An insight on implied warranties

This article has been written by Sana Virani pursuing Diploma in International Contract Negotiation, Drafting and Enforcement and edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.

A warranty, loosely known as a written promise, serves as a formal commitment to the repair or replacement of the item in case it is not up to the quality standard and fails to function as intended. It is often provided upon the purchase of a product or before the initiation of a transaction to assure the buyer’s credibility for the long term. A warranty, as an undertaking, assures the buyer that the transaction will meet the specific requirements in terms of quality. A warranty is a contractual provision related to the quality, durability, state, performance, and attributes of a specific product. It is provided and becomes effective following a sales transaction. A warranty serves as additional information concerning the intended product or its state.

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A warranty under a contract is on the same lines, which serves as a promise to indemnify the inflicted party if the assertion is false. Representations and warranties are situated together in a contract, wherein representations are a set of statements that are deemed to be true and create a foundation between both parties. Now this foundation is protected by a warranty, which guarantees that the inflicted party will be paid damages if anything goes wrong with that very set of promises. The major reason why warranties are a big deal in a contract is because they bind both parties with the legal commitment of representing correct facts.

In Bekkevold v. Potts (1927), it was observed by the Supreme Court of Minnesota that “an implied warranty is not one of the contractual elements of an agreement. It is not one of the essential elements to be stated in the contract, nor does its application or effective existence rest or depend upon the affirmative intention of the parties. It is a child of the law. Because of the acts of the parties, it is imposed by the law. It arises independently and outside of the contract.”

However, a warranty under contract holds secondary importance for its fulfilment, and non-compliance by the seller only gives the right to claim damages from the buyer and not renounce the whole contract. It is a requisite collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not a right for the buyer to reject the goods and treat the contract as terminated. Warranties of various kinds are recognised under the law.

Warranties are broadly categorised into two types:

Express warranty

As the name suggests, this type of warranty is the one that’s explicitly mentioned and written about. Express warranty is mainstream, and people misunderstand this as the only type of warranty. 

Implied warranty 

A warranty, which doesn’t need to be expressly mentioned, arises automatically from a sale or its circumstances. Under the provisions of the law, implied conditions are automatically applied because they exist without needing to be written or mentioned. This type of warranty is best suitable in conditions where the buyer observes a fault in the goods and claims his rights to damage. An implied warranty, instead of being a part of the contract to which it attaches itself, is the law’s contribution to the welfare of the parties beyond the terms of the contract itself, as per Hoe vs. Sanbron (1860).

In the event of settling a contract of sale between the buyer and seller, express as well as implied warranties play a crucial role. 

Sections 14 and 16 of the Sale of Goods Act of 1930 explain implied warranties, which give them a crucial edge in a transaction. If the parties mutually agree to not impose implied warranties, they should expressly mention their removal. 

Let’s discuss both sections briefly and understand the implied warranty’s status under the Sales of Goods Act. 

Section 14 (a)

Section 14(a) discusses the implied condition on the seller to have the right to sell a good only if he is the true owner and holds the title of the goods or is the authorised agent of the title holder. It emphasises the ownership aspect, which is a crucial condition because if the seller does own the good himself, selling it to someone will be a breach of the whole transaction, even if it is not mentioned explicitly. In such a situation, the buyer should return the goods and claim his money back as soon as he learns about them. This warranty signifies that the seller possesses the legal authority to sell the goods, and the buyer will obtain clear ownership rights.

Section 14(b)

Section 14(b) of the Act mentions “an implied warranty that the buyer shall have and enjoy quiet possession of the goods,” which means a buyer is entitled to quiet possession of the goods purchased as an implied warranty, which means the buyer, after receiving the title of ownership from the true owner, should not be disturbed either by the seller or any other person claiming superior title to the goods. In such a case, the buyer is entitled to claim compensation and damages from the seller as a breach of implied warranty.

Section 14(a) talks about implied conditions, whereas Section 14 (b) describes implied warranties. A condition is of primary importance and leads to termination when breached, whereas an implied warranty is of secondary importance and entitles the buyer to claim damages when breached. However, implied condition and implied warranty are two sides of the same coin, and understanding both together is a necessity. It is safe to state that “a condition can be treated as a warranty on the wish of the buyer but a warranty cannot be treated as a condition.” 

Section 16 of the Sale of Goods Act of 1930 sheds light on the types of implied warranties. In sale transactions, implied warranties can be of various kinds. The following are some common examples of implied warranties:

Implied warranty of fitness

The fitness warranty ensures that a product is specifically guaranteed to serve a particular purpose, and it falls below the merchantability warranty in terms of significance. To illustrate, if you inform a salesperson that you require a saw for cutting metal and it ultimately fails to cut through metal, you have the option to return the item under the fitness warranty. Under this warranty, the product functions properly but does not align with the intended use as communicated by the buyer. The fitness warranty is inferred through a salesperson’s endorsement or assurance of a product’s suitability for a specific purpose. This warranty implies that the products being sold are appropriate for a particular purpose, provided the buyer communicates the intended use to the seller.

Implied warranty of merchantability

The implied warranty of merchantability ensures that products are fit for their intended purpose and meet the reasonable expectations of a typical buyer. This warranty applies to a wide range of consumer products, encompassing both new and used items. It presumes that a product functions as expected for its designated use. This warranty suggests that the products being sold are suitable for their typical use and adhere to a fundamental standard of quality.

Section 14 of the Sale of Goods Act provides certain rights to the merchant for the sale of goods. These are as  follows:

  • The merchant has the right to sell the goods in a contract of sale and in case of an agreement to sell, he has the right to sell the goods when they are ready to be passed on to the market.
  • The goods processed have an implied warranty assuring the buyer to enjoy them while in possession of that particular product.
  • It is the duty of the seller to free the goods from any kind of hindrance, mortgage, etc. that is in the third party’s favour and is not known to the buyer. 

Warranty against hidden defects

This warranty implies that the products sold are devoid of concealed flaws that would render them unsuitable for their intended function. The doctrine of implied warranty should be extended rather than restricted, as stated in Bekkevold vs. Potts (1927).

The following disputes are among the most common resulting from a breach of warranty or implied warranty:

  • Interpretation of the warranty: Disagreements often occur regarding the warranty’s interpretation, including its extent, the circumstances of its applicability, and the available solutions in the event of a violation.
  • Proof of damages/breach: The buyer must prove that the seller breached the warranty and suffered actual damages due to the breach of warranty, which can be challenging to quantify in some cases.
  • Limitation of damages: In certain instances, the sales contract might restrict the damages recoverable by the buyer in the event of a warranty breach, creating a potentially intricate matter.

Ways of repaying damages for breach of implied warranties

  • Repair or replacement: In the case where the quality of goods is not appropriate, the seller is under an obligation to either fix or replace the goods because of the implied warranty.
  • Refund: If the goods cannot be repaired or replaced, the buyer may have the right to receive a refund of the purchase price.
  • Damages: The buyer can claim damages due to the breach of implied warranty, which may encompass compensatory damages (e.g., expenses for repairing or replacing the goods) and consequential damages (e.g., lost profits or other indirect losses).

In Sha Thilokchand Poosaji vs. Crystal And Co., By Its Authorised …(1954), the CJI held that the right of a buyer to damages for breach of warranty proceeds upon the basis of acceptance of the goods delivered and not a rejection thereof. In other words, the right to reject goods and the right to sue for damages for breach of warranty are alternative remedies. They are not cumulative. A buyer can (where goods not answering the description contracted for are delivered) waive the condition, accept the goods, and sue for damages for breach of warranty, and this is the effect of Section 13(1) of the Sale of Goods Act.

In the case of Jacob  and Youngs, Inc. vs. Kent (1921), the plantiff (Jacob and Youngs) was the builder who built the defendant’s (Kent’s) house. The plaintiff made the house’s piping system using Cohoes Rolling Mill Company’s pipes in place of Reading Iron Company’s  pipes, which were agreed upon during the contract. This led to a breach of contract. The plaintiff was asked by the defendant to build the piping system again as per the contract but the plaintiff did not agree and filed a complaint against him for the compensation of the remaining payment that was to be given by the defendant on the completion of the contract. The Court first made its decision in favour of the defendant but later on, on an appeal, the judgement was overruled and the Court made the statement that the plaintiff need not replace the pipes and asked the defendant to pay the remaining amount to the plaintiff.

Some common types of warranties are:

  • Implied warranties,
  • Express warranties,
  • Extended warranties, and
  • Special warranty deeds.

Each type of warranty provides a different level of security to the buyer. Customers mostly purchase warranties and extended warranties based on the product. Special warranty deeds are mostly used in the real estate business.

Implied warranties play a crucial role in contracts as well as in daily commercial transactions relating to the sale of goods. The main aim is to ensure the quality, reliability, and performance of goods. It assures the buyer a sense of security with a legally binding commitment to repair/ replace or refund in case the product is not up to par. However, the buyer and seller need to be aware of their rights and obligations regarding implied warranties. Consumers should understand how implied warranties protect their interests, while businesses must be diligent in meeting these standards and, if necessary, disclaim them explicitly in their contracts.

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