Conditions and Warranty

A contract of sale of goods contains various terms or stipulations about the quality of goods, price, and mode of its payment, delivery of goods, and time and place. These are also known as the conditions of the contract.

What is Conditions?

A condition can be defined as a promise or statement of fact, which is an essential term of the contract. The breach of a condition gives the concerned party the right to terminate or repudiate the contract.

Conditions Definition

Formally, a condition can be defined as follows:

“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”.

Conditions Example

Suresh is a tour manager. He asks a car dealer to suggest a car that would be suitable for touring purposes. The dealer suggests a particular car, and Suresh purchases it from him. Later, however, Suresh finds the car unsuitable for the purpose it was bought.

As per the contract signed between the two parties, the suitability of the car for touring purposes is one of the conditions of the contract. Therefore, Suresh is entitled to reject the car and have a refund of the price paid.

What is Warranty?

A warranty is a stipulation collateral to the primary 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.

Warranty Example

Example: Suresh asks a car dealer to suggest a good fuel-efficient car. The dealer suggests a car and claims that it runs 20 km per liter of petrol. Suresh purchases the car but later finds out it runs only 15 km per liter of petrol.

In this case, the statement made by the seller was a warranty. Therefore, Suresh is not entitled to reject the car but is entitled to claim damages.

There is no hard and fast rule as to which stipulation is a condition and which is a warranty. According to the Contract Act, “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”

Differences Between Condition and Warranty

Points of DistinctionConditionWarranty
StipulationA condition is an essential stipulation to the main purpose of a contract.A warranty is a stipulation collateral to the main
purpose of a contract. It
is basically an assurance.
BreachBreach of a condition gives the right to repudiate the contract and also to claim damagesBreach of the warranty gives the right to claim damages only.
TreatmentBreach of a condition may be
treated as a breach of warranty
A breach of warranty cannot be treated as a breach of a condition.

Express Conditions and Warranties

Conditions and warranties may either be expressed or implied. They are said to be expressed when they are inserted into a contract after taking the full consent of the associated parties.

Example: A buyer wants to buy a refrigerator with model number 3999. Here, the model number is an express condition. The compressor of the refrigerator has a guarantee of 5 years, which is an express warranty.

Implied Conditions and Warranties

Conditions and warranties are said to be implied when the law automatically presumes the existence of some terms in a contract though they have not been put in express words.

The law incorporates into a contract of sale of goods the following implied conditions:

Conditions as to the title

In every contract, there is an implied condition on the part of the seller that:

  • In the case of a sale, the seller has a right to sell the goods

  • In the case of an agreement to sell, the seller has a right to sell the goods at the time when the title of the property is to pass.

Example: Ram purchases some stolen goods from Suresh, who is a thief. Shyam is the true owner of the stolen goods. He demands from Ram that the goods be returned to him. In this case, Ram has to return the goods to Shyam. He cannot sue Suresh as the knowledge of the buyer has negated the implied conditions as to the title.

Conditions in a sale by description

As per the Sale of Goods Act, “Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description ….”. The description may be in terms of the qualities or characteristics of the goods.

Example: X bought a machine from Y who claimed it to be only six months old. However, after using it, X finds out that the machine is extremely old. X has the right to reject the machine as the description of the machine does not match the one provided by the seller.

Condition in a sale by sample

When under a contract of sale, goods are to be supplied according to a sample agreed upon, the implied conditions are:

  • That the bulk shall correspond with the sample in quality

  • That the buyer shall have a reasonable opportunity of comparing the bulk with the sample

  • That the goods shall be free from any defect (latent)

Condition as to fitness or quality

Under a contract of sale, there is no implied condition or warranty related to the quality or fitness of the goods supplied. In fact, in most of the agreements, this assurance is disclaimed explicitly by the seller.

This is expressed by the principle of Caveat Emptor (i.e. let the buyer beware). However, the buyer has the right to satisfy himself/herself about the quality of the goods. An implied condition is deemed to exist on the seller’s part that the goods supplied shall reasonably fit for the purpose for which the buyer wants them if the following conditions are satisfied.

  • The particular purpose for which goods are required must have been disclosed (expressly or impliedly) by the buyer to the seller

  • The buyer should rely on the seller’s skill or judgment

  • The seller’s business must be to sell such goods

Example: Suppose you purchase a hot-water bottle from a shopkeeper. However, the bottle breaks when you pour hot water into it. In this case, the shopkeeper is liable to refund the price because the bottle was unfit for the purpose for which it was purchased.

Condition as to merchantability

There is an implied condition that the goods shall be of merchantable quality unless specifically disclaimed by the seller, or the goods are specifically stated to be sold on an “as is” condition (i.e., with all their defects).

The expression merchantable quality means that the goods should be free from any hidden defects. The quality and condition of the goods must be such that an individual would accept them as the goods of that description.

Example: You purchased a bottle of champagne. While opening its cork, the bottle breaks, and you are injured. In this case, you are entitled to claim damages as the bottle was not of merchantable quality.

Condition as to wholesomeness

This condition is applied in the case of eatables or provisions or foodstuff. There is an implied condition that eatables should be free from any defect and fit for human consumption.

Example: W bought milk from H‘s diary. The milk was contaminated with typhoid bacteria. As a result, when W consumed the milk, he fell ill. In this case, H is held liable for W’s illness as the milk was not fit for human consumption.

Implied Warranties

Unless otherwise agreed, the law also incorporates the following implied warranties:

Warranty of quiet possession

There is an implied warranty that the buyer shall have and enjoy quiet possession of the goods. This is an extension of the implied condition as to the title.

Example: X purchases a second-hand mobile phone from Y. X spends some money on its repair. However, the mobile phone is a stolen one, and therefore X is entitled to file a suit against Y for recovery of damages, including the cost of repairs.

Warranty of Freedom From Encumbrances

There is an implied warranty that the goods sold are free from any charge or encumbrance in favor of any third person if the buyer is not aware of such charge or encumbrance. This is a warranty that should be specially investigated thoroughly in the purchase of real estate.

Example: You borrow ₹500 from Y and hypothecate your phone with Y as security. Later on, you sell the phone to Z who buys it in good faith. Here, Z can claim damages from you because his possession is disturbed by Y having a charge.

Warranty of Disclosing the Dangerous Nature of Goods to the Ignorant Buyer

This means that the seller must disclose the dangerous nature or danger related to the goods he is selling. It is an implied warranty on the part of the seller.

Example: Purchases a tin of disinfected powder from B. B knows that the lid of the tin is defective and may be dangerous if it is not opened carefully. However, B does not tell this A. A opens the tin and the disinfectant powder flies into his eyes, causing a major injury. In this case, B is liable to pay for damages caused to A.

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