Contents

01Chapter Overview 02Stipulation as to Time 03Conditions and Warranties 04Condition vs Warranty 05Condition Treated as Warranty 06Express and Implied Terms 07Implied Conditions 08Condition as to Title 09Sale by Description 10Sale by Sample 11Fitness and Merchantability 12Implied Warranties 13Caveat Emptor 14Exceptions to Caveat Emptor 15Case Law Bank 16Quick Revision 17Revision Mind Map
01
FoundationChapter Overview

This unit explains the promises and assurances attached to goods in a contract of sale. Every statement made by the seller does not carry the same legal weight. Some statements go to the root of the contract; others are only collateral assurances. That is the basic distinction between a condition and a warranty.

Condition = essential term; breach allows rejection. Warranty = collateral term; breach allows damages only.
Memory hook: Condition breaks the contract; Warranty compensates the buyer.
ICAI Learning Outcomes
  • Stipulation as to time.
  • Conditions and warranties in a contract of sale.
  • Express and implied conditions and warranties.
  • Doctrine of caveat emptor.
Exam Focus
  • Condition vs warranty distinction.
  • When breach of condition becomes breach of warranty.
  • Implied conditions: title, description, sample, fitness, merchantability, wholesomeness.
  • Implied warranties: quiet possession, encumbrances, usage of trade, dangerous goods.
  • Caveat emptor and its exceptions.
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Exam Method In every problem, ask: Is the term essential to the main purpose or merely collateral? That answer decides the remedy.
02
Section 11Stipulation as to Time

In contracts of sale, time may relate to payment of price or delivery of goods. The legal effect is different for each.

StipulationGeneral RuleExam Point
Time for payment of priceGenerally not essence of contract unless contrary intention appears.Delay in payment does not automatically allow repudiation.
Time for delivery of goodsUsually treated as essence of contract.Delayed delivery may defeat the purpose of contract.
Manufacturing Example

A supplier promises to deliver inspection gauges before a customer audit. Delivery date is normally essential because late delivery defeats the business purpose.

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Section 12Conditions and Warranties

At the time of sale, the seller may make statements about nature, quality, description, fitness or performance of goods. If such statements do not form part of the contract, they have no legal effect. If they form part of the contract and the buyer relies on them, they become stipulations.

Stipulation
A representation forming part of the contract of sale with reference to goods.

Condition

Section 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 not a small assurance. It is the reason why the buyer enters the contract. If it fails, the buyer may reject the goods, repudiate the contract and claim damages.

ICAI-style Example

P wants a car with mileage of 20 km/litre. Q points to a car and says it will suit him. The car gives only 15 km/litre. Since mileage was essential to the purchase, breach is breach of condition.

Warranty

Section 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 a supporting assurance. Its breach does not destroy the main object of contract. The buyer keeps the goods and claims damages.

ICAI-style Example

Ram buys a new car with warranty against manufacturing defects. Six months later, the horn stops working. This does not defeat the purpose of buying the car. Ram cannot reject the car; he can ask for repair/replacement or damages.

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Construction of Contract Whether a stipulation is condition or warranty depends on the substance of the contract. A term may be a condition even if parties call it a warranty.
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Core DistinctionCondition vs Warranty
BasisConditionWarranty
MeaningEssential to main purpose of contract.Collateral to main purpose of contract.
Effect of breachBuyer may repudiate, reject goods and claim damages.Buyer may claim damages only.
ConversionBreach of condition may be treated as breach of warranty.Breach of warranty cannot be treated as breach of condition.
Business meaningFailure defeats the deal.Failure causes loss but deal survives.
Memory hook: Condition = reject + damages. Warranty = damages only.
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Section 13When Condition is Treated as Warranty

Section 13 gives cases where breach of condition is treated only as breach of warranty. The buyer then loses the right to rescind and can claim only damages.

Voluntary Conversion

WaiverBuyer voluntarily waives performance of the condition.
ElectionBuyer elects to treat breach of condition as breach of warranty.

Compulsory Conversion

Non-severable contractBuyer accepts whole goods or part of goods under a non-severable contract.
Excused by lawFulfilment of condition is excused by law because of impossibility or otherwise.
ICAI-style Example

A agrees to supply 10 bags of first quality sugar at ₹625 per bag but supplies second quality sugar worth ₹600 per bag. Buyer may reject. But if buyer elects to accept, he may treat breach as warranty and claim ₹25 per bag as damages.

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Important A breach of condition may come down to warranty. But breach of warranty cannot go up to condition.
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Sections 14–17Express and Implied Conditions and Warranties

Conditions and warranties may be express or implied.

TypeMeaningExample
ExpressSpecifically agreed by parties at the time of contract.Seller expressly states that machine speed will be 500 units/hour.
ImpliedPresumed by law even if not written in contract.Seller must have right to sell goods.
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Exam Point Implied conditions and warranties apply unless excluded by express agreement, course of dealings, usage of trade, or circumstances showing contrary intention.
07
Scoring AreaImplied Conditions

These are conditions presumed by law in a contract of sale unless circumstances show a different intention.

Implied ConditionSectionCore Rule
Condition as to title14(a)Seller must have right to sell.
Sale by description15Goods must correspond with description.
Sale by sample17Bulk must correspond with sample; buyer must get comparison opportunity; goods must be free from latent defects.
Sale by sample and description15Goods must correspond with both sample and description.
Fitness for purpose16(1)Goods must be fit where purpose is disclosed and buyer relies on seller’s skill.
Merchantability16(2)Goods bought by description from dealer must be merchantable.
WholesomenessGeneral implied conditionEatables must be wholesome and safe for consumption.
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Section 14(a)Condition as to Title

In every contract of sale, unless there is an agreement to the contrary, there is an implied condition that the seller has the right to sell the goods.

TransactionSeller’s Obligation
SaleSeller must have right to sell at the time of sale.
Agreement to sellSeller must have right to sell when property is to pass.
ICAI-style Example

A purchases a tractor from B, who had no title. Later the true owner demands it. A must return it to true owner and can recover price from B.

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Tractor Title Example
Condition as to title

Facts Buyer purchased a tractor from a seller who had no ownership or authority to sell it. After some time, the real owner identified the tractor and demanded it back.

Issue Can the buyer keep the tractor merely because he paid price in good faith?

Held No. The buyer must return the tractor to the true owner. But the buyer can recover the price from the seller who had no title.

Principle and Exam Memory Line Seller must have title. True owner wins; buyer recovers from seller.
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Trademark Infringement Example
Defective right to sell

Facts Seller sold condensed milk under a brand label which infringed another company’s trademark rights.

Issue Did the seller have a valid right to sell goods with that label?

Held No. The buyer could reject the goods or remove the labels and claim damages for reduced value.

Principle and Exam Memory Line Right to sell includes freedom from legal defects affecting sale. No valid title/right = buyer protected.
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Section 15Sale by Description
Rule
Where goods are sold by description, there is an implied condition that goods shall correspond with the description.

The rule is simple: if the seller contracts to sell one described thing, he cannot supply another. The description may identify the class, kind, place of origin, shipment, packing or essential characteristics of the goods.

Memory hook: If you contract to sell peas, you cannot compel the buyer to take beans.
ICAI-style Example

A sells twelve bags of “waste silk”. There is an implied condition that the goods must be known in market as waste silk. If not, buyer may reject.

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Copper-Fastened Vessel Case
Sale by description

Facts A ship was sold as a “copper-fastened vessel”. Later it was found that the ship was only partly copper-fastened.

Issue Did the ship correspond with the description used in the contract?

Held No. The description was part of the identity of the goods. The buyer could reject or claim damages.

Principle and Exam Memory Line Goods must match description exactly. Description mismatch = breach of condition.
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Section 17Sale by Sample and Sample + Description

Sale by Sample

In sale by sample, the buyer purchases relying on a sample shown by the seller. Law implies three conditions.

ConditionMeaning
Bulk corresponds with sampleThe delivered goods must match the sample in quality.
Reasonable opportunity of comparisonBuyer must get a fair chance to compare bulk with sample.
Freedom from latent defectsGoods must be free from hidden defects not discoverable by ordinary examination.
ICAI-style Example

In sale by sample of two parcels of wheat, seller allowed inspection of smaller parcel but not larger parcel. Buyer could refuse both parcels because reasonable opportunity was not given.

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French Army Shoes Case
Latent defect in sale by sample

Facts Shoes were supplied by sample for the French Army. They looked proper on ordinary inspection. Later it was discovered that paper had been inserted in the soles.

Issue Can buyer reject where defect is hidden and not visible during normal sample inspection?

Held Yes. The defect was latent and made the shoes unmerchantable. Buyer could recover price and damages.

Principle and Exam Memory Line Sample must be free from hidden defects. Latent defect = buyer may reject.

Sale by Sample as well as Description

Where goods are sold by both sample and description, the bulk supplied must correspond with both sample and description. Matching only one is not enough.

ICAI-style Example

Oil was described as refined sunflower oil and was equal to sample, but contained hemp oil. Buyer could reject because goods matched sample but not description.

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Section 16Fitness, Merchantability and Wholesomeness

Condition as to Quality or Fitness — Section 16(1)

The general rule is that there is no implied condition as to quality or fitness. But such condition arises when three requirements are satisfied.

Purpose disclosedBuyer makes known the particular purpose.
RelianceBuyer relies on seller’s skill and judgment.
Seller’s businessSeller deals in goods of that description.
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Brand Name Exception If buyer buys under a patent or trade name and relies on the brand, not the seller’s skill, implied condition as to fitness does not apply.
ICAI-style Examples

False teeth bought from dentist but not fitting the buyer’s mouth: buyer may reject because purpose was obvious. But if buyer asks for a specific “Merrit” sewing machine by trade name, he relies on brand, not seller’s skill.

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Priest v. Last
Fitness for purpose

Facts Priest purchased a hot-water bottle from a chemist and asked whether it would safely hold hot water. The chemist assured him it was suitable. When hot water was poured, the bottle burst and injured his wife.

Issue Was the seller liable when the buyer relied on his skill and judgment?

Held Yes. The buyer made the purpose known and relied on the seller’s expertise. The seller had to supply goods reasonably fit for that purpose.

Principle and Exam Memory Line Purpose disclosed + reliance on seller = implied condition of fitness. Buyer trusted expertise → seller liable.
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Bombay Burma Trading Corporation Ltd. v. Aga Muhammad
Fitness for disclosed purpose

Facts Timber was purchased expressly for use as railway sleepers. The timber supplied was found unsuitable for that purpose.

Issue Could the buyer avoid the contract?

Held Yes. The purpose was clearly communicated and the goods were unfit for that purpose.

Principle and Exam Memory Line Where seller knows the special purpose, goods must suit it. Purpose disclosed → goods must fit purpose.

Condition as to Merchantability — Section 16(2)

Where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that goods shall be of merchantable quality.

Requirement 1Goods bought by description.
Requirement 2Seller deals in goods of that description.
Buyer examinationNo implied condition for defects which examination ought to reveal.
Merchantable Quality
Goods are merchantable when a person of ordinary prudence would accept them as goods of that description.
ICAI-style Examples

Damaged motor horns due to bad packing may be rejected as unmerchantable. Black velvet cloth damaged by white ants is also breach of merchantability.

Condition as to Wholesomeness

In case of eatables and provisions, goods must not merely be merchantable; they must also be wholesome and safe for consumption.

ICAI-style Example

Milk supplied with typhoid germs caused death after consumption. Seller was liable because eatables must be wholesome.

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Sections 14 and 16Implied Warranties

An implied warranty is a warranty which law presumes in the contract, unless excluded by express agreement, course of dealings or usage of trade.

Implied WarrantySectionMeaning
Quiet possession14(b)Buyer shall enjoy undisturbed possession of goods.
Freedom from encumbrances14(c)Goods must be free from undisclosed charge or encumbrance.
Quality or fitness by usage of trade16(3)Trade usage may attach warranty of quality or fitness.
Disclosure of dangerous natureCommon law principleSeller must warn buyer if goods are dangerous and buyer is ignorant of danger.
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Laptop Example
Warranty of quiet possession

Facts X bought a laptop from Y, spent money on repairs and used it. Later it was found stolen and taken from X by the true owner.

Issue Can X recover only price or also other losses?

Held Y was responsible for breach of warranty of quiet possession. X could claim price and repair cost as damages.

Principle and Exam Memory Line Buyer must enjoy peaceful possession. Disturbed possession = breach of warranty.
Encumbrance Example

A pledges car with C for loan and then sells it to B without disclosing the pledge. B can ask A to clear the charge or pay and recover the amount with interest.

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Section 16Caveat Emptor
Caveat Emptor
Caveat emptor means “let the buyer beware”. The buyer must examine goods and satisfy himself that they suit his purpose.

The seller is generally not bound to disclose every defect. If the buyer depends on his own skill and judgment and makes a bad selection, he cannot hold the seller responsible.

ICAI-style Examples

A buys infected pigs; seller was not bound to disclose the defect if buyer did not rely on seller. A buys a horse for riding but does not tell seller; horse is suitable only for carriage. Buyer cannot reject.

Memory hook: Buyer silent + buyer relies on himself = caveat emptor applies.
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Major Exam AreaExceptions to Caveat Emptor
ExceptionRuleSection / Link
Fitness for purposePurpose disclosed + reliance on seller + seller deals in such goods.16(1)
Patent or brand nameIf buyer relies only on brand, fitness condition does not apply.16(1) exception
Sale by descriptionGoods must correspond with description.15
Merchantable qualityGoods bought by description from dealer must be merchantable.16(2)
Sale by sampleBulk must match sample and be free from latent defects.17
Sample + descriptionGoods must match both sample and description.15 and 17
Usage of tradeTrade usage may imply quality or fitness obligation.16(3)
Fraud or active concealmentSeller cannot hide defects or misrepresent goods.General contract law
Dangerous goodsSeller must warn where goods are dangerous and buyer is ignorant.Implied warranty
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ICAI Favourite Caveat emptor is the rule, but most exam questions test the exceptions. Always check whether buyer disclosed purpose, relied on seller, bought by description/sample, or seller concealed defect.
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CompactCase Law Bank
Case / ExampleTopicPrinciple
Priest v. LastFitness for purposePurpose disclosed and reliance on seller creates implied condition of fitness.
Bombay Burma Trading Corporation Ltd. v. Aga MuhammadFitness for purposeGoods supplied must be fit for the disclosed purpose.
Copper-Fastened VesselSale by descriptionGoods must exactly correspond with description.
French Army ShoesSale by sampleGoods must be free from latent defects not discoverable on ordinary inspection.
Tractor Title ExampleCondition as to titleSeller without title must refund buyer when true owner claims goods.
Trademark Infringement ExampleCondition as to titleSeller must have lawful right to sell goods in the form supplied.
Laptop ExampleQuiet possessionBuyer disturbed by true owner can claim damages from seller.
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Exam FocusQuick Revision

One-Line Revision

  • Section 11: Time of payment is generally not essence; time of delivery usually is.
  • Condition: Essential to main purpose; breach allows rejection and damages.
  • Warranty: Collateral to main purpose; breach allows damages only.
  • Section 13: Breach of condition may be treated as breach of warranty.
  • Express Terms: Specifically agreed by parties.
  • Implied Terms: Presumed by law unless excluded.
  • Title: Seller must have right to sell.
  • Description: Goods must correspond with description.
  • Sample: Bulk must match sample and be free from latent defects.
  • Fitness: Purpose + reliance + seller’s business required.
  • Merchantability: Goods bought by description from dealer must be merchantable.
  • Wholesomeness: Food must be safe and wholesome.
  • Quiet Possession: Buyer must enjoy undisturbed possession.
  • Caveat Emptor: Buyer beware, subject to exceptions.

High-Frequency ICAI Traps

  • Do not treat every seller statement as a condition.
  • Do not confuse rejection remedy with damages-only remedy.
  • Do not forget that condition may be treated as warranty, but not vice versa.
  • Do not apply caveat emptor where buyer relied on seller’s skill.
  • Do not apply fitness condition where buyer relied only on brand/trade name.
  • Do not confuse merchantability with fitness for particular purpose.
  • Do not forget latent defects in sale by sample.
  • Do not forget both requirements in sale by sample plus description.
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RevisionMind Map
Revision Mind Map

Conditions and Warranties — One Page Recall

Stipulation with reference to goods may be either a condition or a warranty. Condition affects the root; warranty supports the contract.
1. Stipulation as to Time
  • Payment time: generally not essence.
  • Delivery time: usually essence.
  • Depends on contract terms.
2. Condition
  • Essential to main purpose.
  • Breach allows repudiation.
  • Buyer may reject goods.
  • Buyer may claim damages.
3. Warranty
  • Collateral to main purpose.
  • Breach gives damages only.
  • No right to reject goods.
4. Condition as Warranty
  • Buyer waives condition.
  • Buyer elects damages only.
  • Non-severable contract accepted.
  • Performance excused by law.
Golden Rule: Condition → reject + damages. Warranty → damages only. Condition may become warranty; warranty cannot become condition.
5. Implied Conditions
  • Title — seller has right to sell.
  • Description — goods match description.
  • Sample — bulk matches sample and no latent defect.
  • Sample + description — both must match.
  • Fitness — purpose + reliance + seller’s business.
  • Merchantability — acceptable commercial quality.
  • Wholesomeness — eatables must be safe.
6. Implied Warranties
  • Quiet possession.
  • No undisclosed encumbrance.
  • Quality or fitness by trade usage.
  • Warning for dangerous goods.
7. Caveat Emptor
  • Let the buyer beware.
  • Buyer must inspect goods.
  • Seller not liable for buyer’s bad selection.
  • Subject to major exceptions.
8. Exceptions to Caveat Emptor
  • Fitness for purpose disclosed to seller.
  • Sale by description.
  • Merchantable quality.
  • Sale by sample.
  • Sale by sample and description.
  • Trade usage.
  • Fraud or active concealment.
  • Dangerous goods without warning.
Last-Minute Recall: Start with the stipulation. Decide condition/warranty. Then check implied condition/warranty. Finally test caveat emptor and exceptions.