Caveat Emptor Essay

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Evaluate the notion of ‘Caveat Emptor’. Does a business have an obligation to manufacture/sell products that are as safe as possible for consumers and society in general? Use Ethical Theories to justify your answer.
Caveat Emptor that is ‘Let the buyer beware’ is not a phrase that judges use very often nowadays. The longstanding rule of caveat emptor, which has its origin in common law, has over the times undergone major changes and variations. As the rule was being given a concrete shape, its exceptions also grew with time (Raj, 2002).
As one would trace by its origin, the philosophy behind the rule of caveat emptor was basically the dependence placed by the buyer on his own skill or judgment. It is based on the fundamental assertion that once a buyer satisfies himself as to the suitability of the product for his use, he would subsequently have no right to reject the same. So it shows that the rule of caveat emptor, as it prevailed at the times of its origin, was quite rigid.
If one peruses through the English Sale of Goods Act, 1893, it is not only noticeable but quite evident that the seller’s duties as to disclosure requirements when a product is sold was minimal. Buyer’s examination of the goods was considered over and above any duty upon the seller to provide information. Concepts like ‘fitness of goods’ and ‘merchantability’, which could be used to shift the burden as to quality and fitness on the seller, were not encouraged. Another strong proposition, which was present in the act, was in the form of Section 11(1.c), which mandated that in cases where there was sale of ‘specific’ goods, the buyer could not reject the goods on any ground.
 

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Thus it can be noted that the law being bent in the favor of the seller, and in those times, one could not even contemplate a corresponding rule, which would put the burden on the seller (caveat venditor).
The approach, which was being adapted when the rule of caveat emptor prevailed in its absolute form, was later characterized as one detrimental to the development of trade and commerce (Bonita, 1983). It is submitted that their lordships were quite correct in saying so because; caveat emptor in its absolute form would certainly be detrimental to the buyer’s cause, because till then, the element of ‘reasonable’ examination was not introduced. Therefore a scenario wherein a buyer would not have any recourse against a seller who has in spite of being aware of a latent defect (one which cannot be detected by reasonable examination) not informed the buyer about the same, would certainly not encourage commercial transactions.
Another sound reason, which can be thought of for the dilution of the rule of caveat emptor, is to provide adequate protection to the buyer who buys the good in good faith, which case laws put as, ‘reliance on the skill and judgment of the seller’. Thus in order to give proper recognition to the relationship between the buyer and the seller and to generate a scenario wherein commercial transactions are encouraged by the means of proper checks, the rule was subsequently diluted (Grether, 1996).
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 wherein 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 (Barker, 1925).
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 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. 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 (Barker, 1925).
The rule of caveat emptor is dying a slow death and is being taken over by the subsequent rule of caveat venditor, the change being attributed to a more consumer oriented market wherein commercial transactions are being encouraged. Such a change, it is submitted will not only help create an appropriate balance between the rights and obligations of the seller and the buyer. But it should be noted that if this trend of change is taken too far, we might end up in retarding transactions due to the approach then becoming extremely pro-buyer who might misuse the protection under law (Robbert, 1995).
Velaquez in 1998 describes three distinct accounts of a manufacturer’s duty to protect the safety of the consuming public that he labels “the contract view, the ‘due care’ view, and the social costs view.” The contract view holds that a manufacturer’s duty to provide safe products is determined by the contract between the manufacturer and the purchaser, and consists of the “duty to provide a product whose use involves no greater risks than those the seller expressly communicates to the buyer or those the seller implicitly communicates by the implicit claims made when marketing the product for a use whose normal risk level is well known.” The due care view holds that in addition to honoring all express and implied claims of product safety, a manufacturer “has a duty to exercise due care to prevent others from being injured by the product, even if the manufacturer explicitly disclaims such responsibility and the buyer agrees to the disclaimer,” where due care is understood as “the care that a reasonable person could have foreseen would be necessary to prevent others from being harmed by use of the product.” The social costs view holds that “a manufacturer should pay the costs of any injuries sustained through any defects in the product, even when the manufacturer exercised all due care in the design and manufacture of the product and has taken all reasonable precautions to warn users of every foreseen danger.” To the extent that the social cost view is an account of a manufacturer’s duty to provide safe products rather than a theory of who should bear the costs of accidents, it invests manufacturers with an absolute duty to provide products free from injury-producing defects (Marshal, 1974).
            John Hasnas in 1978 states that: Safety is a concept that varies along at least five dimensions. It is actually shorthand for a complex set of relationships among risks, harms, costs, benefits, and persons, the assertion may be an understatement. In the context of product safety, risk refers to a possible future harm, where harm is defined as a setback to interests, particularly in life, health, and welfare. With regard to product safety, harm usually refers to a physical injury, but may include psychological injury or purely economic damage as well. In the context of product safety, costs consist of the sacrifices made in the attempt to prevent injury to the users of commercial products. Benefits refer to the value that can be derived from the use of the relevant commercial product–the improvement to one’s life that the product provides. Finally, the value provided by commercial products and the potential for injury varies from person to person
Risk is an irredeemably relative concept. Products can pose anything from an infinitesimal risk of harm, such as a bottle of pure water, to a near certain risk of death, as in the case of a bottle of agitated nitroglycerine. Many of the products commonly used in developed countries pose only small risks of serious harm. The risk that renders a product unsafe varies with products.  A risk may be of one in 10,000, 1000 or 100. Cigarettes, the archetypical unsafe product, pose greater risk for a 50 year old man who is a chain smoker from last ten years as compared to a 20 year boy who smokes occasionally. The ultimate result of product may be harmful but consumers are concerned with the immediate result and in the above example immediate satisfaction and desire results into ultimate harm i.e. lungs cancer. The increase in the risk of serious harm must be sufficient to render a product unsafe, and the consumer must foresee the harm done by the use o that product. Risk is acceptable or not depends on a host of exogenous factors, such as the benefits provided by the product, the cost of avoiding the harm, the magnitude of the potential harm, who may be harmed, and the circumstances in which the product is used. Anti-cancer drugs can be extremely toxic and pose a high risk of harm or death, but if they work, the benefit they confer is life itself.  A product may be beneficial for one and at the same time harmful for the other.  Apart from defective product there are many other factors that the product fails to fulfill its purpose. Risk can be minimized if the product is used by the right person on the right time in a right manner the product should be rightly and timely used by the consumer.
On manufacturers part they can design their products to make injuries less likely to occur. For example, the manufacturer of power saws can install hand guards and kill switches to reduce the likelihood that users will be cut. By the same token, consumers may take precautions to protect themselves from harm. For example, the purchaser of a power saw can wear goggles whenever using it (Deville, 2004).
It would be exceedingly difficult and expensive for parents to have to monitor their children’s behavior sufficiently to prevent them from playing on an unfenced railroad turntable, but exceedingly inexpensive for the railroad to install a simple lock that prevents the turntable from moving and injuring children whose limbs may get caught in the joints. To an economist, therefore, a safe product is one that incorporates all cost-justified precautions–that is, one designed to avoid all injuries for which the manufacturer is the least cost avoider. Injuries are a drain on society’s material resources. Preventing as many of them as possible in the most cost-effective way tends to maximize these resources. Utilitarian’s believes that there is a fundamental and overriding moral duty to maximize social wealth; one can argue that manufacturers are ethically obligated to sell only those products that conform to the economic definition of safety (Kenneth, 1974).
There are well-known objections to this form of utilitarianism. As Steven Kelman has pointed out, it leaves no room for the commitment to moral principles or the recognition of individual moral entitlements or rights. If social wealth would be maximized by killing an unproductive member of society and distributing his or her organs to five more productive people who need transplants to survive, the utilitarian must concede that there is an ethical obligation to do so. In addition, it assumes that the only thing of value is material wealth, implying that health, peace of mind, and even life itself has no intrinsic value. Under this form of utilitarianism, there is nothing that cannot be sacrificed for a material improvement to society–nothing that possesses a dignity and therefore is “not for sale.”
Dykstra in 1978 explains that under the corrective justice approach, reasonable care consists of exercising the degree of care necessary to avoid all injuries caused by wrongful conduct. Caveat emptor states that consumers must take all necessary precautions to protect themselves against injury from dangerous products. The members of the public have to bear 100% of the burden of protecting themselves and there is no requirement of ensuring safety of products on manufacturer. Freed of the obligation to include expensive safety features, manufacturers offer their products to the public at considerably reduced prices. This may be an acceptable state of affairs to the most ruggedly individualistic members of the public who are happy to have the responsibility to protect themselves. However, it is not acceptable to those who are more risk-averse, and prefer to pay more for less dangerous products. The manufacturers or entrepreneurs attempt to satisfy this unmet demand by offering less dangerous, but more expensive products to those willing to pay the premium for increased safety. Before long, products offering widely varying amounts of protection against injury at a variety of price points would be available. For example, even though federal and state governments inspect and regulate the nation’s food and water supplies, a significant proportion of consumers are willing to purchase an increased level of safety by buying bottled water and shopping at organic groceries, such as Whole Foods.
But in protecting consumer the cost of reasonable care tends to be high and escalates the prices. Manufacturers will have to incorporate some features designed to prevent injury into the design of their products, rendering them somewhat more expensive than they would otherwise be, (Stark, 1983). This may be an acceptable state of affairs for the members of the public who have a moderate tolerance for risk and are willing to pay a small premium for increased safety. However, it will not be acceptable to either the rugged individualists, who prefer more personal responsibility and cheaper products, or the intensely risk-averse, who prefer more protection and more expensive products. The competitive forces of the market will cause manufacturers or entrepreneurs to endeavor to satisfy the unmet demand of both groups. Before long, products offering widely varying amounts of protection against injury at a variety of price points would be available. So it would not be wrong to say that there are some consumers who agree with the notion of caveat emptor and are willing to accept less protection offered by manufacturers. They don’t want to benefit from the protection offered by caveat venditor. Looking at the benefits of both from point of view of consumers and manufacturers; the following figure is obtained:

For example, utilitarians who subscribe to an objective definition of the good that is not dependent on individual autonomy or preferences are not interested in safety perse, but in  
 
In caveat emptor producer’s interests are favored and that leads to profit maximization. On the other hand there is caveat venditor which favors the consumer and leads to consumer satisfaction. Keeping apart the proponents of caveat emptor i.e. risk cost avoiders. In case of proponents of caveat emptor a substantive ethical standard of safety is necessary precisely to prevent the distribution of product safety that would result from unrestrained bargaining in a market. Therefore, the ethically appropriate standard of product safety cannot be a mere default condition, but must require manufacturers to supply the appropriate amount of safety regardless of any agreement to accept less by the consumer. No one should be denied safe products because he or she cannot afford them when the costs of safety can be shifted to manufacturers who can more readily bear them. Out of the five dimensions of product safety 3 are subjective and there is no objective definition of product safety.
Satisfying customer was important but never as important as it has become in the nineties, with competitive pressures of largely competitive markets, Fielding, 1988. Previously ethical problems were less apparent as well, not so much because people did not care, but because society’s expectations were different and there was a simple rule for evaluating practices: caveat emptor, within the rule of law. The consumer was expected to employ the maxim “buyer be aware”. Today there is a widespread concern about ethics in public and private life extending too many areas including politics, education, health and business. Indeed the current period may be called the ‘ethics’ era. For manufacturers the standards of acceptable business practice have shifted along  a continuum, from a position where producers interest are paramount to a  position where in consumers interest are more favored.
Considering the utilitarian school of thought, they focus on ends and not on means. Their goal is to increase wealth and satisfaction; they would consider the products only and not the people for whom they are made; duty of care rests with the consumer in this case; consequentialists merely work for personal good, (Donna, 1985).
On the other hand non-consequentialist like Kant is of the view that: “one must always act so as to treat other people as ends in themselves” a concept of second reformulation. Manufacturer owes duty to manufacture goods that are of satisfactory quality, treating people as themselves. Kant rightly argued that there must be a humanistic dimension in to business decisions, unlike unilateralism and egoism that treats humans as mean. Manufacturer owes a duty to consumer and to the society as whole.
What, then, in a world of half-views and shifting lights, is the standard of due caution in placing hazardous bargains before the general public? A picture in Punch shows two small children emerging from a field to the highroad, each with a pail of berries. The kindly old gentleman, who always happens to be present on such occasions, says to them: "I would not eat that fruit, children. How do you know it is not poisonous?" "Oh," is the reply, "we are not going to eat it, and we are going to sell it." The standard of due caution is to sell only what you would be willing to eat. This has been well formulated in one of the codes. The vendor "should never advise a customer to buy an article which he would not buy himself if he were in his position." To which are added these words "never urge a customer to buy beyond his means. Take advantage of no man's ignorance.'
 
 
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