In a contract of sale all terms and stipulations are not of equal significance
Introduction:
The Sale of Goods Act, 1930 was laid down to define and amend the law relating to the sale of goods or movables. The Act came into force on the 1st day of July, 1930. Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of Contract. Basic provisions of Contract Act apply to contract of Sale of Goods also. Its last revision in India was MTGA, 1993. Opening Para of section 16 makes it clear that there is no implied warranty or condition as to quality of fitness of goods for any particular purpose, except those specified in Sale of Goods Act or any other law. This is the basic principle of caveat emptor’ i.e. buyer be aware. However, there are certain stipulations which are essential for main purpose of the contract of sale of goods. These go the root of contract and non-fulfillment will mean loss of foundation of contract. These are termed as ‘conditions’. Other stipulations, which are not essential, are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. – – A breach of condition can be treated as breach of warranty, but vice versa is not permissible.
A stipulation in a contract of sale with reference to goods which are the subject there of may be a condition or a warranty. [Section 12(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. [Section 12(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. [section 12(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. [section 12(4)].
Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2).
Conditions that are agreed to by the parties are commonly referred to as express conditions. Express conditions are usually denoted by language such as “if”, “on condition that”, “provided that”, “I the even that”, and “subject to” to make an event a condition. But usually in a dispute it is the court which decides whether an agreement makes an even a condition by the process of interpretation.
If an agreement does not make an event a condition then the court may supply a term that does so. Such conditions will be referred to as “implied” conditions, since a court uses the process of implication to determine whether to supply a term that makes an event a condition and what term to supply. The distinction between express and implied conditions is of practical importance because the rule of strict compliance is limited to express conditions.
Conditions and warranty: meaning
Condition generally refers to promises and the duties they generate. It is usually an event of significance but this is not always the case as the parties if they so wish can even make an insignificant event a condition. Condition can be defined as some operative fact Almost any event can be a condition and whether a stipulation is a condition or not can be decided only after looking at the contract in the light of the surrounding circumstances and then deciding on the intention of the parties. In present day contracts all conditions refer to some operative fact which has not yet occurred but which must occur so as to prevent frustration of the contract.
The leading textbooks on contract state that a term will be a condition if it satisfied one of the following four tests.
1. If a statue provides that it is condition.
2. If a binding authority requires a court to hold that it is a condition; if every breach, or
3. If the consequences of every breach, goes to the root of the contract; or,
4. If the parties have agreed that it is to be treated as a condition.
The first three of these tests involve well established principles, but the fourth yet remains to be clearly established.
Express agreement by the parties that one of them shall be able to terminate the contract on the happening of a breach of a particular term by the, other does not automatically entitle the other party to the full benefits which flow from that term being a condition. The express agreement gives an option to bring the contract to an end on the breach of that term, but such an option is no different to an option to bring a contract to, an end on the happening of any defined event; the fact that the event prescribed is a breach is immaterial. There is an option, but the option does not affect the nature of the event upon which that option is exercisable. The, text books ,therefore, are misleading in so far as they suggest ,that a term is a condition where there is agreement by the parties that its breach is to give rise to the innocent party being able to act as though the term breached were a condition, because the court has the right to investigate whether it is the substance of the agreement that the term is a true condition, or merely the form. If it is just the form, then the term will in nominate and the, quantum of damages will depend upon whether the breach was repudiatory at common law.
Like condition, the warranty is to fulfill three essentials, such as-
I) Warranty is collateral to the main purpose of the contract.
II) The breach of warranty does not breach the main purpose of the contract and it causes damages to the aggrieved party.
III) The aggrieved party can only claim damages for breach of warranty.
Example:
P went to Q ask to show a horse which could run at a speed of 35 m. p. h. Q pointed out at a particular horse and said that it will suit his purpose. P bought and discovered that the horse run at a speed of 20 m. p. h. Now, P may reject the horse as the representation made by Q which is the condition of sale is not fulfilled.
Implied conditions and warranties:
An implied condition as to quality or fitness for a particular may be annexed by the usage of trade. Section 16(3), there are instances where the purpose of purchasing goods may be ascertained from the conduct of parties to the sale. Or from the nature of description of the thing purchased. For, example if a water bottle is purchased the purpose for which it is bought is implied in it; in that case the buyer need not tell the seller the purpose for which he buys it.
In Dr.Baretto v. T.R.Price, AIR 1939 Nag 19, A bought a set of false teeth from a dentist. The set did not fit into A’s mouth. Held A could reject the set as the purpose for which anybody would buy it was implicitly known to the seller, here the dentist.
In Priest v Last (1903)2K.B.148,P asked for a hot water bottle to S ,retail chemist ,he was supplied one which burst after few days use and injured P’s wife. The court held that S was liable for the breach of implied condition because P had made known to the Chemist the purpose for which he buys the goods.
Differences between a condition and a warranty:
i) Essential of Contract: – Under Section 12 (2) of the Sale of Goods Act 1930, a condition is defined as a stipulation which is essential to the main purpose of the contract.
On the other hand, warranty is defined under Section 12 (3) as a stipulation that is collateral to the main purpose of the contract.
ii) Effect on breach: The breach of condition gives rise to a right to treat the contract as repudiated. But the breach of warranty gives rise to the claim for damages but not to a right to reject the goods and treat the contract as repudiated.
iii) Option of treatment: In case of condition, a breach of condition can be treated as a breach of warranty as an option on the part of the aggrieved party. But, in case of breach of warranty no such option is essential to the aggrieved party. So the breach of warranty cannot be treated as breach of condition.
Example: P went to Q and asks to show a healthy horse which could run at a speed of 35 m. p. h. Q pointed out at a particular horse and said that it will suit his purpose. P bought and discovered
that the horse run at a speed of 20 m. p. h. and weak. Now, P may reject the horse as the representation made by Q which is the condition of sale is not fulfilled.
When condition to be treated as warranty:
(1) Where a contract of sale is subject to any condition to the 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 relating the contract as repudiated.
(2) Where a contract of sale is not sever able 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.
(3) Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility of otherwise.
Contract of sale of goods by description
There is an implied condition that the goods correspond with the description. The buyer is not bound to accept and pay for the goods which are not in accordance with the description of goods (Section15).
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.
Conditions v. Warranties
Stipulations that is essential for main purpose of contract. Non-fulfillment of such will mean loss of foundation of contract. These are termed as “Conditions”. Stipulations not essential are termed as “warranty?. Aggrieved Party may claim damages. The difference between conditions and warranties can be illustrated in two cases from the late 19thcentury. In Poussard v Spiers and Pond 20, Madame Poussard was under contract to appear in an operetta for the season. In fact she was unavailable because of illness until one week after the season had started. It was held that the obligation to perform from the first night was a condition and the producers were entitled to terminate her contract. A breach of a condition does not automatically cause a contract to be terminated, but it gives the innocent party a choice about how to proceed. They may choose to cancel (“repudiate”) the contract and claim damages and rescission, or they may choose to carry on with (“affirm”) the contract and claim damages. Let’s take another example. Tom, a self-employed sales representative, bought a new car for £10,000.He paid a deposit of £5,000 and agreed to pay the balance in installments. The first time Tom drove the car the engine failed. The manufacturer was prepared to replace the engine, which was covered by its guarantee. It is an implied condition under Section 16 of the Sale of Goods Act 1930 that goods sold must be of a “satisfactory quality”. This leaves Tom with two possible options on how he should legally proceed: a) He may repudiate the contract, and claim rescission and damages. Repudiation means that Tom is no longer bound to make any payments on the car. Rescission enables him to recover his deposit of £5,000 and any installment payments. In addition, he may recover damages to compensate him for any additional costs such as having the car towed to a garage, the cost of hiring a car or arranging alternative transport’s) He may accept the manufacturer’s promise to repair the car – in other words, he may affirm the contract and recover damages only for example, compensation as under the first option. In this option Tom has, in effect, chosen to treat the breach as one of warranty rather than that of condition.
Breach of conditions and warranties:
Conditions
a) Breach gives rise to rescind; with the rescission buyer can demand a return of the purchase money, unless he has, with knowledge of the facts, held on to the bargain so as to waive the condition
b) Right to sell; not undertake to give good title; seller still in breach even if transaction comes within an exception to name that and buyer is able to get a goods title
c) for Sale Of Good s.15, buyer not deprived of right to get back purchase money because cannot restore goods which, from the nature of the transaction, are not the goods of the seller at all ,and which the seller therefore has no right to under any circumstances.
d) Ground: total failure of consideration; not matter car used before found out condition breached.
Warranties
a) Breach gives rise to remedy in damages and will not be able to reject the goods
b) Irrelevant that seller not know of encumbrance or charge
c) Still breached where encumbrances or charges arise after sale and passing of property; condition as to title not breached but warranty as to quiet possession and free from encumbrances or charges breached.
d) Scope of right to quiet possession:
1. Breach where buyer’s possession disturbed by lawful act of 3p who asserts a superior title or a right which impairs the buyer’s title or his freedom to possess and use the good .
2. Breach where tort committed by seller himself or his agents.
3. Not breach where stranger who has no connection with seller commits a tort which interferes with buyer’s rights.
Conclusion:
After the successful completion of this research I have acquainted myself regarding the sale of goods act and the difference between the conditions and warranties. I have learned how a contract of sale of goods is essential for the smooth operations and exchange of goods in the economy. It is always preferred to have written contract as it serves as proof in legal proceedings. A written and attested contract ensures quality of the subject matter. The Seller, thus is duty-bound to warrant that the goods are merchantable, conforms to Industry Standards and specifications. It prevents fraud and deception on behalf of the subject-matter of price by either of the parties. It assigns specific responsibilities upon the buyer and seller which they are bound to perform. The Buyer has a responsibility to reasonably examine goods prior to acceptance and to notify the seller of any defect of the goods – hence it make a buyer more aware of what s/he is buying, thus preventing flaw. A written contract ensures transfer of ownership of the goods to the buyer. The seller through the contract warrants that the goods are free from any security interest liens, outstanding titles, claims or any other outstanding encumbrances. A contract ensures authenticity of the two parties involved in the exchange. It also serves as a proof of a legal transaction and prevents the selling party to make an unlawful mark-up on any product sold. In a nutshell, a contract binds and well as benefits both the parties in the contract. Every kind of contract includes some specifics terms or stipulations regarding the goods of exchange, the price to be paid, buyers or sellers, the quality of goods, delivery, time of payment and performance etc. Some stipulations are essential for the main purpose of the contract. These go to the root of contract and non-fulfillment will mean loss to the foundation of the contract. These are major contracts called conditions. Some stipulations are collateral to contract of sale of goods. These are the minor stipulations of as called, warranty. Stipulations that is essential for main purpose of contract. Non-fulfillment of such will mean loss of foundation of contract. These are termed as “Conditions”. Stipulations not essential are termed as “warranty”. As there are usually different remedies if a warranty is breached, compared to if a condition is breached, it’s important to tell the difference between warranties and conditions in the contract? Sometimes the contract will just state whether a term is a condition or a warranty. If it doesn’t say, it will come down to interpretation of the contract, based on the intention of the parties at the time of forming their contract. Conditions go ‘to the root of’ a contract. In nominate/intermediate terms -consequences of breach only known after breach has occurred etc so status of a term assessed in light of this. Every contract of sale is likely to contain a number of terms and stipulations about the nature and quality of the goods and their fitness of the buyer’s purpose. Every such term is not likely to be of equal importance. Some of them constitute the hard core of the contract and their non fulfillments may seem to upset the very basis of the contract. They may be so vital to the contract that their breach may seem to be a breach of the contract as a whole. Such terms are known as conditions. A term which is not of such vital importance is known as a warranty. Its breach does not lead to repudiation, but only to damages for breach. The sale of goods act goes on to explain the distinction between condition and warranties and also when should condition to be treated as warranty.
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