Sales and Caveat Emptor

In the eighteenth century, most sales occurred in local markets in which title to specified goods passed from one hand to another. A small knot of merchants dominated the law of sales; buyer and seller "in a typical transaction" were "both . . . middlemen, who understood the business background and were familiar with documents and customs." ⁴⁹ The expanding commercial market economy of the nineteenth century changed these close relationships. No longer did one party necessarily know either the other party or the accepted market customs. In these circumstances, judges interpreted the law of sales to favor the seller.

The doctrine of caveat emptor demonstrates the impact of the theory of contract on the law of sales. Caveat emptor means buyer beware. The doctrine, which had its roots in the English common law, provided that in the absence of fraud or breach of an express or implied warranty, the buyer buys at his own risk, relying on his own estimate of the quality and suitability of goods. In colonial America, the sound-price doctrine undermined caveat emptor, and judges subscribed to the view that "a sound price warrants a sound commodity." Simply put, in colonial America, if one paid a reasonable price for a good that proved defective, it followed that caveat emptor would not apply.

The "will theory" of contract increased the importance of caveat emptor. The leading case was Seixas v. Woods ( 1804) decided by the New York Supreme Court. That court held that there could be no recovery against a merchant who unknowingly sold defective goods. The U.S. Supreme Court in Laidlaw v. Organ ( 1817) embraced the doctrine, in one of the first cases decided by the justices involving a contract for the future delivery of a commodity, in this instance tobacco. John Bannister Gibson of the Pennsylvania Supreme Court in 1839 summed up the reasoning behind caveat emptor and extended its scope. A buyer of a horse, despite a "defluxion from the [horse's] nose at the time of the bargain," accepted assurances from the seller that the animal was fit. The horse was not, and the buyer sued to recover the price. Gibson, however, overturned the jury's decision, declaring that "he who is so simple as to contract without a specification of the terms, is not a fit subject of judicial guardianship." Any other rule, Gibson concluded, "would put a stop to commerce itself in driving everyone out of it by the terror of endless litigation."⁵⁰

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Caveat emptor imposed a stem regime of contract law in an expanding capitalist economy. Its ascension was incomplete, however. The sound-price doctrine continued to flourish in South Carolina and Louisiana thanks to the civil law tradition. Moreover, Guilian Verplanck, in An Essay on the Doctrine of Contracts ( 1825), posed moral objections, arguing that individuals too often entered into bargains with unequal knowledge. He urged that an ethical sense should inform what were becoming decisions left to private agreement and market forces. Skill, shrewdness, and experience were all acceptable talents in the competitive new market economy, but special knowledge that permitted fraud was not.

Judges adapted the law of sales to an expanding economy and provided through caveat emptor an indirect subsidy to its operation. Any particular buyer or seller was in all likelihood a middleman as well, a link in the chain of distribution from original producer to the ultimate consumer. Caveat emptor allowed an end to the transaction rather than permitting endless suits to decide who knew what when. Persons were left free to make their own agreements, and that was what the nineteenth-century law of contract was all about.

Date: 2015-01-29; view: 966