Business law PPT on conditions and warranty.

1. Condition
and
Warranties
SGA, 1930:
Business
Law
SIDHARTH
ATUL
NIKHIL
BY
ABHISHEK

2. INTRODUCTION
• All the contracts contains some contractual terms
(stipulations) which form integral part of contract. [Sec. 12]
• All the statements or stipulations cannot be of equal
importance. Some may be major terms and some may be
minor.
• Major terms in the contract go to the roots of the
transactions and their breach may result in subsequent
failure of the contract.
• Minor terms are of lesser significance and its breach may not
lead to contract failure but can rise to a claim for damages.

3. CONDITIONS [SEC. 12(2)]
“A Condition is a stipulation essential to the main purpose of
the contract breach of which gives rise to a right to treat the
contract as repudiated.”
Example:
Mr. X went to an electronic shop to buy a mobile phone with 128 GB
storage but unknowingly shopkeeper sold him a mobile phone with 64 GB
storage, hence in this case 128 GB storage phone was a ‘condition’ of the
contract and non fulfillment of which defeated the main purpose of the
contract. Resulting Mr. X can discharge the contract.

4. WARRANTY [SEC. 12(3)]
“A warranty is a stipulation collateral to the main purpose of
the contract, the breach of which gives rise to a claim for
damages but not a right to reject the goods and treat the
contract as repudiated.”
Example:
Mr. X went to an electronic shop to buy a mobile phone with 128 GB
storage and also get the same, but the charger of the phone was not
working, this is a breach of ‘warranty’ because stipulation was subsidiary
to main purpose of the contract. Resulting Mr. X can claim damages.

5. DIFFERENCE BETWEEN
CONDITION AND WARRANTY
Basis Condition Warranty
1 Nature of stipulation A condition is a
stipulation essential to
the main purpose of the
contract.
A warranty is a stipulation
collateral or subsidiary to
the main purpose of the
contract.
2 Significance Condition is of vital
significance for the
completion of contract.
Warranty is of lesser
significance. Even if there
is a breach contract can
be completed.
3 Buyer’s right in case
of breach
The breach of condition
entitles buyer to
terminate the contract.
The breach of warranty
gives the aggrieved party
only a right to claim
damages.
4 Treatment Breach of condition can
be treated as breach of
warranty in some
cases.
Breach of warranty
cannot be treated as
breach of condition.

6. WHEN BREACH OF CONDITION IS
TO BE TREATED AS BREACH OF
WARRANTY?
Under Sec. 13(2): A buyer can exercise the option to treat the
breach of condition as a breach of warranty in the following
cases:
1. Voluntary Waiver- Where the seller commits a breach of
condition, the buyer may (a) waive the condition, or (b) elect to
treat the breach of condition, he cannot afterwards compel the
seller to fulfil it.
Example:
A agrees to deliver to B 100 packets of sugar of particular quantity @
₹50 per packet. But he delivers second quality sugar @ ₹40 per
packet. B has the option (i) to avoid the contract or (ii) to accept the
contract and to treat the breach of condition as a breach of warranty.
In case he exercises second option, he is entitled to claim damages
@ ₹10 per packet.

7. 2. Acceptance of Goods by buyer- Where the contract is not
severable (divisible) and the buyer has accepted the goods or part
thereof breach of any condition by the seller can be treated as
breach of warranty.
Example:
A brought 2 kgs of Nagpur orange from a shopkeeper but after eating 1
kg oranges he realised that they are not Nagpur oranges and went to
the shopkeeper, in this case buyer can not treat it as breach of
condition as he already consumed half oranges thus he have to treat it
as breach of warranty and can claim damages by asking the excess
amount paid.

8. TYPES OF CONDITIONS & WARRANTIES
Expressed Condition/Warranty
These are statements which are expressly incorporated/mentioned by the
parties in the contract.
It can be oral or written.
Implied conditions/Warranty
These are such statements which are applicable by the conduct /
behavior of the parties or by the law in the contract.
Figure 1:
Conditions in a contract of sale can be express or
implied. Express means given in words, whether
written or oral. Implied means what can be inferred,
even though the parties may not have formally
agreed upon it.

9. IMPLIED CONDITIONS
There are various conditions incorporated by the law
into the contract contained in sections 14 to 17:-
I. Condition as to title
II. Sale by description
III. Sale by sample
IV. Sale by Sample as well as by Description
V. Implied condition as to quality or fitness
VI. Condition as to merchantability
VII. Condition as to Wholesomeness

10. 1) CONDITION AS TO TITLE [SEC. 14(A)]
In every contract of sale, the first implied condition on the part of the
seller is that:
1.In case of a sale, he has a right to sell the goods,
2.and in the case of an agreement to sell, he will have the right to sell
the goods at the time when the property is to pass. Buyer is entitled to
reject the goods and to recover the price if the title turns out to be
defective. [Section 14(a)].
For example:-
Let us say that person A bought a tractor from another person B. The
person B had no title to the tractor. Person A then goes on to use the
tractor for three months. Three months later, the legal owner of the
tractor spots it and demands it back from A. In this, the law holds that A
is bound within the law to hand over the tractor to the real owner of the
tractor. A has the right to sue B, for the recovery of the purchase price.

11. 2) SALE BY DESCRIPTION
If there is a contract of sale of goods by description, a default implied
condition is that these goods must correspond with this description. The
buyer is not bound to accept and pay for the goods which are not in
accordance with the description of goods. [Section (15)]
For example:-
Suppose a ship was contracted to be sold as “copper-fastened vessel”
but actually it was only partly copper-fastened. This means that the
goods did not correspond to the description and hence they can be
returned or if the buyer took the goods, he could claim damages for
breach.
packing of the goods may sometimes constitute a part of the
description
As packing of the goods must be according to description. In case it is
not so , the buyer is entitled to reject the goods.

12. 3) SALE BY SAMPLE
In a contract of sale by sample, there is an implied condition that:
1.the bulk shall correspond with the sample in the quality;
2.the buyer shall have or shall be given a reasonable opportunity/chance of
3.comparing the bulk with the sample, and
4.the goods shall be free from any defect that may render them unmerchantable,
which would not be apparent on a reasonable examination of the sample. [Section
(17)]
For example:-
A company sells certain belts made up of a special material
by sample for the Indian Army. The belts are found to be made
up of plastic of cheaper quality, not discoverable by ordinary
inspection. In this case, the buyer is entitled to the refund of the
price plus damages.

13. 4)SALE BY SAMPLE AS WELL AS
BY DESCRIPTION
Where the goods are sold by a sample as well as by description the
implied condition is that the bulk of the goods supplied must correspond
both with the sample and the description. In case the goods correspond
with the sample but do not tally with the description or vice versa, the
buyer can repudiate the contract. [Section 15]
For example:-
A agrees to sell a certain oil described as refined rapeseed oil to B,
warranted only equal to sample. The goods that A tenders are found to
be equal to the sample but containing a mixture of hemp oil. In such a
case B can reject the goods.

14. 5)IMPLIED CONDITION AS TO
QUALITY OR FITNESS
Generally, there is no implied condition as to the quality or fitness of
the goods that are sold for a particular purpose. However, the
condition as to the reasonable fitness of goods for a particular
purpose may be implied on the part of the seller for which the buyer
wants them. Following are the conditions to be satisfied:
1.If the buyer had made known to the seller the purpose of his
purchase
2.and the buyer relied on the seller’s skill and judgment, and
3.seller’s business to supply goods of that description. [Section 16]
For example:-
A purchases a hot water bottle from a chemist. The bottle burst and
injured A’s wife. A breach of condition as to the fitness was thus
committed. Hence A is liable for a refund of the price and also the
damages.

15. 6)CONDITION AS TO
MERCHANTABILITY
This is implied only where the sale is by description and the goods should be of
‘merchantable quality’ i.e. the goods must be such as are reasonably saleable
under the description by which they are known in the market. [Section 16(2)]
Two conditions should be satisfied for merchantability:-
1)The goods should be bought by description.
2)The seller should deal in goods of that description.
• Goods are said to be as of merchantability quality when there are no defects in
the goods which make them unsuitable for sale.
The seller will be held liable for the breach of condition as to merchantability
when-:
1) When there are latent defects in the goods.
2) When the packing of the goods is defective.
For example:-
A purchases a certain quantity of black yarn from B who is a dealer in yarn. A finds
the black yarn to be damaged by the white ants. Thus the condition as to
merchantability has been broken and A is entitled to reject it as unmerchantable.

16. 7)CONDITION AS TO
WHOLESOMENESS
In the case of eatables and provisions, there is another implied
condition that the goods shall be wholesome and suitable for
consumption, in addition to the implied condition as to
merchantability.
For example:-
A supplies B with milk. The milk contains bacteria and B’s wife
consumes the milk and is diagnosed with a disease. She later
succumbs to the disease. Hence, there was a breach of condition as
to the fitness of the supplies and A was liable to pay damages to B in
this case.

17. IMPLIED WARRANTIES
Implied Warranties: Implied Warranties are those
which are automatically incorporated by the law
in the contract
1. Implied Warranty of Quite Possession
[sec. 14 (b)]
2. Implied Warranty as to free from Liability
or Encumbrance [sec. 14 (c)]
3. Implied Warranty as to Quality or Fitness
by the usage of trade [sec. 16(3)]
4. Implied Warranty to Disclose the
Dangerous Nature of the Goods
TYPES OF
IMPLIED
WARRANTIES

18. IMPLIED WARRANTY OF QUITE
POSSESSION
This warranty is an implied assurance given to the buyer that he
shall have and enjoy quiet possession of the goods without any
disturbances from the seller or any third party.
If there is breach of this condition, the buyer can claim damages
from the seller
Example -> [Mason vs Burmingham (1949)]
A purchased second-hand motorbike from B for Rs.30000. After
using it for two months he spent some money on its repairs.
Subsequently, A had to restore the bike to the true owner as it
happened to be a stolen one. A was entitled to recover the price
paid as well as the cost of repairs from the seller.

19. IMPLIED WARRANTY AS TO FREE
FROM LIABILITY OR ENCUMBRANCE
Unless a contrary intention appears from the circumstances of the
case, there is an implied warranty that the goods shall be free from
any charge or encumbrance in favor of any party not declared to
the buyer before or at the time of making of the contract. If the
charge is declared to the buyer at the time of making of the
contract, he will have no cause of action against the seller for this
breach of warranty.
Example-> A delivers his motorbike to B and obtains a loan of
Rs.10000 under the contract of pledge. Next day he takes the
motorbike from B and promises to hand over to him after two days.
Subsequently, he sells the same motorbike to C, an innocent buyer,
who has no knowledge of the charge on the motorbike. C may ask
to discharge the liability or may himself pay the money and then file
a suit against A for its recovery.

20. IMPLIED WARRANTY AS TO QUALITY
OR FITNESS BY THE USAGE OF TRADE
Implied warranty as to quality or fitness for a particular purpose may
be annexed by usage of trade. This type of warranty provides a
guarantee that the product suggested or recommended by the
salesperson is fit for particular use.
Example-> Jane asks a merchant for a blender that is specifically
made for mixing cocktails, such as frozen margaritas. The
salesperson recommends a particular model, which jane purchases.
When Jane attempts to use the blender, she finds it does not have
the ability to crush ice. Jane may return the blender under the implied
warranty as to quality or fitness by the usage of trade.

21. IMPLIED WARRANTY TO DISCLOSE THE
DANGEROUS NATURE OF THE GOODS
Where the goods sold are of dangerous nature, there is an
implied warranty that the seller should warn the buyer about the
probable danger. If he fails to do so, he will be liable to pay
damages to the buyer.
Example-> A sold a tin of disinfectant powder to C. Despite of
knowing the dangerous nature of the goods, the seller did not
warn C. C’s wife opened the tin where the disinfectant powder
flew into her eye , causing injury. Held, as A failed to warn C of the
probable damage, therefore, he was liable in damages to C.

22. CAVEAT VENDITOR
Caveat - Beware
Venditor - Seller
A Latin term meaning “Let the seller beware,” in contrast to the more
widely known saying caveat emptor (let the buyer beware). The
principle of caveat venditor cautions that the seller is responsible for
any problem that the buyer might encounter with a service or a
product.
In this law, the seller is responsible for providing valid and original
details about the product to the buyer. This makes the seller
responsible for the quality of the product and the seller must make
sure about the fair quality of the product.
Buyer is empowered with sufficient rights to buy good quality products
by his choice. This law also reduces the responsibility of the buyer
and makes the buying – selling process more systematic.

23. DOCTRINE OF CAVEAT EMPTOR
Caveat emptor is a combination of two Latin terms. The term 'Caveat'
means 'Caution' or 'beware'; and the term 'emptor' means purchaser or
buyer. The maxim of ‘caveat emptor' means’ Let the buyer beware‘
,Caveat emptor does not mean either in law or in Latin that the buyer
must 'take chance, it means that the buyer must take care.
This principle states that while buying the goods the buyer must
act with a 'third eye and ear', i.e.:
(i) It is the duty of the buyer to thoroughly examine the goods which eh
intends to purchase.
(ii) If the goods turn out to be defective or do not serve his purpose, he
cannot blame anybody except himself.
(iii) The seller is under no obligation to reveal the defects in the goods
of which he may be cognizant.
(iv) There is no implied undertaking by the seller that he shall supply
goods which will suit buyer's purpose.

24. The rule of caveat emptor is applicable in the
following cases :
(a) Where the buyer has examined the goods and such examination
would have disclosed those defects (Patent defects).
(b) Where the goods are sold under patent or trade name and the
buyer does not rely on the seller's skill and judgment.
(c) Where seller is not the exclusive dealer o f goods, i.e., goods are
sold by him privately, e.g., sale of old computer or car. In such a
case there is no implied condition as to quality or fitness
(d) Where the article can be used for several purposes but the
purpose is not brought to the notice of the seller (Jones vs. Padgett
(1890)].(e) Where a person is suffering from abnormality and the
same is not brought to the knowledge of the seller(Griffiths vs.
Peter Conway Ltd. (1939)]
Thus, in all the above mentioned cases the seller will not be liable
in damages.

25. EXCEPTIONS
The increasing complexity of modern commerce has forced the
buyer to rely on more and more upon the skill and judgment of the
seller and manufacturer. The modern law of commercial
transactions has recognized the following exceptions to the
'doctrine of caveat emptor' to protect the interest of the buyers:
1. Quality or Fitness for the Buyers' Purpose:
To hold the seller liable the following three conditions must be
satisfied :
(i) The buyer has made known to the seller, expressly or by
implication, the particular purpose for which he requires the goods
(ii) He relies on the skill and judgment of the seller.
(iii) Seller supplies the goods fit for the buyer's purpose in the
ordinary course of business [Sec. 16(1)]. If the aforementioned
conditions are satisfied, the rule of Caveat Emptor does not apply.

26. 2. Goods Purchased by Description: Where the goods are purchased
by description and the goods do not correspond with the description, the
rule of Caveat Emptor does not apply.
3. Goods Purchased by Sample: Where the goods are purchased by
sample, the rule of Caveat Emptor does not apply if the bulk does not
correspond with the same (Sec. 17).
4. Goods Purchased by Sample and Description: Where the goods
are purchased by sample and description and the goods do not
correspond with the sample as well as description, the rule of Caveat
Emptor is not applicable (Sec. 15).
5. Goods of Merchantable Quality: Where the goods are bought by
description from a seller who deals in the goods of that description and
the goods are found not to be of merchantable quality, [Sec. 16(2)].In
such a case the seller cannot take the defense of the rule of Caveat
Emptor because it does not apply.
6. Wholesomeness of Goods: Where provisions and eatables are sup-
plied, the seller has to ensure that they are free from adulteration and
opt for human consumption otherwise the rule of Caveat Emptor will not
apply.

27. 7. Usage of Trade Sec. 16(3): Where the implied warranty or
condition as to quality or fitness for a particular purpose is
attached by usage of trade and the seller deviates from that, the
doctrine of caveat emptor does not apply.
8. Consent obtained by fraud: Seller is under no obligation to
reveal the defects in the goods sold to the buyer but where the
seller deliberately conceals a defect in the goods, which is not
visible on a reasonable examination (latent defects), then the rule
of Caveat Emptor does not apply. In such a case the buyer is
entitled to rescind the contract and claim damages.

28. THANK YOU