Section 12: Condition and warranty.

—
(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.
(2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise
to a right to treat the contract as repudiated.
(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 to a right to reject the goods and treat the contract as repudiated.
(4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the
construction of the contract. A stipulation may be a condition, though called a warranty in the contract.

Differences between Condition and Warranty (w.r.t. Essentials, Construction and Remedy)
A stipulation in a contract of sale with reference to goods which are the subject thereof maybe a condition
or a warranty.
1. A condition is a stipulation essential to the main purpose of the contract while a warranty is a
stipulation collateral/ subsidiary to the main purpose of the contract.
2. In the case of vitiation of condition: Repudiation + damages (consequential damages). In the case of
vitiation of warranty: claim for damages may rise but the right to reject the good and the right to
treat the contract as repudiated do not arise.
3. A stipulation maybe a condition, though called a warranty in the contract (party autonomy).
However, a warranty cannot be treated as a condition.
4. A contract of sale cannot be fulfilled unless conditions, if any, are fulfilled. Main contract can be
fulfilled even if the warranty is not fulfilled.
Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the
construction of the contract.
Condition given by: seller, buyer, mercantile agent [Section 2(9)]

Cehave N.V. v. Bremer 1976 (HoL) Lord Denning

Kingston v. Preston, 1773; Lord Mansfield (first time expounded the differentiation between condition and
warranty)

5 methods in order to discern whther it is a condition or a warranty (Ramanath Iyer)

FUNDAMENTAL BREACH OF CONTRACT

1. National Insurance Company Ltd. v Bharatamma and ors. AIR 2008 SC 484
 Concept of “fundamental breach of contract” recognized.
 One consolidated law and there is no bifurcation
2. Loon Karan Sethia v. Evan B. John, 1976 (Supreme Court)
 Meaning of the term “Material alteration”.
 Those things which materially alter the position of the parties.

LEGAL FRAMEWORK OF IMPLIED CONDITIONS/WARRANTY (Sections 14 to 17)

 Section 14:
i. Right to sell = ownership + not infringing somebody’s better title (non-interference).
ii. When goods sold by description, the goods must correspond with the description. [Method
of selling: Sale by sample (Section 17) and sale by description (Section 15: talks about both)].
iii. When goods sold by sample, the goods sold must correspond with the sample in quality.
iv. 2 parts of Section 16: Opening sentence- Caveat emptor; 4 exceptions given- Caveat
Venditor
[ CASES: Jones v Just 1868, Priest v. Late 1903, Grant v Australian Knitting Wear (end of
caveat emptor), Ashington Pery case]
 v. Implied warranty: (1) after goods are bought, buyer must have quiet possession non-
interference from any party including seller; (2) Goods must be free from all charges and
encumbrances: a third party has no claim with respect to the goods, buyer doesn’t have to
pay anything to the 3rd party.

Couchman v. Hill (first case where term “description” defined)

 Description usually means a particular class or kind of goods but it also includes any statement
which constitutes a substantial ingredient of the identity of the goods sold.

Lord Blackburn in Bowes v. Shand, 1877

 If you contract to sell peas you cannot oblige a party to take beans. If the descriptions of the article
tendered is different in any respect, it is not the article bargained for and the other party is not
bound to accept it.

Lord Wright: in Grant v. Australian Knitting Mills, AIR 1937 PC 100

 Description includes many things. The goods, even if shown on the table, then also it can be a part
of description.
 Time (time of manufacturing) as part of description.
 Packaging can be part of description.
 Place of delivery will also be considered as description.

Esso Petroleum case:

Whether there is free consideration or not is not clear.

Halsbury Law of England- how can samples be given

1. Extracting a small quantity from a larger bulk.
2. Sending a small representative quantity in advance.
3. Showing a pattern.
4. Showing a model.
5. Average sampling (not in Halsbury): commonly used in grain market;

SECTION 14: Implied undertaking as to title, etc.

 Trappings of ownership
 Contrary intention terms rarely used, cannot have situation where seller selling without title.
 Market overt; common law principle- selling in open market; In India market overt not allowed
since the beginning.
 Contract law will be applicable to finders, pawnor, pawnee, etc.
 This section is not subject to exclusion clause.
 Person selling the goods must have right to sell
 Section 14(a): implied condition.
 Explanation of Mulla on the opening of Section 14(a)
 3 situations in which seller doesn’t have right to sell
1. When the seller is not the owner of the particular goods. (laid down in Rolland v. Diwal (Lord
Atkinson: the buyer has not received any part of which he has contracted to receive namely
the property and the right to possession and that being so there has been a total failure of
consideration source of Section 14(a).)
2. Seller maybe the owner, yet due to certain reason he may not have the right to sell. (Niblet
v. Confectioners Pvt. Ltd., 1921 [first time concept of merchantability]; Nestle- “Nissley”;
objection to bona fide title)
3. Where is sale has been declared illegal or without jurisdiction.
 Situations when the seller did not have title and what the buyer would do:
 1. The fact the he was fraudulently induced by the seller to pay the sum by false
representation that he had good title to the property sold (Fraudulent inducement +
Misrepresentation)
2. The fact that the seller warranted and covenanted with the purchaser that he had a good
title. (Taramati Anantrai Parekh v. Gangaram Shamdas, 1975 Maha LJ): frivolous claim by a
third party against the seller does not give rise to an absence of marketable title 14(a)).
 Section 14(b): Implied warranty that the buyer shall have and enjoy the quiet possession of goods.
 Howell v. Richards, 1809 [Lord Ellenborough]: the implied warranty of quiet possession, if
the analogy of the covenants for quiet possession under lease be a sound one is a warranty
against disturbance and it is not broken unless and until disturbance takes place.
 Buyer shall have and enjoy: first you have (right of possession) and then only enjoy its
possession. Right to possess only when seller has right to sell. If enjoying without right to
possession, that would amount to disturbance

NOTE:
1. Pollock and Mulla is an important source of law, not just subsidiary. Article 38 of ICJ clause.
2. Article 31 of VCLT (Vienna Convention on Law of Treaties).
Vellore citizens case: customary principles of international law.

Section 14 involves both sale and agreement to sell.

Ronald v. Diwal 1923 2KB 5: No title, No transfer

 14(c): Free from all charges and encumbrances, endures that he buyer’s position shall not be
disturbed by reason of existence of such encumbrances.
 Without (a), (b) and (c) have no existence.
 If there is a charge or encumbrance on the goods, it is the obligation of the seller to disclose them
to the buyer before or at the time of the contract.

Niblet v. Confectioners Pvt. Ltd., 1921

 Lord Atkinson, Banker and Scruton.
 Goods tendered must be the one which the seller has right to sell. (first instance when right to sell
defined; right to sell is a presumption- whenever goods sold, no need to expressly mention that
right to sell is there). In this case right was not there. Ownership there but someone’s better title
infringed- Implication of Trademarks Act.
 Merchantability: it includes state and condition of the goods. In this case state and condition
includes labelling of the product. (saleability at full cost)
 It is implied condition that the goods shall be of merchantable quality. In this case, first time
recognised merchantability as implied condition. (British Tramways v. Fiat Motors, 1915 Forwelll
propounded for the first time that merchantability is implied condition).
 What is merchantability: Gardener v. Grey- In order to define the term merchantability. Defined
merchantability as reasonable man’s test; merchantable quality is applicable primarily to the
complicated machines but that will not prevent a court to use it for consumer goods.
 Scruton: If the vendor is estopped by the process of law (trademarks act) from selling goods, this
implies that he does not have the right to sell.
 Atkinson: no right to sell the goods owing to the existence of a title superior to that of the vendor. If
any sale gets made, the vendee’s right will get disturbed (because Nestle will try to interfere).
 Remedies to the buyer: repudiate the contract + damages.

 References of Niblet case taken by India:

1. Joseph Mayor v. Pani Bhushan Ghose AIR 1939 (Cal) 210
 2. Ranbir Singh v Gurubaksh Singh 1979 (Pun and Har HC) pg. 170

 Microbeds A.G. v. Vinhurst Road Markings 1975 IWLR 218 (patent infringement)

NOTE: G.I. is nothing but recognition of specific talents that are present in specific community.

4 TESTS OF MERCHANTABILITY
1. Full knowledge test.
2. Usability test.
3. Satisfactory quality test
4. Reasonable man’s test
Benjamin’s Pendulum test: additional test

MERCHANTABLE QUALITY 1, JOHN LEVERMORE, JBL Article

MERCHANTABLE QUALITY 2

Difference between arbitration and valuation

 Adjudication of the dispute in case of arbitration while fixing the price in case of valuation.
 Ad hoc arbitrators, institutional arbitrators.
 In case of 2 valuators, if only one evaluator decides the price, it will not be a valid valuation.

Whether price clause can be considered confidence?



Justice Dixen in Australian Knotting Case AIR 1837 PC 187: Full Knowledge test
Lord Reed in Kendall and Sons v. Lillico and Sons Ltd.: Usability Test
Niblet: merchantability test or reasonableness test
Satisfactory quality test
1. Fitness for all purposes for which the goods of the kind in question are commonly supplied.
2. It refers to appearance and finishing of the products.
3. Freedom from all defects, and all defects involve latent as well as patent defects.
4. Safety of that particular good.
BIS; ISI norms
Sanitary and Phyto-sanitary (SPS) measures
Society for epijotic; standards
5. Durability
6. If the buyer deals as a consumer, any public statement on the specific characteristics of the goods
made about them by the seller, the producer or his representative, particularly in advertising or on
labelling.

1979 amendment: satisfactory quality in place of merchantability, meaning becomes satisfactory quality
but name remains the same.

Foreign Manufacturer’s Legal Liability Act, 2010

SECTION 17: Sale by Sample

 Sale by sample takes place only when terms of the contract provide so, expressly or impliedly.
 Mere exhibition is not sale by sample.
 Always refers to quality in question
 3 implied conditions:
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 to
satisfy himself that the goods supplied are in accordance with the sample.
 Before delivery
 At the time of delivery
 After the goods have been delivered
 If opportunity not give: repudiation + damages
c) The goods shall be free from any defect, rendering them unmerchantable, which would not
be apparent on reasonable examination of the sample.

Innominate and Intermediate terms (Innominate: contract of carriage)

Hong Kong Fur Shipping Co. Ltd v. Kawasaki Kasem Kaisha Ltd. 1962 2QB 26

Lord Dipplock

Shiv Singh Contractor v. UoI

Four Terms Determining Contractual Relations Between the Buyer and the Seller
1. Description of the goods in terms of type, quality and quantity. Alternatively, sample of the goods.
2. Time of delivery
3. Price
4. Time and means of payment

Sorabji Hormusha and Co. v. V.M. Ismail & Anr. AIR 1960 Mad 570
 Finally accepted reasonable man’s test/

Raghav Menon v. Katappan Nair AIR 1962 Kerala HC 318

 Reasonable man’s test accepted

Board of Trustees of the Port of Calcutta v. Bengal Corporation Pvt. Ltd. AIR 1979 Kol 142
 Referred Niblet and accepted merchantable quality test.

Commercial Automobiles v. Sri Maharaja Singh Bhatia and ors. (2011) MPJR
 Accepted satisfactory quality test.

Term satisfactory was missing earlier, was not there in any statute. It came in the statute for the first time
1979. It is getting more popular now after the 1994 amendment in British Sale of Goods Act.
By implications and approach followed, the Indian Courts have tilted towards satisfactory quality test.

CAVEAT EMPTOR
 Section 16: Initial part: caveat emptor; 4 points: caveat venditor
 Jones v. Just, 1868: Importance of caveat emptor.
 Criteria for determining whether caveat emptor or caveat venditor
1. Nature of goods.
2. Mode of payment.
3. Knowledge and skill of the buyer and seller.
4. Examination. (reasonable opportunity given to buyer to examine the goods)
5. Fitness and particular purpose of the goods.
 Caveat emptor: Reiteration of common law principle.
 “KHAYER-AL-AIB”?????
 New interpretation: merchantability will be there in both the cases of caveat emptor and caveat
venditor.
[EC-SEAL case of WTO: one particular method of cutting meat- morality aspect; importing such meat can be
banned as it may hurt the religious sentiments of the people.]