Legal Environment of Business - Module 3 – Part 2

MBA - MG University

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

Kindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations.

1. Sales and types of sales.

2. Types of sales.

3. Contract of sales.

4. Agreement of sales.

5. Essential elements of a contract of sale.

1. Good – Definition.

2. Types of goods.

3. Perishing of goods.

4. Price and fixation of price.

• Definition of condition.

• Essential features of condition.

• Implied conditions.

• Caveat Emptor.

• Definition of Warranty.

• Essential features of Warranty.

• Implied Warranty.

• Difference between condition and warranty.

Sales

• Where the right of

ownership in the goods

is transferred from the

seller to the buyer, the

contract is called a sale.

Types of sales

Absolute sales

Conditional sales

Contract of sale

• A contract of sale ofgoods is a contractwhereby the sellertransfers or agrees totransfer the property ofgoods to the buyer for aprice. Property meansthe right of ownership.

Agreement to sale

• Where the transfer ofownership in the goodsis to take place at afuture time or subject tosome conditionsthereafter to be fulfilled,the contract is calledagreement to sell.

Essential elements of a contract of sale

1. Contract.

2. Existence of two parties namely buyer and seller.

3. Transfer of ownership.

4. Subject matter of sale of goods.

5. Price.

Goods

• The goods include every

kind of movable

property other than

actionable claim or

money.

Types of Goods

• Existing goods.

– Special goods.

– Ascertained goods.

– Unascertained goods.

• Future goods.

• Contingent goods.

Perishing of goods

• Perishing of specificgoods before making ofthe contract – Wherethere is a contract for thesale of specific goods andif they perish without theknowledge of the seller,even before the contractis made, the contractbecomes void.

Perishing of goods

• Goods perishing beforesales but after agreementto sell – Where contract isonly an agreement to selland goods without anyfault of either the seller orthe buyer perishsubsequent to thecontract, then also theagreement becomes void.

Perishing of goods

• Perishing ofunascertained goods:Where the contract is forunascertained goods, theperishing of the good willnot avoids the contractand the seller will beliable for damages for thebreach of contract.

Fixation of price

The price must be fixed by

both parties at the time of

contract itself.

Both the parties may enter

into an agreement

regarding the manner in

which the price may be

fixed.

Mode of payment

In the absence of agreement

to the contrary, the seller is

not bound to accept any kind

of payment other than the

currency of the country. By

common consent, the seller

may accept payment by a

cheque or a draft, bank

guarantee, a letter of credit

or by any other mode.

Mode of payment

In the absence of agreement

to the contrary, the seller is

not bound to accept any kind

of payment other than the

currency of the country. By

common consent, the seller

may accept payment by a

cheque or a draft, bank

guarantee, a letter of credit

or by any other mode.

Definition

• A condition is a stipulation

essential to the main

purpose of the contract,

the breach of which gives

rise to a right to treat the

contract as repudiated.

Essential features of a condition• It is essential to the main

purpose of the contract.

• The non fulfillment ofcondition causes irreparabledamage to the aggrieved partywhich would defeat the verypurpose for which the contractis made.

• The breach of contract gives aright to the aggrieved party torescind the contract andrecover the damages forbreach of condition.

Implied conditions

• Conditions as to title of

goods sold – In every

contract of sale, there is

an implied condition that

the seller has got a right

to sell the goods.

Implied conditions

• Goods sold should

correspond to description

– Where there is a

contract of sale of goods

by description, there is an

implied condition that the

goods shall correspond

with that description.

Implied conditions• Condition as to quality or

fitness – This is applicable if

– The goods are needed for aparticular purpose which thebuyer brings to theknowledge of the seller,either expressly or impliedly.

– The buyer relies on theseller’s skills and judgment.

– It is seller’s duty to supply bydescription.

Implied conditions• Conditions as to

merchantability – Goodsare of mercantile quality if

– They are reasonable by thedescription by which theyare known in the market.

– They are purchased forpersonal use, they must bereasonably fit for thepurpose for which they aregenerally uses.

Implied conditions• Condition as to

wholesomeness -Wholesomeness meansphysical health. Theprovisions supplied mustnot only correspond todescription andmerchantable but alsoshould promote physicalhealth.

Implied conditions• Condition as to sample –

Whenever we want topurchase goods, generallywe see some sample ofthose goods which we wantto purchase. After seeingthe sample and satisfyingourselves with the sample,we will place order askingthe dealers to supply goodswhich would correspond tothe sample.

Definition

• “Caveat Emptor” is a Latinexpression which means“Let the buyer beware”.The doctrine of caveatemptor means that in asale of goods, the seller isunder not duty to revealunflattering truths aboutthe goods. A buyer mustbuy goods after satisfyinghimself of their quality andfitness.

Definition

• A warranty is astipulation collateral tothe main purpose of thecontract, the breach ofwhich gives rise to aclaim for damages butnot to a right to rejectthe goods and treat thecontact as repudiated.

Essentials of a warranty

• It is collateral to the mainpurpose of the contract.

• The breach of warrantycauses damage to theaggrieved party and doesnot defeat the mainpurpose of the contract.

• The aggrieved party canonly claim the damages forthe breach of warranty butcannot repudiate thecontract.

Distinction between a condition and warranty

No Difference Condition Warranty

1 Nature It is fundamental in natureand essential for mainpurpose of contract.

It is supportive andcollateral for the contract.

2 Breach Due to breach of condition,the contract may beavoided.

It’s breach may give rise to aright to claim forcompensation.

3 Treatment Breach of condition can betreated as a breach ofwarranty.

Breach of warranty cannotbe considered as a breachof condition

Implied warranty

• Warranty for quiet

possession – The buyer has

obtained the possession of

goods and if the buyer is in

any way disturbed in the

enjoyment of goods, the

buyer has a right to sue the

seller for damages caused.

Implied warranty

• Implied warranty against

encumbrance – The goods are

not subject to any charge or

encumbrance in favor of third

parties which is not disclosed

or known the buyer before or

at any time when the contract

is made.

Implied warranty

• Implied warranty as to

usage of trade – An

implied warranty as to

quality or fitness for a

particular purpose may be

fixed by the usage of

trade.