Contents of sale contract: Goods, Price, Condition and Warranty

Goods

There must be some goods as a subject-matter. Goods must be one which is defined as goods in Sec. 2(7) of the Sale of Goods Act. As per the definition given in Sec. 2(7) of the Act, goods means every kind of movable property and it includes

1. Stock and share,
2. Growing crops, grass,
3. The things attached to or forming a part of the land which can be severed from the land.

For e.g., A agreed to sell to B, wheat crops which is grown in his field. A and B agreed that B may cut the crop and take it away upon the payment of the price. As the growing crop is included in the term “goods”, this is a valid contract of sale.

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 isCAVEAT EMPTOR which means let the Buyer Beware! The doctrine, of caveat emptor means that, ordinarily, a buyermust buy goods after satisfying himself of their quality and fitness. If he makes a bid choice he can not blame theseller to recover damages from him. It is no part of the seller’s duty to point out the defects in the goods he isselling. But the buyer may want to be sure of the quality and fitness of the goods and may make known to the seller’sskill 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 contractwill 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 aseller never points out the defects of the goods beingsold by him. Ordinarily, a buyer buys goods on his own risk thatis, if the goods turn out to be defective or of low quality or it is not fit for the specific purpose, then the sellercannot be held responsible. If the seller sells the good by fraud, then the buyer can reject the goods. Thus, accordingto this doctrine it is the duty of the buyer that before buying the goods he should enquire  into the goods thatwhether 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 ofgoods. Therefore it is clear that the buyer should fully satisfy himseif. If seller does fraud  or  intentionally concealsthe defects of the goods or the nature of the defect is such that it cannot  be detected with ordinary enquiry, thenthe 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 whenthe buyer makes, the purpose of purchasing the goods, known to the  seller, this doctrine does not apply.
2. 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, theseller will be liable for latent defects.
3. 3.Whenthe goods are purchased under a trade or patent name, there is no implied condition  regardingthe fitness of the goods for a specific 
4. Iftheseller sells goods by fraud or intentionally conceals the defects or there are latent defect  in  the goods, eventhen this doctrine will not apply.

A condition is a stipulation essential to the main purpose of the contract and forms the very basis of thecontract. Its breach gives rise to a right to treat the contract as repudiated. Thus, if the condition is notfulfilled the buyer has a right to repudiate the contract, and refuse the goods. If he has  already paid theprice, 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  subsidiarypromise. Its breach does not entitle the aggrieved party to repudiate the contract. He can only claimdamages. Where there is a breach of warranty on the part of the seller, the buyer must  accept the goodsand claim damages.Where A purchases 100 bags of wheat from B. Wheat must be fit for human consumption. This is anessential stipulation. Hence it is called as condition. Other stipulations like packing, etc., is a minor  one, hence calledas warranty.Conditions and warranties may be express or implied. An express condition or warranty is one stateddefinitely in so many words as the basis of the contract. Implied conditions or warranties are those which attach tothe contract by operation of law. The law incorporated them into the contract  unless the parties agree to thecontrary.A sold to B timber to be properly seasoned before shipment. It was agreed between the parties, that in caseof 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 toaccept 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 warrantygives 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 treatedas 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 thehorse 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 awarranty. 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 onlyclaim damages or compensation for the breach of the condition. He cannot repudiate the contract or refuse to takedelivery of the goods.In the first two cases, a condition is treated a warranty. at the will of the buyer; but in thethird 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 asbreach 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 ofcotton on 10th of August. Now in this contract, time is the essence of contract. B can refuse to accept thedelivery. But he can also waive this right. He may treat this breach of  condition as breach of warranty byaccepting 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.