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criminal law (law of crimes)

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Academic year: 2022/2023

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1

CONTRACTS OF SALE: TERMS, CONDITIONS AND WARRANTIES WITH SPECIAL

REFERENCE TO SALE OF GOODS ACT, 1930

SANKALP JAIN*

INTRODUCTION

Where a seller delivers defective goods, two questions immediately arise:

a) What is the precise legal basis of his liability, and b) What rights does the buyer have against him. 1

Although these questions appear quite simple, the answers to them are difficult enough. The rights and remedies of the buyer often depend on the classification of the terms. The terms of a contract are the essence of a contract and indicate what the contract will do. For instance, the price of a good, the time of its promised delivery and the description of the good will all be terms of the contract. Before entering into a contract, a series of statements are made by one party in order to encourage or induce the other party to enter into contract. A dispute may later arise as to which of the statements made should be considered a part, or a term, of the contract, and which should be taken as merely pre- contract talk, and therefore, not a part or term of the contract. Parties to a contract are bound only by its terms, not by any peripheral statements that may have been made prior to or after entering into contract. A representation which is subsequently made part of the contract ceases to be a representation and becomes something more, viz., a promise that such a thing is or shall be. 2 The question then arises whether this representation, which has ceased to be a mere representation, and has become a term of the contract, is a condition or is a warranty. In the light of this question, the author in this paper shall discuss in detail the conditions and warranties pertaining to contracts of sale.

  • 1 sankalp_jain11@yahoo Samuel J. Stoljar <Conditions, Warranties and Descriptions of Quality in Sale of Goods=(15 Mod. L. Rev. 439
    1. available	at: 2 heinonline	(visited	on	September	1,	2015).
      Anson, _Contract _ 182 (15th ed., 1920).

Electronic copy available at: ssrn/abstract=

2

NATURE OF STATEMENTS

Statements can be split into the following types:

1. Puff (sales talk): If no reasonable person hearing this statement would take it seriously, it would be considered as a puff,and no action in contract is available if such a statement is proved to be wrong. It may also be referred to as "puffery". These kind of statements are common in TV commercials.

2. Representation: A representation is a statement of fact which does not amount to term of contract. Maker of the statement does not guarantee its truth. This gives rise to no contractual obligation but may amount to a tort, for example misrepresentation.

3. Term: A term is similar to a representation, but unlike representation, the truth of the statement is guaranteed by the person making the statement and therefore, giving rise to a contractual obligation. For the purposes of breach of contract, a term may further be categorized as a condition, warranty or innominate term.

The court may take into account various factors in determining the nature of a statement. These include:

1. Timing: If the contract was concluded soon after the statement was made, this is a strong indication that the statement induced the person to enter into the contract. Lapse of a week within the negotiations of a car sale was held to amount only to a representation in Routledge _ v. _ McKay. 3

2. Content of Statement: It is necessary to consider what was said in the given context which has nothing to do with the importance of a statement.

3. Knowledge and Expertise: In _Oscar Chess Ltd _ v. Williams, 4 a person selling a car to a second-hand car dealer stated that it was a 1948 Morris, when in fact it was a 1939 model car. It was held that the statement did not become a term because a reasonable person in

4 [ 1954] 1 WLR 615. [1957] 1 WLR 370.

Intention or meaning in a contract may be manifested or conveyed either expressly or impliedly. The function of the law in such cases is to supply in contracts what is presumed to have been inadvertently omitted or to have been deemed perfectly obvious by the parties, the parties being supposed to have made those stipulations which as honest, fair, and just men they ought to have made. Once it is determined what the implied provisions are, they are read into the contract and the rights of the parties are to be adjudged as though such provisions were expressed. 7 In both the US and UK, generally the sellers want to include in the agreement an <Entire agreement clause= and <Non-Reliance Statement= and include a provision to that effect that the buyer has not relied on any statement or promise not included in the written agreement. The intention behind such clause is that they want to ensure that they cannot subsequently be found liable for representations and/or warranties that are not included in the written agreement. So a caution should be taken on such clauses in the agreement to helps the sellers limit the extension of liability and the buyers to take care on future litigation.

**SALE OF GOODS ACT, 1930: TERMS, CONDITIONS AND WARRANTIES **

Sale of Goods Act, 1930 is one of the oldest mercantile laws. Sale of Goods is one of the special types of Contract. Initially, it was a part of Indian Contract Act itself in chapter VII (Sections 76 to 123). Later these provisions were deleted from the Contract Act and Sale of Goods Act was passed in 1930. The Sale of Goods Act governs the contracts of sale of goods and is complimentary to the Contract Act. Basic provisions of Contract Act are equally applicable to contract of sale of goods.

An express term is one that buyer and the seller actually agree upon. It doesn9t matter if the agreement was verbal, or written, or a bit of both. If the seller doesn9t give the buyer what was agreed, then the buyer will have certain rights to get what was agreed to or get the money back. When parties conclude a written contract, some part of it remains unexpressed. It would be impossible for parties to contemplate all possible eventualities and provide for them in their contract. As a result, the law has recognised that the express

    Sandeep	Bordoloi,	<Conditions	Implied	and	Express=	available	at:

legalservicesindia/articles/condi.htm (visited on August 31, 2015).

terms of a written contract can be supplemented with other unexpressed terms. 8 In most contracts, the primary obligations of the parties are contained in express terms. In addition there are various circumstances in which extra terms may be implied in the agreement.

A condition is a term that is so essential to the agreement that its breach is considered to be a substantial failure to perform the contract. A breach of a condition is said to go to the root of the contract. In other words, had B known that A would not honour this term of the contract, B would not have entered into it in the first place. Breach of condition may entitle the buyer to termination or damages. When termination takes place, the offending party has repudiated the contract. The aggrieved party, if aware of the impending breach, could accept this repudiation and terminate the contract, ending all future obligations except for the damages that stem from non-performance, or the aggrieved party could not accept the repudiation, and may wait for the future breach to occur before pursuing damages. A warranty is a term of contract that is not so essential. A warranty must be performed, but a breach of it is not considered to go to the root of the contract. This meaning of warranty should not be confused with other uses of the word such as in <one-year maintenance warranty=. Damages are the remedy for breach of a warranty.

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 emptor9 i. 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-fulfilment will mean loss of foundation of contract. These are termed as 8conditions9. Other stipulations, which are not essential are termed as 8warranty9. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty and aggrieved party can claim damages. A breach of condition can be treated as breach of warranty, but vice versa is not permissible.

    Steve	 Cornelius	 <The	 Unexpressed Terms	 of	 a	 Contract=	 (17	 Stellenbosch	 L.	 Rev.	 494	 2006)	 available	 at:

heinonline (visited on September 2, 2015).

8warranty9. If payment is not made in time, the seller can claim damages but cannot repudiate the contract. As per Section 11, the general rule is that the stipulation of time of payment is not of essence unless the intention to make it so appears from the terms of contract. However, as regards the other stipulations of time, the Act does not make any presumption whether such stipulations would be considered of essence of the contract or not and makes it dependent upon the terms of the contract. However, the law is also settled that notwithstanding that a specific date is mentioned for the completion of a contract, one has not to look at the letter but at the substance of the agreement in order to ascertain the real intention of the parties. 17 If the intention of the parties is that time should be the essence of the contract it shall have to be treated to be so. 18 The contract does not normally stand discharged by lapse of time. Mere fixation of a period for performance of a contract does not make the stipulation as of time being as an essence.

However, in commercial and mercantile contracts, the need of certainty holds high importance. Where both the parties are engaged in business and articles are purchased by one party from the other party for business purposes, the transaction falls within the term 8mercantile transaction9. 19 There is no place in mercantile contracts for the presumption that time is not of the essence of the contract, and the Supreme Court has held that stipulation as to time is ordinarily of the essence of the contract in mercantile contract, 20 and that when this important condition is broken, the aggrieved party is entitled to rescind the contract under this section.

Thus, under the Sale of Goods Act, if the transactions fall within the definition of mercantile contracts, i. where the goods are bought with the purpose of further selling them and both the parties are engaged in business, then the courts have raised a presumption that time is essence of the contract. However, when the buyer buys goods for personal use or not for business purposes, then no such presumption is raised by the courts. The courts are in fact more liberal in such cases so that the contract between the parties may be saved and

    K	Shanmukham,	A	Ramaiya9s	(eds.) _:	The	Sale	of	Goods	Act_ 	78	(Allahabad:	The	Law	Book	Company	(P)	Ltd,	4th

edn. 1998). 18 19 David Hay (ed.), Halsbury9s Laws of India 388 (New Delhi: Lexis Nexis Butterworths, 2002). 20 Ram Kalpa Kundu v. Kasi Nath Dutta , AIR 1950 Cal 582. Mahabir Prasad Rungta v. Durga Datta , AIR 1961 SC 990.

that one party may not be allowed to rescind the contract unilaterally to the disadvantage of the other party. Thus, under the Sale of Goods Act, even though some clarity has been brought by the court in case of mercantile transactions, still there is no general rule regarding the other sales which are not for such purposes **. ** Since, the Sale of Goods Act not only covers the sales, which are solely for mercantile or commercial purposes, but also general sales to individual customers for personal use of the goods, the law in this regard is not very clear as it leaves the question to the courts to determine the intention of the parties from the nature of the contract. Thus, the buyer as well as the seller is left wondering as to in which circumstances their right to rescind the contract arises and what would be the interpretation given by the courts to the nature of their contract in case they decide not to go ahead with the contract.

**TERMS IMPLIED BY CUSTOM **

The terms of a contract may have been negotiated against the background of the customs of a particular locality or trade. The parties automatically assume that their contract will be subject to such customs and so do not deal specifically with the matter in their contract. 21

**TERMS IMPLIED BY THE COURT **

The courts will be prepared to imply a term into a contract in order to give effect to the obvious intentions of the parties. Sometimes the point at issue has been overlooked or the parties have failed to express their intention clearly. In such circumstances, the court will supply a term in the interests of 'business efficacy' so that the contract makes commercial sense. 22 A more recent test is the 'officious bystander test' used to incorporate implied obvious terms. 23 If while the parties were making their contract, an officious bystander were to suggest some express provision, they would both reply, "oh, of course." 24

22 See Hutton _ v. _ Warren (1836) 1 M&W 466. 23 The Moorcock (1889) 14 PD 64. 24 _Shirlaw _ v. Southern Foundries [1940] AC 701. Wilson v. Best Travel [1993] 1 All ER 353.

of Goods Act and any other law, there is no implied condition or warranty as to quality or fitness of goods for any particular purpose. As per section 2(12), <Quality of goods= includes their state or condition. However, like every other doctrine, this doctrine is also subject to certain exceptions which are listed as follows:

a) False representation by seller b) Seller actively conceals a defect c) Buyer relying upon the skill of the seller d) Goods bought by description

**INTERMEDIATE TERMS **

It may be impossible to classify some of the terms of contract as a condition or a warranty. Some undertakings may occupy an intermediate position as per which the term can be assessed only in the light of the consequences of a breach. If breach of such term results in severe loss and damage, the injured party will be entitled to repudiate the contract but if the breach involves minor loss, the injured party's remedies will be restricted to damages. These intermediate terms are also known as innominate terms. 31

For many years the orthodox approach to the classification of contractual terms has been to treat them as being either "conditions" or "warranties" on the basis of the proper construction of the contract. The importance of the distinction between conditions and warranties is that the breach of a "condition" entitles the innocent party to claim damages and rescind the contract; whereas the breach of a "warranty" entitles the innocent party only to claim damages." This orthodoxy was questioned by the English Court of Appeal in Hongkong Fir Shipping Co. Ltd . v. Kawasaki Kisen Kaisha Ltd. 32 wherein it was noted that many contractual undertakings are too complex to be categorised as being either "conditions" or "warranties". Of these complex contractual undertakings, all that can be said is that some breaches will give rise to a right to rescind the contract and some breaches will

    See	 _Hong	Kong	Fir	Shipping	Co	_ v. _	Kawasaki	Kisen	Kaisha	_ [1962]	1	All	ER	474;	 _The	Mihalis	Angelos	_ [1971]	1	QB

164; _The Hansa Nord _ [1976] QB 44; _Reardon Smith Line _ v. _Hansen-Tangen _ [1976] 3 All ER 570; _Bunge Corporation _ 32 v _. Tradax Export _ [1981] 2 All ER 513. [1962] 1 All ER 474.

sound only in damages. This approach requiring an analysis of the breach of contract. This decision has been seen by some as creating a third category of contractual terms <innonimate terms= or <intermediate stipulations=. 33

**CONDITIONS AND WARRANTIES: DIFFERENCES **

1. Stipulation: Condition is an essential term or stipulation of the contract which must be fulfilled for the performance of the contract. Warranty is a collateral or incidental stipulation to the main purposes of the contract. It is not as essential a stipulation of the contract as a condition.

2. Remedy: Breach of condition gives right to repudiate or treat the contract as broken or rescinded and also a right to claim damages. Breach of warranty gives right to claim damages only. A breach of warranty does not entitle a buyer to reject the goods and his only remedy would be to set up against the seller the breach of warranty in diminution or extinction of the price or to sue the seller for damages for breach of warranty.

3. Exercise of options as to treatment: Breach of condition may be treated as a breach of warranty. However, a breach of warranty cannot be treated as a breach of condition. Whether stipulation in a contract is a condition or warranty depends on the construction of the contract. Stipulation may be a condition even though called a warranty. Option is given to the party to either claim damages or repudiate the contract even if stipulation is a condition. Where damages are only claimed, the condition is reduced to a warranty. 34 There is a marked difference between a condition and a warranty both as to their nature and their effect upon the primary obligation of a contract of sale; and yet it is often difficult to determine whether a clause in a contract of sale is one or the other. 35 This difficulty is ascribable to the confusion caused by some courts calling various stipulations conditions,

    J **.	** W.	Carter,	C.	Hodgekiss,	<Conditions	and	Warranties:Forebears	and	Descendants=	(8	Sydney	L.	Rev.	35

1977, 1979). 34 V S Rama Rao, <Conditions and Warranties= available at _: _ citeman/7019-conditions-and- warranties#ixzz25QUGV9J3 (visited on September 35 1, 2015). W. W. Keysor < Some Phases of Conditions and Warranties in the Law of Sales of goods= **, ** Vol. II **, ** Washington University Law School (2 St. Louis L. Rev. 53 1917) available at: heinonline (visited on September 3, 2015).

BIBLIOGRAPHY

BARE ACTS

  1. The Indian Contract Act, 1872
  2. The Sale of Goods Act, 1930

**BOOKS **

  1. Anson, _Contract _ 182 (15th ed., 1920)

  2. Avtar Singh, Law Of Sale Of Goods (Eastern Book Co., 7th edn. 2011)

  3. David Hay (ed.), Halsbury9s Laws of India (Lexis Nexis Butterworths, New Delhi, 2002)

  4. K Shanmukham, A Ramaiya9s (eds.) _ The Sale of Goods Act_ (The Law Book Company (P) Ltd, Allahabad, 4th edn., 1998)

  5. Madhusudan Saharay, _ Sales Of Goods and Hire Purchase _ (Universal Law Publishing Co., New Delhi, 2010)

  6. P. Ramanatha Aiyar, _Law Of Sale Of Goods _ (Universal Law Publishing Co., New Delhi, 8 th edn. 2007)

**ARTICLES **

  1. Avi Tandon <Stipulations As To Time Of Delivery In Contract Of Sale Of Goods: Whether A Condition, Warranty Or An 8Innominate9 Term?= available at: airwebworld/articles/index.php?article=1028 (visited on August 30,

  2. J **. ** W. Carter, C. Hodgekiss, <Conditions and Warranties:Forebears and Descendants= (8 Sydney L. Rev. 35 1977, 1979)

  3. L. Shrinivas, <Representations and warranties= available at: legalindia/representations-and-warranties (visited on August 31,

  4. Samuel J. Stoljar <Conditions, Warranties and Descriptions of Quality in Sale of Goods=(15 Mod. L. Rev. 439 1952)

  5. Samuel Williston, <Rescission for Breach of Warranty=, Harvard Law Review, 16, No. 7 (May, 1903), 465-475, The Harvard Law Review Association available at: jstor/stable/1322808

  6. Sandeep Bordoloi, <Conditions Implied and Express= available at: legalservicesindia/articles/condi.htm (visited on August 31, 2015)

  7. Steve Cornelius, <The Unexpressed Terms Of A Contract= (17 Stellenbosch L. Rev. 494 2006) available at _: _ heinonline (visited on September 2, 2015)

  8. V S Rama Rao, <Conditions and Warranties= available at: citeman/7019-conditions-and-warranties.html#ixzz25QUGV9J3 (visited on September 1, 2015)

  9. William Bojczuk, <When Is A Condition Not A Condition=, J.B. 353-362 (1987)

  10. W. W. Keysor <Some Phases of Conditions and Warranties in the Law of Sales of Goods= **, ** Vol. II **, ** Washington University Law School (2 St. Louis L. Rev. 53 1917) available at: heinonline (visited on September 3, 2015)

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Ssrn - notes

Course: criminal law (law of crimes)

9 Documents
Students shared 9 documents in this course

University: Sikkim University

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Electronic copy available at: http://ssrn.com/abstract=2776977
!
1!
CONTRACTS(OF(SALE:(TERMS,(CONDITIONS(AND(WARRANTIES(WITH(SPECIAL(
REFERENCE(TO(SALE(OF(GOODS(ACT,(1930(
(
(
SANKALP(JAIN*!
!
INTRODUCTION(
!
Where!a!seller!delivers!defective!goods,!two!questions!immediately!arise:!!
!
a) What!is!the!precise!legal!basis!of!his!liability,!and!!
b) What!rights!does!the!buyer!have!against!him.1!!
!
Although! these! questions! appear! quite! simple,! the! answers! to! them! are! difficult! enough.!
The!rights!and!remedies!of!the!buyer!often!depend!on!the!classification!of!the!terms.!The!
terms!of!a!contract!are!the!essence!of!a!contract!and!indicate!what!the!contract!will!do.!For!
instance,!the! price!of! a!good,! the!time! of!its! promised!delivery! and!the! description!of! the!
good!will!all!be!terms!of!the!contract.!Before!entering!into!a!contract,!a!series!of!statements!
are! made! by! one! party! in! order! to! encourage! or! induce! the! other! party! to! enter! into!
contract.! A! dispute! may! later! arise! as! to! which! of! the! statements! made! should! be!
considered! a! part,! or! a! term,! of! the! contract,! and! which! should! be! taken! as! merely! pre-
contract! talk,! and! therefore,! not! a! part! or! term! of! the! contract.! Parties! to! a! contract! are!
bound!only!by!its!terms,!not!by!any!peripheral!statements!that!may!have!been!made!prior!
to!or!after!entering!into!contract.!A!representation!which!is!subsequently!made!part!of!the!
contract!ceases!to!be!a!representation!and!becomes!something!more,!viz.,!a!promise!that!
such!a!thing!is!or!shall!be.2!The!question!then!arises!whether!this!representation,!which!has!
ceased!to!be!a!mere!representation,!and!has!become!a!term!of!the!contract,!is!a!condition!
or!is!a!warranty.!In!the!light!of!this!question,!the!author!in!this!paper!shall!discuss!in!detail!
the!conditions!and!warranties!pertaining!to!contracts!of!sale.!
!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
*!sankalp_jain11@yahoo.com!
1Samuel! J.! Stoljar! <Conditions,!Warranties!and!Descriptions! of! Quality! in! Sale!of!Goods=(15!Mod.! L.! Rev.!439!
1952)!available!at:!!http://heinonline.org!(visited!on!September!1,!2015).!
2!Anson,!Contract!182!(15th!ed.,!1920).!

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