by Asok Nadhani
Conditions
& Warranties
2.1 Stipulation
Before formation
of contract of sale, the seller may make some statements by mere expression of
opinion or commendation which may or may not form part of 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 (s.12(1))
2.2 Condition
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 (s.12(2)), 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:
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.
Types of Conditions
Condition may be of
following types:
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.
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, 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 .
2.3 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-
2.3.1 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.
For more details, refer to Mercantile law, by Asok Nadhani,
BPB Publications,www.bpbonline.com, bpbpublications@gmail.com
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