Condition and Warranty
Conditions and Warranties in Commercial Law
Overview:
A contract of sale of goods contains various terms or stipulations regarding the quality of the goods, the price, the mode of payment, the delivery of goods, the time of performance and the place where the goods are to be sent etc.
Some of these stipulations may be major terms while others may be minor terms. In law of sales major terms are called “conditions’ and, minor terms are called warranties.These terms are often considered to be interchangeable but they are not, rather they are quite distinct. Under Section 12(1) of the Sale of Goods Act, 1930: A stipulation in contract of sale with reference to goods which are subject thereof may be a condition or warranty. Conditions are typically "clauses or terms in a contract", while Warranties are typically “promises” made in addition to a contract.
RELEVANT PROVISIONS:
Sections 12, 13, 14, 15, 16 and 17 of the Sale of Goods Act, 1930.
Definition of term Condition:
According to Merriam Webster Dictionary:
“A prerequisite upon which the fulfillment of an agreement depends".
According to Section 12(2), a “condition is a stipulation essential to the
main purpose of the contract, the breach of which gives the aggrieved party a
right to repudiate the contract itself.
Necessary Ingredients of Condition:
- (i) Essential stipulation.
- (ii) Deals with the main purpose of contract.
- (iii) Breach of condition allows aggrieved party the right to repudiate.
Definition of term Warranty:
(a) According to Merriam Webster Dictionary:
A collateral stipulation regarding the subject matter of a contract
guaranteeing that a fact in the contract will be as it is expressly or by
implication declared or promised to be.
(b) According to Section 12(3), a “warranty is a stipulation collateral to the
main purpose of the contract, the breach of which gives the aggrieved party a
right to sue for damages only, and not to avoid the contract itself.
Essential Ingredients of Warranty:
- Collateral Stipulation
- Breach leads to a right to claim damages.
- Breach does not give rise to a right to reject the goods or repudiate the contract.
Thus contracts of sale contain two kinds of terms in accordance with which
parties have to perform their respective obligations. The terms of vital
importance are known as conditions and the terms with less importance, though
even their fulfillment is necessary are known as warranties.
Legal Effects of Conditions & Warranties:
The above definitions explain both the meaning and the legal effect of a “condition and a “warranty.
Conditions:
Conditions are terms directly concerned with the subject matter of the
contract and their performance is vital to the performance of the contract.
If a condition is not fulfilled the aggrieved party may consider it to be a
non-performance of the whole contract. Thus breach of a condition gives
right to the aggrieved party to repudiate the contract. The aggrieved party
may also file a suit for damages in this regard.
Example:
‘A’ and ‘B’ enter into a contract of sale of beans where ‘A’
lays down a condition in the contract that the beans have to be red and upon
delivery he finds out that ‘B’ has sent his white beans, he can repudiate
the whole contract on the basis of nonperformance of this condition.
Warranties:
Warranties can be called less important terms of the contract where they are
although directly regarding the subject matter but their performance is not
vital for the performance of the whole contract i.e. they do not go to the
roots of the contract. But this does not mean that their fulfillment is not
necessary. The law provides a remedy for the breach of warranties by
awarding damages to the aggrieved party. However the aggrieved party cannot
repudiate the contract or refuse to take the goods on the basis of breach of
warranties.
In short, a “condition forms the basis of a contract
of sale, the breach of which causes irreparable loss to the aggrieved party.
In case of violation of condition, the agreed party gets a right to cancel
the contract. “Warranty is of secondary importance. The breach of “warranty
causes only a loss which can be compensated by a guilty party. There is not
hard and fast rule as to know which stipulation is a “condition and which
one is a “warranty. The only suitable method to distinguish between the
these two terms is that if the stipulation is such that its breach would be
very harmful for the rights of the aggrieved party, then such a stipulation
is a “condition and where it is not so-the stipulation is only a” warranty”
Examples:
- (a) A man buys a particular horse which is warranted quiet to ride and drive. If the horse tums out to be vicious, the buyer’s only remedy is to claim damages. But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet horse and the dealer supplies him with a vicious horse, the stipulation is a condition and the buyer can return the horse and can also claim damages for breach of contract. (Hartly vs Hymans)
- (b) P goes to R, a horse dealer, and says, “I want a horse which can run at a speed of 30 miles per hour.” The horse dealer points out at a particular horse and says, “ “This will suit you’’. P buys the horse. Later on, P finds that the horse can run only at a speed of 20 miles per hour. There is a breach of condition, P can reject the contract, return the horse to R and get back the price. But if P says to R, “I want a good horse” and R shows him a horse and says, “This is a good horse and it can run at a speed of 30 miles per hour” and P buys the horse and finds later on that it can run at a speed of 20 miles per hour only, there is a breach of warranty.
Difference between Condition and Warranty:
The following are the points of distinction between a condition and a
warranty:
(1) Value:
A condition is a stipulation which is essential to the main purpose of the
contract, whereas a warranty is a stipulation which is collateral to the
main purpose of the contract.
(2) Breach:
The breach of a condition gives the aggrieved party the right to repudiate
the contract and also to claim damages, whereas the breach of warranty gives
the aggrieved party a right to claim damages only.
(3) Treatment:
A breach of condition may be treated as a breach of warranty. But a breach
of warranty cannot be treated as a breach of condition.
(4) Construction in a Contract:
The distinction between a condition and warranty is based on their
construction in a contract which differs in each case, as Conditions are
typically "clauses or terms in a contract", while Warranties are typically
“promises” made in addition to a contract.
(5) Importance:
The major terms or the more important terms of a contract are known as
conditions to the contract and the less important ones are called
warranties of the contract.
When breach of condition to be treated warranty
Section 13 deals with cases where a breach of condition is to be treated as a
breach of warranty. In these cases the buyer loses his right to rescind the
contract. He can only claim damages. These cases are as follows:
(1) Voluntary Waiver by Buyer:
The breach of condition by the seller gives the right to the buyer to reject
the goods, but he is not bound to do so. He may decide to waive the
condition, i.e., to treat the breach of condition as a breach of warranty
and accept the goods and claim damages from seller.
illustrations:
A agrees to supply B 10 bags of first quality sugar at the rate of Rs. 425
per bag but B supplies only second quality sugar, the price of which is Rs.
400 per bag. There is a breach of condition and the buyer can reject the
goods. But if the buyer so elects, he may treat it as a breach of warranty,
accept the second quality sugar and claim damages at the rate of Rs.25 per
bag,
(2) Acceptance of Goods by Buyer:
Where the buyer has accepted the goods and subsequently he comes to know of
the breach of condition, he cannot reject them, but can only claim damages.
If the buyer has accepted only part of the goods and the contract is
indivisible, he may have to accept the remaining part also. But in case of
divisible contracts, he can repudiate as regards remaining goods, if he has
accepted only part thereof.
When a Condition Changes Into A Warranty:
The distinction between a condition and warranty is based on their
construction in a contract which differs in each case. Where there is a
breach of a condition the buyer may waive its right to repudiate the
contract and instead considers it as a warranty. Thus by changing a
condition into warranty. Section 13 deals with situations where a condition
might change into a warranty but it must be remembered that a condition can
change into a warranty under special circumstances but a warranty never
changes into a condition.
According to Section 13 of the Sale of Goods Act, 1930: following are the
situations where a condition might be changed into a warranty;
(i) Waiver:
A condition changes into a warranty where the party who has been injured,
decides to “Not treat it as a breach of condition rather as a breach of
warranty.
(ii) Acceptance by Buyer of Goods, Which cannot be severed:
so Where the goods are not severable and the buyer has accepted the goods,
in whole or in part, and-then there is some breach of conditions from the
seller, it would be held to be a breach of warranty since the buyer would
not be able to reject or repudiate the contract. Except in the cases
of expressed or implied provision.
(iii) Performance Excused by Law:
If the performance of a condition is excused by law then nobody can force
him to perform that condition of the contract.
Types of Conditions and Warranties: Express and Implied
Conditions and warranties may be express or implied. The conditions and
warranties which are included in the contract are called express. The
conditions and warranties which are not included in the contract but the law
presumes their existence in the contract are called implied.
(A) Implied Conditions:
Unless otherwise agreed, the law includes the following conditions into a
contract of sale of goods.
(1) Transfer of title:
The implied condition on the part of the seller is that, the transfer of
title to the goods can only be made either by the owner or by one who is the
agent of the owner. As a result of this condition, if the seller's title
proves to be defective, the buyer can reject the goods and recover his
price. In this case the buyer has no option to treat the breach of condition
as breach of warranty. He must return the goods to the true owner. (Sec
14)
Illustration:
R purchased a motor car from D and used for several months. D had no title
to the car and, therefore, R was compelled to return the car to the true
owner. R sued D to recover the price which he had already paid. He was held
entitled to recover the whole of the price paid by him.
(Rowland vs Dival)
(2) 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. If
the goods are not according to the description, the buyer can reject the
goods. The description may be in terms of the quantities or characteristics
of the goods, e.g. ‘basmati’ rice, “sufi soap etc. (Sec. 15)
illustration:
Where there was a contract for the supply of “new Singer Car’s and one of
the cars supplied having already run a considerable mileage was not new,
there was a breach of condition on the part of the seller and the buyer was
held entitled to reject the car. (Andrew Bros vs Singer & Co.)
(3) Sale by Sample:
In case of sale by sample, the goods must be supplied according to a sample
agreed upon. In this case the following are implied conditions:
- (i) The bulk shall correspond with the sample in quality.
- (ii) The buyer shall have reasonable opportunity of comparing the bulk with the sample.
- (iii) The goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. (Sec 17)
Illustration:
Two parcels of wheat were sold by sample. The buyer examined the bulk a week
after. One parcel was shown to him but the seller refused to show the other
parcel which was not there in the warehouse. It was held, that the buyer was
entitled to rescind the contract.
(4) Sale by Sample as well as description:
When goods are sold by sample as well as by description, there is an implied
condition that the bulk of the goods shall correspond both with the sample
and with the description. If the goods supplied correspond only with, the
sample and not with the description or vice-versa, the buyer can reject the
goods. The bulk of goods must correspond with both. (Sec 15)
Illustration:
N agreed to sell G some oil described as “foreign refined rapeseed oil’, was
similar to sample only. The oil supplied, though corresponded with the
sample, was mixed with hemp oil. Held, that since the oil supplied was not
in accordance with the description, the buyer was entitled to reject the
same.(Nichol vs Godts)
(5) Condition as to fitness and quality:
Where the buyer informs to the seller about the particular purpose for which
the goods are required, there is an implied condition that the goods shall
be reasonably fit for such purpose.
This condition is deemed to exist if the following conditions are
satisfied:
- (i) The buyer, should expressly or impliedly, inform to the seller about the particular purpose for which the goods are required; and
- (ii) The buyer should rely on the seller’s skill or judgment; and
- (iii) The goods must be of description in which the seller deals in. [Sec 16(1)]
illustration:
Where a buyer demands tinned fruit juice, it is implied from the nature of
product itself that he wants it for consumption and if later on it is found
to contain poisonous matter, there is a breach of implied condition as to
fitness and the seller is liable in damages.
(6) Condition as to Merchantability:
Where goods are bought by description from seller who deals in goods of that
description, there is implied condition that the goods shall be of
merchantable quality. Merchantable quality means that the goods must be
saleable in the market as goods of that description. The seller is under an
obligation to inform the buyer of any defect in the goods sold at the time
of contract, except, in a case where the defect is obviously known to the
buyer. (Sec.16(a)]
Illustrations:
- (a) Where A purchases a certain quantity of block yarn from B, a dealer in yarn, and finds it damaged by white ants, the condition as to merchantability has been broken and A is entitled to reject it as unmerchantable.
- (b) R ordered for some 600 motor horns of varying description. Some of the horns were dented and badly polished and R rejected the whole of the consignment. Held that the defect in the horns had rendered them unmerchantable and therefore, the buyers were justified in rejecting the whole consignment as the contract is indivisible.
(7) Condition as to Wholesomeness:
Wholesomeness means conducive to health. This condition applies only in
contract of sale of eatables and provisions. In such cases goods supplied
must be merchantable and wholesome also.
Illustration:
F bought milk-from A, a dairy owner. The milk was contaminated with germs of
typhoid fever. F’s wife, on taking the milk, became infected and died of it.
A, was held, liable in damages.
(B) Implied Warranties:
Unless otherwise agreed, the law includes the following warranties into a
contract of sale of goods.
(1) Quiet Possession:
In every contract of sale, it is implied warranty on the part of seller,
that the buyer shall have and enjoy quiet possession of the goods. If this
right of buyer is disturbed by a person having a superior right than that of
the seller, the buyer can claim damages from seller.
Illustrations:
- (a) A bought a motor car frorn B and used it for some months; After some months it appeared that B had no title to it and A was compelled to surrender it to the true owner A was entitled to recover the purchase price from B.
- (b) The plaintiff, a lady purchased a second hand typewriter from the defendant. She spent some money on its repair and used it for some months. Unknown to the parties, the typewriter was stolen one and the plaintiff was compelled to return it to its true owner. She was held entitled to recover damages and the price.
(2) Freedom from encumbrances:
It is implied warranty on the part of seller that, the goods shall be free
from any charge or encumbrance in favor of any third party. The third party
should not be known to the buyer before or at the time of contract.
Example:
A, the owner of the watch, pledges it with B. After a week, A obtains
possession of the watch from B for some purpose, and sells it to C. B
approaches C and tells him about the pledge affair. C has to make payment of
the pledge amount to B. There is a breach of warranty and C is entitled to
claim compensation from A.
(3) Disclosure of dangerous nature of goods:
The implied warranty on the part of the seller is that in case the goods
sold are of dangerous nature he will warn the ignorant buyer of the probable
danger. In case of breach of this warranty, the buyer is entitled to claim
compensation for the injury caused to him.
Illustration:
C purchases a tin of disinfectant powder from A. A knows that the lid of tin
is defective and if it is opened without special care it may be dangerous,
but tells nothing to C. C opens the tin in the normal way and as a result
the powder flies into his eyes and causes injury. A is liable in damages to
C as he should have warned C of the probable danger.
Consequences of breach of condition and warranty
The law provides remedies for breach of both conditions and warranties which
are as under:
REMEDY FOR BREACH OF CONDITION:
On breach of condition the buyer is entitled to reject the goods.
But he cannot reject the goods if,
- (a) he waives the breach of condition, and elects to treat it as a breach of warranty; or
- (b) the contract is not severable and he has accepted the goods or part of them; or
- (c) the contract is for specific goods, and the property has passed over to the buyer.
In all these case, as provided in section 13, the condition sinks or
descends to, or is treated as Warranty, and the goods cannot be rejected but
only a suit for damages can be filed.
Case Law: L, in 1944, bought from G a picture of Salisbury Cathedral
said by G to be constable. In 1949 L found it was not by constable and
claimed to rescind the contract and recover the purchase price.
Held: as the picture had been accepted it could not later be rejected.
REMEDY FOR BREACH OF WARRANTY:
According to section 59, on breach of warranty, the buyer can either,
- (a) set up against the seller the breach of warranty in diminution or extinction of the price: or
- (b) sue the seller for damages for breach of warranty. The measure of damages for breach of warranty is the estimated loss arising directly and naturally from the breach, which is prima facie the difference between the value of goods as delivery and the value they would have had if the goods had answered to the warranty.
CONCLUSION:
To conclude that a condition is a term of a contract which goes to the
root of the contract Therefore, if there is a breach of a condition there is
no contract and the buyer may treat the contract as ended and return the
goods. If it is impossible to return the goods, the buyer may sue for
damages. On the other hand a warranty is not a vital term of the contract
and therefore a breach of warranty does not end the contract, but it gives
the buyer the right to sue for damages.
Related Questions:
This Topic is most important from the examination point of view as it has been
asked repeatedly in Law Exams of various Universities in different manners.
Questions from previous papers relevant to our subject are as under:
- What do you understand by condition and warranty?
- Under what circumstances a breach of condition is to be treated as a breach of warranty?
- Explain the differences between condition and warranty
- How does Condition differ from warranty under Sale of Goods Act, 1930?
- Implied condition & warranties.
- when a condition is reduced to warranty, the effect is not that the condition becomes warranty.
- What remedies are available to buyers for breach of Condition and Warranty?
- Define the term ‘Condition. How does it differ from ‘Warranty’?
- A stipulation may be a condition though called a warranty in the contract. Explain bringing out the distinction between conditions and warranties.
- Define conditions and warranties. State briefly conditions and warranties implied under the Sale of Goods Act. 1930 with decided cases.
- Distinguish between Conditions and Warranties.
- When can a breach of condition be treated as a breach of Warranty and what are its consequential effects.
- Define condition and warranty. What are the implied conditions provided under Sale of Goods Act?
- Define Condition and Warranty? Distinguish between two. .
- Define and distinguish between condition and warranty under the Sale of Good Act, 1930. Also state the implied conditions in a contract for the sale of goods.
- Define and distinguish between Condition and Warranty. Under what circumstances a breach of condition is to be treated as breach of warranty?