Basis of

Contract of Sale Hire Purchase Agreement

distinction

A contract of sale is governed by

They are governed by Hire Purchase Act,
Law the Sale of Goods Act, 1930.- sec
1972- sec 2(c)
4(1)

It is an agreement to hire and an agreement

Nature of It may be written, oral or
to sell. It has to be in writing.
contract implied.

Possession may or may not transfer

Possession Possession passes immediately
immediately.

It transferred only when the option to

Transfer of The ownership of goods is
purchase is exercised and the last

ownership transferred immediately. payment is made.

The hirer is a bailee, and not the owner

The buyer becomes the full owner until he pays all the instalments of the price
Buyer
of the goods in full or exercises the option to purchase.

The buyer can transfer a good title

Transfer to The hirer cannot transfer a good title to a
to third parties because ownership
third parties third party as ownership has not been
of goods has been transferred.
transferred.

The hire vendor has a right to repossess the

Right to The seller can sue for price but he
goods if the hirer defaults in the payments.
repossess cannot repossess the goods.

In a sale, there is no option to the

Right to The hirer can terminate the agreement
buyer to return the goods bought.
terminate before the ownership is transferred.
 In case of sale of taxable goods, Even if taxable goods are hired, sales tax is
Sales Tax
sales tax is levied. not levied.

SALE OF GOODS & WORK AND LABOUR

A contract of sale of goods is one in which some goods are sold or are to be sold for a
price. It requires the delivery of goods. But there are transactions where there is a contract
of exercise of skill and labour, and the delivery of goods is subsidiary. These are the
contracts for work or labour or the contracts for service. It is the intention of the parties
that creates the difference – whether only delivery of goods is intended or exercise of
skill and labour with regard to the goods has to be delivered.

Example: A commissions B to paint his portrait and supplies him with the material to
paint. It is a contract for work and labour and not a contract of sale because the substance
of the contract is the artist’s skill and not the delivery of the material.

In a similar case of Robinson vs. Graves [1935 1 KB 579], A, a painter was orally
commissioned by B to paint portrait of a lady. Later, B repudiated the contract before its
completion. It was held that the contract was of work and labour because the substance
of the contract was the skill and experience of the artist in producing the picture.

Example: A bought a portrait painted by B, a famous artist. It is a contract of sale and

not a contract for work and labour because the substance of the work is the delivery of
the portrait.

In Lee vs. Griffin [1861 30 LJ QB 252], a dentist was engaged by a lady to make false
teeth ‘to be fitted into her mouth’. The lady died before the completion of work and a
question arose as to the nature of the contract. It was held that the contract was one of
sale.

Where gold is given to a goldsmith for preparing ornament, it is a contract of work and
labour. When a photographer takes a photograph, develops the negative and does other
photographic work and then supplies the prints to his client, the contract is one of skill
and labour and not that of sale of goods as held in the case of Asst. Sales Tax Officer vs.
B C Kame [AIR 1977 SC 1642]

Sale and Barter: A sale is always for a price but in case of barter, the transfer of
ownership of goods is in return for other goods – there is not price paid.
Sale by Pawnee of goods, where the bank, in the course of banking business, has sold
the goods pledged with it, it would be covered within the meaning of the term ‘SALE’
of goods under sec 2(13) of the sale of goods act, 1930. In State Bank of Travancore V
Commercial Tax Officer, the bank sold, in public auction, goods/ornaments/bullion
pledged with the bank, in realization of security, in exercise of its rights as a pledgee. It
is held to be sale within the meaning of sec 2(13) of the Act.

Conditions and Warranties

Whenever we buy any goods like electronic gadgets etc., we are concerned about the
warranty periods. We ask the seller about the warranty to make sure

that even if the product is found to be faulty after purchase, we can easily get the product
replaced or repaired. The terms “Condition” and “Warranty” are set out in the contract
of sale in order to determine remedies the parties can claim in case of the breach by either
of the parties. Here in this article, we will see the manner how these terms are defined,
their differences and their legality in the light of Sale of Goods Act, 1930.

Certain provisions need to be fulfilled as demanded in the contract of sale or any other
contract. The condition is a fundamental precondition on the basis of which the whole
contract is based upon, on the other hand, warranty is the written guarantee wherein the
seller commits to repair or replace the product in case of any fault in the product. Section
11 to 17 of the Sale of Goods Act enlightens the provisions relating to Conditions and
Warranties.
Section 12 of the Act draws a demarcation between a condition and a warranty. The
determination of condition or warranty depends upon the interpretation of the stipulation.
The interpretation should be based on its function rather than the form of the word used.
The Sale of Goods Act 1930 (hereinafter the Act) contains various provisions regarding
the sale of goods. One such provision is of conditions and warranties. In Section 12 of
the Act the meaning of conditions and warranties are given as under-
(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.

But our concern here is with 'Implied Conditions and Warranties'. If a stipulation forms
the very basis of the contract, or, as stated in S.12(2) is essential to the main purpose of
the contract, it is called a condition. On the other hand, if the stipulation is not essential
to the main purpose of the contract, it is called warranty S. 12(3).

Parties may expressly provide any conditions or warranties in their contract. For

e.g., for a sale of red saree, to be worn by a woman at a function on a particular day, it is
express condition that it should be red saree for a particular day and should reach on
time. But is there any other condition? Yes, there can be other conditions also that are
not exclusively said by parties but are impliedly understood. In the said illustration, the
implied condition can be of a perfect saree, not to be torn, matching with selected piece
etc. Let's have a deep look into this provision.

Conditions

In the context of the Sale of Goods Act, 1930, a condition is a foundation of the entire
contract and integral part for performing the contract. The breach of the conditions gives
the right to the aggrieved party to treat the contract as repudiated. In other words, if the
seller fails to fulfil a condition, the buyer has the option to repudiate the contract or refuse
to accept the goods. If the buyer has already paid, he can recover the prices and also
claim the damages for the breach of the contract.

Sec 12(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’.

A condition is referred to as, an essential element attached to the subject matter of an

agreement which is mentioned by the buyer to the seller and is either expressed or
implied while entering into the contract. The buyer can refuse to accept the goods
delivered by the seller, in case of non-compliance with the condition mentioned by the
seller in the contract. The condition may be express or implied.

If while entering into a contract, the buyer mentions (in words or writing) that the goods
are to be delivered to him before a given date, the date is taken as a condition to the
contract since the buyer expressed it. Whereas, if a buyer contracts to buy a red-coloured
 saree for her ‘wedding’ which is to be held on a date mentioned to the seller, then the
time is the implied condition for the contract. Even if the buyer doesn’t mention the date
of delivery (but has mentioned the date of the wedding or occasion), it is implied on the
part of the seller that the garment is to be delivered before the mentioned date of the
wedding. In this case, the seller is bound to deliver the garment before the date of the
wedding as the delivery of the garment after the said date of the wedding is of no use to
the buyer and the buyer can refuse to accept the same since the condition to the contract
is not fulfilled.

For example, Sohan wants to purchase a horse from Ravi, which can run at a speed of
50 km per hour. Ravi shows a horse and says that this horse is well suited for you. Sohan
buys the horse. Later on, he finds that the horse can run only at a speed of 30 km/hour.
This is the breach of condition as the requirement of the buyer is not fulfilled. The
conditions can be further classified as follows.

Kinds of conditions

Expressed Condition

The dictionary meaning of the term is defined as a statement in a legal agreement that
says something must be done or exist in the contract. The conditions which are
imperative to the functioning of the contract and are inserted into the contract at the will
of both the parties are said to be expressed conditions.

Implied Condition

There are several implied conditions which are assumed by the parties in different kinds
of contracts of sale. Say for example the assumption during sale by description or sale
by sample. Implied conditions are described in Section 14 to 17 of the Sale of Goods
Act, 1930. Unless otherwise agreed, these implied

conditions are assumed by the parties as if it is incorporated in the contract itself. Let’s
study these conditions briefly:

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 to a right to reject the goods
and treat the contract as repudiated’.
 A warranty is referred to as extra information given with respect to the desired good or
its condition. The warranty is of secondary importance to the contract for its fulfilment.
Non-compliance of the seller to the warranty of the contract does not render the contract
repudiated and hence, the buyer cannot refuse to buy the good but can only claim
compensation from the buyer.

Warranty is the additional stipulation and a written guarantee that is collateral to the
main purpose of the contract. The effect of a breach of a warranty is that the aggrieved
party cannot repudiate the whole contract however, can claim for the damages. Unlike
in the case of breach of condition, in the breach of warranty, the buyer cannot treat the
goods as repudiated.

Kinds of Warranty

Expressed Warranty

The warranties which are generally agreed by both the parties and are inserted in the
contract, it is said to be expressed warranties.

Implied Warranty

Implied warranties are those warranties which the parties assumed to have been
incorporated in the contract of sale despite the fact that the parties have not specifically
included them in the contract. Subject to the contract, the following are the implied
warranties in the contract of sale:
• Warranty as to undisturbed possession

Section 14(2) of the given Act provides that there is an implied warranty that the buyer
shall enjoy the uninterrupted possession of goods. As a matter of fact, if the buyer having
got possession of the goods, is later disturbed at any point, he can sue the seller for the
breach of warranty.

For e.g.: ‘X’ purchased a second-hand bike from ‘Y’. Unknown to the fact that the bike
was a stolen one, he used the bike. Later, he was compelled to return the same. X is
entitled to sue Y for the breach of warranty.
 • Warranty as to freedom from Encumbrances
In Section 14(3), there is an implied warranty that the goods shall be free from any charge
or encumbrances that are in favor of any third party not known to the buyer. But if it is
proved that the buyer is known to the fact at the time of entering into the contract, he
will not be entitled to any claim.
For eg: A pledges his goods with C for a loan of Rs. 20000 and promises him to give the
possession. Later on, A sells those goods to B. B is entitled to claim the damages if he
suffers any.
• Implied warranty to disclose Dangerous nature of the goods sold
If the goods sold are inherently dangerous or likely to be dangerous and the buyer is not
aware of the fact, it is the duty of the seller to warn the buyer for the probable danger. If
there would be a breach of this warranty, the seller will be liable.
For eg: A purchases a horse from B if the horse is violent and then It is the duty of the
seller to inform A about the probable danger. While riding the horse, A was inflicted
with serious injuries. A is entitled to claim damages from B.
CONDITION WARRANTY

A condition is of secondary
A condition is of primary importance.
importance.

In case of a breach of warranty, the injured

Breach of condition leads to termination of the
party is liable to be compensated.
contract.

The injured party can refuse to accept the The Injured party can only claim
goods as well as claim damages in case of damages in case of breach of
breach of condition. warranty.

The injured party can refuse to accept goods The Injured party cannot refuse to accept
not fulfilling the condition of the contract. the goods not fulfilling the warranty.

A condition can be treated as a warranty on the A warranty cannot be treated as a condition.

wish of the buyer.

Defined in Section 12(2) of the Sale of Goods Defined in Section 12(3) of the Sale of
Act, 1930. Goods Act, 1930.
 BASIS FOR
COMPARISON CONDITION WARRANTY

It is a stipulation which forms It is additional stipulation

Meaning the very basis of the contract. complementary to the main purpose
of the contract.

Section 12(2) of the Sale of Section 12(3) of the Sale of Goods

Provision Goods Act, 1930 defines Act, 1930 defines Condition.
Condition.

Purpose Condition is basic for the

formulation of the It is a written guarantee for

contract. assuring the party.

Result of Breach of The whole contract may be Only damages can be claimed in case
Contract treated as repudiated. of a breach.

Remedies available
to the aggrieved Repudiation, as well as Only damages can be claimed.
party damages, can be claimed.

Important note on the differences Between Condition and Warranty

1. A condition is an obligation which requires being fulfilled before another

proposition takes place. A warranty is a surety given by the seller regarding
the state of the product.

2. The condition is vital to the theme of the contract while Warranty is ancillary.

3. Breach of any condition may result in the termination of the contract while the
breach of warranty may not lead to the cancellation of the contract.

4. Violating a condition means violating a warranty too, but this is not the case with
warranty.

5. In the case of breach of condition, the innocent party has the right to rescind the
contract as well as a claim for damages. On the other hand, in breach of warranty,
the aggrieved party can only sue the other party for damages.
 Implied Conditions and Warranties under the Sale of Goods Act

Meaning- Apart from what may be provided by the parties in the contract, certain
conditions and warranties as provided under S.14 to 17 are impliedly there in every
contract of sale of goods. Thus, the stipulation that are implied in a contract of sale of
goods corresponding to their nature of being a condition or warranty as according to the
nature of contract is called as Implied Conditions and Warranties. They are binding in
every contract unless they are inconsistent with any express condition and warranty
agreed by the parties.

Section 14-17 of the Sale of Goods Act, 1930 deal with the implied conditions and
warranties attached to the subject matter for the sale of a good which may or may not
be mentioned in the contract.

Implied Conditions:

There are seven implied conditions in a contract of sale of goods.

• Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied condition as to title as
‘in the case of a sale, he has a right to sell the goods and that, in the case of an agreement
to sell, he will have a right to sell the goods at the time when the property is to pass’.

In every contract of sale, the basic yet essential implied conditions on the part of the
seller are that-

1. Firstly, he has the title to sell the goods.

2. Secondly, in case of an agreement to sell, he will have the right to sell the
goods at the time of performing the contract.

Consequently, if the seller has no title to sell the given goods, the buyer may refuse or
reject those goods. He is also entitled to recover the full price paid by him.
In every contract of sale, unless the circumstances are such as to show a different
intention, there is an implied condition on the part of the seller that in case of sale, he
has a right to sell the goods and in the case of agreement to sell, he will have the right to
sell goods at the time when property in them is to pass.

This means that the seller has the right to sell a good only if he is the true owner and
holds the title of the goods or is an agent of the title holder. When a good is sold the
implied condition for the good is its title, i.e., the ownership of the good. If the seller
does not own the title of the said good himself and sells it to the buyer, it is a breach of
condition. In such a situation the buyer can return the goods to the seller and claim his
money back or refuse to accept the good before delivery or whenever he learns about the
false title of the seller.

Rowland v Divall, – The plaintiff had purchased a car from the defendant and was
compelled to return it to the true owner after having used it for a while. The plaintiff then
sued the defendant for the purchase money, since the defendant didn’t receive the
consideration as per the condition of the title of ownership.

If the goods bear labels infringing the trademark of a third party, the seller has no rights
to sell them. In Niblett v Confectioners' Material, the claimant purchased 1,000 tons of
condensed milk from the defendant. The tins were labelled 'Nissly'. Nestle told the
claimant that if they attempted to sell these on, they would apply for an injunction to
prevent the sale as the label was very similar to Nestle's labels for their condensed milk.
The claimants agreed not to sell them and brought an action against the sellers. It was
held that, the sellers did not have the right to sell the goods and therefore the buyers
were entitled to repudiate the contract.

In Butterworth v Kingsway Motors, R was in possession of a car under a hire-purchase

contract with a finance company. Before exercising the option to purchase, R sold the
car to X, who then sold it to Y. Y sold the car to KM, and KM sold it to B. The finance
company recovered the car from B. It was held that at the time KM purported to sell,
they were not the owners of the car. B was entitled to recover the whole of the purchase
price paid to KM, because there was a total failure of consideration. Thus, it was
observed that Where a seller having no title to the goods at the time of the sale,
subsequently acquires a title, that title feeds the, that title feeds the defective titles of both
the original buyer and the subsequent buyer.
 • Sale by Description (Section 15)

Section 15 of the Sale of Goods Act, 1930 explains that when a buyer intends to buy
goods by description, the goods must correspond with the description given by the buyer
at the time of formation of the contract, failure in which the buyer can refuse to accept
the goods.

In the contract of sale, there is an implied condition that the goods should be in
conformity with the description. The buyer has the option to either accept or reject the
goods which do not conform with the description of the good. Say for example: Where
Ram buys a new car which he thinks to be new from “B” and the car is not new. Ram’
can reject the car.

When the goods are sold by description there is an implied condition that the goods
supplied shall correspond with the description. Lord Blackburn in Bowes v Shand stated:
If you contract to sell peas, you cannot oblige to take beans.

In Shepherd v Kane, A ship was contracted to be sold as "copper fastened vessel" to be

taken with all faults, without any allowance for any defects whatsoever. The ship turned
to be partially copper fastened. The court held that that the buyer was entitled to reject
the goods.

When a descriptive word or phrase is used in a contract of sale to describe the product it
creates an implied condition that the goods will correspond to the description. For
example, a sale of Seedless Grapes signifies that the fruit will have no seeds. If it turns
that the fruit is with seeds the buyer can reject the goods.

Some situations-Where the buyer has not seen the goods and relies on the description
given by seller: In Varley v. Whipp, there was a contract for the sale of a second-hand
reaping machine which the buyer had not seen. The seller described it as a new machine
a year before and having cut only 50 to 60 acres. After delivery, the buyer found that the
machine was not in accordance with the description given by seller. It was held that the
buyer was entitled to reject the machine.
Where the buyer had seen the goods but relies not on what he had seen but on what was
stated to him by the seller: In Nicholson &Venn v Smith Marriot, Table napkins sold at
an auction which were said to be authentic property of Charles I, but that turned out to
be false. Claimant was entitled to damages for breach of contract, but Hallet J held the
claimant could've avoided the contract on the ground of mistake.

Packing of goods may sometimes be part of the description: In Moore &Co v. Landauver
& Co., M sold to L 300 TINS OF Australian Apple packed in cases containing 30 tins.
M tendered a substantial portion in case containing 24 tins. It was held that l could reject
all the tins as the goods were not packed according to the description given in the contract
as the method in which the fruit was packed was an essential part of the description.

• Sale by Sample (Section 17)

When the goods are to be supplied on the basis of a sample provided to the seller by the
buyer while the formation of a contract the following conditions are implied:

• Bulk supplied should correspond with the sample in quality, That the actual
products would correspond with the sample with respect to the quality, size,
colour etc.
• Buyer shall have a reasonable opportunity to compare the goods with the
sample
• The good shall be free from any apparent defect on reasonable examination by
the buyer.

For example, A company sold certain shoes made of a special kind of sole by sample
sale for the French Army. Later when the bulk was delivered it was found that they were
not made from the same sole. The buyer was entitled to the refund of the price and
damages.

According to S. 17 (1) - A contract of sale is a contract for sale by sample where there is
a term in the contract, express or implied, to that effect. The purpose of a sample is to
present to the eyes the real meaning and intention of the parties with regard to the subject
matter of the contract which owing to the imperfection of language, it may be difficult
or impossible to express in words.
According to S. 17 (2)- In the case of a contract for sale by sample there is an implied
condition.

(a) that the bulk shall correspond with the sample in quality;(b) that the buyer shall have
a reasonable opportunity of comparing the bulk with the sample;(c) that the goods shall
be free from any defect, rendering them unmerchantable, which would not be apparent
on reasonable examination of the sample.

In Godley v Perry, a retailer purchased from a wholesaler a number of toy catapults in a

sale by sample. The retailer sold one of those catapults to a boy and when the boy tried
to play with it, it broke into pieces because of manufacturing defect. The retailer was
held bound to pay compensation to the boy and in his turn, he sued the wholesaler for
indemnity. It was found that the retailer had done reasonable examination on his part,
thus wholesaler had to indemnify him

• Sale by sample as well as Description (Section 15)

When the sale of goods is by a sample as well as a description the bulk of the goods
should correspond with both, i.e., description and sample provided to the seller in the
contract and not only sample or description.

In a sale by sample as well as description, the goods supplied must be in accordance with
both the sample as well as the description. In Nichol v. Godis (1854), there was a sale of
foreign refined rape-oil. The delivered oil was the same as the sample but it was having
a mixture of other oil too. It was held in this case that the seller was liable to refund the
amount paid.

S. 15- When the goods are sold by sample as well as description, it is not sufficient that
the bulk of goods correspond with the sample if the goods do not correspond with the
description.

In Wallis v Pratt, there was a contract for sale of seeds referred to as 'Common English
Sainfoin'. However, the seeds supplied to the buyer were of a different quality. The
defect also existed in the sample. The discrepancy in quality was discovered only after
the seeds were sown. The buyer could recover damages as there was a breach of
condition.
Before heading towards the further implied conditions let us know about the ‘Doctrine
of Caveat Emptor’ meaning 'Buyer beware'. This doctrine of caveat emptor is based
on the fundamental principle that once a buyer is satisfied with the product's suitability,
then he has no subsequent right to reject such product. This doctrine is enshrined through
Section 16 of the Act; thus, it becomes important to study it.

Sometimes the goods purchased by the buyer may not suit the particular purpose for
which the buyer wants them. The question in such case arise is, whether the buyer can
reject the goods or he is supposed to take the risk of goods turning out not suitable for
the required purpose.

The section provides 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 incorporation of the rule contained in maxim caveat emptor which means buyer
beware. According to this rule, the buyer himself should be careful while purchasing the
goods and he should himself ascertain that the goods suit his purpose; but if the goods
are subsequently found to be unsuitable for the purpose of the buyer, he cannot blame
seller for the same.

For e.g. A purchase a horse from B. A need the horse for riding but he doesn't mention
this to B. The horse is not suitable for riding but only for carriage. A can neither reject
the horse nor can he claim any compensation.

In Re Andrew Yule & Co., the buyer ordered for hessian cloth without specifying purpose
for which he wanted the same. It was in fact needed for packing. Because of its unusual
smell, it was unsuitable for the same. It was held that the buyer had no right to reject the
cloth and claim damages.

Section 16 of the act incorporates certain exceptions to the rule of caveat emptor which
are the next two implied conditions of a contract of sale also.

• Condition as to Quality or Fitness (Section 16)

The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods, which
means ‘Buyer Beware’. The maxim means that the buyer must take care of the quality
and fitness of the goods he intends to buy and cannot blame the seller for his wrong
choice. However, section 16 of the Sale of Goods Act 1930 provides a few conditions
which are considered as an implied condition in terms of quality and fitness of the good:

• When the buyer specifies the purpose for the purchase of the good to the seller,
he relied on the sound judgment and expertise of the seller for the purchase
there is an implied condition that the goods shall comply with the description
of the purpose of purchase.
• When the goods are bought on a description from a person who sells goods of
that description (even if he doesn’t manufacture the good), there is an implied
condition that the goods shall correspond with the description. However, in
case of an easily observable defect that is missed by the buyer while examining
the good is not considered as an implied condition.

S. 16(1) {First exception to caveat emptor}- 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 which it is in the course of the seller's business to supply
(whether he is the manufacturer or producer or not), there is an implied condition that
the goods shall be reasonably fit for such purpose.
In Priest v Last, B went to S, a chemist and demanded a hot water bottle from him, S
gave a bottle to him saying that it was meant for hot water, but not boiling water. after
few days while using the bottle B's wife got injured as the bottle burst out, it was found
that the bottle was not fit to be used as hot water bottle. The court held that the buyer's
purpose was clear when he demanded a bottle for hot water bottle, thus the implied
condition as to fitness is not met in this case.

In Frost v Aylesbury Dairy Co, the claimant bought milk from the defendant and the
account book supplied to him contained statements on the precautions taken to keep the
milk free from germs. The claimant's wife died of typhoid fever contracted from milk
supplied by the defendants. It was held that the claimant should be awarded.

Proviso to Section 16 (1)- No implied condition when the sale under patent or trade
name: In Chanter v Hopkins, the buyer's order to the seller said: 'Send me your patent
hopper and apparatus to fit up my brewing copper with your smoke consuming furnace'.
The seller supplied the buyer the furnace and apparatus asked for but the same was not
suitable for the purpose of buyer's brewery. It was held that the seller had supplied what
was ordered and he was entitled to recover its price from the buyer.
Implied condition of merchantable quality- Sec. 16(2) {Second exception to caveat
emptor}-S. 16 (2) contains another implied condition which is by way of exception to
the rule of caveat emptor. It has been noted before in S.15 that when the goods are bought
by description, there is an implied condition that the goods supplied shall answer the
description.

Goods must be of merchantable quality. In other words, the goods are of such quality
that would be accepted by a reasonable person. For eg: A purchased sugar sack from B
which was damaged by ants. The condition of merchantability is broken here and it is
unfit for use. It must be noted from this section that the buyer has the right to examine
the goods before accepting it. But a mere opportunity without an actual examination
would not suffice to deprive the buyer of his rights. If, however, the examination does
not reveal the defect but within a reasonable time period the goods are found to be
defective, He may repudiate the contract even if he approves the goods.

The implied conditions especially in case of eatables must be wholesome and sound and
reasonably fit for the purpose for which they are purchased. For eg: Amit purchases milk
that contains typhoid germs and because of its consumption he dies. His wife can claim
damages.

Goods supplied shall be of merchantable quality where -the goods are bought by
description; -from a seller who deals in the goods of that description (whether he is the
manufacturer or producer or not), there is an implied condition that the goods shall be of
merchantable quality.

In Grant v Australian Knitting Mills, Dr Grant purchased two pairs of woolen underwear
and two singlets from John Martin & Co. There was nothing to say the underwear should
be washed before wearing and Dr Grant did not do so. He suffered a skin irritation within
nine hours of first wearing them. It was held that because of such a defect the underwear
was not of merchantable quality.

In Shivallingappa v. Balakrishna & Son, the buyer ordered for the best quality of 'Toor
dal'. The dal was loaded in rain and by the time it reached the destination, it became
damages by moisture. It was held that since the damaged Toor dal could not be sold as
that of best quality as it was no longer of merchantable quality. The buyer was entitled
to claim damages.
 Proviso to Sec. 16(2) “Condition negative when the goods examined by the buyer:
Thus, the proviso divides defect into two kinds-

Patent “Patent defects are those which can be found on examination by an ordinary
prudence with the exercise of due care and attention. Latent “In latent defects, the
implied condition of merchantability continues in spite of the examination of the goods
by the buyer.”

Liability of all-natural consequences: In Jackson v Watson, the plaintiff purchased a tin

of salmon from defendant. The contents of the tin being poisonous, his wife died. It was
held the defendant were liable to pay damages.

Hence, the basic concept of caveat emptor is contained in the section 16 of the Act.

Conditions implied by trade usage - S. 16(3)-Sub-Section (3) of section 16 gives

statutory force to conditions implied by the usage of a particular trade. It says: "An
implied warranty or condition as to the quality or fitness for the particular purpose may
be annexed by the usage of trade." In case of Peter Darlington Partners Ltd v Gosho Co
Ltd, where a contract for the sale of canary seed was held subject to the custom of the
trade that for impurities in the seed, the buyer would get a rebate on the price, but would
not reject the goods.

Implied Warranty

• Enjoy Possession of the Goods [Section 14(b)]

In a contract of sale unless the circumstances of the case show different intention, there
is an implied warranty that the buyer shall have and enjoy possession of goods

Section 14(b) of the Act mentions ‘an implied warranty that the buyer shall have and
enjoy quiet possession of the goods’ which means a buyer is entitled to the quiet
possession of the goods purchased as an implied warranty which means the buyer after
receiving the title of ownership from the true owner should not be disturbed either by the
seller or any other person claiming superior title of the goods. In such a case, the buyer
is entitled to claim compensation and damages from the seller as a breach of implied
warranty.
 • Goods are free from any charge or encumbrance in favor of any third party
[Section 14(c)]

Any charge or encumbrance pending in favors of the third party which was not declared
to the buyer while entering into a contract shall be considered as a breach of warranty,
and the buyer is be entitled to compensation and claim damages from the seller for the
same.

• Implied warranty against encumbrances

There is an implied warranty that the goods sold shall be free from any charge or
encumbrances in favour of any third party. If there is a charge or encumbrance on the
goods sold and the buyer has to discharge the same, he is entitled to get compensation
for the same from the seller. If the charge or encumbrance of the goods is known to the
buyer at the time of the contract of sale, he becomes bound by the same sand does not
have any right to claim compensation for discharging the same.

The provision of Implied conditions and warranties are provided in the Sale of Goods
Act in order to protect the buyers in case of any fraud by the seller. However, it is seller’s
duty in the first place to look for the obvious defects and enquire about the quality of the
product before entering into a contract of sale of goods since a seller cannot be held
guilty for a customer’s wrong choice. In order to ensure purchase of an appropriate good
by the seller, it is suggested that the buyer conveys the purpose and gives a reasonable
description of the goods so desired.

• Exclusion of implied terms and conditions

S. 62-Exclusion of implied terms and conditions. -Where any right, duty or liability
would arise under a contract of sale by implication of law, it may be negatived or varied
by express agreement or by the course of dealing between the parties, or by usage, if the
usage is such as to bind both parties to the contract.

“As regards conditions and warranties, section 16(4) lays down that an express warranty
or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith. That means that when the parties expressly agree to such
stipulation and the same are inconsistent with the implied conditions and warranties, the
express conditions and warranties will prevail and the implied ones in S. 14 to 17 will
be negative.
 When does Condition sink to the level of Warranty?

Section 13 of the Act specifies the cases wherein a breach of Condition sink to the level
of breach of Warranty. In the first two following points, it depends upon the will of the
buyer, but the last one is compulsory and acts as estoppel against him:

1. When the buyer waives the condition, the condition is considered a warranty.
2. A condition would sink to the level of warranty where the buyer on his own
will treat the breach of condition as a breach of warranty.
3. Wherein the contract is indivisible and the buyer has accepted the whole or
part of goods, the condition is treated as a warranty. Consequently, the contract
cannot be repudiated. However, the damages can be claimed.
At the time of selling or purchasing goods, both the buyer and seller put forth some preconditions with
regards to the mode of payment, delivery, quality, quantity and other things necessary. These stipulations
are either considered as condition or warranty differing from case to case. These concepts are necessary to
be understood as it protects the rights of parties in case of breach of the contract.

❖ Legal Principles regarding Transfer of Goods

There are four principles regarding the transfer of goods under the umbrella of The Sale
of Goods Act, 1930, which the article will be talking about and they’re as follows:

• Transfer of property in sale of Specific or Ascertained Goods

Section 19 to section 22 of The Sale of Goods Act, 1930 are a few sections which govern
the transfer of goods in a case where the goods are specific and ascertained in nature:

• Property when intended to pass (Section 19)

Section 19 of The Sale of Goods Act, 1930, is divided into further subsections and
they’re as follows:

1. Where a contract for sale of ascertained or specific goods exists, a specified

time is fixed as per the convenience and consensus of both the parties at which
the property is intended to be transferred from the seller to the buyer.
2. One has to pay attention to the circumstances and conduct of both the parties
 to the contract in order to understand the true intention of the contracting
parties. Also, the terms of the contract should be given equal importance in the
existing case.
3. Except if an alternate intention shows up, the principles laid under the Section
20 to 24 of the Act will help in finding out the intention of the contracting
parties in respect with the time at which the goods are about to get transferred
from the seller to the buyer.

• Specific goods in a Deliverable state (Section 20)

Section 20 of The Sale of Goods Act,1930 relates to specific goods in a deliverable state,
and it states:

In a contract for the sale of specific goods, which is unconditional in nature, the goods
are transferred from the seller to the buyer at the time of formation of the contract.
However, the only precondition required for the transfer of property is the fact that the
goods must be existing in a deliverable state. The delay in the payment or delivery of
goods or both is not something which holds importance.

Example: A goes to a big electronic shop in order to buy a television set. He selects a
big plasma Television set and asks the shopkeeper to deliver the television at his house
which is at the other end of the town. The shopkeeper agrees to it. With this, “A” will
become the owner of the television, and the Television set will become his property.

• Specific goods to be put into a deliverable state (Section 21)

Section 21 of The Sale of Goods Act, 1930: certain goods to be put in a deliverable state:
Where there is an existence of a contract for the sale of specific goods, the property
concerned in the transaction will only be passed to the buyer, if the seller performs the
necessary acts and omissions in order to put the goods in a deliverable state. Also, it is
mandatory for the seller to notify the buyer regarding the alterations.
Example: A goes to a mall to buy a smart television from an electronics store. He selects
a big fancy smart TV from the electronic section and asks for its home delivery. The
manager agrees to deliver it to A’s home. However, at the time where he selects the smart
TV, it doesn’t have an operating system installed. The manager promises to install the
 operating system and on the next day, he informs “A” that his smart TV is now installed
with the operating system and is ready for its delivery. Further, he asked for his
permission to make the delivery. In order to summarize the example, the goods will only
be transferred to “A” if the manager has installed the operating system making the smart
TV ready for its use.

Specific goods are in a deliverable state but the seller has to do something to ascertain the price
(Section 22)

Section 22 of The Sale of Goods Act, 1930: Specific goods are in a deliverable state but
the seller has to do something to ascertain the price:

Where there is a contract for the sale of specific goods in a deliverable state, the seller is
undoubtedly bound to weigh, measure, test or do the necessary demonstration or
anything which is required in reference with the sale of those particular goods. He’ll be
doing this to ascertain the appropriate value of the goods. The property in the goods will
not pass until such demonstration or particulars are done and the buyer has
acknowledged it thereof.

Example: Rishabh sells a wooden bed to Deepak and agrees to assemble it in Deepak’s
bedroom as it was a part of the agreement. Rishabh delivers the wooden bed and makes
a call to him informing Deepak that he will assemble the wooden bed the next day. That
night the wooden bed gets stolen from Deepak’s premises. In this case, Deepak will not
be liable for the loss since the wooden bed was not passed to him. According to the terms
of the contract, the wooden bed would be in a deliverable state only after it is assembled.

• Transfer of property in sale of Unascertained Goods

Section 23 of The Sale of Goods Act, 1930 govern the transfer of goods in a case where
the goods are unascertained in nature:

• Sale of unascertained goods and appropriation (Section 23)

Section 23 of The Sale of Goods Act, 1930, is divided into further subsections and
they’re as follows:
 • Section 23(1) Sale of unascertained goods by description:

In a contract, for the sale of unascertained goods by description, if goods of a specific

description are appropriated either by the seller with the consent of buyer or by the buyer
with the consent of the seller, then the goods are passed to the buyer. The consent can be
expressed or implied and can be given before or after the appropriation is made.

• Section 23(2) Delivery to the carrier:

The seller has unconditionally appropriated the property if he delivers the property to the
buyer/ carrier/ bailee for the reason of transmission to the buyer, however, he doesn’t
reserve the disposal rights to the property, then it can be said that he has appropriated the
contract.

• Goods sent on “sale or return”

When goods are disposed on the basis of “sale or return” by the seller, the ownership of
the goods aren’t transferred to the buyer unless the buyer gives assent to the goods.
However, if these goods are held by its buyer without giving an approval then they’re
taken as goods whose ownership is yet to be transferred. In that case, they’re treated as
goods which belong to the seller and not the buyer.

• Goods sent on approval or “on sale or return” (Section 24)

Section 24: In a case where the goods are delivered to the buyer either on approval or on
“sale or return” or on other comparable terms then:

(a) The goods therein will only pass to the buyer if the buyer either portrays his consent
or acknowledges to the seller or does any act by which the transaction would be adopted.

(b) The goods therein will only pass to the buyer if the buyer doesn’t express his consent
or acknowledgement to the seller that he intends to reject the goods, however, holds the
goods without giving a notice to the buyer then on the expiration of time frame for the
return of the goods or if time hasn’t been fixed,

(c) then on the completion of a reasonable time, the property will be passed to the buyer.