The Sale Of Goods Acts,1930 (Conditions & Warranties)

CPT Section B Mercantile Law Unit 2

Dr. Anju Gupta

Learning Objectives

Meaning and types of conditions and warranties

Doctrine of Caveat Emptor and its Exception

Distinguish between Conditions and Warranties

2

Meaning of Stipulation

• A stipulation in a contract of sales of goods may be a

condition or warranty [Section 12(1)]

• (A) Meaning of Condition :-

• A condition is a stipulation –

(a) Which is essential to the main purpose of the contract

(b) The breach of which gives the aggrieved party a right

to terminate the contract. [Sec 12 (2)]

(B) Meaning of Warranty:-

• A warranty is a stipulation –

(a) Which is collateral to the main purpose of the

contract

(b) The breach of which gives the aggrieved party a right

to claim damages but not a right to reject goods and

to terminate the contract [Sec 12(3)]

Conditions & Warranties

Stipulation

Conditions Warranties

Express Implied Implied Express

‘Conditions’ and ‘Warranties’ may be either expressed or implied. They are “expressed” when the terms of the contract expressly state them. They are implied when, not being expressly provided for.

Express Condition Implied Condition

Express Warranties Implied Warranties

Conditions & Warranties Cont…

Express conditions are those, which are agreed upon between the parties at the time of contract and are expressly provided in the contract.

The implied conditions, on the other hand, are those, which are presumed by law to be present in the contact.

What are The Implied Condition and Warranties

1. Condition as to title Sec 14 (a)

2. Sale by description Sec 15

3. Sale by sample

4. Sale by sample as well as by description

5. Condition as to merchantable quality

7. Condition as to wholesomeness

6. Sale as quality and fitness

Condition as to title Sec 14 (a)

Sale by sample

Sale by sample as well

as by description

Sale as quality and

fitness

Condition as to wholesomeness

Sale by description

Sec 15

Condition as to merchantable

quality

Condition as to title [Section 14(a)]

(1) Condition as to title [Section 14(a)] implied condition on the part of the seller is that (a) in case of a sale, he has a right to sell the goods, and (b) in the case of an agreement to sell, he will have right to sell the goods at the time when the property is to pass. In simple words, the condition implied is that the seller has the right to sell the goods at the time when the property is to pass.

Example:- X purchases a car from Y. After 6 months Z ,the true owner of the car ,demanded it from X. X had to return it to its true owner. X was entitled to recovery the full price even through several months had passed

(2) Condition as to description [Section 15]

(2) Condition as to description [Section 15] This rule is based on the principle that “if you contract to sell peas, you cannot compel the buyer to take beans.” The buyer is not bound to accept and pay for the goods which are not in accordance with the description of goods.

Example:- A ship was contracted to be sold as “copper-fastened vessel” but actually it was only partly copper-fastened. Held that goods did not correspond to description and hence could be returned or if buyer took the goods, he could claim damages for breach.

(3) Condition as to Sample [Sec 17]

Condition as to Sample [Sec 17] in a contract of sale by sample, there is a implied contract:-

a) the bulk shall correspond with the sample in quality;

b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample, and

c) the goods shall be free from any defect rendering them un-merchantable, which would not be apparent on reasonable examination of the sample. This condition is applicable only with regard to defects, which could not be discovered by an ordinary examination of the goods. But if the defects are latent, then the buyer can avoid the contract.

(3) Condition as to Sample [Sec 17] Cont…

Example:

A company sold certain shoes made of special sole by sample for the French Army. The shoes were found to contain paper not discoverable by ordinary inspection. Held, the buyer was entitled to the refund of the price plus damages.

(4) Condition as to sample as well as by description [Section 15]

(4) Condition as to sample as well as by description [Section 15] Where the goods are sold by sample as well as by description the implied condition is that the bulk of the goods supplied must correspond both with the sample and the description. In case the goods correspond with the sample but do not tally with description or vice versa or both, the buyer can repudiate the contract.

Example: A agreed with B to sell certain oil described as refined sunflower oil, warranted only equal to sample. The goods tendered were equal to sample, but contained a mixture of hemp oil. B can reject the goods.

Condition as to merchantable quality

• It is the implied condition that the goods delivered by

seller must satisfy the ordinary purpose of buying and

if not the buyer can repudiate the contract.

• Example: A sold a pencil without led. Thus buyer can

reject the goods as it is not able to satisfy the purpose

of buying.

(5)Condition as to quality or fitness [Section 16] (5)Condition as to quality or fitness [Section 16] : Ordinarily, there is no implied condition as to the quality or fitness of the goods sold for any particular purpose. However, the condition as to the reasonable fitness of goods for a particular purpose may be implied if the buyer had made known to the seller the purpose of his purchase and relied upon the skill and judgment of the seller to select the best goods and the seller has ordinarily been dealing in those goods. Even this implied condition will not apply if the goods have been sold under a trademark or a patent name.

Example: A purchased a hot water bottle from a chemist. The bottle burst and injured his wife. Held, breach of condition as to fitness was committed and thus chemist was liable for refund of price and the damages. As a general rule, it is the duty of the buyer to examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for his purpose for which he is buying them. This is known as rule of caveat emptor which means “Let the buyer beware”.

6)Condition as to wholesomeness:

(6)Condition as to wholesomeness: In the case of eatables and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome.

Example: A supplied F with milk. The milk contained typhoid germs. F’s wife consumed the milk and was infected and died. Held, there was a breach of condition as to fitness and A was liable to pay damages.

Implied Warranties:

(1) Warranty as to undisturbed possession

(2) Warranty as to non-existence of encumbrances

(3) Disclosure of dangerous nature of goods

(4) Warranty as to quality or fitness by usage of trade [Section 16(4)]

Warranty

(1) Warranty as to undisturbed possession: An implied warranty that the buyer shall have and enjoy quiet possession of the goods. That is to say, if the buyer having got possession of the goods, is later on disturbed in his possession, he is entitled to sue the seller for the breach of the warranty.

(2) Warranty as to non-existence of encumbrances: An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time the contract is entered into.

Example:

A pledges his car with C for a loan of 15,000 and promises him to give its possession the next day. A, then sells the car immediately to B, who purchased it on good faith, without knowing the fact. B, may either ask A to clear the loan or himself may pay the money and then, file a suit against A for recovery of the money with interest.

(3) Disclosure of dangerous nature of goods:

There is another implied warranty on the part of the seller that in case the goods are inherently dangerous or they are likely to be dangerous to the buyer and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger. If there is breach of this warranty, the seller will be liable in damages.

(4) Warranty as to quality or fitness by usage of trade [Section 16(4)]:

An implied warranty as to quality or fitness for a particular purpose may be annexed or attached by the usage of trade.

Example:

A drugs was sold by an auction and according to the usage of trade it was to disclose in advance of any vast damage caused in the quality of the drugs. This will be taken as a breach of warranty if no such disclosure has been made and the goods found to be defective.

Caveat Emptor

In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘Let The Buyer Beware’. When sellers display their goods in the open market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out to be defective he cannot hold the seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is not bound to disclose the defects in the goods which he is selling. It is the duty of the buyer to satisfy himself before buying the goods that the goods will serve the purpose for which they are being bought. If the goods turn out to be defective or do not serve his purpose or if he depends on his own skill or judgment, the buyer cannot hold the seller responsible.

The rule of Caveat emptor (Section 16)

The rule of Caveat Emptor is laid down in the Section 16, which states that, “subject to the provisions of this Act or of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale”.

• Example: A sold pigs to B. These pigs being infected, caused typhoid to other healthy pigs of the buyer. It was held that the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being “Caveat Emptor”.

• Exceptions: The doctrine of Caveat Emptor is, however, subject to the following exceptions:-

Example:

Exeptions

1) When purpose of buying is in sellers notice • Where the buyer makes known to the seller

the particular purpose for which the goods are required, so as to show that he relies on the seller’s skill or judgment and the goods are of a description which is in the course of seller’s business to supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose [Section 16 (1)].

Example • An order was placed for some trucks to be used

for heavy traffic in a hilly country. The trucks supplied by the seller were unfit for this purpose and broke down. There is a breach of condition as to fitness.

• (2) When goods are sold under brand name

• In case where the goods are purchased under its patent name or brand name, there is no implied condition that the goods shall be fit for any particular purpose [Section 16(1)].

• (3) When goods are sold under description • Where the goods are sold by description

there is an implied condition that the goods shall correspond with the description [Section 15]. Example: In the sale of a refrigerator, the name of the article itself implies that the seller warrants that the machine is fit for the particular purpose.

Exeptions Cont…

• (4) As regards to merchantable quality of goods Where the goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods shall be of merchantable quality. The rule of Caveat Emptor is not applicable. But where the buyer has examined the goods this rule shall apply if the defects were such which ought to have not been revealed by ordinary examination [Section 16(2)].

• Example: A bought a black velvet cloth from C and found it to be damaged by white ants. Held, the condition as to merchantability was broken.

Exeptions Cont…

• (5) When goods are bought by sample • Where the goods are bought by sample,

this rule of Caveat Emptor does not apply if the bulk does not correspond with the sample [Section 17].

Exeptions Cont…

• (6) Where the goods are bought by sample as well as description

• The rule of Caveat Emptor is not applicable in case the goods do not correspond with both the sample and description or either of the condition [Section 15].

• (7) As regards to an implied warranty or condition as to quality or fitness

• An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat Emptor is not applicable.

Exeptions Cont…

• (8) In case of Fraud • Where the seller sells the goods by making

some misrepresentation or fraud and the buyer relies on it or when the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply. In such a case the buyer has a right to avoid the contract and claim damages.

Exeptions Cont…

When Purpose Of Buying Is In Sellers Notice

When Goods Are Sold Under Brand Name

When Goods Are Sold Under Description

As Regards To Merchantable Quality Of Goods

When Goods Are Bought By Sample

Where The Goods Are Bought By Sample As Well As Description

As Regards To An Implied Warranty Or Condition As To Quality Or Fitness

Q3 The doctrine of caveat emptor applies: (a) in case of implied condition and warranties

(b) when the buyer does not intimate the purpose to the seller and depends upon his own skills and judgment

(c) when goods are sold by sample

(d) when goods are sold by description

Answer: b

Q2 The expression ‘Caveat emptor’ means:

(a) Let the Vendor beware

(b) Let the Buyer beware

(c) Let the Govt. beware

(d) Let the creditor beware

Answer: b

The following are important differences

between conditions and warranties.

• Condition Warranty (1) A condition is essential to the main (1) It is only collateral to the main

purpose of the contract. Purpose of the contract.

(2) The aggrieved party can repudiate (2) The aggrieved party can not contract repudiate the contract (3) The aggrieved party can not only (3) The aggrieved party can only claim repudiate the contract but also can claim the damages. damages in case of breach of condition. (4) A breach of condition may be treated (4) The breach of warranty can not be as breach of warranty treated as breach of warranty.

Question Time MCQ’s

Q1 Good must be correspond with sample. This is: (a) Condition as to description

(b) Condition as to sample

(c) Condition as to wholesomeness

(d) Condition as to title

Answer: b

Q4 A stipulation which is collateral to the main purpose of the contract, and if proves false, gives the

buyer only a right to claim damages, is known as

a) conditions.

b) guarantee.

c) warranty.

d) none of these.

Answer: c

Q5 Which of the following is not an implied condition in a contract of sale?

(a) condition as to title.

(b) condition as to description.

(c) condition as to free from encumbrance.

(d) condition as to sample.

Answer: c

Q6 The conditions and warranties may be in the form of

(a) express.

(b) implied.

(c) either (a) or (b).

(d) none of the above.

Answer: c

Q7 The doctrine of Caveat Emptor does not apply, when

(a) the goods are bought by sample.

(b) the goods are bought by sample as well as description.

(c) the goods are purchased under its brand name.

(d) all of the above.

Answer: c

Q8 A warranty is a stipulation essential to the main purpose of the contract

(a) True.

(b) False.

Answer: b

Q9: A breach of warranty may be treated as breach of condition

(a) False.

(b) True.

Answer: a

Q10: Right to claim for damages exists both in conditions & warranties

a) True.

b) False.

Answer: a

Q11 A stipulation which is collateral to the main purpose of the contract is

(a) Condition

(b) Warranty

Answer: b

Q12: The term “goods” under Sale of Goods Act, 1930 does not include

(a) goodwill.

(b) actionable claims.

(c) stocks and shares.

(d) harvested crops.

Answer:

Additional questions 1. A stipulation in a contract of sale may be:

(a) Condition (b) Warranty (c) Both (d) None of the above

2. A stipulation which is essential to the main purpose of contract is:

(a) Condition (b) Warranty (c) Guarantee (d) All of the above

3. A stipulation which is agreed by the parties himself is :

(a) Express condition or warranty

(b) Warranty

(c) Guarantee

(d) All of the above

4. The conditions which are imposed by Law are:

(a)Implied Condition

(b)Express Condition

(c)Warranty

(d) Any of them

Additional questions

5. The milk sold by a milkman contained germs of typhoid, this is said to be breach of:

(a) Condition as to wholesomeness (b) Condition as to merchantable quality (c) Condition as to quality and fitness (d) Condition as to Sample

6.In case of foodstuff and eatables implied condition as to………………implied

(a) Sample (b) Wholesomeness (c) Merchantable Quality (d) All of the above

Additional questions

7.A’ purchased 20 pieces of sharpeners which were found blunt and not able to sharpen the pencils. This is said to be breach of implied condition as to …………..

(a) Merchantable Quality (b) Wholesomeness (c) Encumbrance (d) None of the above

8.In a contract of sale where goods are sold on the basis of sample as well as description, goods must be corresponding with:

(a) Sample only (b) Description only (c) Both sample as well as description (d) Any of them

Additional questions

9. In case of breach of warranty buyer can:

(a) Repudiate the contract

(b) Claim the damages

(c) Any of them

(d) None of them

10.The seller must have a right to sale the goods ,it is implied condition as to…………….

(a) Quiet possession (b) Title (c) Sample (d) Quality and Fitness

Additional questions

11. A woman bought a fairness cream without disclosing the seller that her skin is abnormally sensitive and consequently resulted into allergy. Is seller liable for it ? a) The seller is not liable. b) The seller is liable. c) The seller is liable for medical expenses d) None of the above.

12. A purchased a car from B. After two months from buying he come to know that it was a stolen car and had to be returned to the true owner. A brought action against B. Will he succeed? a) Buyer cannot recover the price. b) Yes, buyer will succeed as it is a breach of implied condition as to title. c) Yes, buyer will succeed as it is a breach of implied condition as to

wholesomeness. d) None of the above.

Additional questions

13. A farmer exhibits rice in his farm. X buys the rice bag believing that it is old rice although it was not. X wants to return the rice bag and refuse to pay the price. Here a) X can return the bag as there is breach of implied condition. b) X can return the bag as there is breach of implied warranty. c) X cannot return the bag as caveat emptor applies. d) None of the above.

14. Remedies for breach of condition includes a) Rejection of the goods. b) Waiver of the condition. c) No remedy when seller is excused by law. d) All of the above.

Additional questions

15. ……………implies that the goods should be of such quality and in such conditions that it can commercially be sold under the description by which they are known in the market . a. Merchantable quality b. Wholesomeness c. Encumbrance d. Fitness and quality 16. X sell two parcels of certain goods on the basis of sample out of two parcels . X allowed to inspect only one parcel and refuse to allow to inspect the second parcel. After delivery buyer found that the goods contained in second parcel is not according to sample. Here, a) Buyer can reject the goods . b) Buyer cannot reject the goods. c) Buyer can reject only second parcel of the goods. d) None of the above.

Additional questions

17. X supplied 10 bottles of cold drinks to Y. out of these one bottles burst and injured Y. can y sue for damages ? a) Yes, it is breach of implied condition. b) Yes, it is a breach of implied warranty. c) No, buyer himself is responsible. d) None of the above.

18A supplied thousand bags of cement to B. it becomes stone at the time of delivery by rainfall. Can B reject the goods? a) Yes, it is a breach of condition as to wholesomeness. b) Yes, it is a breach of condition as to merchantable quality. c) Yes, it is a breach of condition as to quality or fitness. d) None of the above.

Additional questions

Points to remember:

Condition

Meaning: A condition is a stipulation. • Essential to main purpose of the contract • Breach of which gives a right to terminate the contract to

aggrieved party.

A breach of condition is treated as breach of warranty in cases stated below:

• buyer waives a condition • buyer select to treat breach of condition as breach of warranty • And where there contract is not several and the buyer has

accepted the goods or part thereof. Condition may be express or implied in a contract of sale.

warranty Meaning : A warranty is a stipulation:

a) Which is collateral to the main purpose of the contract b) The breach of which gives a right to claim damages but not a

right to reject goods and terminate to aggrieved party.

Warranty may be implied or express.

Implied conditions

1.Condition as to title → Seller must have right to sell. 2.Condition as to sale by description → Goods must correspond with description whether or not seen by buyer and must be free from latent defect 3. Condition as to sale by sample → Goods must be correspondent to sample and must be free from latent defect 4. Condition as to quality and fitness → Not implied unless buyer disclosed purpose of buying to seller and bought goods as per sellers suggestion 5. Condition as to merchantable quality → Goods must be in condition and of quality that can fulfill ordinary purpose of buying. 6. Condition as to wholesomeness → Goods must be fit for consumption

Implied warranties Warranty as to quiet possession – buyer has a right to enjoy un

interrupted possession of goods Warranty as to free from encumbrance –the goods must be free

from any charges payable to third party Warranty as to dangerous nature of goods –seller must warn

the buyer for probable dangerous which may occur while using the goods

Warranty as per customary of trade – there may be a warranty or condition as per the customs and usage of particular trade

Caveat emptor Meaning : let the buyer beware Buyer himself is liable for wrong selection of goods. Exceptions : When purpose of buying is in sellers notice When goods are sold under brand name When goods are sold on the basis of description When goods are sold by sample As regards to merchantable quality of goods As regards to implied warranty as to quality and fitness In case of fraud

Thank you

By: Dr. anju gupta