EXPANDING THE AMBIT OF SECTION 16(2) ALONG WITH A COMPARATIVE ANALYSIS WITH THE ENGLISH LAW
Conditions and warranty have been described in Section 12 (2) of the Sale of Goods Act, 1930.
A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to the right to treat the contract as repudiated.
And A warranty is a stipulation collateral to the main purpose of 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.
The Sale of Goods Act broadly provides seven types of conditions, namely:
- Condition as to title
- Sale by sample
- Sale by description
- Sale by both sample as well as a description
- Condition as to the merchantable quality
- Condition as to wholesomeness
- Condition as to quality or fitness for purposes.
In some situations, conditions and warranties may be implied; Section 16 of the Sale of Goods Act, 1930 talks about these types of conditions and warranties, and their prerequisites. For example, Section 16 (1) says that if a buyer decides to rely on the seller’s judgement or skill and makes the seller aware of his intentions with the goods to be sold (expressly or by implication), and the goods being sold are in the course of the seller’s business to sell, then there is an implied condition in place that the goods shall be reasonably fit for such purpose as the buyer wants to buy it for. Along with the fitness of the good, there is another quality that the goods must possess- merchantability. What merchantability is, and why it is important is mentioned below.
The aim of this paper is to propose a better idea of who can be held responsible for ensuring ‘merchantability’ of the good, in the sense that even those sellers who sell products that do not come under their ‘course of business’ should be held responsible for their merchantability.
We believe that applying the principle of ‘Caveat Emptor’ in such situations should not be used as an excuse by the seller to get away with his liability. To make this position clearer, the paper relies on English law on the aspect of ‘merchantability’ and engages in a comparative analysis of the same.
Let us begin by analysing the Indian position with respect to the definition of ‘merchantable’. In Section 16(2), where goods are bought by description from a seller who deals in goods of that description whether or not he is the producer or manufacturer of said goods, there is an implied condition that the goods shall be of merchantable quality.
The meaning of merchantability’ is that the goods must be fit for the ordinary purpose for which such goods are used; in this regard, merchantability has two aspects, i.e. the goods are sold by description, and the seller deals with such goods.
Having said that, it should be made clear that implied merchantability applies only to situations where the seller sells that product which lies within the ‘course of his business’ and the ‘seller deals with such product’.
In the case of A.R. MuthukrishnaReddiar And Ors. v. MadhavjiDevichand And Co. Ltd., the Court held that under Section 16(2), there is an implied condition that the goods brought by description shall be of merchantable quality. Furthermore, the court held that;
under a contract to supply goods to a specified description, to which the buyer has no opportunity of inspecting, the goods must not only, in fact, answer the specific description, but must be saleable or merchantable under that description; but it applies only when the seller is selling the product which he deals with, whether he is the manufacturer/producer or not.
In Thornett v. Beers, the buyer wanted to purchase some glue. The glue was stored in the seller’s warehouse in barrels. The buyer was given every facility and opportunity to open the barrels and inspect them, but he did not open the barrels. The glue was later found to have defects which the buyer could have noticed if he had opened the barrels. The court held that there is no breach of implied condition as to merchantability in this case, and so the buyer was not entitled to any relief.
The law serves a function of preserving rights for buyers and sellers in a contract of sale and has laid down some conditions for the contract of sale, failing which the implied conditions and warranty have the same effect as a breach of an express contract. There is a difference between conditions and warranty, even when both terms are implying the promises made by the seller. In such implied conditions and warranty, the severity of consequences depends on the nature of promise made. Opening statement of Section 16 of Sale of Goods Act, 1930 says;
Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale
Implied conditions and warranty can be invoked only in exceptions given after the precondition of this section. This precondition is a restatement of the caveat emptor which means ‘buyer beware’. A similar precondition is present in the English Sale of Goods Act, and the main purpose of this precondition is to impose some liability on the buyer as well. Eastwood wrote on the duty of buyer “It was for the buyer to make himself acquainted with qualities and defects of the goods which he contemplated purchasing.”
Such precondition before a buyer who can invoke an implied condition or warranty is necessary for maintaining the principle of equity; however, in Section 16 of the Sale of Goods Act,1930 the exceptions to the rule of ‘Caveat Emptor’ have a narrow vision, unlike English law on implied conditions and warranty in the aspect of merchantable goods. Section 16 says:
“Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality.”
The requirement under this clause of Section 16 for this condition to be applicable is that goods must be purchased from a seller who deals with such goods whether he is the manufacturer/producer or not and goods must be sold by description. It is once this requirement is fulfilled that it becomes the responsibility of the seller to supply goods of “merchantable quality”.
Here the implied condition is that goods shall be of merchantable quality and it is important to look at the puzzling definition of merchantable quality, which has not been defined in Indian Sale of Goods Act.
“Merchantable means that the goods must be fit for the ordinary purpose for which such goods are used and “goods shall be marketable at their full value”.
For example, when shoes are sold, merchantability requires that the shoes have their heels attached well enough, that they will not break off under the normal use. It may be mentioned that so far as implied condition as the merchantable quality is concerned that is there according to the Indian provision “Where goods are bought by description from a seller who deals in goods of that description.”
An according to the English law such an implied condition is there, “where the seller sells goods in the course of a business or not. “The Supply of Goods(Implied Terms) Act, 1973 in English law, laid down an amendment “the sale must be “in the course of business.” but need no longer involve a seller “who deals in goods of that description” In English law as is apparent from the comparison from the language of the two provisions, is different from the Indian counterpart in two ways:
Firstly, in England, implied condition as merchantable quality can exist even if the sale is not by description, whereas in India it is operative only if the sale of goods is by description. The English position in this regard is more logical. Whether the sale is by description or not, the seller should supply goods of merchantable quality. It is unreasonable that if the sale is not by description the seller is allowed to supply goods which are not of merchantable quality, thus there is a need for change in Indian law with this regard.
Secondly, Indian law requires that the seller must be one who deals in the goods of the description as the goods sold. English law provides greater protection to the buyer, and such protection is in every transaction of sale irrespective of the fact that the seller is not the dealer in such goods. There is a need for a similar provision in India also. Thus, when A, a blacksmith sells to B his old car, no implied condition as to merchantability applies which is against the protection of the buyer.
In this case-law of Burnby v. Bollet, a farmer brought the carcass of a dead pig from a butcher for consumption and left it hanging up, intending to come back after doing other work and take it away. In his absence, another farmer on seeing the hanging carcass wished to buy it, and so he bought it from the first buyer. It turned out to be unsound and unfit for human consumption. English law at that time held no warranty of soundness is implied in such contract between the farmer who bought it first and sold it to another farmer. However, if the amendment which was done in 1973 in English law existed that time, the result would have been different even if the second farmer purchased it from another farmer who doesn’t deal with such goods. In a contract of sale of linseed, Willes J explained the above principle in the following words:
“the purchaser had a right to expect, not a perfect article, but an article which would be saleable in the market as Calcutta linseed. If the seller sells an article so adulterated as not reasonably to answer the description, he did not get what he bargained for. As if a man buys an article of gold, which everyone knows requires a certain amount of alloy, he cannot be said to get ‘gold’ if he gets an article so depreciated in quality as to consist of gold only to extent of one carat.”
The buyer has the right to get an article which can be used in ordinary usage and that it should have some value in the market for which he has paid, notwithstanding whether the seller deals with such products or the seller out of his ordinary course of business sells something, it should be expected of the latter to sell a product which should be saleable and can be used well.
Therefore, in conclusion, the paper deals with what a man of ordinary prudence that is the man with ordinary knowledge, judgement and skill means by merchantable quality. Merchantable quality can be bounded by three conditions, that goods are free from latent defects which is a very common point as we have seen in the cases mentioned above.
Another point is that the goods should be marketable at the full value that is a good is considered to be marketable at full value when it is in a working condition, for example, a watch which is delayed by five minutes every hour isn’t considered a good in the working condition and even if a man of ordinary prudence would buy it, won’t buy it at the full value. Therefore, the watch is not of merchantable quality.
The last point being that the good could be used for the purpose it is bought by a prudent man, for instance, let’s take the previous example watch if bought by a prudent man will be for seeing the time, and if it is delayed by five minutes every hour it cant serve that purpose, therefore it is still not of merchantable quality.