresentations as to its value, it was held a contract can be rescinded for innocent misrepresentation, even where the representee also had the chance to verify the false statement. Sir George Jessel noted “relying on the representation was enough and there was no duty to inspect [the papers]”. Although an older case where caveat emptor was dominant, it is also an early misrepresentation case, evidencing that since misrepresentation’s conception, it is intrinsically at odds with the doctrine of caveat emptor.

Further, exclusion of liability unless there is an “express guarantee” in the principle of caveat emptor has altered through implied guarantees under the Sale of Goods Act 1979. Historically, terms were only implied into contracts when "necessary and obvious...to give business efficacy".^[36] w, goods must “correspond with the description”^[37] and if sold in the course of business be "reasonably fit for purpose".^[38] However, the elements of consumer protection do not apply when “specifically drawn to the buyer’s attention” or “where the buyer examines the goods before the contract”.^[39] This shows some retention of caveat emptor in that recourse is unavailable if the purchaser is alerted to faults. Nevertheless, buyers having any protection if they opt not to inspect is a departure from caveat emptor.  Furthermore, the Act is inconsistent with the principle of consideration^[40] which must be sufficient but need not be adequate^[41] - an expression of caveat emptor. Historically, the courts shied away from regulating quality to preserve the freedom of contract^[42] – yet the legislature has begun to. The Unfair Contract Terms Act 1977’s^[43] subjection of exclusion clauses to the “reasonableness” test signals this departure from freedom of contract to judgement by the courts. Whilst this regulation is a response to increased bargaining inequality, it is nevertheless a departure from the linchpin of caveat emptor; that buyers bear the burden for failing to discover substandard goods.

The Misrepresentation Act 1967 distinguishes between negligent and "wholly" innocent misrepresentation and iterates the available remedies. However, conflation of tort and contract law has been problematic where remedies are concerned, in respect to caveat emptor.

The adoption of the tort of deceit as a measure in fraudulent misrepresentation - when someone knowingly deceives another into an action to their disadvantage - has significantly heightened the extent of damages. In Doyle v Olby^[44] Lord Denning declared a fraudulent representor liable for all loss directly flowing from fraudulent inducement. Australian Ferguson J explained "honesty of belief in the truth of a warranty is no defence to a breach of warranty, whereas it is a complete defence to a charge of false representation” ^[45]- indicating that a breach of promise should carry higher liability than a breach of contract;^[46] this is problematic for caveat emptor in that it can impose liability after pre-contractual negotiations and the conclusion of performance. Whilst the “reasonable belief” provides balance for sellers, liability reminiscent of tort nevertheless imposes extra diligence on sellers for fear of higher liability in the event of a misrepresentation.

Lord Scarman opined "there is nothing advantageous to the law's development in searching for a liability in tort where the parties are in a contractual relationship".^[47] However, the ruling in Esso v Mardon,^[48] that there was no duty on a company to use care and skill in issuing a prospectus to avoid making misstatements and that a negligent misrepresentation, may occur if a representor has “special knowledge or skill” departs from the conclusion in Derry regarding care and skill; that instead a “duty to use reasonable care to see that the representation is correct”^[49] is contrary to the buyer bearing the burden and is evidence of the development of contract law in this area.

The courts’ conflation of contract and tort for damages^[50] began when concurrent liability in tort and contract was established^[51] by lowering the proximity requirement for damages:^[52]  a fundamental prerequisite of tort – not contract law. Although Spartan v Martin^[53] held ‘pure’ economic losses were unrecoverable, losses deemed consequential, for example profit, were. Further, East v Maurer held “loss of profit” “reasonably” anticipatory^[54] was recoverable. Slough^[55] went further, allowing damages for market downturns, even if unanticipated. The reduction of the proximity requirement for contractual damages in negligent misrepresentation reflects the extra diligence required for negligence but is incompatible with the principle of caveat emptor, and results in damages higher than original consideration.^[56]

Historically, innocent misrepresentation carried no liability for the misrepresentor. Percival^[57] suggested this to be “the first thing law students have learned about innocent misrepresentation”. Whilst restricted to ‘in lieu of rescission’, damages are nevertheless available.^[58] Although the Misrepresentation Act 1967 empowers the court to declare the contract subsisting  thus showing legislative sympathy for sellers by favouring rescission, nevertheless, Percival, citing caveat emptor as a “cardinal points of the common law”, explains that innocent misrepresentation has undergone a “substantial change”.

In conclusion, caveat emptor no longer has centrality in contract law. With regulation on quality of goods, recourse is now available where caveat emptor would previously have applied. Although justified by bargaining inequality - with freedom of contract otherwise imbalanced - the onus has nevertheless shifted to the seller. It can indeed be said therefore that in some respects the principle of caveat emptor has been made a mockery of through the development of the law on misrepresentation and consumer rights.

^[1] The maxim in full is: ‘caveat emptor qui ignorare non debuit quod jus alienum emit’ - meaning ‘Let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party.’

^[2] ‘the buyer takes the risk’; Merriam-Webster, ‘caveat emptor’ (Merriam-Webster) <https://www.merriam-webster.com/dictionary/caveat%20emptor > accessed 3 March 2019; “a purchaser” “could not claim his purchases were defective”; ‘caveat emptor’, Oxford Dictionary of Law (9th edn, OUP 2018).

^[3] This is subject to the reasonableness test. Lord Moulton further indicated “the intention of the parties can only be deduced from the totality of the evidence.”; Heilbut, Symons & Co v Buckleton [1913] AC 30, 82 LJKB 245, 20 Mans 54, [1911-13] All ER Rep 83.

^[4] The method of differanting being “a matter of construction”; Ticket2Final OU v Wigan Athletic AFC Ltd [2015] EWHC 61 (Ch), [2015] All ER (D) 182 (Jan).

^[5] Misrepresentation Act 1967.

^[6] Hugh Collins, ‘Methods and Aims of Comparative Contract Law’ (1991) 11(3) Oxford Journal of Legal Studies, 396, 398.

^[7] Misrepresentation Act 1967, s 2(2).

^[8] Derry v Peek (1889) LR 14 App Cas 337, [1889] UKHL 1.

^[9] M Lobban, ‘Nineteenth Century Frauds in  Company Formation: Derry v Peek in Context’ (1996) 112  LWR 287

^[10] B Hilton: the Age of Atonement: The Influence of Evangeism on Social and Econmic Thought 1785-1865 (Oxford Claredom Press, 1986); take from the back jacket summary

^[11] Esso Petroleum Co Ltd v Mardon [1975] 1 All ER 203.

^[12] ibid.

^[13] Friedrich Kessler, ‘Contracts of Adhesion-Some Thoughts About Freedom of Contract’ (1943) 43(629) 

Columbia Law Review 629.

^[14] Spencer Nathan Thal , ‘The inequality of bargaining power doctrine: the problem of defining contractual unfairness’ (1988) 8(1) Oxford Journey of Legal Studies 17.

^[15] Adam Smith, Wealth of Nations: Book I (Penguin Classics 1776). (n #) 56.

^[16] Kessler (n #) 629.

^[17] arguing undue influence mitigated consent; Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8, [1975] QB 326, [1974] 3 All ER 757.

^[18] George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.

^[19] Derry v Peek (1889) 14 App.Cas. 337 Page 352

^[20] Turner v Green [1895] 2 Ch 205, 64 LJ Ch 539, 43 WR 537, 39 Sol Jo 484, 72 LT 763.

^[21] Smith v Hughes (1871) LR 6 QB 597.

^[22] ibid.

^[23] Walters v Morgan (1861) 3 DF & J 718.

^[24] John Clement, ‘Misrepresentation’ (IBB Solicitors, 27 July 2015) < https://www.ibblaw.co.uk/insights/blog/misrepresentation > accessed 27 Feb 2019.

^[25] With v O'Flanagan [1936] Ch 575,[1936] 1 All ER 727.

^[26] “of the utmost good faith”, a principle used  primarily in insurance contracts.

^[27] Dimmock v Hallett (1866-67) LR 2 Ch App 21.

^[28] This being where where if “all of the truth” were told it would “lead to a different conclusion”; Black’s Law Dictionary, ‘What is a half-truth?’ (The Law Dictionary) < https://thelawdictionary.org/half-truth/ > accessed 15 March 2019. with “deliberate intent to deceive”; Merriam-Webster, ‘Half-truth’ (Merriam-Webster) < https://www.merriam-webster.com/dictionary/half-truth > accessed 3 March 2019.

^[29] Noting it to be “obviously consistent with the plainest principles of equity”; With v O’Flanagan

^[30] ibid.

^[31] Where it is known by the representer and irrespective of malice; Rick Bigwood, ‘Pre-contractual misrepresentation and the limits of the principle in With v O'Flanagan’ (2005) 64(1) Law Journal 96.

^[32] Carter v Boehm (1766) 3 Burr 1905, (1766) 97 ER 1162.

^[33] John David Strauss, ‘Uberrimae Fidei and Adverse Selection: the equitable legal judgment of Insurance Contracts’ (North American Graduate Students, 5 October 2008) < https://mpra.ub.uni-muenchen.de/10874/1/MP RA_paper_10874.pdf > accessed 26 Feb 2019.

^[34] Carlill v Carbolic Smoke Ball Company [1893] 1 Q.B. 261.

^[35] Redgrave v Hurd [1881-85] All ER Rep 77.

^[36] The Moorcock (1889) 14 P.D. 64 at 68

^[37] Sale of Goods Act 1979, s 13(1).

^[38] Sale of Goods Act 1979, s 14(3).

^[39] Sale of Goods Act 1979, s 14(2C).

^[40] “right, interest, profit or benefit accrues (or will accrue) to the promisor as a direct result of some forbearance, detriment, loss or responsibility that has been given, suffered or undertaken by the promisee”; Currie v Misa (1875) LR 10 Ex 893.

^[41] Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87, [1959] 2 All ER 701, [1959] 3 WLR 168.

^[42] ibid. Lord Somervell held “party can stipulate for what consideration he chooses"

^[43] Unfair Contract Terms Act 1977, s 11.

^[44] Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158.

^[45] Fitzpatrick v Michel (1928) 28 SR (NSW) 285, 289. (1928) 28 SR (NSW) 285, 289

^[46] contrary to the general rule that it must be foreseeable to the “reasonable man”; Hadley v Baxendale [1854] EWHC J70.

^[47] Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947, [1985] 2 Lloyds Rep 313, [1985] 3 WLR 317

^[48] Esso Petroleum Co Ltd v Mardon [1975] 1 All ER 203.

^[49] Esso Petroleum Co Ltd v Mardon [1975] 1 All ER 203.

^[50] It is also arguable that rescission as a remedy contrasts with the principle of caveat emptor. However, the  case law following the Misrepresentation Act 1967, s 2. is more problematic for caveat emptor.

^[51] Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, [1994] UKHL 5, [1994] 3 All ER 506, [1994]

^[52] Caparo Industries PLC v Dickman [1990] ALL ER 568, [1990] 2 AC 605.

^[53]. Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27.

^[54] East v Maurer [1991] EWCA Civ 6 [1990] EWCA Civ 6, [1991] 2 All ER 733, [1991] 1 WLR 461.

^[55] Slough Estates PLC v Welwyn Hatfield District Council (1996) [1996] 2 PLR 50 : [1996] 2 EGLR 219 : [1996] EG 132

^[56] ibid: with £45m being rewarded. Yet, the council couldn’t pay due to simply not having money, even pre-contractually

^[57] HC Deb 20 February 1967 (n 36).

^[58] Misrepresentation Act 1967, s 2(1) .