What Is Caveat Emptor?
Caveat Emptor Definition
Caveat Emptor, Latin for “let the buyer beware,” is a principle of contract law that passes responsibility for discovering defects from the seller to the buyer.
In effect, the seller does not have responsibility to provide information or make promises on the quality of an item being sold.
For example, if you buy a lawn mower at a yard sale, the seller is not required to guarantee that it will work as promised.
The buyer should conduct due diligence of the product before purchase.
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Caveat Emptor Origin
The origins of the caveat emptor principle in law lie in a 1603 case, known as Chandelor v Lopus, in England.
A man bought a £100 bezoar stone that was supposed to have healing properties.
He realized later that the stone did not work as it was supposed to and sued the seller, asking for his money back.
The courts ruled that “the bare affirmation that it was a bezoar stone, without warranting it to be so, is no cause of action.”
In other words, the seller did not make warranties that the product was a bezoar stone.
Caveat Emptor Laws
However, modern legal systems and market economies have provisions in place to ensure that buyer interests are protected during a purchase.
Sellers often offer voluntary warranties to entice customers and distinguish their product from competition.
Certain items are required by law to have disclosures and those that impose strict liability cannot have obligations waived through a declaration of caveat emptor.
- Consumer lenders, mortgage brokers, car dealerships and financial institutions are required by law to make certain disclosures or offer some form of warranty on their offerings. For example, mortgage lenders must follow strict guidelines in disclosing the risks and fees associated with their products. Similarly, car dealerships are subject to “lemon laws” that require them to accept vehicles back in a certain timeframe.
- Under strict liability, some activities are considered so dangerous that the actors involved will still be liable to an injured third party. For example, a fireworks company is liable in almost every jurisdiction for injuries caused by a show malfunction.
The counterpart to Caveat Emptor is Caveat Venditor, which translates to “Let the Seller Beware.”
In this principle, the seller is held responsible for all product defects or malfunctions unless they expressly disclaim responsibility for it.
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About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.