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In the course of negotiations, parties exchange numerous statements pertaining to the contract's subject matter. However, not all statements made during negotiations necessarily become integral parts of the contract.
These statements can be categorised as either contractual terms or mere representations that do not constitute contractual obligations. Statements deemed mere representations, not forming part of the contract, are not considered either conditions or warranties; they are regarded as stipulations.
Only when a statement is recognized as a contractual term can it be classified as either a condition or a warranty.
Distinction between Condition and Warranty
In a contract for the sale of goods, there exist numerous terms or conditions, which may fall under the categories of conditions or warranties [Section 12(1)].
A stipulation is termed a condition if it serves as the fundamental basis of the contract or is indispensable to its primary purpose [Section 12(2)].
Conversely, if a stipulation holds secondary significance or is ancillary to the primary purpose of the contract, it is referred to as a warranty [Section 12(3)].
Conditions are integral to the essence of a contract, so essential that their nonperformance can be deemed a substantial failure to fulfil the contract itself. On the contrary, warranties are obligations that, while necessary for performance, are not so crucial that their failure would undermine the core of the contract.
The remedies available to the buyer for breach of a condition versus breach of a warranty are distinct, as will be discussed later.
The concept of a condition is exemplified in the case of Baldry v Marshall (1925) 1 KB 260. In this instance, the plaintiff engaged the defendants, motor car dealers, seeking a car "suitable for touring purposes."
The defendants recommended a "Bugatti" car, which the plaintiff purchased accordingly. However, the car proved unsuitable for touring, leading the plaintiff to attempt rejection.
Although the contract contained a term guaranteeing the car for 12 months against mechanical defects and excluding all other guarantees or warranties, it was determined that the car's suitability for touring was not a warranty but a condition of the contract.
This term was so crucial that its non-fulfillment rendered the purpose for which the plaintiff bought the car unattainable.
For instance, in an agreement between A and the seller, where A agrees to pay the price by the 15th of December, and the seller undertakes to dispatch a red saree via registered parcel to arrive by the 15th of January, enabling A to wear it on her marriage on the 16th of January.
In this scenario, the colour of the saree and the delivery date are conditions, while stipulations regarding the timing of payment and the method of dispatch are warranties.
Whether a stipulation in a contract constitutes a condition or a warranty depends on the interpretation of the contract itself. It's possible for a stipulation to be deemed a condition, even if labelled as a warranty within the contract [Section 12(4)]. The court is not bound by the terminology chosen by the parties.
For instance, consider the example where A agrees to supply a suit to B by the 15th of November, which B intends to wear on his wedding day, the 16th of November. In this case, the timing of delivery of the suit is considered a condition.
Conversely, if the suit, agreed to be delivered by the 15th of November, is intended by the buyer for use in the subsequent winter season, the timing of delivery would be regarded as a warranty.
In the case of Harrison v Knowles & Foster (1917) 2 KB 606, the plaintiff purchased two small ships from the defendants, relying on information provided by the defendants that each ship had a dead weight capacity of 460 tons.
However, the actual capacity was only 360 tons. It was determined that the representation of capacity was not a condition but a warranty.
Stipulations as to time
Unless the terms of the contract suggest otherwise, stipulations regarding the timing of payment are typically not considered essential in a contract of sale. Whether any other stipulation concerning time is crucial to the contract depends on the specific terms of the agreement.
If a stipulation regarding time is indeed essential to the contract, the aggrieved party has the right to terminate the contract. Otherwise, only compensation can be pursued.
For example, if the buyer agrees to pay the price in advance by the 15th of December, and the goods are scheduled for delivery on the 15th of January, but the buyer delays payment until the 25th of December, the seller's recourse in such a scenario is to seek compensation. This is because the timing of payment is typically regarded as a warranty.
However, a contract might stipulate that the buyer must pay the price by a specific date, failing which the goods will not be supplied. In such instances, the parties have established that the timing of payment is crucial to the contract, and any delay by the buyer would empower the seller to terminate the contract.
In typical commercial contracts for the sale of goods, the general principle is that time is presumed to be of the essence regarding delivery. This is because a commercial contract often forms part of a larger chain of transactions, where timely performance may be crucial to the entire arrangement.
Therefore, if party A agrees to sell and deliver goods to party B on a specific day, A is obligated to deliver them on that day. Failure to do so entitles B to terminate the contract.
Accordingly, time is considered essential in the following circumstances:
(1) when the parties explicitly agree to treat it as such,
(2) when delay causes harm, and
(3) when the nature and necessity of the contract dictate it.
If the seller tolerates a delay in payment, they cannot later claim that the timing of payment was essential. For instance, in a contract for the supply of wagons where payment was to be made in stages and the buyer defaulted at the second stage, the supplier, by delivering a portion of the wagons, waived the right to rescind the contract due to delayed payment.
It's noteworthy that even if the seller completes their work earlier than agreed upon, this may still be grounds for rejection, regardless of whether the buyer suffered any damages.
When time is crucial to a contract and is extended, the extended deadline is also considered essential to the contract. If the contract does not specify a time for performance, neither party can unilaterally declare time to be of the essence.
Implied Condition as to Title
Section 14 of the Sale of Goods Act outlines several implied conditions and warranties inherent in contracts of sale:
Clause (a) stipulates that unless circumstances suggest otherwise, the seller implicitly warrants their right to sell the goods in question. In cases of sale, this entails possessing the goods and the right to dispose of them; in agreements to sell, it entails having the right to sell the goods at the time when ownership is to transfer.
Generally, only a person who is the owner of goods or an agent of the owner may sell them. If the seller lacks title or the right to dispose of certain goods, the buyer has the right to reject them and claim a refund, even if the goods have been used.
Clause (b) ensures the buyer's quiet possession of the goods, meaning their possession will not be disturbed. If the seller sells goods to which they have no right (e.g., stolen goods), and a third party with superior title claims those goods, the buyer can sue the seller for breaching this warranty, claiming not only the price paid but also any expenses incurred, such as repair costs.
Clause (c) guarantees that the goods are free from any encumbrance in favour of a third party unknown to the buyer at the time of the contract. If the buyer incurs charges due to such encumbrances, they are entitled to compensation from the seller.
In the case of Niblett Ltd. v Confectioners’ Materials Co. [(1921) 3K.B. 387], where sellers sold tins of condensed milk bearing a third-party trademark, the sellers breached the implied condition of having the right to sell the goods (Sec. 14(a)) and the implied warranty of quiet possession.
As a result, they were liable to compensate the buyers. Additionally, the sellers breached the implied condition of merchantable quality (Sec. 16(2)).
Implied Condition of Sale by Description
Section 15 of the Sale of Goods Act establishes an implied condition that when goods are sold by description, they must correspond with that description.
Failure to meet this condition gives the buyer the right to reject the goods unless they accept them while treating the breach of condition as a breach of warranty.
The description can pertain to various aspects of the goods, such as their class, kind, weight, measurement, condition, packing, time of arrival, and more. It's crucial that the buyer relied on the description for the identity of the goods supplied by the seller.
Sales by description include cases where the buyer has not seen the goods but relies solely on the description provided.
Even if the buyer has seen the goods, the sale may still be considered a sale by description if they relied on the description rather than their observation, especially if any deviation from the description is not readily apparent.
For instance, in Nicholson & Venn v Smith Marriott (1947) 177 LT 189, where a set of linen napkins and tablecloths described as dating from the 17th century was later discovered to be from the 18th century, the buyers were entitled to reject the goods because they had relied on the description, and the discrepancy was not evident upon casual examination.
Similarly, in Beale v Taylor (1967) 3 All ER 253, where buyers relied on a false description of a car despite seeing it, they were entitled to reject the goods.
Rule of Caveat Emptor
Section 16 of the Sale of Goods Act embodies the principle of caveat emptor, or "buyer beware," stating that as a general rule, there is no implied warranty or condition regarding the quality or fitness for any specific purpose of goods sold under a contract.
This places the responsibility on the buyer to ensure that the goods meet their requirements, and if they turn out to be unsuitable, the buyer cannot hold the seller accountable.
For instance, if A purchases a horse from B without specifying that it's needed for riding, and later finds that the horse is only suitable for being driven in a carriage, A cannot reject the horse or seek compensation from B.
Under this rule, it is the buyer's responsibility to select goods that meet their needs. The buyer must familiarise themselves with the qualities and potential defects of the goods they intend to purchase.
While the seller is not obligated to disclose every defect they are aware of, their silence may still be considered deceptive if it leads the buyer to believe the goods are suitable for a particular purpose.
Sale by Sample
Section 17 of the Sale of Goods Act, 1930, pertains to sales conducted by sample:
(1) A contract of sale becomes a contract for sale by sample when there is an explicit or implicit term to that effect within the contract.
(2) In cases of contracts for sale by sample, the following implied conditions apply:
(a) The bulk of the goods must match the sample in terms of quality.
(b) The buyer must have a reasonable opportunity to compare the bulk with the sample.
(c) The goods must be free from any defect that would render them unmerchantable and which would not be discernible upon a reasonable examination of the sample.
Comprehensive framework
Sale of Goods Act provides a comprehensive framework for the regulation of contracts for the sale of goods, covering various aspects such as the distinction between conditions and warranties, implied conditions and warranties, sale by description, the rule of caveat emptor, and sale by sample.
The Act emphasises the importance of understanding the nature of contractual terms and representations exchanged during negotiations.
It distinguishes between conditions, which are fundamental to the contract and failure to perform them constitutes a substantial breach, and warranties, which are secondary obligations that do not go to the root of the contract. Remedies for breach of conditions and warranties differ accordingly.
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