Stipulations in a contract:
A contract contains some stipulations or terms. Some stipulations may be essential to the contract while some may be collateral or incidental to the contract. A stipulation essential to the contract is called a “Condition”. That which is collateral or incidental to the contract is called a ‘Warranty’.
What is a Condition?
Condition is a stipulation essential to the main purpose of the contract breach of which gives rise to a right to treat the contract as repudiated or broken.
What is Warranty? [Sec 12 (3)]:
A warranty is a stipulation collateral to the main purpose of the contract the breach of which gives rise to claim for damages but not to reject the goods and treat the contract as repudiated or broken.
Whether a particular stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract is to be gathered from the stipulation of the contract as a whole. The Court is not to be guided by terminology of the parties. A stipulation may be a condition, though called a warranty in the contract [Sec 12 (4)].
Conditions and warranties may be expressly stated or may be implied from the circumstances.
Stipulated as to time whether a condition? [Sec 11]
Where a different intention appears from the terms of the contract, stipulation as to time of is not deemed to be of the essence of a contract of sale, whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.
Stipulations as to time, except as regards time of payment are usually of the essence of the contract. Therefore, the failure by the buyer to pay the price would not give the right to the seller to repudiate the contract. It should be noted that where the parties to the contract stipulate that time as regards delivery of goods, payment, quality or any other factor shall form the essential terms of the contract, time shall then be construed as a condition in construction of a contract for sale of the goods, breach of which shall give right to the aggrieved party to repudiate the contract.
A places an order on B for supply of machine parts strictly according to the sample, delivery to be made within three months. Now supply of parts strictly according to the sample is an essential condition while delivery within three months is a warranty. Time is not essential to the purpose of the contract. If, therefore, B does not supply the machine parts strictly according to the sample, A can repudiate or reject the goods and also claim damages. If however, B supplies the parts later than three months. A can claim damages only for late delivery but he cannot repudiate the contract.
Condition and warranty distinguished:
1) Stipulation: Condition is an essential term or stipulation of the contract which must be fulfilled for the performance of the contract. Warranty is a collateral or incidental stipulation to the main purposes of the contract. It is not as essential a stipulation of the contract as a condition.
2) Remedy: Breach of condition gives right to repudiate or treat the contract as broken or rescinded and also aright to claim damages. Breach of warranty gives right to claim damages only. A breach of warranty does not entitle a buyer to reject the goods and his only remedy would be to set up against the seller the breach of warranty in diminution or extinction of the price or to sue the seller for damages for breach of warranty.
3) Exercise of options as to treatment; Breach of condition may be treated as a breach of warranty. A breach of warranty cannot be treated as a breach of condition. Whether stipulation in a contract is a condition or warranty depends on the construction of the contract. Stipulation may be a condition even though called a warranty. Option is given to the party to either claim damages or repudiate the contract even if stipulation is a condition. Where damages are only claimed, the condition is reduced to a warranty.