Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

Business Laws for CA Foundation

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CA CPT : Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

The document Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev is a part of the CA CPT Course Business Laws for CA Foundation.
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LEARNING OUTCOMES:
After studying this unit, you would be able:
• To understand and identify conditions and warranties.
• To know the implied conditions and warranties.
• To understand doctrine of ‘caveat emptor’.
• Stipulation as to time.


STIPULATION AS TO TIME (SECTION 11):

Stipulations as to time: Unless a different intention appears from the terms of the contract, stipulations as to time of payment   are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.
Analysis: As regard time for the payment of price, unless a different intention appears from the terms of contract, stipulation as regard this, is not deemed to be of the essence of a contract of sale. But delivery of goods must be made without delay. Whether or not such a stipulation is of the essence of a contract depends on the terms agreed upon.

Price for goods may be fixed by the contract or may be agreed to be fixed later on in a specific manner. Stipulations as to time of delivery are usually the essence of the contract.

INTRODUCTION - CONDITIONS AND WARRANTIES:

At the time of selling the goods, a seller usually makes certain statements or representations with a view to induce the intending buyer to purchase the goods. Such representations are generally about the nature and quality of goods, and about their fitness for buyer’s purpose.

When these statements or representations do not form a part of the contract of sale, they are not relevant and have no legal effects on the contract. But when these form part of the contract of sale and the buyer relies upon them, they are relevant and have legal effects on the contract.

A representation which forms a part of the contract of sale and affects the contract, is called a stipulation. However, every stipulation is not of equal importance.

Condition and warranty (Section 12): A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [Sub-section (1)]

“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”. [Sub-section (2)]
“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”. [Sub-section (3)]
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. [Sub-section (4)]
Example: 
Ram consults Shyam, a motor-car dealer for a car suitable for touring purposes to promote the sale of his product. Shyam suggests ‘Maruti’ and Ram accordingly buys it from Shyam. The car turns out to be unfit for touring purposes. Here the term that the ‘car should be suitable for touring purposes’ is a condition of the contract. It is so vital that its non-fulfilment defeats the very purpose for which Ram purchases the car. Ram is therefore entitled to reject the car and have refund of the price.
Let us assume Ram buys a new Maruti car from the show room and the car is guaranteed against any manufacturing defect under normal usage for a period of one year from the date of original purchase and in the event of any manufacturing defect there is a warranty for replacement of defective part if it cannot be properly repaired. After six months Ram finds that the horn of the car is not working, here in this case he cannot terminate the contract. The manufacturer can either get it repaired or replaced it with a new horn. Ram gets a right to claim for damages, if any, suffered by him but not the right of repudiation.
Difference between conditions and warranties:
The following are important differences between conditions and warranties

Point of differences
Condition
Warranty
Meaning
A condition is essential to the main purpose of the contract.
It is only collateral to the main purpose of the contract.
Right in case of breach
The aggrieved party can repudiate the contract or claim damages or both in the case of breach of condition.The aggrieved party can claim only damages in case of breach of warranty.
Conversion of stipulations
A breach of condition may be treated as a breach of warranty.
A breach of warranty cannot be treated as a breach of condition.


WHEN CONDITION TO BE TREATED AS WARRANTY (SECTION 13):

Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. [Sub-section (1)] Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, 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 a term of the contract, express or implied, to that effect.  [Sub-section (2)] Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused by law by reason of impossibility or otherwise. [Sub-section (3)]
Analysis:
Section 13 specifies cases where a breach of condition be treated as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and can claim for damages only.

In the following cases, a contract is not avoided even on account of a breach of a condition:
(i) Where the buyer altogether waives the performance of the condition. A party may for his own benefit, waive a stipulation.
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to say, he may claim only damages instead of repudiating the contract.

Example: A agrees to supply B 10 bags of first quality sugar @ Rs. 625 per bag but supplies only second quality sugar, the price of which is Rs. 600 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 @ Rs. 25 per bag.
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian Contract Act, 1872.
(iv) Where the fulfillment of any condition or warranty is excused by law by reason of impossibility or otherwise.

Waiver of conditions
Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev


EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES (SECTION 14-17)

Condition and Warranty
Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev
‘Conditions’ and ‘Warranties’ may be either express or implied. They are “express” when the terms of the contract expressly state them. They are implied when, not being expressly provided for.
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 contract. It should be noted that an implied condition may be negated or waived by an express agreement.
Implied Conditions: Following conditions are implied in a contract of sale of goods unless the circumstances of the contract show a different intention.
Conditions & Warranties (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

(i) Condition as to title [Section 14(a)]: In every contract of sale, unless there is an agreement to the contrary, the first 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. If the seller’s title turns out to be defective, the buyer must return the goods to the true owner and recover the price from the seller.

Example 1: A purchased a tractor from B who had no title to it. After 2 months, the true owner spotted the tractor and demanded it from A. Held that A was bound to hand over the tractor to its true owner and that A could sue B, the seller without title, for the recovery of the purchase price.

Example 2: If A sells to B tins of condensed milk labelled ‘C.D.F. brand’, and this is proved to be an infringement of N Company’s trade mark, it will be a breach of implied condition that A had the right to sell. B in such a case will be entitled to reject the goods or take off the labels, and claim damages for the reduced value. If the seller has no title and the buyer has to make over the goods to the true owner, he will be entitled to refund of the price.
(ii) Sale by description [Section 15]: Where there is a contract of sale of goods by description, there is an implied condition that the goods shall correspond with the description. 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.

Thus, it has to be determined whether the buyer has undertaken to purchase the goods by their description, i.e., whether the description was essential for identifying the goods where the buyer had agreed to purchase. If that is required and the goods tendered do not correspond with the description, it would be breach of condition entitling the buyer to reject the goods.

It is a condition which goes to the root of the contract and the breach of it entitles the buyer to reject the goods whether the buyer is able to inspect them or not.
Example 1: A at Kolkata sells to B twelve bags of “waste silk” on its way from Murshidabad to Kolkatta. There is an implied condition that the silk shall be such as is known in the market as “Waste Silk”. If it not, B is entitled to reject the goods.

Example 2: 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.

The Act, however, does not define ‘description’. A sale has been deemed to be by the description
(i) where the class or kind to which the goods belong has been speciffied, e.g., ‘Egyptian cotton’, “java sugar”, “Shffield crockery”, etc., and
(ii) where the goods have been described by certain characteristics essential to their identification, e.g., jute bales of specified shipment, steel of specific dimension, etc. It may be noted that the description in these cases assumes that form of a statement or representation as regards the identity of particular goods by reference to the place of origin or mode of packing, etc. Whether or not such a statement or representation is essential to the identity of the goods is a question of fact depending, in each case, on the construction of the contract.
(iii) Sale by sample [Section 17]: In a contract of sale by sample, there is an implied condition that
(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, Example: In a case of sale by sample of two parcels of wheat, the seller allowed the buyer an inspection of the smaller parcel but not of the larger parcel. In this case it was held that the buyer was entitled to refuse to take any latent of the parcels of wheat.
(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.

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.

(iv) Sale by 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 shall 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 sunower 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.
(v) Condition as to quality or fitness [Section 16(1)]: 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 1: ‘A’ bought a set of false teeth from ‘B’, a dentist. But the set was not fit for ‘A’s mouth. ‘A’ rejected the set of teeth and claimed the refund of price. It was held that ‘A’ was entitled to do so as the only purpose for which he wanted the set of teeth was not fulfilled.

Example 2: ‘A’ went to ‘B’s shop and asked for a ‘Merrit’ sewing machine. ‘B’ gave ‘A’ the same and ‘A’ paid the price. ‘A’ relied on the trade name of the machine rather than on the skill and judgement of the seller ‘B’. In this case, there is no implied condition as to fitness of the machine for buyer’s particular purpose.

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”.
(vi) Condition as to Merchantability [Section 16(2)]: Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed. The expression “merchantable quality”, though not defined, nevertheless connotes goods of such a quality and in such a condition a man of ordinary prudence would accept them as goods of that description. It does not imply any legal right or legal title to sell.

Example 1: If a person orders motor horns from a manufacturer of horns, and the horns supplied are scratched and damaged owing to bad packing, he is entitled to reject them as unmerchantable.

Example 2: 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.
(vii) 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.

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