Understanding Implied Terms in Sale of Goods
In every contract of sale, there are certain obligations that arise automatically, even if the parties do not expressly include them in their agreement. These are known as implied conditions and implied warranties.
Under Sections 12 to 17 of the Sale of Goods Act, 1930, these terms are read into the contract by law to ensure fairness and protection to the buyer.
While conditions go to the root of the contract—a breach of which allows the buyer to reject the goods—warranties are secondary promises, and their breach entitles the buyer only to claim damages, not to reject the goods.
This legal framework ensures that both buyers and sellers engage in fair trade practices, especially when goods are sold on trust regarding their quality, fitness, or ownership.
1. Implied Conditions under the Sale of Goods Act, 1930
Implied conditions are fundamental stipulations of a sale contract. If they are not fulfilled, the buyer can repudiate (cancel) the contract and reject the goods. The Act provides several implied conditions, as discussed below:
(a) Condition as to Title (Section 14(a))
There is an implied condition that the seller has a right to sell the goods.
If the seller does not have ownership or authority, the buyer can reject the goods and recover the price paid.
Case Law: Rowland v. Divall (1923) — The buyer bought a car that turned out to be stolen property. The court held the seller liable since he had no right to sell.
(b) Condition as to Description (Section 15)
When goods are sold by description, there is an implied condition that they must correspond with the description.
If goods fail to match the description, the buyer can reject them.
Case Law: Varley v. Whipp (1900) — A machine described as “new” was in fact old. The buyer was entitled to reject it.
(c) Condition as to Quality or Fitness (Section 16(1))
Ordinarily, there is no implied condition that goods will be fit for a particular purpose.
However, when:
- The buyer makes the purpose known to the seller, and
- The buyer relies on the seller’s skill or judgment, and
- The seller’s business deals in such goods —
Then there is an implied condition that the goods shall be fit for that purpose.
Case Law: Priest v. Last (1903) — A hot-water bottle burst and injured the buyer. The court held the seller liable as the bottle was not fit for its intended use.
(d) Condition as to Merchantable Quality (Section 16(2))
When goods are bought by description from a seller who deals in goods of that kind, there is an implied condition that the goods are of merchantable quality, i.e., reasonably fit for the purpose for which such goods are commonly used.
Case Law: Grant v. Australian Knitting Mills (1936) — A buyer suffered dermatitis due to chemicals in underwear. The court held that the goods were not of merchantable quality.
(e) Condition as to Wholesomeness
Especially in the sale of food and consumables, the goods must not only be merchantable but also wholesome and safe for consumption.
If the food causes harm, the buyer can reject it and claim damages.
Example: Spoiled milk or contaminated canned food breaches this condition.
(f) Sale by Sample (Section 17)
When goods are sold by sample, the following implied conditions apply:
- The bulk must correspond with the sample in quality.
- The buyer must have a reasonable opportunity to compare the bulk with the sample.
- The goods must be free from latent defects not apparent on reasonable examination.
Case Law: Drummond v. Van Ingen (1887) — The bulk of cloth differed from the approved sample. The court held that the buyer could reject the goods.
2. Implied Warranties under the Sale of Goods Act, 1930
Warranties are minor or collateral stipulations in a contract. Breach of a warranty does not cancel the contract but entitles the buyer to claim damages. The implied warranties under the Act are as follows:
(a) Warranty of Quiet Possession (Section 14(b))
There is an implied warranty that the buyer shall have quiet possession of the goods after sale.
If the buyer’s possession is disturbed by a third party claiming ownership, the seller is liable for breach of warranty.
Example: If a buyer’s purchased car is seized by police due to prior ownership disputes, the seller must compensate.
(b) Warranty of Freedom from Encumbrances (Section 14(c))
The goods must be free from any charge or encumbrance not disclosed to the buyer before or at the time of sale.
If the buyer has to pay or settle such encumbrance, he is entitled to recover the money from the seller.
(c) Warranty of Disclosing Dangerous Nature of Goods
If the goods are dangerous or harmful and the seller is aware of the danger, there is an implied warranty that he must warn the buyer.
Failure to do so makes the seller liable for resulting harm or damage.
(d) Warranty as to Quality or Fitness by Usage of Trade
In some trades, there are established usages or customs that imply certain warranties about quality or safety, even if not expressly stated.
Under Section 16(3), such warranties are binding if not inconsistent with express terms of the contract.
Example: In the jewelry trade, there’s an implied warranty that gold marked “22 carat” actually meets that purity.
3. Differences Between Implied Conditions and Warranties
| Basis | Implied Condition | Implied Warranty |
|---|---|---|
| Definition | A term essential to the contract. | A secondary term, not essential to the contract. |
| Effect of Breach | Buyer may repudiate the contract and reject the goods. | Buyer can only claim damages, not reject the goods. |
| Importance | Goes to the root of the contract. | Collateral to the main purpose. |
| Example | Condition as to title, description, quality. | Warranty of quiet possession or freedom from encumbrances. |
Thus, both serve different purposes but ensure a balance of rights between buyer and seller.
Real-Life Example
Imagine Aman purchases a refrigerator from CoolTech Appliances described as a “new energy-efficient model.” After two days, the refrigerator stops cooling properly and emits a burning smell.
- Here, there’s a breach of implied condition as to quality and fitness (Section 16) because the product was not suitable for its intended use.
- If Aman also later finds out the refrigerator was on hire-purchase and repossessed by a finance company, there’s a breach of implied warranty of freedom from encumbrances (Section 14(c)).
This example shows how both conditions and warranties operate together to protect buyers in everyday sales.
Mnemonic to Remember Implied Conditions and Warranties
Mnemonic – “T-D-F-M-W-S” for Implied Conditions
T – Title
D – Description
F – Fitness for purpose
M – Merchantable quality
W – Wholesomeness
S – Sample
Sentence: “The Dealer Furnishes Market-Worthy Samples.”
Mnemonic – “Q-E-D-T” for Implied Warranties
Q – Quiet possession
E – Freedom from Encumbrances
D – Dangerous goods warning
T – Trade usage warranty
Sentence: “Quiet Elephants Don’t Trouble.”
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