sale of goods act

Categorisation of “ The Sale of Goods Act 1979” into conditions or warranties

Jayakrishna.A.V

Introduction

During the nineteenth century there was a development in

commercial law through the common law and the process was achieved by

codification of certain defined area. Sir Mackenzie Chalmers drafted the following

acts Bills of Exchange Act 1882, The Sale of Goods Act 1893 and the Marine

Insurance Act 1906 and out of these The Sale of Goods act was amended

particularly by the Supply of Goods Act 1973 and then the law solidified the Act as

Sale of Goods Act 1979 which came into existence on 1st January 19801.The 1979

act has itself be modified, mainly by the Sale and Supply of Goods Act 1994 ,Sale of

Goods Act 1995 and Sale and Supply of Goods to Consumers Regulations 2002.

Sale of Goods Act 1979

Contract for the sales of goods is considered as one of the

distinguished contract in the present day.

Definition of sale contract as on Section 2(1) of the Act

“In a contract when a seller transfers or agrees to exchange the belongings in goods

to the buyer for a financial consideration called price”2

Alternate definition is given in Subsection (3) and (4) for two transaction as

(3) “In a contract of sale if the property in goods is transferred from a seller to

purchaser the contract is called as sale”

1 Sir Gordon Borrie ,Commercial Law ,Sixth Edition [1988],Butterworth’s & Co Publishers,Pg 50

2 L S Sealy & R J A Hooley, Text and Materials in Commercial Law,(1994),Butterworth’s & Co Publishers,Pg 211

International Logistics and Maritime Commerce 11 Nov 2010

(4) “Where under a contact of sale the transfer of property in the goods is to take

place at a future time or subjected to some conditions later to be fulfilled the contract

is called as an agreement to sell”3

Conditions & Warranties

Condition and warranties are the two important terms used in a contract

and Sale of Goods Act draws throughout distinction between the terms “condition”

and “warranty”.

The classifications of condition in English law are generally considered as

imperfect and unsatisfactory but if a condition in a contract is breached, the offended

party can repudiate and claim damages. A violated condition gives an automatic right

to reject. Any implied terms from legislation or statute are conditions.

A warranty is ancillary to main aim of contract and its meaning was

considerably widened in the law of contract but if a warranty is breached, the

wronged party can only sue for indemnity but no right to reject the goods and treat

the contract as repudiated.4

On analysing this, a term in a contract is classified into condition or warranty

which entirely depends on the construction of the contract. Sometimes a term can be

condition even if it is called as warranty in the contract

When condition to be treated as warranty

Subsection (2), (3) & (4) of section 11 of the act explains

when condition to be treated as warranty

2. When a sale contract is subjected to be fulfill by the vender the emptor may waive

the precondition, or may elect to consider the violation of the condition as a breach of

warranty and not as a reason for repudiating the contract.

3 P.S. Atiyah,Prof J N Adams & Hector Macqueen, Sale of Goods(2005),Pearson Longman Publication ,Pg 8

4 Sale of Goods Act Chapter 54 section 11(3)

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3. if a term 'condition' is stated in a contract sale , the break of which may give the

right to consider the contract as repudiated, or a warranty and the violation of which

may give right to claim for damages but not the right to refuse the cargo or goods

and treat the contract as terminated. This depends on the building of the contract on

each case and a precondition may be a stipulation, though called a warranty in the

contract of sale.

4. If the buyer has acknowledged the goods or part of them and if a contract of sale

is not dissociable the breach or violation of a condition to be fulfilled by the vendor

can only be considered as a breach of warranty and not the right for refusing the

goods and to repudiate the contract. This scenario is not valid if there is an unstated

term of the contract to that effect.5

For buyer to waive a condition he must make a representation to

the seller stating that he has no objection to goods as they are and the seller acts on

this representation.

Toepfer V Warinco AG [1978]. 6

The buyer's representatives failed to see that the freight was coarse-ground

meal instead of fine-ground meal.. Based on this omission, seller defended pleading

waiver. The failure of buyer’s supervisor to spot the discrepancy and resulted in the

failure of defence. The omission amounted to a failure to mitigate such that the

buyers were only entitled to a minimum damage.. An express finding of fact is not

necessary in an arbitration award, provided that the essential findings may be

"spelled out".7

5 ibid subsection (2),(3) & (4) of section (11)6 Toepfer V Warnico Lloyds’s rep 569 at pg 576..7http:// www.ilaw.prod.informaprofessional.com/ilaw/doc/view.htm?id=148529

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Before the amendment of Sale of Goods act 1979 in 1994 , If the

seller breach even a minor term in a condition in a contract of sale, the buyer will be

entitled not only to compensation but also to discard the goods and consider himself

as discharged from his contractual obligations. Three exceptions were created by the

1994 amendment.

1. The buyer is not dealing as a consumer

2. If the condition broken is related to description, quality or sample implied by

section 13,14 of the Sale of Goods Act.

3. The breach is so minor that it would be irrational for the buyer to reject the

goods.8

Categorisation of terms into condition and warranty

The issue of categorising terms into ‘condition’ and ‘warranty’

primarily concerned with the decision as to whether rescission is available. The Sale

of Goods Act 1893 categorised terms for who’s breach rescission is available as

“conditions” and where only damages are accessible as “warranties”, thus simplifying

disputes for wrongful repudiation. Since then, in accusations of wrongful repudiation,

the primary question has been whether the violated term was a condition or a

warranty. Boone v Eyre (1977)9 is considered as the legal background for this issue.

The separation of contractual terms into conditions and warranties in the

act were contended for by judges and textbook writers during its enactment .The

present common law has deviated from such a rigid division in relation to contracts

generally, and has re-assented that the majority of contractual stipulations are not

either conditions or warranties, but are in-between or intermediary stipulations and

the entire outcome depends on the nature of breach10

8 Dobson: Sale of Goods and Consumer Credit Fifth Edition (1996) Sweet & Maxwell publication Pg 102(7-04)9 Boone V Eyre (1977) 1HB 1 273n10 Michael Mark ,Chalmers Sale of Goods (1981) Butterworths & Co Publishers,Pg 111

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" Hong Kong Fir Shipping Co Limited v/s Kawasaki Kisen Kaisha Limited"

(1962). 11

This is a historical benchmark case in English contract law. It

resulted in introducing the idea of intermediate terms between "conditions" and

"warranties"

.Kawasaki made a 24 month charter contract with Hong Kong Fir's vessel.

A provision in the contract warranted that the vessel was fit in every manner for

regular freight service and that the owners would keep her in a thoroughly efficient

condition. Soon after the beginning of the voyage it was found that the vessel

requires many repairs. Hong Kong Fir thought they could fix the vessel in five weeks,

but more damage was found and so more repairs were needed totalling 15 weeks

before it was seaworthy. Once the vessel was repaired, it was still available for

chartering for a period of 17 months. In this series of events Kawasaki decided to

terminate the Charter.

During trial, it was established that Hong Kong Fir was in violation of the

contract in supplying a seagoing vessel, and also found that company was

unsuccessful in maintaining the vessel in a capable state. However the trial judge

stated that that the term “seaworthiness was not a condition, though neither could it

be merely a warranty and if the breach been sufficiently serious, the charterers

would have been unable to use the ship for the contract’s intended purpose .Thus

the violation of condition was not substantial enough to repudiate the contract. On

Appeal, this was found to be correct. This resulted in introduction of third category of

term called “intermediate” or “innominate” terms, where the right to repudiate was

dependent on the seriousness or extend of the breach.12

11 [1962] 2 QB 2612 http://netk.net.au/Contract/Hong.asp

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http://netk.net.au/Contract/Hong.asp


Innominate terms, though necessary, are not without their disadvantages.

The two main difficulties are the trouble in identifying whether the term is innominate,

and knowing how serious the consequences of the breach must be to allow

repudiation.

Cehave N.V. v Bremer Handelgesellschaft M.B.H 13

This case involved sale contracts to trade citrus pulp pellets on GAFTA

terms. Bremer sold 3,313 tons of citrus pellets to Cehave for 100,000 pounds.

Clause in the contract said that the shipment was to be in perfect condition. The

buyers were to use the product to manufacture cattle food. On arrival in Rotterdam ,

there was major impairment to 1260 metric tons and minor damage to a further

2053 tons. The buyers disapproved the cargo and claimed the return of the price

which had already been paid. People holding pellets sold for 30,000 pounds and

they sold them to Cehave for same amount. 14

Appeal court in this instance mentioned that a section 11 in Sale of

Goods Act does not require an inflexible division of the footing in a contract into

condition and warranties. The term that goods to be shipped in goodness status was

held not be a condition or warranty and the House of Lords in this case applied the

newly introduced innominate clause. In such cases the tribunal could hold deciding

whether a case is a breach of condition or warranty until the degree of the damage is

known.15

13[1975] QB 44, ALL ER 739,CA14 http://www.usyd.edu.au/lec/subjects/commercial/topic_notes/md02_commercial.PDF15 Michael Furmstone, Sale of Goods Corner publication LTD (1990) Pg 2

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http://www.usyd.edu.au/lec/subjects/commercial/topic_notes/md02_commercial.PDF


In the conventional categorization of terms, condition generates the right to

take out, ‘the relative gravity of the real after effects of the violation is rendered an

irrelevant consideration'.16 The adaptability given by the present approach is that the

judges can come to a decision whether the breach was repudiatory or not by having

concern to the consequences of the violation rather than the character of the term

broken'.17

Bunge Corporation v Tradax Export SA (1981 ).18

In this case the ruling went the other way. A contract was signed

by the buyer and seller to trade fifteen kilo tonne of Soya bean meal from the sellers.

Three shipments of five kilo tonne were ordered to be done from a seaport in the

Gulf of Mexico to be listed by the vendor. The parties fixed that one shipment would

be completed in June 1975 and the buyers would supply a vessel in the scheduled

port. The contract between buyer and seller assured that the buyers were to give a

minimum of fifteen successive day’s notice of their probable willingness to load the�

ship. For the goods to be transported in June, the intimation should be given by 13 th

of June. The buyer failed to provide the notice until 17 th of June and the sellers

claimed that the delayed notice was a violation of contract amounting to a

cancellation of the contract. They claimed compensation from the buyers on the

basis of depreciation of Soya bean price in the market to the minimum at that time.

The buyers argued in the court that the term in the notice

should be treated as an innominate term and the effect of the violation was not

sufficiently severe for the sellers to treat the contract as terminated. The appeal court

in this case stated that the term in the condition was not an innominate term.19

When a party is in a breach of a term in a contract for the sale of goods he/she is in

a position as follows

16 Roger Brownsword an article on A New Look at the Right to Withdraw for Breach of Contract, 1992 Pg 5717 Ewan McKenDrick, Contract Law Text, Cases and Materials (2nd Edition), Oxford University Press, 2005 Pg 95918 SA [1981] 1 WLR 71119 www.i-law.com/ilaw/doc/view.htm?id=148547

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(1) In the circumstances of violation of terms in the contract the other party has

unrestricted right to cease the contract or in the case of buyer, rejection of

goods.

(2) Even if there is no express provision to that effect ,the other party may still to

be so entitled upon the proper construction of the contract

(3) If the party is so entitled because of the term “condition” in the contract ,the

term entirely depends on whether the word is used as a code for “shall be

entitled to repudiate the contract or reject the goods”

(4) In all those section in Sale of Goods Act the term “condition” is a code word in

which breach of this term results in repudiation or rejection of goods by the

buyer, subjected to other relevant provisions of the act

(5) Breach of some specific terms in gives rise of itself to a right in the other party

to repudiate the contract.

(6) In some cases the consequences of the breach are assumed to go to core of

the contract and to justify repudiation20

Under the sub section (4) of section (11) of the act, if the buyer has lost the

right to reject or claim for compensation he still can go to court for breach of

condition not for breach of warranty and will not be banned by the clause in

the contract which provide against actions for breach of warranty.

Here at this instance i.e. at the time when the buyer has to decide how to treat

the breach of condition, the contract should not be severable and if this is the

scenario then it is irrelevant that it could have been severed at an early time

J.Rosenthal & Sons ,Ltd V Esmail 1965 21

A c.i.f (cost, insurance, freight) contract was made between

the two parties stating “that each shipment to be considered as separate contract”,

the seller had a choice to send the goods in different shipments or to send all in one

shipment. The shipper bisected the goods into consignments under two separate

shipping documents, although employing the same ship for the same voyage. Buyer

accepted one lot and rejected the other for breach of condition and claimed that the

20 Chalmers Sale of Goods act 18th edition Butterworths publication1981 pg 11021 [1965] 1 W.L.R.1117;109 S.J.553

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contract was severable. The House of Lords came to a conclusion that the contract

was not severable because the seller has opted for a single shipment, albeit with

separate documents and hence the buyers having accepted one part of the goods

could not reject the rest.22

Conclusion

Between 1893 and 1969 it was widely believed that all terms in

contract can be categorised either into condition or warranty but It is not possible to

precisely classify, all contractual terms into condition and warranties. The

construction and addition of innominate clause into the act changed the entire

perception of the act, but still it would not be functional to classify all contractual

undertakings into intermediate or innominate terms. This is because of the difficulty

in predictability of the innominate terms. Flexibility of innominate term is needed for

fairness in some situations because we all are humans and it is not possible to

predict every probable breach of a given term.

Word count:2468

References

Books

22 Dobson: Sale of Goods and Consumer Credit Fifth Edition (1996) Sweet & Maxwell publication pg 185(11-08)

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Chalmers Sale of Goods act 18th edition Butterworths publication1981

pg 108 to 116

Dobson: Sale of Goods and Consumer Credit Fifth Edition (1996)

Sweet & Maxwell publication Pg 102(7-04),pg 185(11-08)

Ewan McKenDrick, Contract Law Text, Cases and Materials

(2nd Edition), Oxford University Press, 2005 Pg 959

E.R.Hardy Ivamy,Casebook on Sale Of Goods,Fifth Edition[1987]

Lloyd’s of London Press LTD

Michael Mark ,Chalmers Sale of Goods (1981) Butterworths & Co

Publishers,Pg 111

Michael Furmstone, Sale of Goods Corner publication LTD (1990) Pg 2

P.S. Atiyah,Prof J N Adams & Hector Macqueen, Sale of

Goods(2005),Pearson Longman Publication Pg7 to 10

L S Sealy & R J A Hooley, Text and Materials in Commercial Law,

(1994),Butterworth’s & Co Publishers,Pg 211

Sir Gordon Borrie ,Commercial Law ,Sixth Edition

[1988],Butterworth’s & Co Publishers,Pg 50

Articles

10


Roger Brownsword an article on A New Look at the Right to Withdraw

for Breach of Contract, 1992 Pg 57

Sale Of Goods Act Ch 54

Web sites

Bunge Corporation v Tradax Export SA (1981).

www.i-law.com/ilaw/doc/view.htm?id=148547

(Accessed on 01/11/2010)

Cehave N.V. v Bremer Handelgesellschaft M.B.H

http://www.usyd.edu.au/lec/subjects/commercial/topic_notes/

md02_commercial.PDF(Accessed on 01/11/2010)

Hong Kong Fir Shipping Co Limited v/s Kawasaki Kisen Kaisha

Limited" (1962).

http://netk.net.au/Contract/Hong.asp (accessed on 28/11/2010)

Toepfer V Warinco AG [1978].

http://www.ilaw.prod.informaprofessional.com/ilaw/doc/view.htm?id=148529(Accessed on 29/11/2010)

11

http://www.ilaw.prod.informaprofessional.com/ilaw/doc/view.htm?id=148529(Accessed

http://www.ilaw.prod.informaprofessional.com/ilaw/doc/view.htm?id=148529(Accessed

http://netk.net.au/Contract/Hong.asp

http://www.usyd.edu.au/lec/subjects/commercial/topic_notes/md02_commercial.PDF(Accessed

http://www.usyd.edu.au/lec/subjects/commercial/topic_notes/md02_commercial.PDF(Accessed

http://www.i-law.com/ilaw/doc/view.htm?id=148547

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