Conditions and Warranties in a Contract of Sale

A contract of sale is built up of various stipulations (statements/promises) regarding the goods. Section 12 of the Act sorts every such stipulation into one of two kinds — a condition or a warranty — and the consequence of breaking each is very different.

Condition and Warranty Defined

• Condition — Section 12(2): a stipulation essential to the main purpose of the contract. If a condition is broken, the aggrieved party gets the right to treat the WHOLE CONTRACT AS REPUDIATED (i.e., to reject the goods and refuse to go through with the contract), in addition to (or instead of) claiming damages.
• Warranty — Section 12(3): a stipulation collateral to the main purpose of the contract. If a warranty is broken, the aggrieved party can only claim DAMAGES — he cannot reject the goods or refuse to perform the contract.
• Section 12(4) makes clear that whether a particular stipulation is a condition or a warranty depends on the CONSTRUCTION (the real substance) of the contract — a stipulation may still be a legal "condition" even if the contract itself carelessly labels it a "warranty," and vice versa.

A simple illustration: A buyer tells a car dealer, "I need a car that can do at least 20 km per litre, since I have a long daily commute — that is the only reason I am buying this particular model." The fuel-efficiency promise here goes to the very root of why the buyer is purchasing the car — it is a CONDITION. If, instead, the dealer merely promises "the car comes with a first-aid kit in the boot," this is collateral to the main purpose of buying a car — it is a WARRANTY; if the kit is missing, the buyer can claim its value as damages but cannot reject the car itself.

When a Condition is to be Treated as a Warranty (Section 13)

The Act allows a buyer to voluntarily DOWNGRADE his own remedy for a broken condition:

• Section 13(1): the buyer may, at his own choice, WAIVE a condition altogether, or elect to treat the breach of a condition as if it were only a breach of warranty (i.e., claim damages instead of rejecting the goods).
• Section 13(2): where the contract is not severable (cannot be split into parts) and the buyer has ALREADY ACCEPTED the goods (or part of them), a breach of any condition can THEREAFTER only be treated as a breach of warranty — the buyer LOSES the right to reject the goods once he has accepted them, unless the contract itself, expressly or impliedly, says otherwise.
• Section 13(3) preserves any other case where fulfilment of a condition or warranty is excused by law, e.g. through impossibility.

Implied Conditions

Even where the parties say nothing at all on a point, the Act itself READS CERTAIN CONDITIONS into every contract of sale, unless the parties have expressly agreed otherwise.

• Implied condition as to title — Section 14(a): in a SALE, there is an implied condition that the seller has the RIGHT TO SELL the goods; in an AGREEMENT TO SELL, that he WILL HAVE the right to sell at the time the property is to pass. (Section 14 also carries two implied WARRANTIES, discussed below.)

• Sale by description — Section 15: where goods are sold by description (e.g. ordered from a catalogue or by a written specification, without the buyer seeing the actual goods), there is an implied condition that the goods delivered will CORRESPOND WITH THAT DESCRIPTION.

• Implied conditions as to quality or fitness — Section 16 (the Doctrine of Caveat Emptor): Section 16 opens with the general rule of Caveat Emptor — Latin for "let the buyer beware" — meaning that, as a general rule, THERE IS NO implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. It is ordinarily for the buyer to examine the goods and satisfy himself before buying; if he buys carelessly and the goods later turn out unsuitable, he generally has no remedy against the seller (so long as the seller has not committed fraud or given an express promise about quality/fitness).

  Exceptions to Caveat Emptor (still under Section 16) — where an implied CONDITION does arise despite the general rule:

  1. Section 16(1) — disclosed purpose + reliance on seller's skill: where the buyer expressly or by implication makes known to the seller the PARTICULAR PURPOSE for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description the seller ordinarily deals in, there is an implied condition that the goods shall be REASONABLY FIT for that purpose.
  2. Section 16(2) — sale by description from a dealer: where goods are bought BY DESCRIPTION from a seller who deals in goods of that description (whether he is the manufacturer/producer or not), there is an implied condition that the goods shall be of MERCHANTABLE QUALITY — EXCEPT that, if the buyer has actually examined the goods, this implied condition does not apply to defects which that examination OUGHT TO HAVE REVEALED (a patent/obvious defect the buyer missed through his own carelessness is not covered; a latent/hidden defect not discoverable on a reasonable examination remains covered even after examination).
  3. Section 16(3): an implied warranty or condition as to quality or fitness for a particular purpose may also be annexed (attached) by the established USAGE OF A PARTICULAR TRADE.
  4. Section 16(4): an express warranty or condition does not automatically cancel out an implied one under this section, unless the two are genuinely inconsistent with each other.

• Sale by sample — Section 17: where a contract of sale is a sale by sample, there are implied conditions that (a) the BULK shall correspond with the sample in quality; (b) the buyer shall have a REASONABLE OPPORTUNITY of comparing the bulk with the sample; and (c) the goods shall be free from any DEFECT rendering them unmerchantable which would not be apparent on a reasonable examination of the sample (i.e., a latent defect not visible even from inspecting the sample itself).

Implied Warranties

Alongside the implied condition as to title, Section 14 also carries two IMPLIED WARRANTIES:

• Section 14(b) — quiet possession: an implied warranty that the buyer shall have and enjoy QUIET POSSESSION of the goods — i.e., no one (including a third party with a superior claim) will lawfully disturb the buyer's possession of the goods after the sale.
• Section 14(c) — freedom from encumbrance: an implied warranty that the goods shall be FREE FROM any charge or encumbrance in favour of any third party, not already declared or known to the buyer before or at the time the contract was made.

A further implied warranty can also arise, exactly as Section 16(3) allows for conditions, by the ESTABLISHED USAGE OF A PARTICULAR TRADE. …