Conditions and warranties in a sale of goods
The Ordinance implies conditions of title, description, quality, fitness and sample. Breach of a condition lets the buyer reject; breach of a warranty gives damages only.
Condition and warranty in a sale
In a sale of goods, a condition is a term essential to the main purpose of the contract. If it is broken, the buyer may reject the goods, treat the contract as ended and claim damages. A warranty is collateral to the main purpose; its breach gives a right to damages only. Whether a term is a condition or a warranty depends on the contract as a whole, not just on the label the parties used. The buyer may waive a condition or choose to treat its breach as a breach of warranty, and once the buyer has accepted the goods he can usually claim damages only.
Implied conditions
| Condition | Meaning | Example |
|---|---|---|
| Title | The seller has the right to sell, or will have it when ownership is to pass | A dealer sells a stolen motorbike: the buyer can recover the price |
| Description | Goods sold by description must match the description | 'Alba' grade Ceylon cinnamon must not be a lower grade |
| Sample | The bulk must match the sample; the buyer must have a fair chance to compare; no hidden defect a reasonable check would miss | 5,000 shirts ordered after approving a sample shirt |
| Merchantable quality | Goods bought by description from a seller who deals in them must be fit to sell as such; not for defects the buyer's examination ought to have shown | A tin of fish from a supermarket must be fit to eat |
| Fitness for a particular purpose | The buyer makes the purpose known and relies on the seller's skill, and the seller deals in such goods | A pump bought after telling the dealer it must lift water to a third floor |
Grant v Australian Knitting Mills
Dr Grant bought woollen underwear from a retailer. It contained an excess of a chemical (sulphite) left from manufacture, and he developed severe dermatitis. The Privy Council held the goods were not of merchantable quality and not fit for their purpose: the purpose of underwear is obvious, so the buyer relied on the seller's skill without saying so. The defect was hidden, so examination would not have revealed it. The Ordinance still uses the older phrase 'merchantable quality'.
Implied warranties
- Quiet possession: the buyer will enjoy the goods without disturbance from someone with a better claim.
- Freedom from encumbrances: the goods are free from any charge in favour of a third party not disclosed to the buyer.
- A warranty about quality may also be implied by the usage of a trade.
Caveat emptor and its exceptions
- Rule: 'let the buyer beware'. In general there is no implied condition about quality or fitness; the buyer must examine and choose.
- Exception 1: fitness for a particular purpose, where the buyer relies on the seller's skill.
- Exception 2: merchantable quality, where goods are bought by description from a dealer.
- Exception 3: sale by sample.
- Exception 4: an implied term from the usage of the trade.
- Exception 5: the seller's fraud or deliberate concealment of a defect.
The buyer's remedies
A Sri Lankan cinnamon exporter who ships a lower grade than the 'Alba' grade named in the contract breaks the condition of description, so the foreign buyer can reject the shipment. A hardware dealer in Pettah who sells a pump after the buyer explained the exact job must supply one fit for that purpose.
Short answer: “What is meant by caveat emptor?” 'Let the buyer beware': the buyer must examine goods himself, as the law generally implies no condition of quality or fitness, subject to exceptions.
Structured question: “Distinguish between a condition and a warranty in a contract of sale of goods.” Condition: essential, breach allows rejection plus damages. Warranty: collateral, damages only. Depends on the contract as a whole; condition may be treated as warranty.
Essay: “Explain the implied conditions and warranties under the Sale of Goods Ordinance.” Define condition and warranty; explain title, description, sample, merchantable quality, fitness for purpose (Grant v Australian Knitting Mills); warranties of quiet possession and freedom from encumbrances; caveat emptor and exceptions; remedies.
Implied conditions: T-D-S-M-F: Title, Description, Sample, Merchantable quality, Fitness for purpose. Implied warranties: Quiet possession and Free from encumbrances.