Conditions & Warranties – CA Foundation Law Study Material

This Conditions & Warranties – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Conditions & Warranties – CA Foundation Business Law Study Material

Question 1.
Explain the condition as to merchantability ant! condition as to wholesomeness.
Answer:
Implied condition as to merchantability. – [Sec. 16(2)]
Where goods are brought by description from a seller who deals in goods of that description, there is an implied condition that goods shall be of merchantable quality. Merchantable means that the goods are commercially saleable and that they are fit for the purpose for which they are generally used. Mere marketability of not adequate, they should also be free from latent defects.

Where the buyer examines the goods prior to sale, there is no implied condition as to merchantability as regards defects which such examination ought to have revealed. However, in spite of examination, if the goods have certain latent defects which no examination could reveal, the implied condition remains.
Example: X bought a color TV from M/s Concord Electronics. The TV was defective right from the beginning and it did not work in spite of repairs by expert technicians. There is a breach of implied condition as to merchantability and the dealer will have to take back the defective TV and refund the amount.

Implied condition as to wholesomeness

In the case of foodstuff and eatables, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome that is fit for human consumption. In case of a breach, the buyer is entitled to reject the goods claim damages.
Example: X bought milk from Y, a dairy owner. The milk was contaminated with germs of typhoid fever. X’s wife, on taking the milk, became infected and died of it. Y was held liable for damages.

Conditions & Warranties – CA Foundation Law Study Material

Question 2.
What are the implied conditions in a contract of “Sale by Sample” under the Sale of Goods Act, 1930? State also the implied warranties operative under the said Act.
Answer:
Implied condition in a sale by sample. – [Sec. 17]
When goods are to be supplied according to a sample agreed upon, the following conditions are implied:

  • The bulk shall correspond with the sample in quality.
  • The buyer shall have a reasonable opportunity of comparing the goods with the sample.
  • The goods shall be free from any latent defect (hidden defect) rendering them unmerchantable. Latent defects are the defects that would not be

apparent on a reasonable examination of the sample and they can be discovered only when the goods are put to use. If the defect is easily discoverable on inspection and the buyer takes delivery after inspection, he has no remedy.

A sale is by sample where there is a term in the contract, express or implied to that effect. The effect of the section is that where goods are sold by sample, there should not be any latent defect therein that renders them unmerchantable. In case of breach of any of the above conditions as to sale by sample, the buyer can rescind the contract and claim damages.

Implied warranties
In the absence of an agreement to the contrary, the following warranties are implied in every contract of sale:

1. The buyer must get quiet possession [Sec. 14(b)]
The buyer shall have and enjoy quiet possession of the goods. For e.g.: X has given his car on hire for a period of one month to Y. Thereafter, X sold it to Z without disclosing to him that Y was entitled to use the car on account of the hire agreement. Z claims the car from Y. Y’s possession is disturbed. He can claim damages from X.

2. The goods must be free from encumbrance [Sec. 14(c)]
There is an implied warranty that the goods shall be free from any charge or encumbrance in favor of a third party not declared or known to the buyer before or at the time when the contract is made. The effect of this clause is that if the buyer pays off the charge or encumbrance, he will be entitled to recover the money from the seller.

3. Warranty for quality or use by usage of trade [Sec. 16(3)]
A warranty as to fitness for a particular purpose may be annexed to a contract of sale by a custom or usage of trade.

4. Disclosure of dangerous nature of goods
Where the goods are dangerous in nature and the buyer is ignorant of the danger, the seller must warn the buyer of the probable danger. If there is a breach of this warranty, the seller may be liable for damages.

Question 3.
Explain the doctrine of Caveat Emptor. What are the exceptions to the doctrine of ‘Caveat Emptor’?
OR
“There is no implied warranty or condition as to quality or fitness for any particular purpose of goods supplied under a contract of sale.” Discuss the significance & state exceptions, if any.
Answer:
Caveat Emptor is a Latin expression, which means, “Buyers Beware”. The doctrine of caveat emptor means that, ordinarily, a buyer must buy goods after satisfying himself with their quality and fitness. If he makes a bad choice he cannot blame the seller or recover damages from him.

  • Thus it is the buyer’s duty to examine goods thoroughly.
  • The buyer should ensure at the time of purchase that the goods conform to his requirements.
  • If the goods turn out to be defective, the buyer cannot hold the seller re¬sponsible.

EXCEPTIONS: The doctrine of caveat emptor does not apply in the following situations:

1. Fitness as to quality or use. [Sec. 16(1)]

  1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required,
  2. so as to show that the buyer relies on the seller’s skill, or judgment, and
  3. 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 not, there is an implied condition that the goods shall be reasonably fit for such purpose.)
    However, this rule does not apply when the goods are sold under a patent or a brand name.

2. Sale of goods by description. [Sec. 16(2)]
Where there is a sale of goods by description, there is an implied condi¬tion that the goods are merchantable that is, fit for a particular purpose.

3. Trade usage. [Sec. 16(3)]
An implied condition of fitness may be annexed to a contract of sale by the usage of trade.

4. Where the seller is guilty of fraud.
Where the seller makes a false representation and the buyer relies on that representation, the doctrine of caveat emptor will not apply. In such a case the buyer will be entitled to the goods according to that represen¬tation.

5. Where seller actively conceals a defect
Where the seller actively conceals a defect in the goods so that the same could not be discovered on a reasonable examination, the doctrine of caveat emptor will not apply. Such a contract will be voidable.

6. Sale by sample
When goods are purchased by sample, the bulk must correspond with the sample and the buyer must have a reasonable opportunity of inspecting the goods.

7. Sale by sample as well as a description
The doctrine of Caveat Emptor is not applicable if the goods do not correspond to both, sample as well as description.

Conditions & Warranties – CA Foundation Law Study Material

Question 4.
In what instances can the breach of condition be treated as a breach of warranty?
Answer:
When a condition can be treated as a warranty:
Voluntary waiver of a condition [Sec. 13(1)]
1. Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may—

  • waives the condition, for example, a buyer may accept defective goods or accept goods beyond the stipulated time.
  • elect to treat a breach of condition as a breach of warrants’, Le. instead of repudiating the contract he may accept performance and sue for damages if he has suffered any. Once a buyer decides to waive, he cannot afterward insist on its fulfillment.

Question 5.
Differentiate between condition & warranty.
Answer:

CONDITION WARRANTY
Condition is a term, which is essential to the main purpose of the contract. Warranty is only a collateral term. It is subsidiary to the main purpose of the contract.
Breach of a condition gives the aggrieved party a right to repudiate the contract and also to claim damages. Breach of warranty entitles the aggrieved party to claim damages only. He cannot repudiate the contract.
A breach of condition may under certain circumstances, be treated as a breach of warranty But a warranty cannot become a condition.

Question 6.
Explain implied condition as to fitness or quality in a contract of sale, under the Sale of Goods Act, 1930
Answer:
Implied condition as to fitness or quality. – [Sec. 16(1)]
The general rule is, there is no implied condition as to quality or fitness for the purpose of the buyer. This is based on the doctrine of “caveat emptor” that is, let the buyer beware. It means that while buying the goods, it is the responsibility of the buyer to check that the goods he is buying would suit his purpose or not. However, in the following situation, the responsibility as to the fitness of goods falls upon the seller:

  • 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 not), there is an implied condition that the goods shall be reasonably fit for such purpose.

Example:

  • A contract to make and deliver a set of false teeth to B. The false teeth do not fit in the mouth of B. B is entitled to reject the goods.
  • X places order for lorries to be used for ‘heavy traffic in a hilly country. The lorries were unfit for this purpose and broke down. It was held that there was a breach of condition as to fitness.

Sale under patent or trade name.
Proviso to section 16(1) lays down that in the case of a contract for the sale of a specified article under its patent or another trade name, there is no implied condition as to its fitness for any particular purpose. It is so because in such a case the buyer is not relying on the skill and judgment of the seller but relies on the patent name.

Question 7.
A purchased a hot-water bottle from a retail chemist. The chemist informed him that the bottle was specially meant for holding hot water. At the time of use, the bottle burst as soon as the hot water was poured into it and injured A’s wife. Comment on remedies available to A under the Sale of Goods Act, 1930.
Answer:
Hint: Breach of implied condition as to fitness and quality of goods; A can claim damages.

Conditions & Warranties – CA Foundation Law Study Material

Question 8.
D bought a Colour TV from M/s. Kaka Enterprises for a sum of ₹ 40,000. The TV set was defective right from the beginning and it did not work in spite of repairs by the expert mechanics. What is the remedy available to D?
Answer:
Hint: Breach of condition as to merchantability; D shall be entitled to return the T.V. and claim damages.

Question 9.
Ram consults Shyam, a motor-car dealer for a car suitable for touring purposes to promote the sale of his product. Shyam suggests ‘Maruti’ and Ram accordingly buys it from Shyam. The car turns out to be unfit for touring purposes. What remedy Ram is having now under the Sale of Goods Act, 1930? (C.A. Foundation RTP Nov 2018)
Answer:
Hint: Breach of implied condition as to quality & fitness of goods and their unsuitability for buyers’ purpose. Ram is entitled to rescind the contract and claim damages if any, along with a refund of the price.

Question 10.
For the purpose of making uniforms for the employees, Mr. Yadav brought dark blue colored cloth from Vivek but did not disclose to the seller the purpose of said purchase. When uniforms were prepared and used by the employees the cloth was found unfit. However, there was evidence that the cloth was fit for caps, boots carriage lining. Advise Mr. Yadav whether he is entitled to have any remedy under the Sale of Goods Act, 1930.
Answer:
Hint: Condition as to fitness & quality for buyer’s purpose. This implied condition applies to a contract only when – (i) the purpose of buyer’s purchase is known to the seller, (it) when the buyer relies on seller’s skill & judgment & (Hi) Seller deals in the goods in his usual course of business.
In the given case since the buyer – Mr. Yadav, has not communicated to the seller – Vivek, the purpose of purchasing the cloth, therefore the implied condition as to quality & fitness of the cloth for buyer’s purpose does not apply & hence Mr. Yadav is not entitled to any remedy against Vivek, under the Sale of Goods Act, 1930.

Conditions & Warranties – CA Foundation Law Study Material

Question 11.
M/s Woodworth & Associates, a firm dealing with the wholesale and retail buying and selling of various kinds of wooden logs, customized as per the requirement of the customers. They dealt with Rosewood; Mango wood; Teakwood; Burma-wood, etc.

Mr. Das a customer came to the shop and asked for wooden logs measuring 4 inches broad and 8 feet long as required by the carpenter. Mr. Das specifically mentioned that he required the wood which would be best suited for the purpose of making wooden doors and window frames. The Shop owner agreed and arranged the wooden pieces cut into as per the buyer’s requirements.

The carpenter visited Mr. Das’s house the next day, and he found that the seller has supplied Mango Tree wood which would be most unsuitable for the purpose. The carpenter asked Mr. Das to return the wooden logs as they would not meet his requirements. The Shop owner refused to return the wooden logs on the plea that logs were cut to specific requirements of Mr. Das and hence could not be resold.

  1. Explain the duty of the buyer as well as the seller according to the doctrine of “Caveat Emptor”.
  2. Whether Mr. Das would be able to get the money back or the right kind of wood as required for serving his purpose?

Answer:
(1) The doctrine of ‘Caveat Emptor means ‘Let the buyer beware. As per this doctrine, in the case of the sale of goods, it is the duty of the buyer to satisfy himself before buying the goods that will be suitable for the purpose for which they are being bought. Thus generally it is the duty of the buyer to make a proper selection of goods and if the goods turn out to be unsuitable for his purpose then he cannot hold the seller liable. The seller shall not be held responsible for the bad selection of the buyer.

However one of the exceptions to this doctrine is when implied condition as to quality or fitness for buyer’s purpose/use, applies. As per this implied condition when the buyer makes known to the seller, the purpose for which the goods are required, so as to show that he relies on the seller’s skill & judgment & the goods are of a description which is in the course of seller’s business to supply, then it is the duty of the seller to ensure that the goods supplied are reasonably fit for buyer’s purpose. If the goods now turn out to be unsuitable for the buyer’s purpose, it shall amount to a breach of condition and the buyer shall have the right to repudiate the contract & claim damages.

(2) In the given case Mr. Das purchases certain wooden logs of specific measurement from M/s Woodworth & Associates (a dealer of a variety of wooden logs) after expressly communicating the purpose of his purchase. Mr. Das required wooden logs suitable for “making wooden doors & window frames”. However, the seller supplied Mango tree wood which turned out to be most unsuitable for the stated purpose.

Thus applying the above provisions (stated in (z) above) it is evident that the seller M/s Woodworth & Associates has committed a breach of implied condition as to quality & fitness for the buyer’s purpose. Mr. Das, as the buyer is entitled to reject the goods and demand the supply of the right kind of wood. Alternatively, he can seek, the repudiation of the contract and claim a refund of money as well as damages if any.

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