Price, Conditions and Warranties

Price

Another essential element of a contract of sale is that there must be some price for the goods. That means, the goods must be sold for some price. According to Sec. 2(10) of the Sale of Goods Act, the term price means “the money consideration for a sale of goods“.

Thus the price is the consideration for contract of sale which should be in terms of money. If the ownership of the goods is transferred for any consideration other than the money, that will not be a sale but an exchange. However, consideration can be paid partly in money and partly in goods.

For e.g., A delivered to B 10 cows valued at Rs.2,000 per cow. B delivered to A 20 bags of rice at Rs.750 per bag and paid the balance of Rs.5,000 in cash in exchange of the cows. This is a valid contract of sale.

CONDITIONS AND WARRANTIES

The parties may enter into a contract with any terms they like. In the case of sale of goods, the ordinary maxim is CAVEAT EMPTOR which means let the Buyer Beware! The doctrine, of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself of their quality and fitness. If he makes a bid choice he cannot blame the seller to recover damages from him. It is no part of the seller’s duty to point out the defects in the goods he is selling. But the buyer may want to be sure of the quality and fitness of the goods and may make known to the seller’s skill or judgement, and buys them depending upon the representations made by the seller. Such representation may rank either as conditions or warranties. In such a case the principle of caveat emptor will not apply, and the contract will be subject to the condition or warranty.

Caveat Emptor

According to the doctrine of ‘Caveat Emptor’ the buyer should be aware at the time of buying the goods, because a seller never points out the defects of the goods being sold by him. Ordinarily, a buyer buys goods on his own risk that is, if the goods turn out to be defective or of low quality or it is not fit for the specific purpose, then the seller cannot be held responsible. If the seller sells the good by fraud, then the buyer can reject the goods. Thus, according to this doctrine it is the duty of the buyer that before buying the goods he should enquire into the goods that whether the goods are fit for his purpose or not. According to Section 16, the explanation of this doctrine is that ‘According to this Act and according to the explanation of any other act prevalent at a particular time there is no implied condition or warranty regarding the fitness of the goods for a specific purpose under a contract of sale of goods. Therefore, it is clear that the buyer should fully satisfy himself. If seller does fraud or  intentionally conceals the defects of the goods or the nature of the defect is such that it cannot  be detected with ordinary enquiry, then the seller will be held responsible. If this doctrine is strictly followed, then the buyers will have to face difficulties, because every buyer is not as clever as to enquire into the quality or fitness of the goods.

There are certain exceptions to protect such buyers.

1. Whenthe buyer clearly states the purpose of purchasing the goods to the seller and he depends on the knowledge and expertise of the seller, then it is an implied condition that the sold goods shall be fit for the purpose. Thus, when the buyer makes, the purpose of purchasing the goods, known to the seller, this doctrine does not apply.
2. Whenthe goods are sold by description, then it is implied condition that the goods shall be merchantable and the goods shall be according to If the buyer has examined the goods, the seller will be liable for latent defects.
3. Whenthe goods are purchased under a trade or patent name, there is no implied condition regarding the fitness of the goods for a specific 
4. Iftheseller sells goods by fraud or intentionally conceals the defects or there is latent defect in the goods, even then this doctrine will not apply.

A condition is a stipulation essential to the main purpose of the contract and forms the very basis of the contract. Its breach gives rise to a right to treat the contract as repudiated. Thus, if the condition is not fulfilled the buyer has a right to repudiate the contract, and refuse the goods. If he has already paid the price, he can recover it from the seller.

A warranty is a stipulation collateral to the main purpose of the contract, that is to say, it is a subsidiary promise. Its breach does not entitle the aggrieved party to repudiate the contract. He can only claim damages. Where there is a breach of warranty on the part of the seller, the buyer must accept the goods and claim damages. Where A purchases 100 bags of wheat from B. Wheat must be fit for human consumption. This is an essential stipulation. Hence it is called as condition. Other stipulations like packing, etc., is a minor one, hence called as warranty. Conditions and warranties may be express or implied. An express condition or warranty is one stated definitely in so many words as the basis of the contract. Implied conditions or warranties are those which attach to the contract by operation of law. The law incorporated them into the contract unless the parties agree to the contrary. A sold to B timber to be properly seasoned before shipment. It was agreed between the parties, that in case of dispute the buyer would not reject the goods but accept or pay for them against documents. It was held that the provision as to seasoning was not a condition but only a warranty. If the timber was not properly seasoned B had to accept it and claim damages for the breach of warranty.

The points of distinction between a condition and warranty can be summed up as under:

(1) A condition is a stipulation essential to the main purpose of a contract while a warranty is astipulation collateral to the main purpose of contract.

(2) Breach of condition gives the right to treat the contract as repudiated while the breach of warranty gives the right to claim for damages alone. The contract cannot be repudiated because the breach of warranty does not defeat the purpose of contract.

(3) A breach of condition may be treated as breach of warranty but a breach of warranty cannot be treated as breach of condition. Let us take an example to make these two terms clear. So where a man buys a particular horse which is warranted quiet to ride. The horse, turns out to be a vicious one. Buyers remedy is to claim damages unless he has expressly reserved the right to return the horse. Suppose instead of buying a particular horse, he specifically asks for a quiet  horse-that stipulations is a condition. Now the buyer can either return the horse or retain the horse and claim damages. (Hartley v. Hymans)

When condition to be treated as Warranty

Section 13 of the Sales of Goods Act mentions 3 cases in which a condition sinks or descends to the level of a warranty. A condition descends to the level of a warranty in the following cases:

(1)   Where the buyer waives the condition;

(2)   Where the buyer treats the breach of condition as breach of warranty;

(3)   Where the contract is indivisible and the buyer has accepted the goods or part of the goods.

In all the above three cases the breach of a condition is deemed to be a breach of a warranty and buyer can only claim damages or compensation for the breach of the condition. He cannot repudiate the contract or refuse to take delivery of the goods. In the first two cases, a condition is treated a warranty. at the will of the buyer; but in the third case the breach of condition can be treated only as breach of warranty; for once the buyer has accepted the goods he cannot reject them on any ground. If on subsequent inspection a breach of condition is disclosed, he can treat that as breach of warranty and sue for damages.

Example: Suppose A promises to deliver 100 bales of cotton to B on 1st August, 80. A delivers the bales of cotton on 10th of August. Now in this contract, time is the essence of contract. B can refuse to accept the delivery. But he can also waive this right. He may treat this breach of condition as breach of warranty by accepting the goods and claim damages instead.

Warranties from the Seller

Buyers often overlook the warranties being made by the seller. There is no such thing as “standard warranties.” Warranties vary across industries and from company to company, so be sure to closely review the seller’s promises. Are the goods being sold “as-is”? Is the seller disclaiming the warranties of merchantability or fitness for a particular purpose? If so, this might undo any verbal promises about the goods made by the seller.