Difference between Breach of Condition and Breach of Warranty under a Sale of Goods Contract

Introduction

There are certain stipulations which are essential for main purpose of the contract of sale of goods. Non fulfillment of these would result in loss of foundation of contract. These are termed as 'conditions'. The stipulations which aren’t necessary stipulation are termed as warranty. These warranties are collateral to contract of sale of goods. 

Whether a particular stipulation in a contact is a condition or a warranty depends on the interpretation of the terms of the contract. If certain terms are merely states under the head of ‘Conditions of Contract’ in an agreement, it does not mean that they automatically become such conditions as per the meaning under Section 12(2) of the Sale of Goods Act, 1930.

What term or stipulation in a contract becomes a condition ?

The Sale of Goods Act, 1930 defines the term condition in section 12(2). According to this definition a condition can be defined as a stipulation which is so vital to the contract that its complete and exact performance by one party is condition precedent to the obligation of the other party to perform his part.

Conditions in general refer to the promises and the duties that they generate under an agreement. Although conditions are usually events of significance, the case may not always be so as the parties may even make an insignificant even a condition, if they wish to do so. Any event can be a condition and whether a stipulation is a condition or not can be decided only after looking at the contract in the light of the surrounding circumstances and then deciding on the intention of the parties.

The leading textbooks on contract state that a term will be a condition if it satisfied one of the following four tests, namely

(a) if statute provides that it is a condition;

(b) if a binding authority requires a court to hold that it is a condition; if every breach, or 

(c) if the consequences of every breach, goes to the root of the contract; or,

(d) If the parties have agreed that it is to be treated as a condition.

The first three of these tests involve well established principles, but the fourth yet remains to be clearly established.

Express conditions can be described as those conditions which have been expressly stated in the terms of contract, if there is a failure of performance of such express conditions, it would allow one party to either repudiate the contract in whole or claim damages. Implied conditions on the other hand are those which have not been expressly stated, but the law presumes them to be such an inherent part of the contract that they need not be laid down in clear and written terms, but are to be understood by the parties.

Condition and Warranty

Conditions and warranties are two components of a sale of goods contract. These components lay out the rights, implications, and terms that apply to the parties to the contract. The article that follows offers a comprehensive explanation of each term and shows how these provisions are similar and different to one another.

Conditions are terms that need to be fulfilled in order for the contract to go through. These conditions can either be written or oral and will be legally binding in effect. In the event that the conditions set out in the agreement are not met, the party that suffers can terminate the contract, and will not be legally responsible to carry forward the sale. Meeting the set conditions is essential to the performance of the contract and, if any of the conditions that are laid out in the contract are breached (there maybe more than one condition), that is regarded as a breach of the entire contract. For example, the Company X agrees to sell 5000 calculators to Company Y. However, the contract of sale includes a condition that states that Company X will inspect the calculators to verify that they are of the quality standard that was promised earlier. In the event that the calculators are defective, Company X can cancel the contract of sale, and Comapny Y will not deliver any calculators to Company X. 

A warranty is a guarantee received by the buyer from the seller which tells that all the information provided about the product is true. This information could be about the product’s features, functions, uses, or any other claim made about the product in general. There are two types of warranties, the expressed warranty and implied warranty. An expressed warranty is when the seller or producer makes an explicit claim about the product, regarding its quality, functions, or features. For example, Company X may claim that the calculator should remain in good working condition up to a year from its date of manufacture. Whereas, an implicit claim is a claim that is not explicitly made by the seller, rather it is created by law. Certain statutes and rule make it compulsory to warrant that a product will be in good working condition for a reasonable amount of time and will be able to satisfy the purpose for which it was manufactured. In the event of breach of warranty the party which suffers the breach does not have the right to terminate the contract. Instead, they can claim for damages for any inconveniences that occurred.

Major Difference between Condition and Warranty

Warranties and conditions are essential components of a sale of goods contract as it ensure that both parties to the contract are fulfilling the claims or promises that were made in the contract. Conditions are an essential part to the contract, and in the event that conditions are not met, the party that suffers can terminate the entire sales contract. On the other hand, a warranty is not as essential a component as the conditions. It is a set of claims that the seller makes to the buyer about the products that are being sold. In the event that a warranty is breached, the buyer has the right to claim for damages, but does not possess the right to terminate the contract.

Conclusion

In the past, the distinction between conditions and warranties placed considerable emphasis on ab initio classification of the term which had been broken. Now emphasis is being given to a more flexible test which bases the right of termination of the contract, on the gravity of the breach and of its consequences. However, in the past the courts made the distinction between conditions and warranties without considering the actual results of the breach. It is still the case today, when the parties to the contract expressly indicated a term to be a warranty or where the statute classifies a term as a warranty. But if there is no express classification of the term in the contract or by a statute, the court has the power and discretion to class a term as a warranty after considering the result of the breach and based on tests.