This article is written by Parul Chaturvedi from Dr R.M.L Law College, Bangalore and Mahesh P Sudhakaran. In this author talks about Section 59 the remedies available for breach of warranty under the Sales of Goods Act, 1930 and key aspects pertaining to legality of breach of warranty in India and the jurisprudence behind the same.

This article has been published by Sneha Mahawar.

Introduction

In 1930, the Indian Contract Act of 1872 governed transactions involving the sale and purchase of goods. The Indian Contract Act of 1872 repealed the provisions of Sections 76 to Sections 123 and passed the Indian Sale of Goods Act 1930. A new act has been passed, the parties consider a contract as an agreement and provide legally applicable and binding obligations. The contract law governs their respective agreements in various countries. In the event of a breach of such contracts, remedies are available to the contracting parties, liquidated and unliquidated. The current analysis concerns damages to buyers under Indian law and the buyer’s remedies to the Seller in the case of breach of warranty, as mentioned in the Sale of Goods Act, 1930.

Warranty law ultimately aims to strike a balance between the interests of consumers and sellers. From a jurisprudential standpoint, the concept of warranty serves the following purposes: 

• Consumer protection
• Risk allocation 
• Redressal in case of breach
• Promoting fair trade 
• Imposing certainty in contracts 

The development of warranty as a legal concept can be traced back to its presence in English common law. The legal framework with regard to warranty can be found in land-based transactions and feudal systems in Medieval England. Feudal lords were known to grant lands based on certain conditions, and in return, the landlords ensured warranty in terms of possession of the land and certain other rights. In a scenario wherein a vassal’s rights were infringed upon, the lord would be obligated to provide redress. With time, the concept of a warranty underwent development and expanded. This included the sale of goods as well, and this growth can be attributed to mercantile practices and the development of trade and commerce.

The Indian jurisprudence of this concept is influenced by both ancient practices and colonial rule in India. Back in ancient India, legal systems such as Dharma Shastra and Manusmriti accommodated the concept of warranties in the context of sales and other commercial transactions. These texts laid down certain principles and guidelines to ensure fair trade and justice. 

Overview of warranty related laws in India 

The purchase or sale of goods and services ipso facto forms a contract. These types of contracts were earlier part of the Indian Contract Act, 1872. Now, they fall under the ambit of the Sale of Goods Act, 1930. Despite being under the purview of a different Act, these types of contracts are, by principle, still governed by the rules laid down in the Indian Contract Act. When the purchase or sale of a good or service is carried out, both the buyer and the seller agree to abide by certain terms and obligations. These terms and obligations form the very basis of the agreement and can be of two types:

• Conditions: A condition is the basis or foundation of the whole contract and is a paramount part of performing the contract. The breach of the conditions entitles the aggrieved party to treat the contract as repudiated.
• Warranty: A warranty is an additional stipulation or a written guarantee that is collateral to the main purpose of the contract and provides the consumer with a certain degree of assurance with regard to certain aspects of the product or service.

Warranty laws in India play a significant role in protecting the rights of consumers and regulating the sale of goods. These laws provide legal recourse for buyers in cases of breach of warranty by sellers or manufacturers. Understanding the legal framework surrounding warranties is essential for both consumers and businesses involved in commercial transactions. In India, the primary legislation governing warranties is the Sale of Goods Act, 1930. This Act outlines the rights and obligations of buyers and sellers in the sale of goods, including provisions related to warranties. Additionally, the Indian Contract Act, 1872, which is the overarching legislation governing contracts, also contains provisions relevant to warranties.

Moreover, the recent enactment of the Consumer Protection Act, 2019, has further strengthened the legal framework for consumer protection in India. Although this Act is not specific to warranties, it introduces provisions that are relevant to the rights and remedies available to consumers in cases of breach of warranty. Collectively, warranty laws in India fall under the purview of the following acts:

1. Indian Contract Act, 1872
2. Sale of Goods Act, 1930
3. Consumer protection Act, 2019

Indian Contract Act, 1872

The Indian Contract Act establishes the framework for contractual obligations and ensures that parties comply with the terms and conditions they mutually agree upon. A warranty, as an additional stipulation, provides assurance to one party regarding a crucial aspect of the contract. It is important to note that a breach of warranty can lead to a breach of the entire contract. While the Indian Contract Act may not specifically address breach of warranty, the fundamental principles within the Act govern the unlawful breach of any contractual obligation, including warranties. When a party fails to fulfil a warranty, they are essentially violating the terms agreed upon in the contract, thus breaching their contractual obligation.

Several provisions of contract law are infringed when a breach of warranty occurs. Firstly, there is a violation of the principle of “consensus ad idem,” or mutual agreement, as the breaching party deviates from the agreed-upon terms. Secondly, the principle of “privity of contract” is affected, as the non-compliance with the warranty directly impacts the rights and expectations of the other party involved. Additionally, the principle of “remedies for breach of contract” comes into play. When a breach of warranty occurs, the non-breaching party has the right to seek appropriate remedies, such as damages or specific performance, as provided by the Indian Contract Act. These remedies aim to compensate for any losses suffered due to the breach and restore the injured party to the position they would have been in had the breach not occurred. Although the Indian Contract Act may not explicitly address breach of warranty, the underlying principles within the Act, in essence, govern and restrict individuals from unlawfully breaching their contractual obligations.

Sale of Goods Act, 1930

Under the Sale of Goods Act, breach of warranty refers to a situation where the seller fails to fulfil the obligations and assurances provided regarding the quality, performance, or condition of the goods sold. Warranties are additional stipulations that complement the essential terms of the contract.

Types of Warranties:

The Sale of Goods Act recognizes two primary types of warranties:

a) Express Warranty: An express warranty refers to any specific promise, affirmation, or representation made by the seller concerning the goods. These warranties can be conveyed orally or in writing and play a significant role in influencing the buyer’s decision to enter into the contract.

b) Implied Warranty: Implied warranties, also known as statutory warranties, are inherent in every contract for the sale of goods unless explicitly excluded or modified by the parties. These warranties are based on the nature of the transaction and the expectations of the parties involved. The two common types of implied warranties are:

i. Warranty of Merchantability: This warranty guarantees that the goods are reasonably fit for the ordinary purposes for which they are intended to be used. It implies that the goods are of acceptable quality, free from defects, and suitable for their ordinary purpose. Section 16 of the Sale of Goods Act provides for this warranty.

ii. Warranty of Fitness for a Particular Purpose: When the seller has reason to know the buyer’s specific purpose for purchasing the goods and the buyer relies on the seller’s expertise or judgement, an implied warranty of fitness for that particular purpose arises. The goods must be fit for the specific purpose communicated by the buyer. Section 16(1) of the Sale of Goods Act addresses this warranty.

Breach of Warranty:

A breach of warranty occurs when the seller fails to fulfil the obligations or assurances provided regarding the goods. It is important to distinguish between a breach of warranty and a breach of condition, as the legal consequences differ. In case of a breach of warranty, the buyer’s rights are not as extensive as in a breach of condition.

Legal Consequences:

Section 59

When a breach of warranty occurs, the buyer has access to certain remedies available under the ambit of Section 59 of the Sale of Goods Act, such as:

• No right to automatically reject the goods: A breach of warranty alone does not entitle the buyer to automatically reject the goods. Unlike a breach of condition, which is a more serious violation, the buyer cannot outright refuse acceptance of the goods.
• Diminution of price or extinction of the price: The buyer has the right to enforce a breach of warranty claim as a defence against a seller’s claim for the full price of the good. By doing so, the buyer can state that the breach has diminished the value or quality of the goods purchased, thus procuring a reduction or elimination of the price.
• Lawsuit for damages: In addition to securing a price reduction, the buyer also has the option to file a lawsuit against the seller to claim damages resulting from the breach of warranty. These damages can include various losses, such as repair costs, loss of value, or any other harm suffered as a direct consequence of the breach.

It is key to note that if the buyer chooses to set up the breach of warranty claim as a defence to diminish the price, this does not prevent them from additionally pursuing further legal action if they incur additional damages beyond the reduced price.

In summary, the legality of breach of contract involves specific remedies for buyers when a breach of warranty occurs. By understanding their rights, buyers can make informed decisions about whether to seek a reduction in price or pursue legal action to recover damages caused by the breach of warranty.

Consumer Protection Act, 2019 

The Consumer Protection Act 2019 (“COPA”), enacted by the Government of India, marks a key milestone with regard to safeguarding the interests of consumers across the nation. The Consumer Protection Act of 2019 replaces the previous Consumer Protection Act of 1986, with a view to modernise and strengthen consumer rights in the face of emerging challenges in the marketplace. The Act, in its very essence, incorporates the principle of consumers being the backbone of a thriving economy and aims to support them by establishing robust mechanisms for consumer protection. The Act recognizes various rights of consumers and aims to ensure fair and transparent transactions. It recognizes rights such as the right to be informed, the right to choose, the right to access to quality goods and services, the right to be heard, etc. The Act covers various aspects prioritising consumer protection like unfair trade practices, deficiency in services, product liability etc. 

Unfair trade practices 

The term “unfair trade practice” broadly casts a wide net, including any dishonest, dishonourable, or deceptive trade behaviour, as well as commercial deception of goods or services that are sold, that is prohibited by virtue of law or has been deemed to be important under the law by a court judgement. Breach of warranty falls under the ambit of unfair trade practices, as the act states that “any seller who commits the breach of warranty is liable under the court of law and the breach of warranty is treated as an unfair trade practice.”

In the context of breach of warranty, the Act recognizes that making false or misleading statements about goods or services is an unfair trade practice. The following points highlight different aspects related to breach of warranty:

(i) False representation of goods or services: The Act prohibits sellers or service providers from falsely representing the standard, quality, quantity, grade, composition, style, model, sponsorship, approval, performance, characteristics, accessories, uses, or benefits of their goods or services.

(ii) Misleading warranty or guarantee: Sellers or suppliers are prohibited from making false or misleading representations in the form of warranties, guarantees, promises, or performance claims related to their products or services. Such representations must not be materially misleading, and there should be a reasonable prospect of fulfilling these claims.

(iii) Misleading pricing information: It is considered an unfair trade practice to materially mislead the public about the price at which a product, goods, or service are ordinarily sold. The price representation should align with the actual market price or be clearly specified.

(iv) Disparaging the goods, services, or trade of others: Making false or misleading statements that disparage the goods, services, or trade of another person is deemed an unfair trade practice.

These provisions in the Consumer Protection Act, 2019 aim to protect consumers from deceptive or misleading practices concerning the quality, pricing, warranties, and guarantees associated with goods and services. Consumers have the right to seek legal recourse, file complaints, and claim remedies if they have been subjected to unfair trade practices or a breach of warranty. Under the Consumer Protection Act 2019, if a product or service does not meet the standards or warranties claimed by the seller, it can be considered an unfair trade practice. Consumers have the right to seek remedies such as refund, replacement, compensation, or discontinuation of deficient services. The Act empowers consumers to file complaints before consumer courts or seek alternative dispute resolution mechanisms to resolve disputes related to breach of warranty or other unfair trade practices.

Product liability

Product liability has been defined in Section 2(34) of the COPA, 2019 as “the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating thereto.”

In simpler terms, product liability stands for the liability imposed on the product manufacturer or seller to compensate for any harm caused to the consumer by the product or service. Product liability law finds its presence in legal systems across the globe and is also termed as “Lemon law”. This principle departs from the idea of “Caveat Emptor” and brings about the idea of “Caveat Venditor”, which means let the seller beware attempting to uphold the rights of the consumer. Chapter VI of the Act is concerned with the concept of product liability. Product liability also covers breach of express warranty by a seller or a manufacturer, imposing additional liability upon both to adhere to the terms of warranty. 

Section 84- Liability of Manufacturer 

Section 84 of the Act talks about the manufacturer’s liability upon breach of express warranty. It imposes liability upon the manufacturer if the product does not conform to the standards laid down by the express warranty provided by the manufacturer. It is pertinent to note that the manufacturer can be held liable irrespective of whether the manufacturer was negligent or fraudulent in any way. 

Section 85- Liability of product service provider 

 Section 85 of the Act is concerned with the liability of the product service provider in terms of product liability. This provision holds the service provider liable for non-compliance of the service with the express warranty provided by such service provider.

Section 86- Liability of product seller

Section 86 of this Act imposes liability on the product seller for a breach of express warranty against the consumer. When a product seller provides some form of express warranty to the consumer other than what was provided by the manufacturer then, such product seller would be held liable if the product does not conform to the standards of the express warranty provided.

Forums 

Additionally, the Act establishes Consumer Protection Councils at the national, state, and district levels to promote and protect the rights of consumers. These councils play a vital role in addressing consumer grievances, conducting investigations, and taking appropriate action against businesses engaged in unfair trade practices. While the Consumer Protection Act 2019 does not explicitly speak on the specifics of breach of warranty, it provides a comprehensive framework for consumer protection, which includes addressing issues related to misrepresentation, false claims, and deficient goods or services. Any consumer facing a breach of warranty can approach the appropriate forum based on the nature of such breach. The Act aims to assure that consumers are protected from unfair trade practices and have access to effective remedies when their rights are violated.

Case Laws

Foreign pronouncements

India is a state that follows the common law system established by the British empire and gives weightage to the law of precedents based on the doctrine of stare decisis and hence, decisions by courts of other states that follow a similar legal system carry persuasive value.  

Clarke v. Army & Navy Cooperative Society Ltd (2009)

Herein, the defendant sold a tin of disinfectant powder to the plaintiff. The tin’s lid turned out to be defective. When the plaintiff opened the lid, the material inside the tin splashed on her face, injuring her eyes. The plaintiff therefore sued the defendant, asserting that the defendant did have knowledge regarding the lid’s condition. Hence, the court awarded compensation in favour of the plaintiff.

Hongkong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd (1961)

In this case, the Court of Appeal clearly described the different types of terms in a contract. They distinguished between conditions, warranties, and intermediate terms.

• A condition is a key term in a contract. If a condition isn’t met, it entitles the opposite party the right to consider the contract as terminated or ended.

• A warranty, on the other hand, is treated differently. If a warranty is breached, the injured party can claim damages but cannot terminate the contract solely based on such breach.
• An intermediate term is also known as an innominate term. It falls between a condition and a warranty. The effect of non-performance of an intermediate term is based on the nature and consequences of the breach, as per the terms of agreement. The classification of an intermediate term as a condition, warranty, or something else depends on how the contract is interpreted.

The first step is always to determine the actual meaning of the term and how it fits into the complete contract. If the contract clearly sets forth that a term is a condition or warranty, either explicitly or implicitly through its nature, purpose, and circumstances, then it is classified as such. If it is ambiguous, then in such a scenario, it is considered an intermediate term, and the consequences of breaching it will depend on the specific circumstances of the breach.

MDW Holdings Ltd v Norvill (2021)

Background

• The case involves a share sale transaction between MDW Holdings Limited (MDW) and the Norvill family, concerning the waste disposal company G. D. Environmental Services Limited (GDE).
• The sellers provided warranties, including a warranty that the business had complied with all applicable laws and regulations.
• Post-completion, MDW discovered that the previous managers of GDE had breached environmental regulations, constituting a breach of warranty and deceit.
• Liability was established in the first instance hearing, and MDW was awarded damages for the sellers’ fraudulent breach of warranty.

Issues

The sellers appealed the calculation of damages, arguing that the judge was wrong to consider a potential loss that never materialized, namely reputational damage to GDE.

Calculation of Damages for Breach of Warranty

• Damages for breach of warranty are typically assessed by comparing the hypothetical value of the business if the warranty were true (Warranty True) with the actual value given the false warranty (Warranty False).
• The calculation involves assessing the EBITDA of the business, applying a multiple based on the specific case, and subtracting the net debt to determine the business’s overall value.
• In this case, the judge reduced the multiple in the Warranty False calculation to account for the risk of reputational damage, increasing the damages awarded to MDW.

Court of Appeal’s Decision

• The Court of Appeal dismissed the sellers’ appeal, affirming the judge’s decision to consider the contingent risk of reputational damage.
• The court stated that subsequent events can be considered in anticipatory breach cases but not in cases of actual breach.
• The risk of reputational damage would have impacted the business’s value at the time of the share purchase agreement, regardless of whether it materialized later.
• The Court of Appeal emphasized that a contractual allocation of risk should be considered in such assessments, and in this case, the buyer assumed the risks associated with the purchase.

Contractual vs. Tortious Basis of Assessment

• MDW cross-appealed the calculation of damages, arguing for a tortious basis of assessment instead of a contractual basis.
• The tortious basis seeks to restore the claimant to the position they would have been in had the wrong not occurred.
• The Court of Appeal allowed the cross-appeal, stating that the buyers could argue for the tortious basis.

However, the determination of damages on the tortious basis was remitted back to the trial judge to establish whether the buyer would have still purchased GDE and at what price, had they known the truth.

Note:

• The Court of Appeal upheld the judge’s decision to consider the contingent risk of reputational damage in calculating damages for breach of warranty.
• The contractual allocation of risk and the buyer’s assumption of such risks were crucial factors in the court’s reasoning.
• The case highlights the importance of accurately assessing damages in breach of warranty claims and the distinction between anticipatory breach and actual breach scenarios.
• The buyers’ cross-appeal for the tortious basis of assessment was allowed, but the determination of damages was remitted for further consideration by the trial judge.

Indian pronouncements

Tata Engineering and Locomotive Co. Ltd. & other V/s Gajanan Y. Mandrekar (1997)

The Supreme Court here upheld the State Commission’s order concerning a warranty claim for an automobile. 

Facts

• The respondent purchased a commercial vehicle, commonly known as a ‘Tipper Truck’, in May 1991, with the help of loans from a nationalized bank.
• After driving the vehicle for 9000 kilometers, the respondent discovered multiple defects, including worn-out tires, improperly fixed front axle pins, and excessive vibration at a speed of 40 kilometers per hour.
• The respondent reported these issues to the agent from whom the vehicle was purchased, both in writing and through subsequent letters.
• Despite attempted repairs, the problems persisted, leading the respondent to file a complaint with the State Commission.
• The State Commission held the appellant (seller) responsible and ordered them to pay a total amount of Rs. 4,81,132-17 with interest.

Issues

• The main contention raised by the appellant was the calculation of damages and the underlying principle governing such claims.
• The appellant argued that the complaint was lodged 8 months after the delivery of the vehicle and after it had been driven for a distance of 18000 to 18500 kilometers.
• The appellant claimed that a proportionate deduction should have been made for the usage of the vehicle during that period.

Ratio

• The court concurs with the appellant’s argument, emphasizing the importance of considering the vehicle’s usage in determining compensation.
• The court acknowledges that while using the vehicle with the reported defects, the purchaser should be compensated for receiving a vehicle that did not meet the warranted condition.
• Consequently, the court decides to deduct 1/3rd of the compensation awarded by the Commission to account for the vehicle’s usage during the relevant period.
• The remaining amount awarded by the Commission is upheld by the court.

Outcome

• The appeal is partially allowed, accepting the appellant’s argument.
• No costs are awarded.

Indochem Electronic & Anr vs Addl. Collector Of Customs (2006)

In the instant case, the Supreme Court, while upholding the decision of the National Commission and the State Commission stated that “Although in terms of sub-section (3) of Section 12 no right accrues to a purchaser to reject the goods on breach of stipulation of warranty, the same would not mean that the extent of damages cannot be equivalent to the price of the goods in as much as such a power has specifically been conferred upon the Commission”.

Facts

• The appellants supplied an EPABX telephone system to the respondent in March 1990, with a warranty of one year.
• The system had several defects, including wrong numbers, interrupted conversations, and a non-functioning keypad lock system.
• The respondent complained about the system’s performance, and the appellants made some repairs but failed to rectify the issues satisfactorily.
• The appellants did not provide proper maintenance and service for the system, and the respondent sought help from another firm to keep it operational.
• A complaint was filed by the respondent before the State Consumer Disputes Redressal Commission, seeking repayment of the full cost of the system.

Issues

• Whether the appellants fulfilled their contractual obligations during the warranty period and thereafter.
• Whether the State Commission had the power to direct the appellants to refund the price of the system with interest.

Ratio

• The system had deficiencies and malfunctions during the warranty period, and the appellants failed to rectify the issues satisfactorily, indicating a breach of the contract.
• The appellants voluntarily continued to attend to complaints and provide service even after the warranty period, thus extending their liability beyond the specified period.
• The conduct of the appellants constituted a representation that maintenance and satisfactory functioning of the system were part of their contractual obligations, and the contract did not terminate with the expiration of the warranty period.
• Section 12 of the Sale of Goods Act differentiates between conditions and warranties. It clearly establishes that while a breach of warranty does not give the right to reject the goods, it can lead to a claim for damages.
• The Consumer Protection Act empowers the Consumer Disputes Redressal Commission to issue orders directing the return of the price paid by the consumer in cases of deficiency of services.

In summary, the facts involve the supply of a defective EPABX telephone system, complaints by the respondent, failure to rectify the issues, and a request for refund. The issues revolve around the fulfilment of contractual obligations and the authority of the Commission to order a refund. The ratio establishes the breach of contract, the extension of liability beyond the warranty period, and the Commission’s power to order the return of the price paid.

Sha Thilokchand Poosaji v. Crystal and Co (1954)

In this case, the following observations were made by the Madras High Court:

• According to the Chief Justice, the right to seek damages for breach of warranty is based on the acceptance of the delivered goods and not their rejection.
• The right to reject goods and the right to sue for damages for breach of warranty are alternative in nature and not cumulative.
• If goods that do not match the contracted description are delivered, the buyer has the option to waive the rejection and accept the goods.
• Section 13(1) of the Sale of Goods Act supports this interpretation, reaffirming that the buyer can accept the goods and still sue for damages for breach of warranty.

Mathew Varkey vs. T.C. Abraham (2000)

Here, in a case concerning the absence of transfer of title or registration, it was held that the purchaser or the buyer could not claim breach of conditions or warranties against the seller. 

Facts:

• The plaintiff purchased an Ambassador Car from the defendant in 1972 for Rs. 13,750, believing that the defendant had the right to sell the car.
• While the car was in the plaintiff’s possession, it was seized by the Delhi Police in September 1972 on the grounds that it was a stolen property.
• The plaintiff claims that the seizure of the car caused damages due to the breach of warranties and conditions related to the sale, resulting in the loss of the car and its quiet enjoyment.
• The plaintiff alleges that the defendant had no title over the car at the time of the sale, preventing the plaintiff from making any ownership claim in the criminal proceedings or any court.

Issues:

• Whether the defendant had the right to sell the car to the plaintiff.
• Whether the seizure of the car caused damages to the plaintiff.
• Whether the plaintiff lost title to the car as a result of the defendant’s lack of title.

Ratio:

• The implied condition in a contract of sale is that the seller is entitled to sell the goods. The implied warranty is that the buyer shall have quiet possession of the goods free from any encumbrances.
• The mere fact that the car was seized in a case may not be sufficient to establish the title. The key question is whether the vendor had title to pass, and if not, whether the plaintiff was entitled to damages in the circumstances.
• The plaintiff failed to comply with the earlier remand order to plead and prove the loss of title to the vehicle. Without evidence of loss of title, the plaintiff cannot claim damages.
• The court is bound by the findings of the previous Division Bench, and a remand order does not bind a higher court in an appeal. The Supreme Court has the authority to examine the position of law and is not bound by the earlier findings in an intermediate stage of the litigation.

What are the remedies for breach of warranty?

If the seller is in breach of the warranty, the buyer may sue the seller for the damages done to the buyer.

Section 59: Remedy for breach of warranty

1. Where there is a breach of the warranty by the seller or where the buyer chooses or is obliged to treat any breach of the condition on the part of the seller as a breach of the warranty, the buyer is not only entitled to refuse the goods on the breach of warranty but also

• Set up a breach of warranty against the seller when the price is reduced or extinguished; and
• Sue the seller for damages due to breach of the warranty.

1. The fact that the buyer has breached the warranty in the event of a price loss or collapse does not preclude the buyer from appealing in the event of further damage the same breach of warranty.
2. Section 59 provides for remedies in the event of a breach of the seller’s warranty. A buyer has some remedies at his fingertips. It may be recalled from Chapter II of the Specific Relief Act, 1877 that a breach of the condition gives the buyer the right to treat the contract as rebuked and to reject the goods. However, breach of the condition may be treated as a breach of the warranty and an appropriate remedy may be sought. 

Section 59 provides for following remedies in case of breach of warranty:

• ​Diminution or extinction of the price ​
• ​Damages 

The price drop (reduced)  depends on the loss and effect of that loss on the buyers.

• Condition 1:  If the loss is less than the price then the buyer may request a reduction in price. 
• Condition 2: If the loss is equal to the price then the buyer will apply for the price to be diminished. 
• Condition 3: If the loss is higher than the price, the buyer may ask for excess damages after the termination of the price of subsection (2). Reduction occurs when the buyer has not paid for the item. 

1. Damage insurance is a fair option if the buyer has already paid the price. 
2. Damages shall be calculated following the principles set out in Section 73 of the Indian Contract Act, 1872.

Case law: Union of India v A.L. Rallia Ram 1963

Fact: In this case, the issue was the goods delivered to the buyer were of lower quality than warranted. 

• Seller: Taken most of the goods shipped, paid pro-rate at a negotiated price for that portion, and sold at a different price. 
• Buyer: Disposal of the remaining stock at a fixed price higher than the buyer’s sale price.

Available remedies 

A breach of warranty does not entitle the buyer to refuse the goods and sole remedy is provided in Section 59 of the Sales of Goods Act 1930. 

To constitute a breach of the warranty against the seller in the event of a price drop or loss, or to sue the seller for damages sustained in the event of a breach. From the definition of warranty given in Section 12(3), it is clear that a breach of it gives rise to a claim for damages only on the part of the buyer. By Section 13(1), even in the case of a breach of condition, the sales contract is subject to some obligation to be fulfilled by the seller, the buyer may waive the condition or choose to treat the breach of the condition as a breach of the warranty and not as a reason to breach of contract.

The condition when the  buyer claims for damages

Example 1: If the buyer has accepted the goods or part of them, in the case of full contracts, either intentionally or by acting in such a way as to prohibit himself from using his right to deny them, he will rely on his claim for damages as though the breach of the condition were a breach of the warranty.

This section declares the methods by which a buyer who has claimed for damages, in either case, may avail himself of it. Section 57  Where the seller wrongly neglects or refuses to deliver the goods to the buyer, the buyer can sue the seller for non-delivery damages and if necessary under Section 61, to recover the purchase price and interest. This Act talks about the Seller’s or buyer’s rights, in any situation where interest or damage may be compensated by a statute, or to money paid should the estimation of the payment fail.

In such cases,  under the provisions contained in Section 73 of the Indian Contract Act, 1872 damages may be assessed. This was also stated by a Bombay High Court division bench in Maharashtra ltd. City And Industrial Development Corporation, Bombay v Nagpur steel and alloys.

Damage measure at contract

In the case of a quality warranty, it is presumed that the damage calculated is the difference between the value of the products at the time of delivery and the value of the goods under a contract, which will be calculated concerning the market price.

In most cases, this guarantee is decided not to be a warranty as specified in Section 12(2) but to be treated as a condition under Section 13(2). This is most often the case that the products should be compatible or fit for a specific purpose with the description by which they were sold.

The buyer must depend on the warranty and take appropriate steps, i.e. to reduce the losses. Where there is a breach of the warranty of the goods fit for a specific purpose, the rule again is that the damage must naturally arise due to the breach. 

Illustration: This was seen in a case where the wife of the plaintiff died from the consequences of consuming tinned salmon purchased from the defendant by the plaintiff, the plaintiff was held entitled to claim as damages for breach of the warranty that the salmon would be fit for human consumption. Compensation has been awarded for medical care, funeral costs and her life loss.

Other conditions may also be breached which can be treated as warranty breaches, such as title warranty. The buyer might also be involved in difficulties with sub-buyers in such a situation, for example, he might buy a motor car from someone who has no right to sell it and will resell it to a third party from whom the true owner might recover it or its value.

Mason v. Burningham (1949)

In this case

In 1945, the plaintiff, a woman, had bought a second-hand typewriter for the defendant. She subsequently spent some money on its restoration and used it for several months. The typewriter was an unknown stolen one from the parties and the plaintiff was compelled to return the same to their true owner. She was entitled to claim damages from the seller for breach of this warranty, which covered not only the price charged but also the costs of repair. 

Is the Breach of warranty gives the buyer the right to claim the damages?

The first implied warranty on the part of the seller in each sales contract is that “the buyer shall enjoy the goods in silent possession.”

“If the buyer’s quiet possession is in some way disrupted by a person with a superior right than the seller’s, the buyer may demand damages from the seller, because disturbance of quiet possession is likely to occur only where the seller’s title to the products is defective, this warranty may be treated as an extension of the implied condition of title set out in Section 14(a)”. The two clauses of Section 14(a)(b) are contradictory and it is not easy to see what additional privileges this warranty confers on the buyer beyond those granted by the implied condition of title as set out in Section 14(a).

Dingle v. Hare (1859)

In this case,

Issue: In a breach of the warranty in respect of the sale of the goods sold by the buyer.

Fact: The defendant provided the plaintiff with a previously established control contract to market and sell a certain number of goods. While for the plaintiff the final output was less than the accepted sum. The suit was a breach of the warranty when selling the goods.

Held: The right measure of loss is the difference between the real market value and the contract price at the time of sale. Quaere, if the buyer might not, as compensation for the third person to whom the defendant’s belief in his warranty sold the portion of the goods, have been able to recover the amount paid fairly and reasonably

Specific solutions applicable to the buyer as well as the seller

Interest through Damage and Special Damages 

Illustration: Section 62 of the Sales of Goods Act,1930 states that special damages can be recovered by the buyer or seller where special damages or interest may be recoverable by law. The solution has a limitation. The parties should have contemplated that if the contract is breached in any way, a particular loss could occur after contract breach. The Interest Act was passed in 1839, specifies that in such cases interest is required to be charged by way of damages. The argument to be remembered here is that the seller can only claim interest if he is entitled to get the price back. If the seller is seeking claims only for breach of contract, he cannot claim any interest. The same idea also applies to the buyer’s case. He cannot claim interest if he sues the purchaser for breach of guarantee.

State Trading Corporation  V. Tara  Jewellers,1984

In this case, A contract for the purchase of silver for export was disrupted because of the government’s ban on exports in the 1980s. In a petition for price refund as well as interest on it, the High court in Calcutta allowed the refund as well as interest @6% per annum. Since the date of claim of filing of the suit until the date of refund by the defendant at the same rate and cost.

Suit for contract repudiation before date or anticipatory breach 

Illustration: Section 60 of the Sales of Goods Act, 1930 states that if either party waives the contract before the goods are delivered, the other party may wait until the delivery date of the goods, or treat the contract as annulled and seek damages. This clause is based on Indian Law. The party not in default may choose to keep the contract alive by failing to accept the defaulting party’s repudiation. In such a scenario, if he refuses to perform his part or is unable to perform his part at the time of performance of the contract, the defaulting party would be discharged and the position would be as if the contract had not been repudiated before the date of the contract.

                   

Frost v. Knight (1872)

In the case In Frost v Knight, the defendant had said he would marry her when the father of the plaintiff died. However, the defendant broke off his relationship with the plaintiff during the time father’s alive. The plaintiff sued immediately, without waiting for her father’s death, for breach of the promise of marriage.

Illustration: A promised to marry P upon A’s father’s death. While A’s father was still alive, A told P that he was not going to marry her after his father’s death. P brought an action for breach of promise. It was held that P was entitled to accept A’s repudiation of the contract to marry her and to sue A.

It was held that one contracting party could simply refuse to continue carrying out its contractual duties. In such a case, the other contracting party may bring an action in court for breach of a contract until it can prove that it was indeed willing under the same contract to perform its duties.

Illustration: V is a seller and N is a buyer. N repudiates the contract before date, but V does not accept the repudiation and keeps the contract alive. On the date of performance, V delivers the products. But these are not according to the specification of N. in this case N may reject the goods. V will not be able to avail any remedy or N may accept the goods and treat the breach of condition as a breach of warranty and recover damages from V.

Conclusion 

If there is a breach of the warranty for goods that should be suitable for a particular purpose, the principle applied is that the damages will emerge naturally from the breach. It should be noted here that damages are determined in those cases as per the terms of Section 73 of the Indian Contract Act, 1872. This was also noted by a Bombay high court division bench at Maharashtra Ltd., City And Industrial Development Company, Bombay v Nagpur Steel and Alloys, Nagpur. The remedies given in Section 59 shall not be complete remedied for an appropriate buyer at any stage or strategic point. Buyer has to make his purpose clear on each situation’s facts and circumstances and give notice of his intention. If the holding were not justified by statute or an Act, it would place the Seller in an awkward and uncertain position.

In conclusion, warranty law plays a crucial role in establishing a balance between the interests of consumers and sellers. The concept of a warranty has its roots in ancient practices and has evolved with time while covering various forms of transactions, including the sale of goods. In India, warranty laws are primarily governed by the Sale of Goods Act, the Indian Contract Act, and the Consumer Protection Act. The Indian Contract Act laid the foundation for warranty based laws in the country because, in essence, breach of warranty does partly lead to breach of contract as well. Therefore, breach of warranty is deemed unlawful by virtue of the laws mentioned above and is also considered unfair towards consumers and detrimental to their interests.

Frequently Asked Questions (FAQs)

What is the difference between breach of warranty and breach of condition?

Breach of condition is a breach of a stipulation that forms the very basis of contract whereas breach of warranty is concerned with the breach of a stipulation that is additional to the main purpose of the contract.

What are the remedies for breach of warranty?

One can claim damages against breach of warranty by virtue of Sale of Goods Act,1930 and can also approach the appropriate consumer forum. 

How is express warranty and implied warranty created?

• Express warranty: Express warranty is created through any statement, promise, description of goods, or sample by the seller or manufacturer.
• Implied warranty: Unlike express warranty implied warranty arises automatically in a situation based on a presumption and is implied into the contract. Read more on express and implied warranty here.

References

• https://www.mondaq.com/india/contracts-and-commercial-law/955660/revisiting-representation-and-warranty-clauses
• https://indianlawportal.co.in/conditions-and-warranties-under-indian-contract-act-1872/
• https://lexpeeps.in/conditions-and-warranties-under-the-indian-contract-act/
• https://www.optimuslegal.in/post/representations-and-warranties-an-overview
• https://www.lexology.com/library/detail.aspx?g=5a0d960d-4810-468e-9fd2-14ea4652933d

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