Sale of Goods Act- 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. Both the terms imply a promise that is made by the seller. However, the difference between Conditions and Warranties arises due to the nature of the promise that is made in each case. In the case of ‘Condition’ the impact is on the very essence of the contract; whereas, in the case of ‘Warranty’, the promise is in the nature of a collateral to the main purpose of the contract. It is thus evident that if there is a breach of either, a condition or a warranty, the effects will be different.

Illustration 1: Sita bought a wet grinder from an electric shop. The purpose for which the grinder was to be used was known to the seller. The grinder was unfit for the purpose. In this case there is a breach of an express condition by the electric shop and Sita is entitled to return the grinder and be refunded the money paid.

Illustration 2: Varuna bought a Sofa-cum-bed from a furniture shop. There was an implied warranty that the piece of furniture could be used both as a sofa and as a bed. However, when it was used as a bed, it broke. In this situation, there was an implied warranty and Varuna can claim compensation for the price paid for the Sofa cum Bed.

 Stipulations, which may be either a condition or a warranty, become a part of the contract of sale. It should be noted here that mere recommendation by the seller for the purchase of certain items to a prospective buyer, does not give any right of action to the buyer against the seller. This is because mere expression of opinion by the seller does not become a part of the contract.

Conditions and Warranties

Both Conditions and Warranties are important elements of every contract.

Conditions

The term “Condition” may be defined as a representation made by the seller, which is so important that, its non-fulfilment defeats the very purpose of the buyer. As a matter of fact, it is a stipulation, which forms the basis of a contract of sale, i.e., which is essential to the main purpose of the contract.

According to Section 12(2) - A Condition is a stipulation essential to the main purpose of the contract, the breach of which, gives rise to a right to treat the contract as repudiated.

This implies that a condition forms the essence of a contract of sale. Any breach will therefore result in damages to the buyer and will give him the right to bring an end to the contract of sale. The goods can be returned and the buyer has the right to get his money back.

Case Law 1: Baldry v. Marshall: Baldry consulted the car dealer, and told him that he wanted to purchase a car for the purpose of touring. The Car dealer, Mr. Marshall suggested that a Bugati car would be fit for the purpose. Baldry bought the car as he believed the car dealer. However, the car was found to be unsuitable for touring purposes. The Court ruled that the suitability of the car for the purpose of touring was a Condition because that was the very purpose for which Baldry has purchased it. Thus, Baldry could return the car to the dealer and receive the refund for the same.

Warranties

The term “Warranty” may be defined as a representation made by the seller. The non-fulfillment of a warranty does not defeat the very purpose of the buyer. In fact, it is a stipulation, which is not essential to the main purpose of the contract of sale, i.e., it is only subsidiary or collateral to the main purpose.

According to Section 12(3) – “A Warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not the right to reject the goods and to terminate the contract.”  Therefore, a Warranty does affect the contract in some way but it is not as important as Condition, which results in bringing the contract to an end. If there is a breach of warranty the buyer cannot end the contract but he does have the right to claim damages for the loss he suffered because of the breach.

Illustration: Malti goes to a cosmetic shop to buy an eyeliner. The shopkeeper states that the eyeliner was waterproof and would not get washed off, unless it was removed with cotton. However, later on when Malti used the eyeliner she found that it was not waterproof. Here a breach of warranty took place and Malti is entitled to claim damages only.

  Distinction between Conditions and Warranties 

Basis of Distinction	Conditions	Warranties
1. Essential vs. Collateral	It is a stipulation, which is very important for the purpose of the contract.	It is in the nature of a collateral only.
2. In the case of Breach/Condition/Warranty	The party can bring the contract to an end.	The party can only claim damages.
3. Basic difference	A breach of condition can also be considered as a breach of warranty.	A breach of warranty cannot be considered as a breach of condition.

Case Law 2: Wallis Sons and Wells v. Pratt: A sold some quantity of seeds to B which were described as ‘Common English Sanfoin’. One of the terms of the contract was that “the seller gives no warranty expressed or implied as to growth, description or any other matter”. Later on, it was found that the seeds delivered to B were not ‘Common English Sanfoin’ but ‘Gain Sanfoin’, which was different and of inferior quality. B accepted the goods believing it to be ‘Common English Sanfoin’. B resold the seeds to C, who recovered damages from B because of the inferior quality. As B has accepted the goods, his only remedy was to bring an action for damages against A.  He sued A for damages. The seller (A) contended that the condition was reduced to warranty as the buyer (B) had accepted the goods. And he is not liable because the liability for warranty is expressly excluded in the contract. The Court rejected the contention of the seller (A), and the buyer (B) was allowed to recover damages from him (A). The Court observed that the condition is converted into warranty only for the purpose of remedy.

Thus, where the Condition is changed to Warranty, the buyer can recover damages for the breach of a Condition, even if the liability for Warranty is expressly excluded in the contract. 

When a Condition can be treated as a Warranty

According to Section 13, “A breach of a Condition can also be considered as a breach of Warranty in the following cases:

• Where the buyer on his own waives a condition that is an essence of the contract. In such a situation, the buyer cannot insist on the conditions being a part of the contract of sale.
• Where the buyer chooses to treat the breach of condition as a breach of warranty only and thereby, only claims damages but does not end the contract.
• Where the buyer has already accepted the goods, whole or in part. In such a situation, the contract cannot be terminated. The buyer can only claim damages, when he finds that some conditions have remained unfulfilled.”

Types of Conditions and Implied Warranties

There are certain standards that need to be followed by every seller as part of his obligations. The law presumes that there are some implied conditions and warranties in every contract of sale. These pertain to the nature of the good, its quality and rightful ownership. There are both express conditions and warranties as well as implied conditions and warranties.

Express Conditions and Warranties

These are always clearly stated in the contract of sale.

Illustration :  Sonia buys a Nokia Cellphone , model No.1500. Here, the Model No. is an express condition. If the Nokia Dealer gives a warranty for one year and that is stated in the sale document then the Warranty for one year is considered as an Express Warranty.

Implied Conditions and Warranties: Such Conditions and Warranties are implied by law in every contract of sale of goods unless these are specifically excluded from the terms of the contract. There are several kinds of implied Conditions and implied Warranties.

Implied Conditions: These relate to the following:

• Title (Section 14 A),
• Sale by Description (Section 15),
• Sale by Sample (Section 17),
• Sale by Sample and Description (Section 15),
• Condition for fitness and quality [Section 16 (i)],
• Condition as to merchantability [Section 16(2)],
• Condition as to wholesomeness, and
• Condition implied by custom.

(i)       Implied Condition as to title (Section 14 A): “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.

Illustration 1: Mona bought a second hand Stereo from Shyam, a dealer. After a few months the police took the Stereo away as it was a stolen one. Mona has the right to recover the entire price of the Stereo from Shyam because Shyam did not have the right to sell the Stereo.

Illustration 2: Vivek buys a stolen watch from Suresh without knowing this fact. By the time Vivek realizes that the watch he bought was a stolen one, Suresh compensated the true owner of the watch for the theft and paid him the required amount to get the legal ownership of the watch. Now, Vivek cannot terminate the contract on the ground of breach of implied condition

Case Law 3: Rowland v. Divall: 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.

Case Law 4: Niblett v. Confectioners’ Material Co.: Niblett bought 3000 tins of condensed milk from Confectioners’ Material Co. Out of the entire lot, only 1000 tins were labeled as ‘Nissly Brand’. Naveen, another manufacturer of the milk under the brand name of ‘Nestle’, claimed that this was an infringement of his trademark. Consequently, Niblett had to remove all labels from the tins and was forced to sell them at a loss. The Court held that the seller had breached the implied condition that he had a right to sell.

 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.

When a descriptive word or phrase is used in a contract of sale to describe the product, it creates an implied condition that the goods will be like the description.  For 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.

Case Law 5:  Moore & Co. v. Landaver & Co.: A sold to B, 3000 tins of Australian fruits, which were agreed to be kept in cases each containing 30 tins. A delivered the substantial portion of the fruits in cases containing 24 tins. It was held that the method of packing was a part of the description. Therefore, B was entitled to reject all the goods.

Thus, if it is ascertained that the sale is by description, then the goods must correspond with the description. If they do not correspond, the buyer may reject them and the seller cannot take the defense by saying that they will serve the buyer’s purpose.

Case Law 6: Andrews Bros. V. Singer & Co.: Singer contracted to supply ‘new Singer Cars’ to Andrews. However, one of the cars supplied under the contract was not at all new and had already run a considerable mileage. The Court observed that it was a breach of condition on the part of the seller and Andrews could return the car to Singer.

Meaning of the term “sale by description”- It is interesting to note that the term “sale by description” has not been defined in the Sale of Goods Act, 1930. Some common sense conclusions can however, be drawn so as to understand what amounts to a description in a sale. Such a description may be expressly spoken or written in words. It can be found in the given documents or technical specifications supplied along with the product.  Goods described by a particular trade name as commonly used to denote certain characteristics must have those characteristics. For example, the term Darjeeling Tea implies that the tea must meet the standards of being from Darjeeling. At times, the description about packing of goods is also considered as a description essential to be adhered for sale.

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 reasonable examination of the samples.

Case Law 7: E & S Ruben Ltd. V. Fair Bros.: 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.

Case Law 8: Lorymer v. Smith: Two parcels of wheat were sold by sample. The buyer went to examine the bulk a week later. One parcel was shown to him but the seller refused to show the other parcel, which apparently was not there in the warehouse. In this case, the buyer was not given reasonable opportunity to test the bulk with the sample. The Court held that the buyer was entitled to reject the contract of sale

  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.

Case Law 9: Azemar v. Carella: Azemar agreed to sell Carella some cotton, which was described as ‘Long Staple Cotton’. The sample was also shown to Carella. Azemar delivered the cotton which was exactly as the quality of the sample. Later, Carella discovered that it was not ‘Long Staple Cotton’, but only ‘Western Madras Cotton’. The Court held that the buyer could reject the goods as they did not correspond with the description given by the seller although they did correspond with the sample.

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. 

Illustration: Sheela ordered paper for packaging of paintings. The paper was supplied accordingly. However, the buyer found that the paper was not strong enough for packing paintings and wanted to return the paper to the supplier. Can Sheela return the paper? Answer: Sheela cannot return the paper because she did not specify that she had required the paper for packaging of expensive paintings.

Although, the purpose of the use for which the goods are meant should be expressly stated by the buyer, there can be situations when it is implied that the seller was aware about the purpose for which the buyer bought the goods.

Illustration: Suman went to Ajanta Chemist, and asked for a hot water bottle from him. The Chemist gave a bottle to her telling that it was meant for hot water, but not boiling water. After a few days, while using that bottle, Suman got injured as the bottle burst. It was found that the bottle was not fit to be used as hot water bottle. The Court observed that the buyer’s purpose was clear when she asked for a hot water bottle. Thus the implied condition that the product should be fit for the purpose of the buyer was not met in this case.

When a buyer relies upon the skill and judgment of the seller there is an implied condition that the goods should be fit for that purpose.

Case Law 10: Dr. Baretto v. T.T. Pruce: Mr. Pruce bought a set of false teeth from Dr. Baretto, a dentist. But the set was not fit for Mr. Pruce’s mouth, so he rejected the set of teeth and claimed a refund of price. It was held that Mr. Pruce was entitled to do so as the only purpose for which he wanted the set of teeth was not fulfilled.

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.

The condition of merchantability is applicable in the following circumstances:

1. The goods are sold to the buyer by description.
2. The seller actually sells such goods.

Illustration:  Raman, the owner of a stationery shop sells a house to Reena. Here, no condition of Merchantability applies because Raman is not a property dealer. Reena should be aware that Raman could not be held liable, in case the property purchased by her is not a valid sale.

Case Law 11: Morelli v. Fitch & Gibbons: Morelli bought from a dealer, Fitch & Gibbons, a bottle of wine. While opening its cork in the normal manner, the bottle broke off and injured Mr. Morelli’s hands. Morelli was entitled to claim damages because the bottle was not of merchantable quality.

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.

 Important:-

1. The implied condition as to merchantable quality applies to all goods whether or not they are sold under a patent or a trade name.
2. The implied condition as to merchantable quality applies to goods, whether or not the buyer relies on the skill and judgement of the seller.

 Implied Condition as to wholesomeness: The condition of fitness of merchantability in case of goods requires that the goods should be wholesome, i.e., fit for the purpose of consumption. This condition is a part of the condition as to merchantability. It is applicable in cases of eatables, i.e., foodstuffs and other goods, which are used for human consumption. As per this condition, goods sold must be fit for human consumption.

Case Law 12: Frost v. Aylesbury Dairy Col Ltd.: Frost bought milk from Aylesbury, a dairy owner. The milk was contaminated with germs of typhoid fever. Frost’s wife on taking the milk became infected and died of it. The Dairy owner was held liable and had to pay damages as he had breached the condition of wholesomeness.

Implied Condition implied by Custom [Section 16(3)]: “An implied condition as to quality or fitness for a particular purpose may be attached by the usage of trade. In commercial exchanges, evidence of custom is attached in the case of incidences in written contracts in matters of which they are silent.”

Case Law 13: Grant v. Australian Knitting Mills: Grant bought underwear from the Knitting Mills. He examined them before the purchase. Later on, it turned out that the underwear were harmful for his skin because of the presence of hidden sulphites in the underwear. These could not have been revealed by ordinary examination. The Court held that the implied condition of merchantability is applicable in this case.

Implied Warranties [Section 14(b), 14(c), and 16(3)]: 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. However, the law presumes that the parties have included it into their contract. It can also be noted that an implied warranty is read into every contract of sale unless they are expressly excluded by the express agreement of the parties. These may also be excluded by the course of dealings between the parties or by usage of trade [Section 62]. It may be noted that sometimes there is 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 [Section 14(b)]: There is an implied warranty that the buyer shall have and enjoy, quiet possession of the goods.

The breach of this warranty gives buyer a right to claim damages from the seller.

Case Law 14: Mason v. Burmingham: 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.

Case Law 15: Rowland v. Divall: Rowland purchased a motor car from Divall. The car was a stolen property and Rowland had to restore it to the true owner. Rowland was held entitled to recover the whole of the price paid, despite the fact that he had used the car for some months.

 Warranty as to Non-Existence of Encumbrances [Section 14(c)]: 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.

Illustration : Ramesh borrowed Rs.5000 from Shankar and hypothecated his radio with Shankar as a 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 or Fitness for a Particular Purpose which may be Annexed by the Usage of Trade [Section 16(3)]: This relates to the quality or fitness for a particular purpose which may be attached by the usage of trade.

Illustration:  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 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.

Case Law 16: Clarke v. Army and Navy Cooperative Society Ltd: Clarke purchased a tin of disinfectant powder which required that it be opened with special care. Clarke’s wife while opening the tin was injured as the powder flew into her eyes. Held, the seller was liable for the injury sustained by Clarke’s wife because of breach of warranty.

 Change of a Condition into Warranty:  If there is breach of a Condition by a seller, the buyer can opt to reject and return the goods to the seller. In the case, there is a breach of Warranty by the seller, the buyer can claim damages. When a breach of condition is treated as breach of warranty, then the main implication is the availability of the kind remedies that the buyer can resort to.  In the following situations, breach of condition is treated as a breach of warranty:

a)       Option of the buyer:  This happens when the buyer instead of putting an end to the contract, accepts the goods in return for damages from the seller.

b)       When the circumstances are such that the goods sold cannot be returned: This takes please when the buyer has already accepted the goods. According to Section 42 of the Act, the buyer is deemed to have accepted the goods when he informs the seller of his acceptance, or the buyer continues to retain them for a long time without any such indication to the seller.