A contract of sale contains stipulations of unequal importance. The Act divides them into conditions, which go to the root of the contract, and warranties, which are collateral to its main purpose. The classification determines the remedy: repudiation for breach of condition, damages only for breach of warranty.
Legal Framework
| Provision | Subject | Key Rule |
|---|---|---|
| S.11 | Stipulations as to time | Whether a stipulation as to time of payment is of the essence depends on the terms; other time stipulations depend on the contract's terms |
| S.12(2) | Condition defined | A stipulation essential to the main purpose of the contract, breach of which gives a right to treat the contract as repudiated |
| S.12(3) | Warranty defined | A stipulation collateral to the main purpose, breach of which gives a right to claim damages but not to reject the goods or repudiate |
| S.12(4) | Substance governs, not form | Whether a stipulation is a condition or a warranty depends in each case on the construction of the contract; a stipulation may be a condition though called a warranty |
| S.13 | When a condition is to be treated as a warranty | Waiver by the buyer, election to treat breach as breach of warranty, or where performance is excused |
| S.62 | Exclusion of implied terms | Implied conditions and warranties may be negatived or varied by express agreement, course of dealing, or usage |
The Distinction
| Basis | Condition (S.12(2)) | Warranty (S.12(3)) |
|---|---|---|
| Importance | Essential to the main purpose | Collateral to the main purpose |
| Remedy on breach | Repudiate the contract and reject the goods, or claim damages | Damages only |
| Right to reject goods | Yes | No |
| Effect on the contract | May be brought to an end | Remains on foot |
| Can be treated as the other | A condition may be treated as a warranty (S.13) | A warranty cannot be elevated to a condition |
Why the classification turns on substance and not on the label: S.12(4) directs the court to construe the contract as a whole. Commercial parties use "warranty" and "guarantee" loosely, and a seller could otherwise downgrade a fundamental obligation simply by calling it a warranty. Looking to whether the stipulation is essential to the main purpose keeps the remedy proportionate to the importance of the term the parties actually intended.
Facts: A buyer told a car dealer he wanted a comfortable car suitable for touring. The dealer recommended a Bugatti as suitable. The written contract excluded liability for any "guarantee or warranty, statutory or otherwise." The car proved unsuitable for touring.
Issue: Did the exclusion of guarantees and warranties protect the seller from liability for breach of the requirement of fitness for purpose?
Held: No. The stipulation that the car be suitable for touring was a condition, not a warranty, because it was essential to the main purpose for which the buyer contracted. A clause excluding warranties does not exclude conditions. The buyer could reject the car and recover the price.
Relevance: The leading authority on both points: fitness for a stated purpose is a condition, and an exclusion clause is construed strictly against the party relying on it.
Facts: Seed was sold described as "common English sainfoin." The contract stated that the sellers gave no warranty as to description, growth or any other matter. The seed delivered was in fact an inferior variety, giant sainfoin.
Held: The requirement that the goods correspond with their description was a condition, not a warranty. The exclusion of warranties therefore did not protect the sellers, and the buyers could recover for breach of condition.
Relevance: Establishes that correspondence with description is a condition and reinforces the strict construction of exclusion clauses. Frequently paired with Baldry v Marshall.
Express and Implied Terms
| Type | Source |
|---|---|
| Express conditions and warranties | Agreed by the parties in words, written or spoken |
| Implied conditions and warranties | Imported by S.14 to S.17 of the Act, or by usage of trade |
Priority: Where an express term is inconsistent with an implied term, the express term prevails, subject to S.62 and to the rule that an exclusion clause is construed strictly.
Implied Conditions and Warranties in Outline
| Provision | Term | Character |
|---|---|---|
| S.14(a) | Seller has a right to sell | Condition |
| S.14(b) | Buyer shall have quiet possession | Warranty |
| S.14(c) | Goods free from undisclosed encumbrances | Warranty |
| S.15 | Goods correspond with description | Condition |
| S.15 | In a sale by description and sample, the bulk corresponds with both | Condition |
| S.16(1) | Fitness for the buyer's particular purpose, where made known | Condition |
| S.16(2) | Merchantable quality where bought by description from a dealer | Condition |
| S.16(3) | Fitness implied by trade usage | Condition |
| S.17 | In a sale by sample, bulk corresponds with sample, reasonable opportunity to compare, goods free from latent defects | Condition |
Why title is a condition but quiet possession only a warranty: A seller without the right to sell has nothing to transfer, so the buyer's fundamental objective fails entirely and repudiation is the proportionate remedy. Quiet possession and freedom from encumbrances, by contrast, concern disturbances after property has validly passed. The buyer has received what he bargained for and can be compensated in money, so damages suffice.
When a Condition Sinks to a Warranty (S.13)
| Situation | Provision | Effect |
|---|---|---|
| Buyer waives the condition | S.13(1) | The buyer cannot afterwards reject; he may claim damages |
| Buyer elects to treat the breach of condition as a breach of warranty | S.13(1) | The contract stands and damages are the remedy |
| Performance of the condition is excused by law | S.13(2) | Neither repudiation nor damages arise |
| Buyer has accepted the goods | S.13, read with S.42 | The right to reject is lost; damages remain |
Why acceptance destroys the right to reject: Rejection unwinds the transaction, which becomes impracticable and unfair once the buyer has signified acceptance, dealt with the goods, or retained them beyond a reasonable time without intimating rejection. Confining him to damages after acceptance protects the seller from belated repudiation while leaving the buyer compensated.
Illustrations
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Condition despite the label: A contract for a machine states "the seller warrants the machine will produce 500 units per hour," and output capacity was the buyer's stated requirement. Despite the word "warrants," this is a condition under S.12(4), because it is essential to the main purpose. The buyer may reject.
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Exclusion of warranties does not exclude conditions: A buyer states he needs a car suitable for touring; the dealer recommends one; the contract excludes all warranties. The car is unsuitable. Applying Baldry v Marshall (1925), fitness for the stated purpose is a condition and the exclusion does not cover it. The buyer may reject and recover the price.
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Description is a condition: Seed sold as "common English sainfoin" turns out to be an inferior variety, under a contract excluding warranties as to description. Applying Wallis, Son and Wells v Pratt and Haynes (1911), correspondence with description is a condition, so the exclusion fails.
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Warranty gives damages only: A buys a lathe which works as described but is subject to an undisclosed hire purchase charge, which the seller later clears at his own cost after some disturbance to the buyer. Freedom from encumbrances is a warranty under S.14(c), so the buyer's remedy is damages for the disturbance, not rejection.
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Election under S.13: A buyer discovers a breach of condition as to quality but, needing the goods urgently for a contract of his own, keeps them and claims the price difference. He has elected to treat the breach of condition as a breach of warranty under S.13(1) and cannot later reject.
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Waiver by acceptance: A buyer inspects goods, signs an acceptance note, and uses them for two months before complaining of a defect he could have discovered on inspection. The right to reject is lost; only damages remain.
Recall Check
- Why does S.12(4) direct attention to substance rather than to the words the parties used?
- Why is the seller's right to sell a condition while quiet possession is only a warranty?
- In what circumstances does a condition fall to be treated as a warranty under S.13?
Key Cases
Baldry v Marshall (1925) Baldry v Marshall 1925
Issue: Whether a clause excluding warranties protected a seller from liability for supplying a car unfit for the buyer's stated purpose.
Rule: Fitness for a purpose made known is a condition, and a clause excluding warranties does not exclude conditions.
Held: The buyer could reject the car and recover the price.
Wallis, Son and Wells v Pratt and Haynes (1911) Wallis Son and Wells v Pratt and Haynes 1911
Issue: Whether correspondence with description is a condition or a warranty, and whether an exclusion of warranties covered it.
Rule: Correspondence with description is a condition; exclusion clauses are construed strictly against the party relying on them.
Held: The buyers recovered, the exclusion of warranties being ineffective against breach of condition.
Distinctions
| Basis | Condition | Warranty |
|---|---|---|
| Provision | S.12(2) | S.12(3) |
| Relationship to the contract's purpose | Essential | Collateral |
| Right to repudiate | Yes | No |
| Right to reject the goods | Yes | No |
| Damages | Available | Available |
| Downgrading | May be treated as a warranty under S.13 | Cannot be upgraded |
| Basis | Express Terms | Implied Terms |
|---|---|---|
| Source | The parties' words | S.14 to S.17, or trade usage |
| Priority | Prevail over inconsistent implied terms | Yield to express terms, subject to strict construction of exclusions |
| Exclusion | Not applicable | May be negatived or varied under S.62 |
| Basis | Breach of Condition | Breach of Warranty |
|---|---|---|
| Buyer's primary remedy | Reject the goods and repudiate | Claim damages |
| Contract status | May be terminated | Continues |
| Effect of acceptance of goods | Right to reject lost, damages survive | No change; damages were always the remedy |
Flashcards
Define a condition under S.12(2).
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.
Define a warranty under S.12(3).
A stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not a right to reject the goods or repudiate.
Does the label used by the parties determine whether a term is a condition or a warranty?
No. S.12(4) requires the court to construe the contract; a stipulation may be a condition though called a warranty.
Does a clause excluding warranties protect a seller from breach of condition?
No. Baldry v Marshall (1925) and Wallis v Pratt and Haynes (1911) held that such clauses do not extend to conditions.
Is the seller's right to sell a condition or a warranty?
A condition, under S.14(a).
Is freedom from encumbrances a condition or a warranty?
A warranty, under S.14(c).
When may a buyer be confined to damages despite a breach of condition?
Where he waives the condition, elects to treat the breach as a breach of warranty (S.13(1)), or has accepted the goods.
Can a warranty ever be treated as a condition?
No. The Act permits a condition to sink to a warranty, but not the reverse.
Exam Scenario
Problem: Ravindra tells a machinery dealer that he needs a printing press capable of handling 8,000 impressions per hour for a newspaper contract he has secured, and asks the dealer to recommend a suitable machine. The dealer recommends a particular press and the written contract records that "the seller gives no warranty of any kind, statutory or otherwise, as to performance." It also states that "the seller warrants that the machine is free from any charge or encumbrance." On installation the press manages only 4,000 impressions per hour, so Ravindra cannot service the newspaper contract. He also discovers the press is subject to an undisclosed hypothecation to a bank, which sends a notice before the dealer clears it a fortnight later. Ravindra has used the press for three weeks. Advise Ravindra.
Step 1: Classify each complaint as a condition or a warranty
The two complaints attract different remedies, so separate them at the outset.
| Complaint | Term engaged | Character | Remedy in principle |
|---|---|---|---|
| Press manages only 4,000 impressions per hour | Fitness for a disclosed particular purpose, S.16(1) | Condition | Rejection and repudiation, or damages |
| Undisclosed hypothecation to a bank | Freedom from encumbrances, S.14(c) | Warranty | Damages only, never rejection |
Step 2: Establish the fitness condition under S.16(1)
Ravindra disclosed his particular purpose, 8,000 impressions per hour for a newspaper contract he had secured, and asked the dealer to recommend a suitable machine.
He therefore relied on the dealer's skill and judgement, and the dealer deals in such goods. S.16(1) raises an implied condition of fitness for that purpose, which the shortfall to 4,000 breaches.
Step 3: Defeat the exclusion clause
The clause excludes "warranty of any kind, statutory or otherwise". It says nothing about conditions.
Apply Baldry v Marshall (1925) and Wallis, Son and Wells v Pratt and Haynes (1911): a clause excluding warranties does not exclude conditions, and exclusion clauses are construed strictly against the party relying on them.
S.12(4) reinforces the point, since the substance governs and fitness for the stated purpose was plainly essential to the main purpose of this contract. The clause does not protect the dealer.
Step 4: Test whether acceptance has closed off rejection
Under S.13 and the acceptance rules, a buyer who has accepted the goods loses the right to reject and is confined to damages.
Three weeks' use of an installed printing press is likely to amount to acceptance, the more so because the shortfall would have been apparent almost at once. Ravindra's realistic remedy is therefore damages for breach of condition, measured by his loss on the newspaper contract.
Rejection remains arguable only if he intimated it promptly and the use was merely to test the machine.
Step 5: Confine the encumbrance claim to damages
Freedom from encumbrances is a warranty under S.14(c), so Ravindra was never entitled to reject on that ground.
The dealer cleared the charge within a fortnight, so damages are limited to the loss actually caused by that disturbance.
The clause is drafted to look wider than it is. "No warranty of any kind, statutory or otherwise" leaves every condition untouched. Baldry v Marshall (1925) and Wallis v Pratt (1911) are the authorities that close the point.
Winning on the condition does not win rejection. S.13 and acceptance are a separate hurdle, and three weeks of use of an installed press will usually clear the dealer of a rejection claim while leaving him fully exposed in damages.
Conclusion. Ravindra recovers substantial damages for the performance shortfall and modest damages for the encumbrance. Rejection is probably barred by acceptance, though the exclusion clause is no answer to either claim.
See Also
- Implied Conditions and Warranties : the detailed content of the terms S.14 to S.17 import into every sale.
- Doctrine of Caveat Emptor and Its Exceptions : the default rule against which the implied conditions operate as exceptions.
- Remedies for Breach of Contract of Sale : the measure of damages and the buyer's right of rejection in practice.