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INTRODUCTION

Goods come with certain warranties, which if breached give right to the buyer to avail of certain remedies under the Sale of Goods Act, 1930. These warranties, their breach and the remedies so available are the subject matter of this paper.

The paper begins with a definition of warranties. The researcher both defines warranty and distinguishes it from condition. The researcher also distinguishes between a breach of a warranty given under Section 12(2) and a breach of a condition treated as a breach of warranty given under Section 13(2). The researcher moves on to the circumstances in which a warranty or a condition treated as a warranty may be breached and remedy for the same. The researcher discusses Section 59 of the Sale of Goods Act, 1930, which covers the remedy in case of breach of warranty. This is followed by a comparative analysis of the provisions for remedy for breach of warranty given under the Indian Sale of Goods Act and the English Sale of Goods Act. The researcher analyses the method for computation of damages under the Indian law and under the English law.

The researcher then engages in an analysis of remedy for breach of warranty of quality. The methods to be employed for the quantification are discussed with illustration. Immediately follows an analysis of when breach of condition is treated as a breach of warranty. The researcher then shifts his focus to when the condition of goods being of a particular description is breached and when the condition of goods being fit for a particular purpose is breached. The researcher also looks into some nebulous issues when dealing with breach of condition of goods being fit for particular purpose. He looks at the rights of the buyer to claim damages from the seller on account of the damages paid to the sub-buyer. The jurisprudence behind the issue is thoroughly perused. In conclusion, the paper ends with a discussion of the duties of the buyer if s/he is to successfully avail the remedy for breach of warranty.

DEFINING AND DISTINGUISHING A WARRANTY

The Sale of Goods Act, 1930 defines a warranty as- “A warranty is a stipulation collateral to the main purpose to the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.[1] To understand the concept of warranty better, it must be seen in contradistinction to how a condition is defined under the statute. The Sale of Goods Act defines a condition as- “A condition is a stipulation essential to the main purpose to the contract, the breach of which gives rise to right to treat the contract as repudiated.[2] Two major distinctions between a warranty and a condition become apparent here. First, a warranty is a stipulation which is collateral to the main purpose to the contract whereas a condition is a stipulation which is essential to the main purpose of the contract. Second, a breach of warranty gives rise to a right to only claim for damages but not to a right to reject the goods whereas the breach of a condition gives rise to a right to treat the contract as repudiated.

There may be circumstances, where the buyer may elect or be compelled to treat the breach of a condition as a breach of warranty. The first scenario is when the buyer may her/himself elect to treat the breach of a condition as a breach of a warranty.[3] The second such scenario will be when the buyer has accepted the goods or part of them voluntarily in such a way so as to preclude himself from exercising his right to reject them, he must treat the breach of condition as a breach of warranty.[4] It ought to be noted here that in most cases the warranty under scrutiny is not a warranty as defined under Section 12(2) but a condition being treated as a warranty under Section 13(2) of the Sale of Goods Act.[5] The task of distinguishing between a condition and a warranty is primarily of determining the intention of the parties.[6] When dealing with warranties, it has to be always kept in mind that a warranty can exist only when the subject matter of the sale is ascertained and existing.[7]

The quintessential example of when a breach of condition could be treated as a breach of warranty can be found in Svenska Handelsbanken v. M/s. Indian Charge Chrome and others.[8] In this case, the breach of condition of the capacity of the power plant being 108 megawatts was treated as a breach of warranty. The plaintiff did not repudiate the contract and kept working with the power plant. Even the prayer in the plaint was for diminution of the price of the power plant and hence in this case the plaintiff had elected to treat the breach of condition as a breach of warranty.[9]

BREACH OF WARRANTY AND REMEDY FOR THE BREACH

Breach of condition or warranties may be relating to title to the goods, quality, merchantability, description and fitness of the goods.[10] The remedy for breach of warranty is provided under Section 59 of the Sale of Goods Act, 1930. As this section forms the core subject matter of this paper, it would be expedient to reproduce the text of Section 59. Section 59 reads as follows-

59. Remedy for breach of warranty.- (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may-

  1. a) Set up against the seller the breach of warranty in diminution or extinction of the price; or
  2. b) Sue the seller for damages for breach of warranty.

(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.

Section 59 does not deal with cases of fraudulent misrepresentation, which may enable the buyer to set aside the contract nor with cases where by the express terms of the contract the buyer may return the goods in case of a breach of warranty.[11] Remedy in such cases will be better provided under Sections 57 and 61 of the Sale of Goods Act. Here it can clearly be observed that Section 59(1) is in complete harmony with Sections 13(1) and (2) of the Sale of Goods Act. In the case of a breach of warranty, it is the right of the buyer to elect to affirm the contract and have resort to the right of damages.[12] The buyer may in exercise of her/his right of election choose to treat the breach of a condition as a breach of warranty and such election will be backed by Section 59. But as stated earlier, where a buyer may have accepted the goods, thus being compelled to treat a breach of a condition as a breach of warranty, her/his remedy would be limited to suing only for damages under Section 59.[13]

Generally there are four remedies that can be claimed when a warranty is breached by the seller. These remedies are as follows-

  1. The buyer may claim a deduction from the price if the loss occasioned by the breach of warranty is less than the price; or,
  2. The buyer may refuse to pay the price altogether, if the loss equals the price; or,
  3. If the loss exceeds the price, the buyer may not only refuse to pay the price, but also claim the excess; or,
  4. The buyer may pay the price in all these cases, and sue the seller for damages for the breach of warranty.[14]

Sub-Section (2) clearly indicates that the right to claim damages is in addition to the right to claim diminution or extinction of the price, whichever may be the case.[15] This clearly indicates that the right to damages is in addition to and not in derogation of the right to diminution or extinction of the price.

Section 59, as regards the question of damages is based on the principle of restituo in integrum as the section intends to restore the parties to the original position they were in before entering the now-breached contract.[16] The buyer is recompensed for the monetary loss incurred owing to the breach of warranty. The fact that the quantum of compensation would be decided on the basis of actual loss and would be set off against the price also ensures that the terms of the restoration are fair for the seller too.

DAMAGES FOR BREACH OF WARRANTY

Here, a comparative analysis of the provisions of the Indian Sale of Goods Act, 1930 and the English Sale of Goods Act, 1979 becomes highly useful. Whereas the Indian statute on sale of goods provides no method to compute damages in case of breach of warranty, the English statute provides for a method to compute the damages. Section 53 of the English Act is in pari materia with Section 59 of the Indian Act. Over and above what is provided for under Section 59, Section 53 also provides for a method for quantification of damages in sub-Sections (2) and (3). Sub-Sections (2) and (3) of the English Act are as follows-

2. The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.[17]

  1. In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.[18]

In all of the modern commonwealth statutes on the sale of goods, for instance, the Singaporean Sale of Goods Act, 1999, sub-Sections for computation of damages have already been inserted. Much like the English Sale of Goods Act, the Singaporean Sale of Goods Act provides for remedy for breach of warranty under Section 53 and the provisions are in pari materia. This raises a question as to why provisions for measure of damages were not included in the Indian Sale of Goods Act. A probable answer to this could be that the legislature at that time thought that damages could well be governed by Section 73 of the Indian Contract Act.[19] Thus the measure of damages would be the loss or damage directly and naturally resulting in the usual course of things from the breach of warranty.[20] It cannot be argued that the reason for absence of such clause for measurement of damages is the antiquity of the Indian Act, as the clause for measurement of damages was present in the original English Sale of Goods Act, 1893. Thus, the former explanation seems a reasonable one.

Sub-Section (3) of the English Act concerns itself with the breach of warranty of quality. Even though the Indian statute has no similar provision, the cases have been decided along the principles set down in the aforementioned sub-Section. In the case of a breach of warranty of quality, the presumption is that the damages are equal to the difference between the actual value of the goods at the time of the delivery and the value they would have been of had they been in accordance with the terms of warranty.[21] But, where the claim is based on loss of profit, it should be calculated either by quantifying the difference between the price of the goods and the value of the goods as provided and accepting the claim only insofar as it is in excess of the amount.[22] Both the values discussed above are to be taken at the contractual date and delivery time of unless the circumstances warrant taking the value as of a later date.[23]

The buyer has an option to split up her/his total claim for damages into one for general damages in diminution or extinction of the price and the other for special damages for which s/he can bring a separate action.[24]

BREACH OF WARRANTY OF QUALITY AND REMEDY FOR THE BREACH

When it comes to breach of warranty of quality, “the presumption is that the damages would be the difference between what the goods are intrinsically worth at the time of delivery and what they would have been worth, if they would have been according to the contract”.[25] This difference is to be determined according to the market price at that time.[26] The best illustration of the breach of warranty of quality and the remedy for the same can be found in the matter of Dingle v. Hare. In this case the plaintiff had bought 20 tons of superphosphates guaranteed to contain 30 per cent of phosphate of lime at 5l. 5s. a ton but the lime content was actually lower and the superphosphates were valued at 2l. 2s. a ton. The damages were awarded at 3l. 3s. a ton.[27]

Though the date of delivery is the usual date at which the difference between the two values is to be fixed, circumstances may exist which render it necessary to take a later date.[28] Good evidence can be obtained of the difference in value if the actual damaged goods are sold with all faults.[29] The prevalent practice to deal with such cases is by way of a price allowance.[30]

Breaches of other warranties are governed by the general rule, given under Section 73 of the Indian Contract Act.[31]

BREAHCES OF CONDITIONS AS BREACHES OF WARRANTIES

The breach of condition as a breach of warranty can best be understood through the case of City & ID Corpn of Maharashtra Ltd v. Nagrenu Steel & Alloys Ltd.[32] In this case, the plaintiff was to supply to the defendant a certain quantity of mild steel round bars and cold twisted deformed bars. The seller was obliged to test the goods from some government institution and to despatch the test certificate. The last two bills were detained on the ground that some of the goods supplied were oversized. The seller argued that the buyer accepted the supplies without any protest despite knowledge and even the intention to treat the breach of condition as breach of warranty did not exist. The Court held that the buyer has failed to treat the breach of condition as breach of warranty. Remedies under Section 59 are not absolute and cannot be resorted to at any point or strategic point suitable to the buyer.[33] Thus, the Court held that the seller did not commit breach of contract but there was breach of warranty and damages were accordingly awarded.

  1. GOODS NOT ANSWERING TO THE DESCRIPTION-

When the buyer treats the breach of condition that the goods should answer to the description as a breach of warranty, the damages are not limited to those which follow from the breach of warranty of quality but are governed by the general rule laid down in Section 53(2) of the English Sale of Goods Act, that is, the estimated loss.[34] It is to be noted that the rule laid down in Section 53(2) of the English Act is alike that laid down under Section 73 of the Indian Contract Act and hence the effect of the application of the rule in the Indian context would substantially be the same.

This principle could best be understood through the case of Bostock & Co Ltd v. Nicholson & Sons Ltd.[35] In this case, the plaintiffs bought sulphuric acid which ought to have been commercially free from arsenic according to the description for the purpose of manufacturing glucose. The description later proved to be erroneous. It was held that the plaintiffs were entitled to recover the price of the acid and also damages representing the value of materials spoilt on account of mixing with the acid. However, the Court stopped short of awarding damages to the plaintiffs for the people who drank the beer made with the glucose supplied by the plaintiffs. The damages in this case were considered to be too remote.[36]

Thus, when the condition that the goods should correspond with a certain description is breached and treated as a warranty, the damages should in the ordinary course of things flow from that particular breach. If the consequences result exclusively from the breach in a usual state of things, they are ordinary and natural consequences of the breach and the defendant will be held liable.[37]

  1. GOODS NOT FIT FOR THE PURPOSE FOR WHICH THEY WERE SOLD-

Where there is a breach of warranty that the goods should be fit for a particular purpose, the damages should be such as naturally flow from the breach. The most famous case under this category is that of Jackson v. Watson & Sons.[38] In this case, the plaintiff’s wife died after eating tinned salmon which was bought from the defendant. Thus, this was a clear-cut case of breach of warranty that the tinned food should be fit for consumption by humans, and the plaintiff was entitled to recover expenses incurred for medical attendance on her, for her funeral as also a sum to compensate him for no more being able to avail of her services.[39] Also, the mere fact that damages cannot be assessed with certainty or precision will not relieve the buyer of his liability to pay damages for the breach of warranty under Section 59 of the Indian Sale of Goods Act.[40]

Now comes up an interesting issue. Where the buyer buys goods as being fit for a particular purpose, and re-sells the goods with the same warranty, and owing to the warranty being untrue, has to pay damages to the buyer, the situation becomes somewhat peculiar.[41] It may seem like that such damages flow naturally from the breach of warranty, and therefore it is irrelevant whether the original seller had positive or constructive knowledge whether the buyer intended to re-sell the goods. However, the courts have stressed the fact in such cases the resale by the buyer is within the contemplation of parties to the original sale.[42] Thus it appears that the case will fall not within the first rule but the second rule laid down under Section 73 of the Indian Contract Act.[43]

Hammond v. Bussey was argued and dealt with on this assumption.[44] There the contract was for steam coal fit to be used in steamers, and the seller knew that the buyer required it for the purpose of reselling. The coal was not fit for that purpose and the buyer had to pay damages to his sub-buyer in consequence. The issue was whether the buyer could recover the costs incurred by him in defending the action brought against him by the sub-buyer. It was held that he could as he had acted reasonably.[45]. The buyer had stood in the place of the seller while defending the fitness of the goods and hence a quasi-contractual relationship had been created. Also, the finding that sub-sale was to be taken as in the contemplation of the parties, exists in all cases where the buyer had been held entitled to recover damages which he has become liable to pay to the sub-purchasers.[46]

However, this hair-splitting distinction appears futile in most cases.[47] Even in case of breach of other conditions, the buyer may recover from the seller the damages and costs to which he may have become liable for in an action by the sub-buyer.[48]

DUTIES OF THE BUYER

The most important duties of the buyer are that the buyer should rely on the warranty and act reasonably.[49] A plaintiff is not entitled to recover the costs of defending an action if it is obvious that there is no defence to it. Also, if by the exercise of reasonable care he could have ascertained before reselling that the warranty was broken, he resells at his own peril.[50] Even if the buyer acquires the knowledge about the defect after the sub-sale is effected by him, he is not absolved from notifying the defect to the sub-buyer to enable the sub-buyer to avoid further loss or damage which may be caused due to such defect.[51] However, a buyer is not obliged to mitigate the damage by taking actions which he might be required to do under strict law but which would have severe repercussions for his business.[52]

CONCLUSION

This paper looked into the issue of breach of warranty and remedy for the same. The researcher began by defining a warranty and distinguishing it from a condition. A breach of condition gives the buyer the right to reject the goods; a breach of warranty does not.A buyer may also elect to treat a breach of condition as a breach of warranty or s/he may be compelled to treat a breach of condition as a breach of warranty. Whether a stipulation is a warranty or a condition depends on the intention of the parties.

A warranty or a condition may be breached with regard to title to the goods, quality, merchantability, description or fitness of goods. Section 59 of the Sale of Goods Act, 1930 provides for remedy in case of breach of warranty. The buyer may set up the breach of warranty in diminution or extinction of price or may claim damages for the breach. The right to claim damages is an additional right and not an alternative to the right to set up the breach in diminution or extinction of the price. Section 59 is based on the principle of restituo in integrum.

Section 53 of the English Sale of Goods Act is in pari materia Section 59 of the Indian Sale of Goods Act. Section 53 also provides for measure of damages, something Section 59 does not, because damages in cases of breach of warranty in the Indian context are provided for under Section 73 of the Indian Contract Act. Cases on breach of warranty of quality in India are decided under the same common law principles, as is evident from case law analysis.

In cases of breach of warranty of quality, there is a presumption that the damages are the difference between the intrinsic value of the goods and what the value of the goods would have been had they answered to the warranty. Both the values are to be taken at the time of delivery, but this may not always be the case and facts and circumstances of each case ought to be taken into account. When it comes to breach of condition of goods answering to the description treated as a breach of warranty, the damages are governed by Section 73 of the Indian Contract Act. The damages should be such as naturally and ordinarily flow from the breach. When there is a breach of condition that goods are fit for a specific purpose, and when this is treated as a breach of warranty, the damages should be such as which are the natural consequences of the breach. In cases where the resale by the buyer is in contemplation of the original parties, the case will not fall within the first rule but second rule under Section 73.

It is the duty of the buyer to rely on the warranty and to act reasonably. If the buyer knows that the warranty has been broken, he resells at her/his own peril. Even after the sale has been effected, the buyer has a duty to notify the defect to the sub-buyer. However, only a reasonable standard of care is to be applied by the buyer and s/he need not take extraordinary precaution which might be detrimental to her/his own business. Thus concludes the discussion on the breach of warranty and its remedy.

[1] Sec. 12(3), The Sale Of Goods Act, 1930.

[2] Sec. 12(2), The Sale Of Goods Act, 1930.

[3] Sec. 13(1), The Sale Of Goods Act, 1930.

[4] Sec. 13(2), The Sale Of Goods Act, 1930.

[5] T.S. Venkatesa Iyer, The Indian Sale Of Goods Act And The Indian Partnership Act, 134 (S. Venkataraman et al eds., 4th edn., 1984).

[6] L. K. Seng, Retreat of Continuing Warranties?, 9 Singapore Academy Of Law Journal 139, 147 (1997).

[7] Kanak Kumari v. Chandan Lall, AIR 1955 Pat 215 (Patiala High Court).

[8] Svenska Handelsbanken v. M/s. Indian Charge Chrome and others, AIR 1994 SC 626 (Supreme Court of India). [“Indian Charge Chrome case”]

[9] Indian Charge Chrome case, AIR 1994 SC 626, 645.

[10] Sir D. F. Mulla, The Sale Of Goods Act And The Indian Partnership Act, 131 (10th edn., 2012).

[11] Sir D. F. Mulla, and Sir F. Pollock, Sale Of Goods Act, 418 (Ramamoorthy ed., 6th edn., 2005).

[12] Seng, supra note 8, at 146.

[13] Commissoner of Inome Tax v. Prafulla Kumar Mallik, AIR 1969 Ori 187, 189-190 (Supreme Court of India).

[14] Mulla, supra note 10, at 131.

[15] Mulla, supra note 10, at 132.

[16] L. C. Sian, Damage For Breach of Contract For Sale of Goods, 13 Singapore Academy Of Law Journal 135, 146 (2001).

[17] Sec. 53(2), Sale of Goods Act, 1979.

[18] Sec. 53(3), Sale of Goods Act, 1979.

[19] Mulla, supra note 10, at 131.

[20] Sec. 73, Indian Contract Act, 1872.

[21] Mangilal v. Shantibai, AIR 1956 Nag 221 (Nagpur High Court).

[22] Cullinane v. British Rema Manufacturing Ltd., (1953) 2 All ER 1257 (Court of Queen’s Bench).

[23] Van Der Hurk v. R. Martens, (1920) 1 KB 850 (Court of King’s Bench).

[24] P.R. Aiyar, Law Of Sale Of Goods, 376 (S. Gupta ed., 9th edn., 2010).

[25] Dingle v. Hare (1859) 7 CBNS 145 (Common Bench).

[26] Pollock, and Mulla, supra note 11, at 423.

[27] Dingle v. Hare (1859) 7 CBNS 145 (Common Bench).

[28] Loder v. Kekule (1857) 3 CBNS 128 (Common Bench).

[29] Pollock, and Mulla, supra note 11, at 424.

[30] Biggin & Co Ltd v. Permantie Ltd [1951] 1 KB 422(Court of King’s Bench).

[31] Pollock, and Mulla, supra note 11, at 424.

[32] City & ID Corpn of Maharashtra Ltd v. Nagrenu Steel & Alloys Ltd, AIR 1992 Bom 55 (Bombay High Court). [“CIDCO case”]

[33] CIDCO case, AIR 1992 Bom 55.

[34] Bostock & Co Ltd v. Nicholson & Sons Ltd [1904] 1 KB 725 (Court of King’s Bench).

[35] Bostock & Co Ltd v. Nicholson & Sons Ltd [1904] 1 KB 725 (Court of King’s Bench).

[36] Bostock & Co Ltd v. Nicholson & Sons Ltd [1904] 1 KB 725 (Court of King’s Bench).

[37] Wilson v. Dunville (1879) 6 LR Ir 210, 217.

[38] Jackson v. Watson & Sons [1909] 2 KB 193 (CA) (Court of King’s Bench).

[39] Jackson v. Watson & Sons [1909] 2 KB 193 (CA) (Court of King’s Bench).

[40] Port of Calcutta v. West Bengal Corpn Pvt Ltd, AIR 1979 Cal 142, 151 (Calcutta High Court).

[41] Pollock, and Mulla, supra note 11, at 430.

[42] Pollock, and Mulla, supra note 11, at 430.

[43] Pollock, and Mulla, supra note 11, at 430.

[44] Hammond v. Bussey [1887] 20 QBD 79 (CA) (Queen’s Bench Division).

[45] Hammond v. Bussey [1887] 20 QBD 79 (CA) (Queen’s Bench Division).

[46] Pollock, and Mulla, supra note 11, at 431.

[47] Pollock, and Mulla, supra note 11, at 431.

[48] Pollock, and Mulla, supra note 11, at 433.

[49] Dobell & Co v. Barber & Garatt [1931] 1KB 219 (CA) (Court of King’s Bench).

[50] Wrightup v. Chamberlain (1839) 7 Scott 598.

[51] Biggin & Co Ltd v. Permanite Ltd [1951] 1 KB 422, 435 (Court of King’s Bench).

[52] Finlay v. Kwik Hoo Tong [1929] 1 KB 400 (CA) (Court of King’s Bench).

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