Implied Conditions and Warranties

Sections 14 to 17 imply into every contract of sale conditions as to title, description, fitness for purpose, merchantable quality and correspondence with sample, and warranties as to quiet possession and freedom from encumbrances.

Sections 14 to 17 supply the terms the parties would reasonably be taken to have intended but did not express. They are the statutory counterweight to caveat emptor and the principal source of buyer protection under the Act. All of them may be negatived or varied under S.62 by express agreement, course of dealing, or usage.

Legal Framework

Provision	Term	Character
S.14(a)	Seller has a right to sell at the time property is to pass	Condition
S.14(b)	Buyer shall enjoy quiet possession	Warranty
S.14(c)	Goods are free from any charge or encumbrance not declared or known to the buyer	Warranty
S.15	In a sale by description, goods correspond with the description	Condition
S.15	In a sale by description and sample, bulk corresponds with both	Condition
S.16(1)	Fitness for the buyer's particular purpose where made known and reliance placed on the seller's skill	Condition
S.16(2)	Merchantable quality where bought by description from a seller dealing in such goods	Condition
S.16(3)	Fitness or quality implied by usage of trade	Condition
S.17	In a sale by sample: bulk corresponds with sample, reasonable opportunity to compare, goods free from latent defects rendering them unmerchantable	Condition
S.62	Implied terms may be excluded or varied	Applies to all of the above

Implied Terms as to Title (S.14)

Right to Sell: A Condition (S.14(a))

There is an implied condition that in the case of a sale the seller has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass.

**Rowland v Divall (1923)** Court of Appeal

Facts: The buyer purchased a car, used it for four months, and then discovered it had been stolen before the sale. He had to return it to the true owner and sued the seller for the full price.

Issue: Could the buyer recover the entire price despite having had the use of the car for four months?

Held: Yes. The seller had no right to sell, so there was a breach of the condition in S.14(a). The buyer had received no part of what he contracted for, namely ownership. There was a total failure of consideration and the whole price was recoverable, with no deduction for use.

Relevance: The leading authority on breach of the title condition. Establishes that use of the goods does not reduce recovery, because the buyer never got ownership at all.

**Niblett v Confectioners' Materials Co (1921)** Court of Appeal

Facts: Condensed milk was sold in tins bearing a label that infringed a third party's trade mark. Customs detained the goods, and the buyer could only sell them after removing the labels at a loss.

Held: There was a breach of the condition as to the right to sell. A seller who cannot sell without exposing the buyer to an injunction from a third party does not have a right to sell within S.14(a). There was also a breach of the merchantability condition.

Relevance: Extends the title condition beyond ownership to the seller's legal ability to pass the goods without third party interference.

Quiet Possession and Freedom from Encumbrances: Warranties (S.14(b), S.14(c))

These are warranties, so breach sounds in damages only. They protect the buyer against disturbance after property has validly passed, as where an undisclosed hypothecation surfaces or a third party asserts a lien.

Sale by Description (S.15)

Where goods are sold by description, there is an implied condition that the goods shall correspond with the description.

When is a sale by description: Where the buyer has not seen the goods and relies on the description, and also where the buyer has seen the goods but relies on a description rather than on his own inspection, as with goods sold as "new" or by a stated grade or brand.

Strictness of the requirement: Correspondence must be exact in respect of the descriptive words that identify what is being bought. A commercially trivial deviation may still be a breach if the words formed part of the description.

Fitness for Purpose (S.16(1))

There is no implied condition as to quality or fitness for any particular purpose, except where:

Requirement	Explanation
The buyer makes known the particular purpose	Expressly, or by implication from the circumstances
The buyer relies on the seller's skill or judgement	Reliance must be reasonable in the circumstances
The goods are of a description which it is in the course of the seller's business to supply	The seller must be a dealer in such goods
Not a sale under a patent or trade name	Where the buyer specifies goods by patent or trade name, no such condition arises

**Priest v Last (1903)** Court of Appeal

Facts: A buyer asked a chemist for a hot water bottle. The chemist supplied one which burst after a few days' normal use, scalding the buyer's wife.

Issue: Was the particular purpose made known where the article has only one obvious use?

Held: Yes. By asking for a hot water bottle the buyer sufficiently made known the purpose, since the article has a single evident use. He relied on the seller's judgement, and the bottle was unfit. Breach of the fitness condition was established.

Relevance: Establishes that where goods have one obvious purpose, naming the article discloses the purpose. Cite for implied disclosure of purpose.

Why the patent or trade name proviso exists: If a buyer insists on a specific branded article, he is exercising his own judgement rather than relying on the seller's. The seller becomes a mere conduit for the buyer's choice. The proviso does not apply where the buyer merely mentions a brand while still relying on the seller's advice about suitability.

Merchantable Quality (S.16(2))

Where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that the goods shall be of merchantable quality.

Meaning of merchantable quality: The goods must be of such quality and in such condition that a reasonable person, acting reasonably, would accept them under the circumstances of the case, in performance of his offer to buy them, whether he buys for his own use or to sell again.

**Grant v Australian Knitting Mills Ltd (1936)** Privy Council

Facts: The buyer purchased woollen underwear from a retailer. It contained an excess of sulphite chemical left in during manufacture, causing severe dermatitis.

Held: There was a breach of both the fitness for purpose condition and the merchantable quality condition. The purpose of underwear being obvious, disclosure was implied, and the presence of a hidden irritant made the goods unmerchantable.

Relevance: The standard illustration of the overlap between S.16(1) and S.16(2), and of latent defects defeating merchantability.

Proviso on examination: If the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed. Latent defects remain covered.

Sale by Sample (S.17)

In a contract for sale by sample there are three implied conditions:

Condition	Content
Correspondence	The bulk shall correspond with the sample in quality
Opportunity to compare	The buyer shall have a reasonable opportunity of comparing the bulk with the sample
Freedom from latent defects	The goods shall be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample

Why latent defects survive a sample sale: The function of a sample is to communicate qualities that can be seen or tested. A defect that no reasonable examination of the sample would reveal has not been communicated at all, so the buyer cannot be taken to have accepted it. Confining the protection to apparent qualities would make the sample a trap.

Illustrations

Breach of the title condition, full price recoverable: A buys a car, uses it for four months, and then learns it was stolen. Applying Rowland v Divall (1923), A recovers the entire price without deduction for use, because he never received ownership.
Right to sell defeated by third party rights: A sells tins of milk with labels infringing another trader's mark, so the goods can be detained. Applying Niblett v Confectioners' Materials Co (1921), there is a breach of S.14(a), since the seller could not sell without exposing the buyer to third party interference.
Encumbrance gives damages only: A buys a machine which is subject to an undisclosed bank charge later cleared by the seller. Freedom from encumbrances is a warranty under S.14(c), so A recovers damages for the disturbance but cannot reject.
Sale by description: A orders "2024 model" machinery and receives a 2022 model in equally good working order. The words formed part of the description, so there is a breach of the S.15 condition and A may reject.
Purpose implied from the article: A asks a chemist for a hot water bottle, which bursts in normal use. Applying Priest v Last (1903), the single obvious use of the article discloses the purpose, and the fitness condition in S.16(1) is broken.
Latent defect defeats merchantability: A buys woollen garments from a retailer which contain a hidden chemical irritant. Applying Grant v Australian Knitting Mills (1936), both S.16(1) and S.16(2) are breached.
Patent or trade name proviso: A insists on a specific branded pump by name, refusing the dealer's advice that a different model suits his borewell. The pump proves unsuitable. No condition of fitness arises under S.16(1), because A relied on his own judgement.
Examination proviso: A inspects timber and buys it. Warping visible on inspection is not covered, since examination ought to have revealed it. An internal fungal infestation not detectable on reasonable inspection remains covered.
Sale by sample with latent defect: A buys cloth matching an approved sample. The bulk matches in appearance but has a weakness in the weave undetectable in the small sample, which causes tearing. Under S.17 the latent defect condition is breached.

Recall Check

Why could the buyer in Rowland v Divall recover the whole price despite four months' use?
Why does no condition of fitness arise where goods are bought under a patent or trade name?
What is the effect of the buyer having examined the goods on the merchantable quality condition?

Key Cases

Rowland v Divall (1923) Rowland v Divall 1923
Issue: Whether a buyer who used a stolen car for four months could recover the full price.
Rule: Breach of the S.14(a) condition as to right to sell is a total failure of consideration.
Held: The whole price was recoverable, with no allowance for use, since the buyer never obtained ownership.

Niblett v Confectioners' Materials Co (1921) Niblett v Confectioners Materials 1921
Issue: Whether a seller whose goods infringed a third party's trade mark had a right to sell.
Rule: A seller does not have a right to sell where the buyer would be exposed to restraint by a third party.
Held: Breach of S.14(a) and of the merchantability condition established.

Priest v Last (1903) Priest v Last 1903
Issue: Whether asking for an article with one obvious use discloses the particular purpose.
Rule: Where goods have a single evident use, naming the article makes the purpose known.
Held: The fitness for purpose condition was breached when the hot water bottle burst.

Grant v Australian Knitting Mills Ltd (1936) Grant v Australian Knitting Mills 1936
Issue: Liability for a latent chemical irritant in garments sold by a retailer.
Rule: Latent defects breach both the fitness and merchantability conditions.
Held: Both S.16(1) and S.16(2) were breached and the buyer recovered.

Distinctions

Basis	S.16(1) Fitness for Purpose	S.16(2) Merchantable Quality
Disclosure of purpose	Required, expressly or by implication	Not required
Reliance on the seller	Required	Not required
Standard	Fit for the buyer's stated purpose	Acceptable to a reasonable buyer generally
Excluded where	Sale under a patent or trade name	Buyer examined and the defect was apparent
Typical use	Goods bought for a special or unusual application	Goods bought for ordinary use

Basis	S.14(a) Right to Sell	S.14(b) and (c) Quiet Possession and Encumbrances
Character	Condition	Warranty
Remedy	Repudiate and recover the price	Damages
Interest protected	The buyer's acquisition of ownership	The buyer's undisturbed enjoyment after acquiring ownership
Effect of use by the buyer	No deduction (Rowland v Divall)	Damages measured by actual disturbance

Basis	S.15 Sale by Description	S.17 Sale by Sample
Basis of the buyer's expectation	Words used	The physical sample
Implied requirement	Goods correspond with the description	Bulk corresponds with sample, opportunity to compare, freedom from latent defects
Where both apply	Bulk must correspond with both description and sample

Flashcards

Which implied terms under S.14 are conditions and which are warranties?

The right to sell (S.14(a)) is a condition. Quiet possession (S.14(b)) and freedom from encumbrances (S.14(c)) are warranties.

Why was the full price recoverable in Rowland v Divall?

Because breach of the condition as to right to sell meant the buyer received no part of what he contracted for, namely ownership, so there was a total failure of consideration.

What must a buyer establish to rely on S.16(1)?

That he made the particular purpose known, that he relied on the seller's skill or judgement, and that the goods are of a description the seller deals in.

When does the fitness condition not apply?

Where the goods are bought under a patent or trade name, because the buyer relies on his own judgement rather than the seller's.

Define merchantable quality.

Goods of such quality and in such condition that a reasonable person acting reasonably would accept them in performance of his offer to buy, whether for his own use or for resale.

What is the effect of the buyer examining the goods?

There is no implied condition as to defects which the examination ought to have revealed. Latent defects remain covered.

Name the three implied conditions in a sale by sample.

Bulk corresponds with sample in quality, the buyer has a reasonable opportunity to compare, and the goods are free from latent defects rendering them unmerchantable.

Can implied conditions and warranties be excluded?

Yes, under S.62, by express agreement, course of dealing or usage, but exclusion clauses are construed strictly and a clause excluding warranties does not exclude conditions.

Exam Scenario

Problem: Sneha buys from a machinery dealer a second hand generator described in the invoice as a "2023 model, 100 kVA, fully overhauled." She tells the dealer she needs it to run a cold storage unit continuously through the night and asks him to confirm suitability, which he does. She also buys a consignment of insulation panels matching an approved sample. Three problems emerge. The generator is in fact a 2019 model. It shuts down after four hours of continuous running, making it useless for overnight operation, though it works well for short periods. The insulation panels match the sample in appearance but contain a manufacturing flaw, invisible in the small sample, which causes them to crumble under load. In addition a finance company serves notice claiming the generator is hypothecated to it, a charge the dealer clears within ten days. Advise Sneha.

Step 1: Sort the four complaints by the term each engages

Three are breaches of condition and one is a breach of warranty. Getting the sorting right decides who may reject what.

Complaint	Provision	Character	Remedy
Invoice says "2023 model", machine is a 2019 model	S.15 correspondence with description	Condition	Rejection
Shuts down after four hours, useless overnight	S.16(1) fitness for a disclosed purpose	Condition	Rejection
Panels match the sample but crumble under load	S.17 third condition, latent defect	Condition	Rejection
Finance company's hypothecation, cleared in ten days	S.14(c) freedom from encumbrances	Warranty	Damages only

Step 2: The model year, S.15 correspondence with description

"2023 model" formed part of the description on which Sneha contracted, so correspondence with description is an implied condition under S.15.

Supplying a 2019 model breaches it. That the machine may be otherwise sound is irrelevant, because the descriptive words identify what was bought. Sneha may reject on this ground alone.

Step 3: The four hour shutdown, S.16(1) fitness

All three requirements of S.16(1) are satisfied. Sneha expressly made known her particular purpose, continuous overnight running for a cold storage unit. She expressly relied on the dealer's confirmation of suitability. The dealer deals in such goods.

The generator's inability to run continuously breaches the fitness condition even though it performs adequately for short periods, because fitness is measured against the disclosed purpose.

The patent or trade name proviso does not assist the dealer, since Sneha did not specify a branded model and did rely on his judgement.

Step 4: The panels, the third condition in S.17

S.17 imposes three conditions on a sale by sample. Work through them.

Bulk to correspond with the sample in quality. Satisfied in appearance.
Reasonable opportunity of comparing bulk with sample. Not in issue here.
Freedom from any defect rendering the goods unmerchantable, not apparent on reasonable examination of the sample. Breached. The manufacturing flaw was invisible in the small sample and makes the panels unfit to bear load.

Sneha may reject the consignment.

Step 5: The hypothecation, damages only

Freedom from encumbrances is a warranty under S.14(c), not a condition, so Sneha cannot reject on that ground.

The dealer cleared the charge within ten days, so damages are limited to the loss actually caused in that period.

Two traps in this problem

Matching the sample is not enough. The panels satisfy the first condition in S.17 and still fail on the third, precisely because the defect could not be seen in the sample. Answers that stop at appearance miss the breach.

The encumbrance is a warranty, not a condition. S.14(c) never supports rejection. Adding it to the rejection grounds is the standard error, and the ten day clearance confines the claim further.

Conclusion. Sneha may reject both the generator and the panels and recover the price, subject to her not having accepted them, and recover damages for the encumbrance disturbance.