Introduction
In the realm of commercial transactions, the quality of goods is paramount. Businesses depend on the timely delivery of goods that meet specified standards to operate efficiently and maintain their market reputation. However, there are instances where the supplied goods are sub-par and of unmerchantable quality, leading to significant operational and financial setbacks. This article explores the legal recourse available to buyers under the Sales of Goods Act, 1930, and the Indian Contract Act, 1872, in such scenarios. It aims to provide a comprehensive understanding for businesses on how to handle these situations effectively.
Understanding ‘Unmerchantable Quality’
The term ‘unmerchantable quality’ though not explicitly defined in the Sales of Goods Act, 1930, refers to goods that are not fit for sale or use as per the terms agreed upon in a contract and/or are not commercially viable to sold in the respective market place. Even if there is no contract to shed light on the quality aspect of goods to be supplied, Section 16 of the Sales of Goods Act, 1930 provides that there is an implied condition that goods shall be of merchantable quality when the buyer relies on the seller’s skill or judgment. If the goods supplied fail to meet this standard, they may be deemed unmerchantable.
Legal Provisions and Buyer’s Rights
The Sales of Goods Act, 1930 governs the sale and purchase of goods. Key provisions relevant to the issue of goods of unmerchantable quality include:
- Section 12 – Conditions and Warranties: This section distinguishes between ‘conditions’ and ‘warranties.’ A condition is a fundamental term of the contract, and if breached, it allows the buyer to treat the contract as repudiated. In the context of sub-par goods, the implied condition of merchantable quality allows the buyer to reject the goods altogether. Warranties, on the other hand, are less essential, and breach of these allows the buyer to claim damages but not repudiate the contract.
- Section 15 – Sale by Description: This section ensures that goods sold by description must correspond with the description provided. If the goods delivered are sub-par and do not match the contractual description, the buyer has a right to reject them or claim damages.
- Section 16 – Implied Condition as to Quality or Fitness: Section 16 is crucial as it lays down the implied condition of merchantable quality and fitness for a particular purpose. If the buyer has made known to the seller the purpose for which the goods are required or the buyer has relied on the seller’s expertise or judgment in choosing the goods, and those goods fail to be of merchantable quality or fit for the intended purpose, the buyer has the right to reject the goods.
- Section 17 – Sale by Sample: This section addresses scenarios where goods are sold by sample. The bulk of goods delivered must match the quality of the sample, and the buyer has the right to inspect the goods before acceptance. If the goods are found to be of inferior quality compared to the sample, the buyer may reject them.
- Section 41 – Buyer’s Right of Examination: This section entitles the buyer to examine the goods upon delivery. This examination is essential to ensure that the goods conform to the description in the contract.
- Section 42 – Acceptance of Goods: This section defines the acceptance of goods by the buyer, even in the presence of defects. Acceptance is implied if the buyer, after examining the goods, retains them without objection or communicates acceptance to the seller. Therefore, it is crucial for the buyer to promptly notify the seller of any defects to avoid the implication of acceptance.
Steps to Take When Goods Supplied Are of Unmerchantable Quality
Inspect the Goods
Upon delivery, it is crucial to inspect the goods thoroughly. Any discrepancies or defects should be documented immediately. This includes taking photographs, noting the batch numbers, and retaining samples if necessary. It is also important to note that such inspection should be done within the time limit as prescribed under any contract signed with the supplier, or in case where there is no agreement to that effect, such inspection should be done immediately upon delivery of goods without any undue delay.
Notify the Supplier of Rejection of Goods
If the goods, after the inspection, are found to be of unmerchantable quality, the buyer can reject them and refuse to pay for them. The same should also be done within a reasonable time to avoid any implication of acceptance by the buyer.
It is pertinent to note that the supplier should be notified of such defects in the goods and their rejection thereon in a well-structured communication in writing. This communication should be prompt and detailed, outlining the nature of the defects and the impact on your business and leading to loss in lieu of the same. It is essential to refer to the specific terms of the contract that have been breached, if any, and in the absence of a contract, the buyer may simply cite Section 16 of the Sales of Goods Act, wherein there is an implied condition to the merchantable quality of goods supplied by the seller.
It is also important that the above communication also states that the supplier has the option to take such rejected goods back from the buyer, as the same will convey that the buyer has no use of such goods now or in the future.
It is also important to note if the buyer has not paid complete price of the goods supplied, once the rejection of goods is communicated to the seller and buyer can refuse to pay any further amount signifying termination of contract, if any, and take legal action to recover amount already paid. In case, where the entire amount for goods has already been paid, the same shall be subject to recovery/refund through the process highlighted below.
Seek Remedies
While this is not applicable for every scenario, the buyer may, if he can afford to wait, also add to its rejection of goods communication that seller may provide for replacement to such goods which is of the quality as was desired by the buyer. If agreed upon by the seller, the same can result in simply bypassing of all the banalities of the litigation process and the buyer can continue with its business with only minor delay.
If the supplier fails to resolve the issue amicably, the buyer may need to consider legal action, which is:
- Filing a Suit for Damages & Recovery of Amount paid:
The buyer can file a suit for recovery of amount paid to the supplier and for damages resulting from the breach of conditions/warranties as contained in contract, if any, and in case there is no contract then the suit can be filed under breach of implied condition as explained above. This claim of damages includes direct losses such as the cost of replacement goods as well as indirect losses such as lost profits.
- Specific Performance:
In case if the buyer is still desirous of the delivery of the goods from the supplier, and the supplier has refused to do the same while also refusing to refund the monies paid, the buyer can file a suit for specific performance, to compel the supplier to fulfil their contractual obligations and supply such goods which are of quality that is acceptable to the buyer.
Additionally, the Commercial Courts Act, 2015, provides a fast-track mechanism to expedite the resolution of disputes through summary judgments, further enhancing the protection available to buyers, since disputes in a commercial transaction relating to unmerchantable goods or defective goods typically qualify as a ‘commercial dispute’ under the Commercial Courts Act, 2015, and under Order XIII-A of the Code of Civil Procedure, 1908, as amended by the Commercial Courts Act, a party can seek a summary judgment when there is no genuine dispute as to material facts that would warrant a full trial i.e. if the buyer has a strong case showing that the goods supplied were sub-par and unmerchantable, and the seller has no valid defence, the buyer can file an application for summary judgment. The same is further elaborated in our article “___________________”.
Conclusion
Handling the issue of sub-par or unmerchantable quality goods can be challenging for businesses, but the legal framework provided by the Sales of Goods Act, 1930, and the Indian Contract Act, 1872, offers various remedies to protect buyers’ rights. Whether through negotiations or legal actions like seeking damages, replacement, or specific performance, businesses can navigate these situations to mitigate losses and safeguard their interests. Awareness of these legal avenues enables businesses to act promptly and effectively when faced with defective supplies, ensuring minimal disruption to their operations.
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