Conditions and Warranties | Business Law

Conditions and Warranties

The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime significance in a contract of sale.

A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty.

– Sec. 12, The Sale of Goods Act, 1930

A stipulation is a prerequisite or a provision or qualification that is attached to a contract.

A stipulation may be condition or warranty depends upon its importance in relation to a contract.

• A stipulation which is essential to the main purpose of a contract is known as a condition.
• A stipulation which is collateral to the main purpose of the contract is a warranty.

The conditions and warranties may be express or implied.

• Express conditions and warranties are those, which the parties agree expressly, i.e. orally or in writing.
  
  
• Implied conditions are those, which are implied by the law in the absence of any agreement to the contrary.

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Implied Conditions

Following are the implied conditions which are contained in the Sales of Goods Act:

1. Implied condition as to title (Sec. 14 A)
2. Implied condition in a sale by description (Sec. 15)
3. Implied condition in sale by sample (Sec. 17)
4. Implied condition in a sale by sample as well as by description (Sec. 15)
5. Implied condition as to fitness or quality (Sec. 16)
6. Implied Condition as to merchantability (Sec. 16)
7. Implied condition as to wholesomeness

Implied condition as to title

“In the case of sale, it is implied that the seller has the right to sell the goods as he is the rightful owner/authorized agent. In the case of an agreement to sell, the seller has the right to sell the goods at the time of sale.”

This term ensures that the buyer can terminate the contract if the seller does not have the rightful ownership or authority to sell the goods.

Case law: Rowland bought a second hand car from Divall, a car dealer. After a few months, the police took the car away as it was a stolen one. The Court observed that it was a breach of condition as to title as Divall had no right to sell the car. It was held that Rowland could recover full price of the car from Divall. (Rowland v. Divall)

Implied condition in a sale by description

Where there is a contract of sale of goods by description, there is an implied condition that the goods shall correspond with the description.

Example: a sale of ‘seedless pears’ signifies that the fruit will have no seeds. If it turns out to be a fruit with seeds, the buyer reserves the right to reject the contract. If later on, the buyer finds that the goods are not as per description, he may reject the goods and claim a refund of the price.

Implied condition in sale by sample

Where a sample of the ordered product is provided to the buyer, and the parties treat the sample as of a standard quality for the sale, there is a condition that the goods will conform to the sample. Such sale is termed as a ‘sale by sample’.

In the case of a contract for sale by sample, there is an implied condition:

• that the major part of the product shall correspond with the sample in quality;
• that the buyer shall have the opportunity of comparing the major part of the product with the sample;
• that the goods shall be free from any defect, making them unmerchantable, which would not be apparent from a reasonable examination of the samples.

Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber was shown to Ruben. On receiving the material, Ruben found that the measurement of the rubber material was different from that of the sample. The Court observed that the measurement of the rubber was part of its quality. It was held that the goods did not correspond to the sample. (Ruben Ltd. V. Fair Bros.)

Implied condition in a sale by sample as well as by description

When the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample only and not with the description. Thus, the bulk of goods should correspond with both, the sample as well as the description.

Implied condition as to fitness or quality

Usually, there is no implied condition that the goods supplied by the seller should be fit for the particular purpose of the buyer. The rule ‘Caveat emptor’ applies instead.

This means that while purchasing the goods, it is the responsibility of the buyer to check whether the goods he is buying are fit for his purpose. However, in the following situations, the responsibility as to fitness of goods is on the seller:

• the buyer makes known to the seller the particular purpose for which the goods are required
• the buyer relies on the expertise and judgment of the seller, and
• the seller’s business is to deliver and supply such goods whether he is the manufacturer or producer or not.

It is important that the specific purpose for which the goods can or are to be used should be made known to the seller.

Implied Condition as to merchantability

Where goods are bought by description from a seller who deals in goods of that description (he may or may not be the manufacturer or producer), there is an implied condition that the goods shall be of merchantable quality.

Merchantability means that there is no defect in the goods, which renders them unfit for sale. Thus, a watch that will not keep time and a pen that will not write cannot be regarded as merchantable.

If a buyer examines the goods before purchasing them, and the defects are evident, then the condition of merchantability does not apply to the extent of such defects.

However, if some defects are noticed later as they were not evident but latent, then the condition of merchantability would apply, even if the buyer had inspected the goods properly.

Example: A radio set was sold to a layman. The set was defective. It did not work in spite of repairs, Held, the buyer could return the set and claim refund.

Implied condition as to wholesomeness

In the case of eatable and food stuff, there is an implied condition that the goods shall be wholesomeness, i.e., free from any defect which renders them unfit for human consumption.

Example: A Purchased milk from B, a milk dealer. The milk contained typhoid germs. A’s wife on taking the milk got infected and died. Held, A was entitled to get damages – Frost vs Aylesbury Dairy Co. Ltd.

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Implied Warranties

Whenever a product is sold, it is assumed that there are certain Warranties that are given by the seller. It is a warranty which the law implies into the contract of sale. It can be stated that it is the stipulation, which has not been included in the contract of sale in express words.

It may be noted that sometimes there is a conflict between the express and the implied warranties. In such cases, the express terms shall prevail and the implied terms shall not be considered.

• Warranty as to quiet possession [Sec. 14(b)]
• Warranty as to the non-existence of encumbrances [Sec 14 (c)]
• Warranty as to quality and fitness by usage of Trade [Sec 16(3)]
• Warranty to disclose dangerous nature of goods

Warranty as to quiet possession

There is an implied warranty that the buyer shall have and enjoy, quiet possession of the goods. The breach of this warranty gives the buyer a right to claim damages from the seller.

Case law: Burmingham sold a second-hand radio to Mason, who spent Rs.100 on the repairs of this radio. This radio was seized by the police as it was a stolen one. Mason filed a suit against Burmingham including the cost of repairs. It was held that Mason was entitled to recover the same. (Mason v. Burmingham)

Warranty as to non-existence of encumbrances

There is an implied warranty that the goods are free from any charge or encumbrance in favour of any third person if the buyer is not aware of such charge or encumbrance. The breach of this warranty gives the buyer a right to claim damages from the seller.

Example: Ramesh borrowed Rs.5000 from Shankar and hypothecated his radio with Shankar as security. Later on, Ramesh sold his radio to Subodh who bought the same in good faith. Here, Subodh can claim damages from Ramesh because his possession is disturbed since the radio had been kept with Shankar.

Warranty as to quality and fitness by usage of Trade

This relates to the quality or fitness for a particular purpose which may be attached by the usage of trade.

Example: Mohan buys 100 shares through a share broker. Later he requests for those shares to be registered in his name. However, the shares are received by him without registration and are marked as ‘bad delivery’. Mohan can claim the damages from the broker because in accordance with the trade usage, it is the responsibility of the broker to ensure that there is no loss caused as a result of ‘bad deliveries’ of the shares purchased through him.

Warranty to disclose dangerous nature of goods

In the case of goods of dangerous nature, the seller must disclose or warn the buyer of the probable danger. If the seller fails to do so, the buyer may make him liable for breach of implied warranty.

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Difference Between Conditions and Warranties

DISTINCTION	CONDITION	WARRANTY
Stipulation	Essential to the main purpose of the contract, e.g., hotel room will be booked only if payment reaches in advance.	Collateral to the main purpose of contract, e.g., The goods will be replaced only if there is a technical fault within six months.
Breach	Breach gives right to repudiate the contract and also to claim damages, e.g., if the promised goods have not been delivered as per contract, one has the right to rescind the contract and claim loss.	Breach gives right to damages only, e.g., the failure to replace goods results in paying only the damages.
Treatment (Sec. 13)	Breach of condition may be treated as breach of warranty.	Breach of warranty is not breach of condition.
Express (similar in both)	Conditions which have been well-announced, articulated, or written into a contract.	As directly communicated in the contract.
Implied (Sec. 14–17)	1. Condition as to title: a) In case of sale: seller has the full right to sell;	Quiet possession: a characteristic of title; the buyer has the enjoyment of the goods.
	b) In case of agreement to sell has the right to sell when the property has to be transferred.
	2. Sale by description: the goods shall correspond with the description, e.g., quality and quantity of goods.	2. Freedom from encumbrances: the buyer has the complete freedom over it and no third party is involved, e.g., when one and the same house is sold to two people, there is an encumbrance.
	3. Condition as quality and fitness: although caveat emptor applies, the seller must ensure reasonably good quality.	3. Quality or fitness of usage of trade: the goods bought are of reasonable quality and fit for the purpose for which they have been bought.
	4. Condition as to merchantability: the goods must be free from any latent or hidden defects.	4. Disclose dangerous nature of goods: the seller shall declare if the goods sold by him are capable of causing harm, e.g., when pesticides are sold the buyer must clearly be told of its poisonous nature.
	5. Condition implied by custom: goods have their particular purpose which is implied without expressly saying while buying, e.g., a car is bought for commuting.
	6. Condition implied by sample: there is typical expected nature of product—bulk corresponds to individual specimen, buyer is able to satisfy himself with the specific product and that it is free from defects.
	7. Condition as to wholesomeness: the goods be speak of their integrity as whole and complete and not partial and unfit.

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Business Law Notes

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Business Law Book References

1. Goel, P. K. (2006). “Business Law for Managers” Wiley
2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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