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 ActSale 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 ConditionsConditions 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 TypesCondition 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.

ClassificationConditions 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 ConditionsIf 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 termsIn 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 agreementA 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 customIf 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 caseThe 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 TermsThe 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.

ConclusionThe 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 studyAIR 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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