Conditions & Warranties
2.1 Stipulation
Before formation of
contract of sale, the seller makes various statements regarding the nature,
quality, price, delivery and fitness of the goods to induce the intending buyer
for purchasing the articles dealt in by the seller. The seller can make the
statements by mere expression of opinion or commendation which may or may not
form part of the contract. If the statements become part of the contract of
sale and intending purchasers rely upon those representations, they become
relevant having legal effect on the contract. On the other hand, if they do not
become part of the contract, they are not relevant having any legal effect on
the contract. If a representation forming part of the contract affects the
contract, then it is called as ‘Stipulation’. A mere commendation by seller of
his goods does not amount to a stipulation and gives no legal right of action
to the buyer against the seller. The stipulation may be either conditions or
warranties depending upon its importance according to the nature of contract.
According to sec. 12(1), “A stipulation or a representation in a contract of
sale with reference to goods which are the subject thereof may be a condition
or a warranty”.
2.2 Condition
Conditions are the basis of
the contract and are so essential to its very nature that their non-fulfilment
may be considered as a substantial failure to perform the contract at all by
the other party. According to sec. 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”. If the goods fail to fulfill
the main purpose of the contract, it will be treated as breach of contract and
the buyer can reject goods and treat the contract as discharged. The buyer can
also sue the seller for damages or compensation on breach of condition. But, no
remedy can be availed on breach of condition by the buyer if fulfillment of
condition is excused by law by reason of impossibility.
Example:
Mira approaches Akash, a
dealer in readymade garments, and asked him for some good cloths for
forthcoming party which she has to attend. Akash shows her a party wear and
said “You will be looking charming on this wear in the party”. Mira purchased
it but nobody in the party appreciated her dress. Mira cannot charge a legal
action against Akash as the representation made by him is merely an expression
of opinion and does not amount to stipulation.
Example:
P approaches Q, a dealer of
car, and told him “I want a car which can give an average of 17 km. per Iitre.
Q pointed one particular car which can suit his purpose. P believing the
statements made by Q, purchased that car but afterwards it was found that the
car average was only 10 km. per litre. It can be treated as a breach of condition
and P can rescind the sale as here the main condition of sale was that average
of car should be 17 km. per Iitre.
2.2.1 Types of Conditions
Condition may be of
following types:
2.2.1.1 Express Condition
An express condition means
a condition in the contract of sale which is expressly agreed to by the buyer
and seller at the time of formation of contract of sale and mutually agreed to
between them. The parties can freely determine the number of conditions in the
way they like.
2.2.1.2 Implied Condition
The implied conditions means
the conditions which are provided by law and presumed to be present in every
contract of sale and are not expressly recorded by the parties in the contract
of sale. Since these conditions are only implied, the parties to a contract can
exclude the operation of certain conditions to their contract of sale. Thus, an
express exclusion of implied condition is valid. Such conditions may also be
excluded by the course of dealings between the parties or by usage of trade (Sec.
62). However, such conditions can bind both the parties if they are not
excluded by the express agreement of the parties.
2.2.1.2.1 Types of Implied Condition
Every contract is made
subject to certain conditions which are called as Implied Conditions, non-fulfillment
of which may result to the termination of contract which will entitle the buyer
to refund the price. The following are the different types of implied
conditions-
2.2.1.2.1.1 Condition as to Title [Sec. 14(a)]
Condition as to title means
that the seller has the right to sell the goods for which he has made the
contract of sale. ‘Right to sell’ means the right to pass the ownership of
goods in the form as expressed in the contract of sale.
In a contract of sale, if there is no different
intention as is expressed in the contract, there is an implied condition on the
part of seller that-
(a)
in case of sale, he has a right to sell the goods, and
(b)
in case of an agreement to sell, he will have a right to sell the goods
at the time when the property is to pass.
If the delivered goods can
be sold only by infringement of trademark, the condition that the seller has a
right to sell the goods will be broken by him.
When a seller having no
title to the goods at the time of sale but subsequently acquires it, then the
title will deemed to be defective to both the original buyer and the subsequent
buyer.
Example:
K represented to L some
goods of ‘Samsang’ brand during sale of those goods. Afterwards, it was found
that ‘Samsang’ brand was an infringement of ‘Samsung’ brand. Therefore, L was
legally bound to remove the labels of ‘Samsang’ brand pasted on goods bought by
him. Consequently, the goods became unbranded which adversely affect the right
of buyer to sell these goods. Held, it will be treated as a breach of condition
as to title, even though K was competent enough to pass the ownership to L.
2.2.1.2.1.2 Condition as to Description (Sec. 15)
Condition as to description
means that the goods delivered to the buyer must actually correspond with the
description of goods given by the seller. If a false description of goods is given
by the seller to buyer before the formation of contract of sale, it will be
considered as a breach of condition as to description.
The condition as to
description shall apply only if-
(a)
the seller gives a description of goods proposed to be sold to the
buyer;
(b)
the seller agrees to supply the goods to the buyer that will correspond
to the description given by him; and
(c)
the buyer buys the goods relying on the description given to him.
‘Sale
(a)
when the buyer has seen the goods and relies the description given by
seller,
(b)
when the buyer has seen the goods but relies on the statement delivered
by seller and the deviation of the goods from description is not apparent,
(c)
sometimes, packing of goods can form a part of description.
2.2.1.2.1.3 Condition as to Sample (Sec. 17)
Condition as to sample
means that where the seller shows to the buyer a sample of goods and agrees
that the goods supplied by him shall be same as the sample shown, this
representation of seller must be true. Later on, if it is found that goods
supplied are different from the sample, it will be considered as breach of
condition as to sample.
Where the goods are sold by
sample, the following conditions have to be fulfilled-
(a) The seller shows a sample
of goods proposed to be sold to the buyer.
(b) The buyer buys the goods
relying on the sample shown to him.
(c) That the goods supplied by
the seller shall correspond with the sample shown by the seller.
(d) That the seller shall give
reasonable opportunity to the buyer for inspection of goods to satisfy himself
that the goods supplied correspond with the sample shown to him.
(e) The goods shall be free
from any latent defect i.e., a defect that cannot be discovered even after
making a reasonable inspection of the goods. The seller is not responsible for
any patent defects (i.e; the defects visible or discoverable by examination of
the goods).
If any of the above
requirements are not fulfilled, it would amount to a breach of condition as to
sample.
2.2.1.2.1.4 Condition as to Sample and Description
Condition as to sample as
well as description means that the goods shall correspond to the description as
well as sample i.e., both the ‘condition as to description’ and ‘condition as
to sample’ must be fulfilled.
The condition as to sample
as well as description shall apply only if-
(a) the seller shows a sample
of goods and gives a description of goods proposed to be sold to the buyer;
(b) the seller agrees to supply
the goods to the buyer that will correspond to the sample as well as
description given by him; and
(c) the buyer buys the goods
relying on the sample shown to him, and description given to him.
2.2.1.2.1.5 Condition as to Quality or Fitness [Sec. 16(1)]
Generally, there is no
implied condition as to quality or fitness of the goods for a particular
purpose in a contract of sale. It is the duty of the buyer to buy such goods
that will be suitable to his needs and assure himself that goods are of the
right quality and are free from defects. If after purchasing the goods the
buyer realizes that the goods do not satisfy the purpose for which he intended
to buy the goods, he himself will be responsible, and the seller cannot be held
accountable to it. The seller is also not bound to disclose any faults in the
goods to the buyer.
Exception: There is a condition as to quality of goods or that the goods shall be
fit for the purpose of the buyer, if all the following requirements are
fulfilled:
(a) The buyer, expressly or by
implication, makes known to the seller the particular purpose for which he
requires the goods. In this case, the goods can be used for a number of
purposes. So, if the buyer does not mention the purpose, the seller cannot be
hold liable if the goods do not suit the particular purpose for which he buys
the goods.
(b) The seller exercises his
judgement and skill and suggests the goods which will suit the buyer’s purpose.
(c) If the buyer purchasing an
article for a particular use is suffering from an abnormality which is not
known to the seller at the time of sale, implied condition of fitness does not
apply.
(d) If the buyer purchases
goods under a trade name (i.e., brand name), the implied condition that
articles are fit for a particular purpose shall not apply if the circumstances
show that the buyer relied on the brand name rather than relying on the
seller’s skill and judgement and makes known to the seller that he so relies on
him.
(e) The seller trades in the
kind of goods which are subject matter of contract of sale. In this case, the
seller may or may not be the manufacturer of such goods.
2.2.1.2.1.6 Condition as to Merchantability [Sec. 16(2)]
Condition
as to merchantability means that the goods shall serve the purpose which is
expected of them as per the name given to them. If goods are of such a quality
and in such a condition that a reasonable person acting reasonably would accept
them after having examined them thoroughly, they are of merchantable quality.
For example, where a watch dealer sells a thing describing it to be a watch,
there is an implied condition that such thing shall tell only the correct time.
So, a watch that will not keep time, a pen that will not write, a tobacco that
will not smoke cannot be regarded as merchantable.
If the goods are purchased
for the purpose of resale, the condition as to merchantability is fulfilled
only if such goods can be used for such purpose and can be resold under the
same name.
Applicability of the Condition
This condition shall apply
only if the following two requirements are satisfied:
(a) The seller sells the goods
by description.
(b) The seller trades in the
kind of goods which are subject matter of contract of sale. It is immaterial,
whether the seller is the manufacturer of such goods or not.
Non-applicability of the Condition
The condition as to
merchantability shall not apply in the following cases:
(a) If the buyer purchases the
goods after inspecting them where defect associated with those goods may be
revealed.
(b) Where the goods are fit for
use of a normal human being, even though the goods did not prove to be usable
to a particular buyer due to some peculiar reason associated with such
particular buyer.
Example:
M agrees to sell his Maruti
esteem car to N for Rs.2,50,000. At the time of taking delivery, N finds that
the car is without engine. In this case, the condition as to merchantability is
not fulfilled since a car without an engine cannot be described as a car.
2.2.1.2.1.7 Condition as to Wholesomeness
As per this condition,
where a seller sells the goods which are meant for human consumption, such
goods shall be fit for human consumption and will not adversely affect the
health of a normal human being i.e; the goods shall be wholesome. It is an
extension of the condition as to merchantability.
This condition applies only
in case of such goods as are meant for human consumption, i.e., foodstuffs,
provisions.
2.2.1.2.1.8 Condition implied by Customs [sec. 16(3)]
If there is a custom or
usage imposing any condition in a contract of sale, the seller must fulfil the
requirements of such a condition. If some goods are being purchased from a
manufacturer, it is an implied condition that the goods shall be the same as
are being manufactured by him.
Examples:
Rama asked for a hot water
bottle to Kabir, a retail chemist. He was supplied one which burst after a few
days use and injured his wife. Held, Kabir was liable for breach of implied
condition as Rama had sufficiently made known the use for which he required the
bottle.
2.2.1.2.2 Distinction between Sale Sale
The distinction between ‘Sale Sale
Basis of Distinction
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1.
Applicability
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The
condition as to sale by description shall apply only if the seller gives a
description of goods to the buyer and agrees to supply the goods to the buyer
that will correspond to the description given; and consequently, the buyer
buys the goods relying on the description given to him.
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The
condition as to sale by sample shall apply only if the seller shows a sample
of goods to the buyer and agrees to supply the goods to the buyer that will
correspond to the sample shown and consequently, the buyer buys the goods
relying on the sample shown to him.
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2.
Examination
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Even
if the buyer has not examined the goods or its sample, the goods may be sold
by description.
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The
goods cannot be sold by sample, unless the buyer has examined the sample of
goods.
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3.
Quality of Goods
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The
goods must correspond to the description.
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The
goods must correspond to the sample.
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4.
Latent Defects
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In
a sale by description, the seller shall not be liable for any latent defects.
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In
a sale by sample, the seller shall be liable for the latent defects.
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2.3 Warranty
Warranty is a stipulation
collateral to the main purpose of the contract and is not a vital factor in the
sale of the goods. If such a representation is found to be false, the buyer
cannot repudiate the contract, but he shall have a right to claim damages for
non-fulfilment of the warranty. According to sec. 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 to a right to reject the goods and
treat the contract as repudiated. But, no remedy can be availed on breach of
warranty if the fulfillment of warranty becomes impossible by law.
Examples:
A, a customer, went to B,
horse dealer, to buy a healthy horse. B pointed at a particular horse and said
it to be healthy which can also run at a speed of 20k.m. per hour. A bought
that particular horse and subsequently found that the horse is healthy, but it
could run only at a speed of 12 k.m. per hour. A wanted to reject the horse and
to have the refund of the price. In this case, the representation made by B, is
a warranty because it is only collateral to the main purpose. Thus, A cannot
reject the horse on the ground of misrepresentation of fact.
2.3.1 Types of Warranties
Warranty may be of
following types:
2.3.1.1 Express Warranty
An express warranty means a
warranty which is expressly agreed to by the buyer and seller at the time of
formation of contract of sale and mutually agreed to between the parties. The
parties can freely specify any number of warranties as they like.
2.3.1.2 Implied Warranty
An implied warranty means a
warranty that is not expressly agreed to by the parties in the contract of sale
but is presumed by law to be present in every contract of sale. Since these
warranties are only implied, the parties to a contract can exclude the
operation of certain warranties from their contract of sale. Thus, an express
exclusion of implied warranty is valid.
2.3.1.2.1 Types of Implied Warranties
Warranties which are
presumed to have been incorporated in the contract by the law subject to the
contrary are called as Implied Warranties. If any of these warranties is not
fulfilled, the buyer can sue the seller for recovery of damages for breach of
such warranty. The following are the implied warranties in a contract of sale:
2.3.1.2.1.1 Warranty as to quiet possession
According to sec. 14(b),
there is an implied warranty that the buyer shall have quiet possession of
goods and the seller or any third person claiming under a superior title or
under his authority shall not interfere with the quiet enjoyment of the buyers.
If buyer’s possession is disturbed, he is entitled to hold the seller liable
for breach of warranty. The object of this warranty is to protect the buyer
against a wrongful disturbance of his possession by a third party.
2.3.1.2.1.2 Warranty as to freedom from encumbrance
According to sec. 14(c),
there is an implied warranty that the goods shall be free from any charge in
favour of any third party not declared or known to the buyer before or at the
time of entering into the contract. If the goods are found to be charged in
favour of a third party, the seller is liable to the buyer to pay damages due
to breach of warranty. However, if the buyer knows of any encumbrance on the
goods at the time of entering into a contract, he becomes bound by the same and
cannot claim any compensation from the seller for breach of warranty.
2.3.1.2.1.3 Warranty of disclosing dangerous nature of goods
In the case of a sale of
goods which to the knowledge of the seller, are dangerous or likely to be
dangerous and the buyer is ignorant of the same, there is an implied warranty
that the seller shall warn the buyer of the probable danger during selling the
goods. If he does not do that and the buyer suffers any injury consequent upon
the seller’s failure, the buyer can recover damages from the seller.
Example:
S sold a tin of
disinfectant powder to P. He knew that it was likely to be dangerous if it was
opened without special care being taken, but he did not warn P and sold it to
him. P without knowledge of danger, opened the tin whereupon the disinfectant
powder flew into her eyes and injured him. Held, S was liable in damages to P,
as he should have warned P of the probable danger.
2.3.1.2.1.4 Warranties implied by customs or usage of trade
An implied warranty or
condition as to quality of fitness for a particular purpose may be annexed by
the usage of trade.
2.3.1.2.1.5 Warranties implied as to purity of goods
There is an implied
warranty in a contract of sale that the trade mark, if any, on goods, is
genuine under Indian Merchandise Mark Act, 1819 and goods are pure or genuine.
2.4 Exclusion of Implied Conditions and Warranties
According to sec. 62 “where
any rights, duty or liability would arise under a contract of sale by
implication of law, it may be negated or varied by express agreement or by
course of dealing between the parties or by usage if the usage is such as to
bind both the parties to the contract”. Accordingly liability for implied terms
can be excluded by these methods.
(a) By express contract: The implied conditions and warranties can be
negated or varied by an express agreement by both the parties.
(b) By usage of trade: Implied conditions can be excluded by prevalent trade usage also. If the
established usages provides for exclusion of the liability, the parties are not
liable for breach of implied terms in a contract of sale.
(c) By course of dealing: The parties may vary rights, obligations implied
by the course of dealing between them.
2.5 Distinction between Condition and Warranty
Basis of distinction
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Condition
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Warranty
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1.
Definition
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A
condition is a stipulation essential to the main purpose of the contract
[sec. 12(2)].
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A
warranty is a stipulation collateral (i.e., subsidiary) to the main purpose
of the contract [sec. 12(3)].
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2.
Consequences of breach
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In
case of breach of a condition, the buyer can repudiate the contract and claim
damages or both.
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In
case of breach of a warranty, the buyer has no right to repudiate the
contract but can claim damages only.
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3.
Treatment
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A
breach of a condition may be treated as a breach of warranty.
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A
breach of warranty cannot be treated as a breach of condition.
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2.6 Circumstances, Breach of Condition treated as a Breach of Warranty
On breach of condition,
buyer can claim for refund of money, but as per sec. 13(1), the buyer may opt to
treat the breach of condition as a breach of warranty. In such case, he looses
the right to repudiate the contract but can make a claim for damages only as
explained below:
(a) Voluntary waiver of Condition: According to sec. 13(1), where a contract of sale
is subject to any condition to be fulfilled by the seller, the buyer may waive
voluntarily the condition or elect to treat the breach of the condition as a
breach of warranty and not as ground for treating the contract as repudiated.
Consequently, buyer can only claim damages for loss suffered and cannot
afterwards rescind the contract on the ground of breach of condition.
Example:
A purchased 20 kg. of Deshi
Ghee from B for Rs.3,600. Later on, A noticed that the Ghee was not Deshi but
he remained silent and did not return the same. A’s silence has rendered this
breach of condition as breach of warranty and he can claim only damages from B
instead of full price of Deshi Ghee.
(b) Acceptance of the Goods by the Buyer: According to sec. 13(2), where a contract of
sale is not several and the buyer has accepted the goods or part thereof, or
where the contract is for specific goods, the property in which has passed to
the buyer, the breach of any condition to be fulfilled by the seller can only
be treated as a breach of warranty and not as a ground for rejecting the goods
and treating the contract as repudiated, unless there is an expressed or
implied term of the contract.
According to sec. 42, the
buyer is deemed to have accepted the goods in any of the following cases:
i. When he intimates the
seller that he has accepted the goods.
ii. Where he has taken delivery
of the goods and has done anything akin to ownership of the seller.
iii. Where he retains the goods
after the lapse of a reasonable time without intimating the seller that he has
rejected the goods.
(c) By Impossibility: According to sec. 13(3), if the fulfillment of any condition or warranty
is excused by law by reasons of impossibility or otherwise, it shall be treated
as breach of warranty rather than a condition.
2.7 Doctrine of Caveat Emptor
The term caveat emptor is
derived from Latin word which means ‘buyer be aware’. In a contract of sale of
goods, the buyer is expected to take utmost care and diligence while purchasing
the goods and if his selection turns out to be wrong or do not serve the
intended purpose he cannot held the seller liable or blame anybody excepting
himself. The seller is not duty bound to give to the buyer goods which are
suitable for a particular purpose of the buyer. The principle embodied in sec.
16 is that subject to provisions of Sale of Goods Act and any other law, there
is no implied condition or warranty as to quality or fitness of goods for any
particular purpose.
2.7.1 Exceptions to the Doctrine of Caveat Emptor
There are certain exceptions
to the rule, where Doctrine of Caveat Emptor is not applicable, as follows:
2.7.1.1 Implied conditions as to Quality or Fitness
According to sec. 16(1), if
the buyer makes known the particular purpose for which the goods are required
and he relies upon the skill and judgement of the seller and the goods are of
the description which the seller is in the course of supply, it is implied that
the goods shall be reasonably fit for such purpose. When the goods can be used
for one purpose only, the buyer need not make known the purpose of the goods to
the seller and the seller is duty bound to supply the goods fit for that
particular purpose, but, if the goods can be used for multiple purposes, the
buyer have to make known the purpose of the goods to the seller. Similarly,
when the buyer is purchasing the goods under its patent or other trade name,
there is no implied condition as to its fitness for any particular purpose.
2.7.1.2 Implied condition as to Merchantability
Under sec. 16(2), where goods
are bought by description from a seller in goods of that description, there is
an implied condition that the goods shall be of merchantable quality. So, if
the goods are purchased for resale, they must be capable of passing in the
market under the brand named or description by which they are sold. But, if
they are purchased for self use, they must be reasonable fit for intended
purpose only.
2.7.1.3 Condition as to Wholesomeness
This condition is
applicable in case of eatables and other goods used for home consumption. In
such a case, there is an implied condition that the goods shall be fit for
human consumption and will not adversely affect the health of a normal human
being.
2.7.1.4 Consent by Fraud
Where the consent of the
buyer is obtained by fraud by the seller or where the seller knowingly conceals
a latent defect (that could not be discovered on a reasonable examination), the
doctrine of caveat emptor does not apply. Such a contract is voidable at the
option of the buyer.
2.7.1.5 Condition as to Description
Where the goods are sold by
description there is an implied condition that the goods shall correspond with
the description.
2.7.1.6 Condition as Sample
This rule will not apply if
the goods are not supplied according to the sample.
2.7.1.7 Sale by Sample as well as per Description
When the goods are bought
by sample as well by description, the rule of Caveat Emptor will not apply.
2.7.1.8 Misrepresentation by Seller
Where the seller sells the
goods by making misrepresentation and the buyer relies on it then the buyer can
avoid the contract and claim damages.
