Usha Pravin Gandhi

college of
management

Topic:
Conditions and warranties

F.Y.BMS ‘A’

INDEX
  THE SALES OF GOODS ACT
 DEFINITIONS
 EXPRESSED CONDITIONS AND THEIR
TYPES
 IMPLIED CONDITIONS AND
IMPLICATIONS OF TERMS
 INFERENCE FROM AGREEMENT
 WHEN THE TERMS ARE IMPLIED AND
WHEN THEY ARE NOT
 EXAMPLES
 CONCLUSIONS
 CASE STUDIES

The sales of goods Act

Sale of Goods Act is one of very old mercantile law. Sale of Goods is
one of the special types of Contract. Initially, this was part of Indian
Contract Act itself in chapter VII (sections 76 to 123). Later these
sections in Contract Act were deleted, and separate Sale of Goods Act
was passed in 1930.The Sale of Goods Act is complimentary to
Contract Act. Basic provisions of Contract Act apply to contract of Sale
of Goods also.
The use of the word condition appears to have originated in the 17th
century . The Sale of Goods Act, 1930 defines the term condition in
section 12(2) . According to this definition a condition can be defined
as a stipulation which is so vital to the contract that its complete and
exact performance by one party is something precedent to the obligation
of the other party to perform his part.

DEFINITION OF A CONDITION AND A

WARRANTY

WHAT ARE CONDITIONS?

SEC 12 (2) defines a condition as “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”
In a contract of sale, different terms and stipulations create
different obligations which may not be vital to the contract but
which may constitute the hard core of the contract. Some of them
are so vital to the contract that their non performance or their
breach will be regarded as a non performance or a breach of the
contract as a whole.

What is a warranty?
Sec 12(3) defines the warranty as “a warranty is a stipulation,
collateral to the main purpose of the contract, the breach of which
gives rise to a claim for the damage, but not to a right to reject the
goods and treat the contract as repudiated”
In a contract of sale, there may be stipulations which are not
essential to the main purpose of the contract; they may be rather
subsidiary or collateral to the main purpose of the contract. The
Non performance of such obligations is not regarded as a breach of
the contract as a whole, but the non performance gives rise only to a
right to claim damages. Such stipulations are known as
‘warranties.’

Express Conditions
Conditions that are agreed to by the parties, are commonly
referred to as express conditions. Express conditions are usually
denoted by language such as "if", "on condition that", "provided
that", "I the even that", and "subject to" to make an event a
condition. But usually in a dispute it is the court which decides
whether an agreement makes an even a condition by the
process of interpretation.

Conditions: Meaning and Types

Condition generally refers to promises and the duties they generate. It is
usually an event of significance but this is not always the case as the
parties if they so wish can even make an insignificant event a condition.
Condition can be defined as some operative fact Almost any event can be
a condition and whether a stipulation is a condition or not can be decided
only after looking at the contract in the light of the surrounding
circumstances and then deciding on the intention of the parties. In
present day contracts all conditions refer to some operative fact which
has not yet occurred but which must occur so as to prevent frustration of
the contract.

When a term will be a condition?

The leading textbooks on contract state that a term will be a condition if
it satisfied one of the following four tests , namely
(a) if statute provides that it is a condition;
(b) if a binding authority requires a court to hold that it is a condition; if
every breach, or
(c) if the consequences of every breach, goes to the root of the contract;
or,
(d) If the parties have agreed that it is to be treated as a condition.

The first three of these tests involve well established principles, but the
fourth yet remains to be clearly established.

Express agreement by the parties that one of them shall be able to

terminate the contract on the happening of a breach of a particular term
by the, other does not automatically entitle the other party to the full
benefits which flow from that term being a condition. The express
agreement gives an option to bring the contract to an end on the breach
of that term, but such an option is no different to an option to bring a
contract to, an end on the happening of any defined event; the fact that
the event prescribed is a breach is immaterial. There is an option, but the
option does not affect the nature of the event upon which that option is
exercisable. The, textbooks; ,therefore, are misleading in so far as they
suggest ,that a term is a condition where there is agreement by the
parties that its breach is to give rise to the innocent party being able to
act as though the term breached were a condition, because the court has
the right to investigate whether it is the substance of the agreement that
the term is a true condition, or merely the form. If it is just the form, then
the term will in nominate and the, quantum of damages will depend upon
whether the breach was repudiatory at common law.

Classification
Conditions can be classified into two broad categories:
1. Express conditions
2. Implied conditions

Express condition is a condition which has been expressly stated in the

terms of the contract failure of which will allow one party to either
repudiate the contract in whole or claim for damages. Implied conditions
are those which have not been expressly stated but which the law
presumes to be so inherently a part of the contract that it need not be
laid down in clear and written terms but are to be understood by the
parties.

Implied Conditions
If an agreement does not make an event a condition then the
court may supply a term that does so. Such conditions will be
referred to as "implied" conditions, since a court uses the
process of implication to determine whether to supply a term
that makes an event a condition and what term to supply. The
distinction between express and implied conditions is of
practical importance because the rule of strict compliance is
limited to express conditions.

Implication of terms
In certain instances, the parties to a contract may have been content to
express only the most important terms of their agreement, leaving the
remaining details to be understood. The court will then be asked to imply
a term or terms to remedy the deficiency. More often, however, a
subsequent disagreement reveals that there are contingencies for which
the parties have not provided in their express contract. The question is
then whether the court can imply a term to cover the contingency which
has unexpectedly emerged.

Intention or meaning in a contract may be manifested or conveyed either

expressly or impliedly and it is fundamental that that which is plainly or
necessarily implied in the language of a contract is as much a part of it as
that which is expressed. What the function of the law is in such cases is
to supply in contracts what is presumed to have been inadvertently
omitted or to have been deemed perfectly obvious by the parties, the
parties being supposed to have made those stipulations which as honest,
fair, and just men they ought to have made . Once it is determined what
the implied provisions are, they are read into the contract, and the rights
of the parties are to be adjudged as though such provisions were
expressed. Implied promises always exist where equity and justice
require the party to do or to refrain from doing the thing in question. The
courts are justly prudent , careful, and cautious in implying rights,
obligation, promises, or covenants, lest they make the contract speak
where it was intended to be silent or make it contrary to what, as may be
gathered from all the terms and the tenor of the contract, was the
intention of the parties. Accordingly, where a contract is reduced to
writing, it is generally held, in the absence of mistake or fraud, that the
written contract includes or embodies the whole agreement of the parties
and all material provisions, and that, therefore , no agreement of the
parties and all material provision, and that, therefore, no additional
agreements, obligations, or warranties can be implied, if there is to be
any implication, it must result from the language employed in the
instrument or be indispensable to carry the intention of the parties into
effect. Terms should be implied in a contract, not because they are
reasonable, but because they are necessarily involved in the contractual
relationship so that the parties must have intended them and have only
failed to express them because of sheer inadvertence or because they
are too obvious to need expression. No implied obligation can exist under
a contract upon a point which apparently shows that it was not in the
minds of the parties.

It is only where the expressed contract is silent on a particular point that

an implied obligation in such respect can arise. Express stipulations
cannot, in general, be set aside or varied by implied promises. In such
cases the maxim "expressio unius est exclusion alterius" applies which
means, "express mention of one thing implies the exclusion of the
others".
Implied terms can further be categorized under two headings:
1. Terms implied in fact.
2. Terms implied in law.
To understand these two categories we must first see their historical
evolution.

Obvious inference from agreement

A term which, has not been expressed may also be implied if it was so
obviously a stipulation in the agreement that the parties must have
intended if to form part of their contract. A term will not, however, thus
be implied unless the court is satisfied that both parties would; as
reasonable men, have agreed to it had it been suggested to them. The
knowledge or ignorance of each party of the matter to be implied, or of
the facts on which the implication is based is therefore a relevant factor.
Further, since "the general presumption is that the parties have
expressed every material term which they intended should govern their
contract, whether oral or in writing, the 'court will only imply a term if it is
one which must necessarily have been intended by them , and in
particular will be reluctant to make any implication "where the parties
have entered into a carefully drafted, written contract containing detailed
terms agreed between them".

Terms Implied in Law

The implication of a term is a matter of law for the court, and whether or
not a term is implied is usually said to depend upon the intention of the
parties as collected from the words of the agreement and the surrounding
circumstances. In many classes of contract, however, implied terms have
become standardized, and, it is somewhat artificial to attribute such
terms to the unexpressed intention of the parties. The court is, in fact,
laying down a general rule of law that, in all contracts of a defined type-
for example, sale of goods, landlord and tenant, employment, the
carriage of goods by land or sea-certain terms will be implied, unless the
implication of such a term would be contrary, to the express words of the
agreement. Such implications do not depend on the intentions of the
parties, actual or presumed, but on more general considerations.

Either the "business efficacy" test or "officious bystander" test would, in

such a context be inappropriate, since wider considerations (presumably,
of public policy) would apply. This second (and broader category) of
"terms implied by law" only applied where terms are implied as general
legal incidents in all contracts of a particular category.

Thus, the basic difference between terms implied in fact and terms
implied in law is that the first is a narrower test based on either the
'business efficacy' criterion or 'officious bystander' criterion for 'terms
implied in fact' in order to give effect to the presumed intention of the
parties and secondly a broader test based on 'reasonableness' (having
regard to public policy considerations) for terms 'implied in law'. Where
terms cannot be implied on the first and narrower basis, the latter
category offers a wider scope for such a implication.

When a term ought not to be implied?

A term ought not to be implied unless it is in all the circumstances
reasonable, But this does not mean that a term will be implied merely
because in all the circumstances it would be reasonable to do so or
because it would improve the contract or make its carrying out more
convenient. The touchstone is always necessity and not merely
reasonableness. The term to be implied must also be capable of being
formulated with sufficient clarity and precision. A term will not be implied
if it would be inconsistent with the express wording of the contract.

Terms when implied from usage or custom

If there is an invariable, certain and general usage or custom of any
particular trade or place, the law will imply, on the part of one who
contracts or employs another to contract for him upon a matter to which
such usage or custom has reference a promise for the benefit of the other
party in conformity with such usage or custom; provided there is no
inconsistency between the usage and the terms of the contract. To be
binding, however, the usage must be certain and reasonable and not
contrary to law; and it must also be something more than a mere trade
practice. But when such, usage is proved it,wil1 form the basis of the
contract between the parties These usages are incorporated on the
presumption that the parties did not mean to express in writing the whole
of the contract by which they intended to be bound, but a contract with
reference to those known usages.
However, A custom or usage can only be incorporated into a contract if
there is nothing in the express or necessarily implied terms of the
contract to prevent such inclusion, and It can only be incorporated if it is
not inconsistent with the tenor of the contract as a whole.
The John stone case
The facts of this case were Dr John stone took his employing hospital to
court alleging that his employment contract breached the hospital's duty
to him to provide a healthy and safe workplace. The doctor was working
from 40 hours Monday to Friday and then a further 48 hours on
weekends.

Outcome: The Court rejected the Hospital's defense. It had been argued
that 'if you can't stand the heat - get out of the kitchen. The Court instead
stated: It is a matter of grave concern that junior doctors should be
required to work such long hours without proper rest that not only their
health may be put at risk but their patients as well.

This was a three judge bench with one judge Leggett L.J. dissenting from
the majority opinion.

An express term allowing the employer to require the employee to work

88 hours was qualified by a term implied on health grounds. This
obviously raised the question of the interrelationship between express
and implied terms.

Stuart-Smith L.J. observed that the duty was implied by law, not just a
Moorcock implication. The case may therefore be an overriding duty case,
but another possibility is that a specific express term can be qualified by
an implied general term.

Express and Implied Terms

The link between express and implied terms within the same contract
was the major issue in the Johnstone case. When faced with two
conflicting terms, one express and the other implied, Stuart-Smith L.J
chose the one which appeared to him correct on "principle" presumably,
whether the term which prevailed was express or implied would make no
difference, regard being had to the merits of the case. It so happened
that in the instant case, the term which prevailed was implied.

In response to the defendant counsels argument that an express term

must prevail over an implied term, Stuart-Smith L.J. responded thus:
"but this is not an implication that arises because it is necessary to give
business efficacy to the contract [i.e. a term implied in fact] ; it arises by
implication of law."
The statement just quoted would seem to suggest that a term implied in
law can "trump" even an express term of contract, precisely because of
its status. This would, in turn, appear to suggest that because a term
implied in law is premised on broader public policy grounds, it ought to
supersede even a (contrary) express term of the contract.

Thus, this is contrary to the conventional principles. In addition this

particular interpretation has put a premium on careful drafting . Leggatt
L.J. adopted the most straightforward approach, realizing the
incompatibility of the express term on the one hand and the term sought
to be implied on the other , he gave primacy (according to conventional
principles) to the express term, and thus delivered a dissenting judgment
and unlike Stuart L.J Leggatt L.J. placed no emphasis on whether or not a
term was implied in law. Quoting his words

"although it is a canon of construction that the terms of a contract will be

construed, as far as possible, so as to be compatible with each other, it is
axiomatic that the scope of an express term cannot be cut down by an
implied term; and the it is a true of term implied by law as it is of terms
which depend on the intentions of the parties (i.e terms implied in fact)".
It is no wonder that the Johnstone case was overruled subsequently by
the Queens Bench . It was held that "….certain terms will be implied,
unless the implication of such a term would be contrary to the express
words of the agreement." Thus, the previous position was retained by the
court.

Thus, the Johnstone case is an excellent example which shows the

difficulties which the court faces when it wants to do justice and thus
gives an overzealous utilization of implied terms thereby overriding the
express terms itself. When there is a conflict between express and
implied terms it is the former which should have an overriding effect as it
was the express intentions of the parties themselves. An implied term on
the other hand is a product of the courts interpretation.

Conclusion
The doctrine of express and implied terms have evolved a lot through the
ages and have now attained a much more broader and wider
encompassing position. The concept of express and implied terms shows
how the conventional outlook towards contracts have changed, how the
main emphasis was on freedom of contract but slowly there was a decline
in this concept and the concept of implied terms started having a
stronger hold in the interpreting process. Earlier the main function of the
implied term was to provide for a fair result in exceptional circumstance
where the express terms of the contract could not and how the courts
have started taking a more active role in ensuring justice to the parties
by preventing one party to take advantage of another either due to
omissions, errors or superior drafting skills. The doctrine of implied terms
is one of the most flexible. However, the concept of implied terms can
lead to ambiguity especially when there has been an overzealous
utilization of implied terms as has happened in the John stone case.
Cases such as these show the element of uncertainty which may arise
while practical application of implied terms is being done. Thus, the
concept of implied terms though greatly beneficial in nature should be
developed carefully in a simple and methodical manner so as to prevent
unnecessary confusion and constraint.

Case study
AIR 1960 MADRAS 520 (V 47 C 175)
SORABJI H JOSHI & CO. v V. M.ISMAIL

In the case of a sale of goods by description,where the

description of the goods is the basis of the contract, the falsity
of the goods substantially different would make the goods
substantially different from those that were described so as to
constitute a failure of consideration. Where goods are brought
by description there is an implied condition that the goods shall
be of merchantile quality

V.C GOPALARATNAM,L.V KRISHSWAMI IYER, K.K. RAJAGOPALAN,

FOR APPELENTS P.S SRISAILAM, V.RATNAM AND V.S
RAMAKRISHNAN, FOR RESPONDENTS.
RAMASWAMY, J
This appeal is directed against the degree and judgement of our
learned brother basheer ahmed sayeed j., in C. C. C. A No. 9 of
1953. reversing the degree and judgement of the learned city
civil judge. Madras in o.s. no.126 of 1949

The defendants Sorabji harmusha joshi and co.are carrying on business in

Bombay,from 1946 they import dried sheep skins from east Africa. The
plantiffs ibrahim, are brothers doing business in hides and skins in
vaniyambadi in north arcot district. The second plaintiff ibrahim stays and
does business in Bombay in October 1947 the second plantiff met the
defendants and learnt from them that a consignment of dried sheep skins
from east Africa had arrived in madras was lying in the madras harbour.
The second plantiff looked into the import invoices with the defences
showing their stock at madras. It was agreed that on payment of the
price by the plantiffs in Bombay, the plaintiffs should get delivery orders
and clear the goods in the madras harbour through m/s. masswood and
co. this transaction was completed on the 18 and 19 masswood and co.
handedover the goods to plantiff the second plantiff says that he went to
the goods through M/s masswood and co and found the bales on the face
have been watered .one Mr. marfatia is said to have been according to
the second plantiff and he assured the latter that he would look into the
matter and try to solve the problem. Then the second plantiff had
engaged M/s masswood and co. to dispatch the bales by SRVS godown,
where they had been taken on 23.11.1947. the goods reached
vaniyambadi within a week thereafter. At vaniyambadi the goods were
unloaded and taken to the katheeb tanning facory,owned by the local
municipal chaiman. This was in the beginning of December 1947 where 3
bales,of which was of choice 1 and the other two were of choice 2,where
said to have been opened. The first 2 bales were not water damaged but
some of the skins were worm eaten and had quality skins.in water
damaged bale , some skins had only become bad on account of water
damage but there were no worms in any of the bales,vide the evidence of
the first plaintiff.

Final judgement:the appellants were entitled to succeed since the

plaintiff’s respondents failed to prove that there was a breach of
condition as to the description these goods, assuming that this was a
breach opf warranty as to merchantable quality. Hence the appeal was
allowed and the suit dismissed with costs throughout.
 Bibliography

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