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Unit 12: Law of Sales of Goods

Earnest money also known as deposit, it is paid by the buyer in advance as security for the due Notes
performance of his part of the contract. It is not paid as part payment of price. If the transaction
goes through, the earnest money is adjusted against the price. But if the sale goes off through
buyer’s fault, the deposit unless otherwise agreed is forfeited to the seller; and where it goes off
by the seller’s default he must return the earnest money.

12.5 Conditions and Warranties (Sec.11-17)

In a contract of sale, parties make certain stipulations, i.e., agree to certain terms. All stipulations
cannot be treated on the same footing. Some may be intended by the parties to be of a fundamental
nature, e.g., quality of the goods to be supplied, the breach of which, therefore, will be regarded
as a breach of the contract. Some may be intended by the parties to be binding, but of a subsidiary
or inferior character, e.g., time of payment, so that a breach of these terms will not put an end
to the contract but will make the party committing the breach liable to damages. The former
stipulations are called ‘conditions’ and the latter ‘warranties’.
Breach of condition to be treated as breach of warranty (Sec.13). Under certain circumstances a
breach of condition is to be treated as a breach of warranty, i.e., the right to repudiate the contract
is deemed to have been lost. These circumstances are:
1. Where a contract of sale is subject to any condition to be fulfi lled by the seller, the buyer
may either (a) waive the condition, or (b) elect to treat the breach of the condition as a breach
of warranty. In such situations, the buyer is active and is either waiving the condition or
electing to treat the breach of condition as a breach of warranty. If the buyer decides to

waive the condition, he cannot later on insist that the condition be fulfilled. Where the
buyer treats the breach of condition as a breach of warranty, he has to give a notice to the
seller to that effect.
2. There is also a compulsory treatment of breach of condition as a breach of warranty. Where
the contract of sale is not severable and the buyer has accepted the goods or part thereof,
the breach of any condition to be fulfi lled by the seller can only be treated as a breach of
warranty. However, the agreement may provide otherwise, i.e. may permit repudiation of
the contract in spite of the acceptance of the goods by the buyer.
Express and implied conditions and warranties. Conditions and warranties may be either express
or implied. They are said to the ‘express’ when the terms of the contract expressly, provide for
them. They are said to be ‘implied’ when the law deems their existence in the contract even without
their actually having been put in the contract. However, an implied condition or warranty may
be negative by an express term to the contrary. Sec.62 recognizes the following two principles:
(i) what is expressed makes what is implied to cease and (ii) custom and agreement overrule
law.
Express condition or warranty. These may be of any kind that the parties may choose to agree
upon, e.g., it may be agreed that delivery of goods shall be made or taken on or before a certain
date. Similarly, in a contract of sale of a car, express warranty as to its soundness may be
incorporated.

Implied conditions and warranties [Secs.14-17]. Implied conditions and warranties are
deemed to be incorporated by law in every contract of sale of goods unless the terms of the
contract show a contrary intention. The implied conditions: (i) condition as to title (Sec.14),

(ii) sale by description (Sec.15), (iii) condition as to quality or fitness for buyer’s purpose (Sec.16(1)),
(iv) condition as to merchantable quality [Sec.16(2)], (v) condition as to wholesomeness,
(vi) implied condition in the case of sale by sample (Sec.17), (vii) implied condition in the case of
sale by sample as well as description (Sec.15).

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