Conditions and Warranties

Condition:

Some terms of the contract of sale constitute the hard core of the contract and their non-fulfilment 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 of the contract and their breach entitles the innocent party to repudiate the contract.

Warranty:

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.

Case:

The concept of a condition is well illustrated by the case of Baldry V. Marshall. The plaintiff consulted the defendants, motor car dealers, for a car “suitable for touring purposes”. The defendants suggested that a “Bugatti” car would be appropriate and the plaintiff accordingly bought one. The car turned out to be unfit for touring purpose and the plaintiff ought to reject it. The defendants relied upon a term in the contract which guaranteed the car for twelve months against mechanical defects and excluded every other guarantee or warranty.
But it was held that the suitability of the car for touring purposes was not a guarantee or warranty, but a condition of the contract. The term was so vital that its non-fulfilment defeated the very purpose for which the plaintiff bought the car. He was, therefore, entitled to reject and have refund of the price.

Consequences of Breach:

Since a condition is a stipulation essential to the main purpose of the contract its breach by one party entitles the other to treat contract as repudiated.

For example, if the seller makes a breach of condition, the buyer may reject the goods. Similarly, if the breach is made by the buyer, the seller may treat it as a breach of contract and not perform his own part of the obligation.

Option to the buyer on breach of conditions by the seller: 

When there is a breach of condition by the seller, the buyer may:
A) Treat the contract as repudiated, or 
B) Waive the condition, or 
C) Treat the breach of condition as a breach of warranty.

The law implies into every sale of goods a number of conditions and warranties. They are read into every contract of sale unless they are excluded and are known as implied conditions and warranties.

1. Conditions as to Title:

The essence of sale being the transfer of ownership, it is one of the duties of the seller to ensure that he has the right to sell what he purports to sell. If the seller’s title turns out to be defective the buyer may reject the goods. There can be no sale at all of the goods which the seller has no right to sell. The whole object of sale is to transfer property from one person to another. In fact the buyer has not received any part of that which he contracted to receive-namely, the property and right to possession- and that being so, there has been a total failure of consideration.

Case:
In Niblett V. Confectioners’ Material Co, the defendant sold the plaintiffs 3,000 tins of condensed milk. On their arrival in England from New York it was found that 1,000 tins were labeled ‘Nissley Brand’. Another manufacturer of condensed milks under the name of ‘Nestle Brand’ claimed that this was an infringement of his trade mark. The plaintiff had to remove all the labels in order to obtain the goods and subsequently sold them at a reduced value. He sued the sellers for the breach of the condition as to title. It was held that the plaintiff had the right to reject the goods or to recover as damages the loss caused by the sale at a reduced price.

Explaining the meaning of ‘right to sell’ it was said that the seller had not the right to sell these goods. Having admitted that they were an infringement of the Nestle Company’s trade mark they were liable to an injunction restraining the sale. Therefore they had no right to sell these goods at the time when the property was to pass. If a vendor can be estopped by process of law from selling he has not the right to sell.

2. Sale by Description:

Section 15 of the Act lays down the conditions which is implied by law in a sale by description. It says that 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. 
Two things are necessary to enable a buyer to invoke the protection of this section.

First, there should be a sale by description and, secondly, the goods do not correspond with the description. The expression ‘sale description’ includes many situations. Firstly, it refers to a case where the buyer has never seen the goods and buys them on the basis of the description given by the seller. This happened in Varley V. Whipp. 

There was a sale of reaping machine which the buyer had never seen and which the seller stated ‘to have been new the previous year and used to cut only 50 to 60 acres.’ On delivery the buyer found the machinery to be extremely old and, therefore, returned it. The seller’s action against the buyer for the price failed. It was a sale by description and the machine did not correspond with the description.

Even where the buyer has seen the goods, it may be a sale by description if he relies not on what he has seen but what was stated to him and ‘the deviation of the goods from the description is not apparent’. This is illustrated in Nicholson and Venn V. Smith Marriott.

It was an auction sale of a set of linen napkins and table cloths, described as ‘dating from the seventeenth century’. The plaintiff, who were dealers in antiquities, saw the set and bought it. They subsequently found it to be an eighteenth century set and sought to reject it. It was held that they could do so. They had relied on the description and the discrepancy between the description and the quality could not have been discovered by the casual examination.

Thirdly, packing of goods may sometimes be a part of the description. Thus, in Moore & Co. V. Landuer & Co., there was a contract for the purchase of 3,000 tins of canned fruit from Australia, to be packed in cases each containing 30 tins. The sellers tendered a substantial portion in cases containing 24 tins. The method of packing was held to be a part of the description and, therefore, the purchasers were entitled to reject the whole consignment.
Once it is proved that the sale is by description, the law implies the condition that the goods must correspond with the description. If they do not do so the buyer may reject them and it will be no defence to say that they will serve the buyer’s purpose. Where is a sale of copra cake, the goods were found adulterated with castor beans. It was held that the goods did not correspond with description and the condition was broken.

3. Sale by Description as well as by Sample:

The section 15 further provides that if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description. In other words, the implied condition in such cases is that the goods shall not merely agree with the sample, but must also correspond with the description. The basic insistence of the section is ‘correspondence with description.’

4. Sale by Sample:

This is defined in Section 17 of the Act. A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. A sale by sample is indistinguishable from a sale by description. The law implies three conditions into every contract of sale by sample:

1. That the bulk shall correspond with the sample in quality.
2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
3. That the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent on reasonable examination of the sample.

In Godley V. Perry, a retailer tested toy catapults by pulling at the elastic and found no defect, but one of them subsequently exploded in the hands of a child who had bought it from the retailer. It was held that the goods were un-merchantable by reason of the latent defect. The court pointed out that ‘reasonable examination means as that phrase is understood by the commonsense standards of everyday life.’ It obviously does not mean complete or through examination.

There are certain types of warranties which are implied by law in a sale of goods:

1. Quite Possession:

An implied warranty that the buyer shall have and enjoy quiet possession of the goods. It is a warranty that the vendor shall not, nor shall anybody claiming under a superior title, or under his authority, interfere with the quiet enjoyment of the vendee.

2. Free from Encumbrance: 

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 when the contract is made.

Conditions Reduced to Warranty:
In certain circumstances a condition is reduced to the status of a warranty. The effect is that the buyer losses his right to reject the goods. He has to be content with the remedy for damages for the breach of the conditions.

This happens in the following cases:

1. Waiver by Buyer:

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. The conditions, express or implied, are for the benefit of the buyer. He has, therefore, the option to waive the breach of a condition. In that case he remains liable for the price, but may recover damages for the breach. The buyer’s election may be express or implied.

2. Acceptance of goods by buyer:

Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of the 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, unless there is a term of the contract of that effect. Thus, where the buyer has accepted the goods and thereafter discovers that some conditions was not fulfilled, he cannot reject.

An illustration in point is Hardy & Co. V. Hillerns & Fowler. Wheat sold under a contract arrived at the port of destination. The buyers took up the shipping documents. The day on which the wheat was unloaded they resold and dispatched a portion of it to sub-purchasers. They subsequently discovered that the wheat was not of the contract quality and gave the sellers a notice of rejection. All this happened within three days and, therefore, reasonable time for the examination of the goods had not expired. It was held that the transfer of the possession to the sub-purchasers was an act inconsistent with the ownership of the sellers and, therefore, that put an end to the buyer’s right of rejection. Not with standing that it took place before the expiry of reasonable time for inspection. The act of resale is inconsistent with the seller’s ownership because the buyer has to place the rejected goods at the disposal of the seller immediately on rejection, whereas if he has resold them, he cannot do that till he receives them back from the sub-buyers.

When a condition is reduced to the status of a warranty, the effect is not that the condition becomes a warranty, but that the condition remains a condition, it is only the remedy which changes. When the contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of condition has got to be treated as a breach of warranty. The idea behind the provision is that when the buyer has a choice of either accepting or rejecting the goods and he chooses to accept them, his right of rejection can no more be exercised. Merely taking delivery of the goods by the buyer does not necessarily mean the acceptance of them. This is demonstrated by the decision of the House of Lords in Wallis, Son & Wells V. Pratt. The defendants sold seed to the plaintiffs, as “Common English Sanfoin” on the condition that the “seller give no warranty express or implied as to growth, description or any other matter.” The seed delivered to the buyers was not “Common English Sanfoin”, but “Giant Sanfoin”, a different and inferior seed. The buyer accepted the seed believing it to be “Common English Sanfoin” and resold it as such to other parties, to whom they were obliged to pay damages for the mistake.
The time for rejection having been lost, the only course open to the buyers was to sue for damages. The sellers contended that the “condition” was reduced to “warranty” and they had excluded liability for warranties. The House of Lords rejected this contention and allowed the buyers to recover damages for their loss. A condition is converted into warranty only for remedial purposes. The result may be summed up as it was absurd to suggest that, because subsequent events had prevented the buyers from repudiating the contract, they had also converted a more into a less important term. Once a condition always a condition, whether or not the remedies remained the same.
Where goods not answering to the description contracted for are delivered to a buyer, the buyer has a right to one of two alternative remedies:

A) Reject the goods and obtain a refund of the price in advance and sue for damages for non delivery. In such an event the damages he would obtain would be the difference between the contract price and the market price of the goods on the date of the breach if the latter were higher; 
B) Waive condition and accept the goods and sue for damages for a breach of warranty. When he accepts the goods, he has to pay the contract price less any claim for set-off for breach of warranty.
Section 62 of the Act enables the parties to a sale to exclude liability for implied terms. The section recognizes three modes by which liability for implied terms may be negatived:-
1. By express Contract;
2. By course of dealing; and 
3. By trade usage.