Business Environment and Law

Business and
Business and its
itsenvironment
Environment
 Business and its Environment
 DAVID KEITH
“The aggregate of all conditions ,events, and influences that
surround and effect it “
BUSINESS as an enterprise is a part of the society and it has
a direct relationship with the policy of the enterprise
 HICKS
“THE FIRM CAN ADJUST TO THE ENVIRONMENT .OR IF
IT HAS THE ABILITY .CHANGE THE ENVIRONMENT”
 Business and its
Environment

 Nature of Business - Business may be

understood as the organized efforts of

enterprise to supply consumers with

goods and services for a profit.

 Businesses vary in size, as measured by

the number of employees or by sales

volume.
 Business and its Environment

 Benefits of a Business Enterprise –

 Important institution in society
 For supply of goods and services
 Creation of job opportunity
 Offers better quality of life
 Contributes to the economic growth of
the country
 BUSINESS GOALS

 Profit, Growth, Power- Resource, Employee satisfaction & development,

Quality products & Services, Market Leaders.
 BUSINESS GOALS

 Challenging, Joy of Creation, Service to Society

Factors Influencing the Business
BUSINESS

Internal Factors External Factors

Controllable ones Uncontrollable Ones
 Internal Factors

 Organizational Resources

 Research and Developments

 Technological capability
 Financial capability
 Marketing capability
 Operational capability
External Factors
Micro Environment
Macro Environment
Business and its Environment
 Business and its Environment

 Business Ethics
 IT REFERS TO THE RULES PRINCIPLES
 IT IS CONCERNED WITH TRUTH AND JUSTICE
 TYPES OF ETHICS
 Business and its Environment

 Moral Management –
 Codes of Conduct

 CLARENCE C.WALTON MODEL OF CONDUCT

AUSTRE MODEL
HOUSEHOLD MODEL
VENDOR MODEL
INVESTMENT MODEL
CIVIC MODEL
ARISTIC MODEL
 Guidelines for Ethical Business
 Obeying the law
 Tell the Truth
 Uphold human dignity
 Adhere to the golden rule:" Do unto others as you would
have others do unto you”
 Above all, do no harm
 Allow Room for participation
 Always Act When You Have Responsibility
 Unethical Practices

 TO CUSTOMERS-ADULTURATION,

INJURIOUS PRODUCTS,DUPLICATES
 TO EMPLOYEES-LOW SALRIES,

MALPRACTICES,CHILD LABOUR,

POOR WORKING CONDITIONS

 TOWARDS GOVT AND CUSTOMERS- TAX

EVASION,CORUPTION BRIBE,POLLUTION,

PRICE HIKING
 Economic Systems

 Money – Satisfies Need – Good Life – Help –

Social commitments
 Economic Systems

 Free Enterprise Economy

 Government Controlled Economy
 Mixed Economy
 Mixed Capitalistic Economy
 Mixed Socialistic Economy Capitalistic

Democratic
 Environment – Business
Relation
 There is symbolic relationship between

business and its environment and among the

environmental factors.

 These environmental forces are dynamic.

 A particular business firm, by itself, may not be

in a position to change its environment. But

along with other firms, business will be in a

position to mould the environment in its favor.

 Business and its Environment
 IMPORTANCE OF ENVIRONMENTAL STUDY
 Development of broad strategies and long-term policies of the
firm.
 Development of action plans to deal with technological
advancements.
 To foresee the impact of socio-economic changes at the national
and international levels on the firm’s stability.
 Analysis of competitor’s strategies and formulation of effective
counter measures.
 To keep oneself dynamic.
 Business and its Environment

 ENVIRONMENTAL
ANALYSIS PROCESS
 Scanning
 Monitoring
 Forecasting
 Assessment
 Business and its Environment
 CORPORATE GOVERNANCE

 Corporate governance is concerned

with holding the balance between

economic and social goals and between

individual and communal goals.

 The aim is to align as nearly as possible

the interest of individuals, corporations,

and society. - Corporate failures

 Corporate Governance
 RELEVANCE –

 1991 – Liberalization – transparent and fair business practice.

 Domestic and Foreign Investors – demanding, influence

decisions.

 Non-Promoters, small investors – undermined, Subsidiaries.

 Corporate Governance
 FOCUS –

 Corporate governance is concerned with the

values, vision and visibility.

 Corporate management is concerned with the

efficiency of the resources use, value addition

and wealth creation within the broad parameters

of the corporate philosophy established by

corporate governance.
 Corporate Governance
 IMPORTANCE –
 Markets and investors take notice of well-managed companies,
respond positively and reward such companies, with higher
valuations
 Indispensable to Capital markets, investor protection.
 Prevents insider trading
 Insiders abstain from transacting in the securities of the
company.
 Principle of disclose or desist
 Compete internationally – improve standard of living
 Corporate Governance
 PRE-REQUISITES of good Governance

 Clearly defined and adequate structure of

roles, authority and responsibility.

 Vision, principles and norms – indicates

development, set guidelines for

performance.

 Guiding, monitoring, reporting and

control.
 Corporate Governance

 SOCIAL RESPONSIBILTY –

 Social responsibility is the obligation of

decision-makers to take actions.

 Whether the issue is significant or not, the

businessman should keep his social obligation

in mind before contemplating any action.

 There have been several arguments about

social responsibility of a business.

 Corporate Governance

 ARGUMENTS FOR SOCIAL RESPONSIBILITY

 Respond to the needs and expectations of society.
 Improvement of the social environment.
 Discourages additional governmental regulation and
intervention.
 Power accompanied by responsibility.
 Internal activities have an impact on the external
environment.
 Protects interests of stockholders.
 Favorable public image.
 Resources to solve some of society’s problems.
 Prevent social problems through business involvement than to
cure them.
 Corporate Governance
 ARGUMENTS AGAINST SOCIAL
RESPONBILITY
 Reduces economic efficiency.
 Creates excessive costs for business
 Weakened international balance of payments
 Increases power and influence
 Lack the social skills to deal with the problems of
society.
 Not really accountable to society.
 Business and its Environment
 Business enterprises are
 primarily responsible to six major groups:
 Shareholders
 Employees
 Customers
 Creditors, suppliers and others
 Society and
 Government.
 Business and its Environment
 Case Study – Global Investors meet.

Analyze
Business Environment
and Law
Business Law
Business Law
 What is Law?
 The word ‘Law’ is a general term and has different connotations for different
people.

 Citizen – a set of rules he must obey.

 Lawyer – Law as vocation.

 Legislator – Created by him.
 Judge – Guiding principles to be applied in making decisions.
 Need for Knowledge of Law

 ‘Ignorantia juris not excusat’

 This means Ignorance of law is not an excuse.

 Business Law

 Business Law is a law relating to business, trade,

industry and commerce.

 It generally includes the law relating to contacts,

Sale of goods, Partnership, Companies, Negotiable

Instruments, insurance, Insolvency, Carriage of

goods and arbitration.

 Business Law

 Long back there existed Hindu and Muslim law

 Later uniform law was enacted which lately gave birth to Indian contract act
1872
 Most Important sources of Indian Mercantile law are:
 English Mercantile Law
 The statutory law
 Judicial decisions or case law
 Customs and usages
 English Law (Mercantile)
 Indian contract law was passed by English people in the year
1872
 It is the foundation on which Mercantile law is built
 Despite various matters (failing) our law makers still take
purview of English law where some principles are expressly
dealt within the act there is no room for ambiguity
 Nature of Mercantile Law

 The term ‘Mercantile Law’ is used to denote that branch

of law which is concerned with such subject which may be
called the Mercantile Transactions.
 The term ‘Mercantile Law’ is also used to denote the
aggregate body of those legal rules which are connected
with trade, industry and commerce.
 Source of Business Law

 English Mercantile Law – This is the most

important source of Indian Mercantile Law.
 Common Law – Based on English customs, usages
and tradition.
 Equity – developed separately from common law –
Decisions of the Judges became a precedent.
 Statute Law – laws laid down by the act of
parliament.
 Source of Business Law

 The Statutory Law - Bill passed by parliament and

signed by President – it becomes an Act or Statute. This

procedure is called as “Statutory Law.”

 What can happen if the consent is not given?

 Discuss …………….
 Source of Business Law
 Judicial Law or Case Law – Past Judicial
decisions are important source of law. Some times
the precedents set by higher courts have a binding
force on lower courts.
 Whenever there is a silence or ambiguity, the judge has to
decide the case accordingly.
 Source of Business Law
 Customs and Usages – Customs and usages established by
long use and constantly put into practice become binding on the
parties entering into commercial transactions .

 Ancient, reasonable, certain, definite, consistent with other customs and

uniformly recognized in ordinary course of business.

 When a custom is accepted by a court and is incorporated in Judicial

decision – Legally recognized custom.
 Law of Contract (LOC)
 Object of Law of Contract – The law of
contract is that branch of law which
determines the circumstances in which
promises are made by the parties to a
contract shall be legally binding on them.
 Law of Contract (LOC)
 ‘Sir William Anson’ observes in this
connection that the law of contract is
intended to ensure that what a man has
been led to expect shall come to pass, and
that what has been promised to him shall be
performed.
 Law of Contract (LOC)
 Indian Contract Act, 1872

 The law relating to contracts is contained in

the Indian Contract Act of 1872.
 Law of Contract (LOC)
 Nature of contract – Law being a wider subject
touches all walks of life.
 Holland -
 Law operates to regulate the actions of persons with
respect to one another and entire group or society.
 Law of Contract (LOC)
 Definition of Contract – A contract is an
agreement made between two or more parties
which the law will enforce.
 Sec 2(h) defines contract as an agreement
enforceable by law.
 Pollock’s definition – “Every agreement and
promise enforceable at law is a contract.”
 Law of Contract (LOC)
 Law of contract (LOC) is the basic

part of Mercantile law.

 The Law of contract is concerned of

the main question – Is there an

agreement? Can the parties to such

agreement enforce it in the court of

law? How can they enforce it?

 Law of Contract (LOC)
 Agreement and its enforceability.

 Agreement is defined as “every promise and

every set of promises, forming consideration
for each other” {Sec 2(e)}
 Law of Contract (LOC)
 A promise is defined thus: “When the person to
whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A
proposal, when accepted, becomes a promise”
{Sec. 2(b)}
 Agreement = Offer + Acceptance.
 Essential Elements – Valid
Contract
 Essential elements of a valid contract –
 Offer and acceptance
 Intention to create legal relationship
 Lawful consideration
 Capacity of parties
 Free consent
 Lawful object
 Certainty of meaning
 Possibility of performance
 Not to be void and illegal
 Legal formalities
 Offer and Acceptance

 Here there should be a

“lawful offer by one party
and lawful acceptance of
the by another party”
 Both of them should and
must confirm to the rules
laid by the Indian contract
act
Intention for Legal Relationship

 Agreements of social or domestic nature do not

contemplate legal legislation

 In case of no intention on part of parties there will

be no such contract

 E.g.; Compton brothers vs. rose Franco, sale and

purchase of tissue paper
 note: legal document should be formed and signed
 Lawful Consideration

 It is also called as “quidpro-quo”

 promises made for nothing are not

enforceable under the Indian contract
act

 consideration may be in the form of

money, goods, services, a promise to
marry,

 Consideration may be past, present or

future. But it must be real and lawful
Capacity to Contract

 Sec 11 says the following persons are

competent for contracting:- (a) is of

the age of majority, (b) is of sound

mind, and (c) is not disqualified from

contracting by any law to which he is

subject. (Secs 11 and 12)

 Free Consent

 There must be a free and genuine consent of the parties

to the agreement.

 This is called “Consensus ad idem.”

 Sec. 14 says consensus is free when it is not caused by –

 Coercion, Undue influence, Fraud,

 Misrepresentations, Mistake.
 Flaw in Consent
Coercion Under Influence Mistake
Misrepresentation
Sec 16

Fradulent/Wilful Sec. 17 Innocent / Unintentional Sec.18

Mistake of Law Sec 21 Mistake of Fact Sec 20

Country Foreign Country Both Parties (Bilateral) One Party (Unilateral)

Mistake as to the As to the possibility Exceptions

subject matter reg of performing the contract Person contracted Nature of Contract

Physical Impossibility Legal Impossibility

Existence Identity Quality Quantity Title Price

 Lawful Object

 The object of the agreement should

be lawful.
 Should not be –
 Illegal
 Immoral
 Opposed to public policy (Sec. 23)
 Certainty of Meaning

 Sec29 –
 “agreements the meaning of which is not certain or
capable of being
made certain are void”
 the terms of contracts must be
precise and certain. It must not be
left vague
 e.g.: Hire –purchase terms
 Possibility of Performance

 If the act is impossible in itself

 It could be physically or legally
 Ultimately it cannot be enforced by law

 Eg: discovery of treasure by magic

 Not Declared Void or Illegal

 The agreements though

satisfying all the conditions for
the valid contract must not be
declared void or illegal by any
law in force in the country

 Sec-24-30 agreements are

declared void and illegal
 Law of Contract (LOC)
 Legal formalities –
 A contract may be made by words spoken or written and
may be legally valid.
 Where there is a statutory requirement that a contract
should be made in writing or in the presence of a witness
or registered, the required statutory formalities must be
complied with (Sec. 10,para 2)
 Law of Contract (LOC)

 Difference between Agreement and Contract

Agreement Contract

Offer and acceptance form an Agreement and enforceability

agreement constitute a contract
Agreement may not create any legal A contract is enforced by law
obligation
An agreement is wider concept A contract enforces legal relationship

Agreement is not binding A contract is binding

 Kinds of Contract

 Valid agreements- this kind of agreement is easily enforced by

law
 Void agreements-sec2 (g) - this agreement is not enforced by
law

eg: Agreement in restraint of trade

Agreement in restraint of marriage

 Enforceable agreement- an agreement is enforceable by law
 Classification of Contracts

Contracts are classified on the basis of……..

Contracts

Validity Performance
Formation
 Valid or Enforceability

 Valid contracts
 Void contracts
 Void agreements
 Voidable contracts
 unenforceable contracts
 Illegal agreements
 Valid Contract

 This contract is enforceable at law

 It becomes a contract when all legal essentials are met


Agreements falling short of legal requirement of sec

10 are valid contracts

 e.g.: A& B house dealing
 Void Contract

 An agreement was legally

enforceable when entered into
but now lost the possibility of
performance due various
reasons

 Eg: Citizen of India having

business deal with Pakistan
 Voidable Contract

 it is such a contract which can be set aside at the option of one of the parties to the
contract. The party who can rescind the contract is the aggrieved, the other party
who causes the wrong can set aside the contract
 Indemnity and Guarantee
 Indemnity -
 A contract by which one party promises to
save the other from loss caused to him by the
conduct of the promisor himself, or by the
conduct of any other person is called a
‘contract of indemnity’ (Sec. 124).
 Discuss……
 Contract of Guarantee
 Guarantee -
 A ‘contract of Guarantee is a contract to perform the
promise, or discharge the liability, of a third person in case
of default’.
 The person who gives the guarantee is called the ‘surety,
the person in respect of whose default the guarantee is
given is called the ‘principal debtor’ and the person to
whom the guarantee is given is called the ‘creditor’.
 Guarantee – Written or Oral (Sec.126)
 Types of Guarantee
 Specific Guarantee
 Continuing Guarantee
 Difference – Indemnity and Guarantee
Contract of Indemnity Contract of Guarantee
Two parties to contract -Indemnifier Three parties to contract – the Creditor,
(Promisor) and the Indemnified the principal debtor and the surety.
(Promisee).
Liability of the Indemnifier to the Liability of the surety to the creditor is
Indemnified is primary and independent. collateral or secondary.

Only one contract Three contracts

Not necessary for the Indemnifier to act Surety gives guarantee at the request of
at the request of the indemnified. the debtor.
Liability on happening of the contingency Existing debt or duty – performance
guaranteed by surety
Cannot sue third party – only in case of Surety steps in as creditor – can sue the
an assignment. principal debtor
 Extent of Surety’s Liability
 It is co-extensive – (Sec. 128)
– The Quantum of obligation
is the same as the principal
debtor, unless there is a
contract to the contrary.
 Surety is liable for what the
principal debtor is liable –
Liability of the surety cannot
be more nor less than that of
the principal debtor.
 Rights of Surety

 Surety has rights against

1. The Creditor

2. The Principal debtor

3. The Co-Sureties.
 Rights Against Creditor
1. Before payment of the Guaranteed debt
E.g. In case of Fidelity guarantee, the surety can ask the employer to dismiss the
employee in the event of his proven dishonesty.

2 Right of Set – Off – Surety can rely on any counter-claim that which the
debtor has against the creditor

3 On payment of the guaranteed debt- (Sec. 141)

-Subrogated rights from the creditor
4 Rights to equities – Claim to all equities on payment of Debt
5 Rights of Subrogation – (Sec. 140) - The surety steps into the
shoes of the Creditor on payment of the guaranteed debt
 Rights against Principal Debtor

1. Right to be relieved of liability – The surety can

compel the Principal debtor to relieve him from the liability by paying
off the debt.

1. Right to Indemnity – (Sec. 145) – The surety can

recover the money paid by him from the Principal debtor with interest
any damages. The surety becomes the Principal Debtor.
 Rights against Co- Sureties
 Right of Contribution – (Sec. 146 and 147) – Equality
of burden and benefit.

1. Co – Sureties liable to contribute equally – (Sec.

146)

2. Liability of Co – Sureties bound in different sums –

(Sec. 147)

3. Release of a Co – Surety – (Sec. 138)

 Discharge of Surety
 Discharge of Surety by revocation
(Sec. 130, 131 and 62)
 Discharge of surety by the conduct of the
Creditor
(Sec. 133 to 139 and Sec. 141)
 Discharge of surety by invalidation of
contract
(Sec. 142, 143 and 144)
 Discharge of Surety by Revocation
1. Revocation by surety by giving notice to creditor –
(Sec. 130) – continuing guarantee may be revoked.
Accrued liability cannot be revoked.
2. Revocation by death – (Sec. 131) – estate of surety
not liable in case of his death whether the creditor
has notice of it or not.
3. Revocation by novation – (Sec. 62) - mutual
discharge of old contract. The original contract of
guarantee in such case comes to an end.
Discharge by conduct of Creditor
1. Variance in terms of contract – (Sec. 133)

2. Release or discharge of principal debtor – (Sec. 134)

3. Compounding by creditor with principal debtor – (Sec.

135)

4. Creditor’s act or omission impairing surety's eventual

remedy – (Sec. 139)

5. Loss of Security - (Sec. 141)

 Discharge by invalidation of contract

1. Guarantee obtained by mis

-representation – (Sec. 142)
2. Guarantee obtained by concealment –
(Sec. 143)
3. Guarantee on contract that creditor shall
not act on it until a co surety joins – (Sec.
144)
4. Failure of Consideration
 Contract of Bailment
 What is contract of bailment?
 The word bailment is derived from the
French word ‘bailer’ which means ‘to
deliver Etymologically’
 In legal sense it involves change of
possession of goods from one person to
another for some specific purpose.
 ‘Bailor’ - ‘Bailee’ concept – Sec. 148
 Classification of Bailments
 For exclusive benefit of the Bailor
 For exclusive benefit of the Bailee
 For the mutual benefit of the Bailor and
the Bailee
 Bailment may also be classified as:
1. Gratuitous Bailment
2. Non-Gratuitous bailment – bailment for
reward
 Duties of the Bailor
 To disclose known faults – (Sec. 150, Para 1)
 To bear extraordinary expenses of bailment –
(Sec. 158)
 To indemnify bailee for loss in case of
premature termination of gratuitous bailment –
(Sec. 159)
 To receive back the goods
 To indemnify the bailee – (Sec. 164)
 Duties of Bailee
 To take reasonable care of the goods bailed – (Sec. 152)

 Not to make any unauthorized use of goods – (Sec. 154)

 Not to mix the goods bailed with his own goods – (Sec. 155 &
156)

 Not to set up an adverse title – (Sec. 117 of indian evidence

act)

 To return any accretion to the goods – (Sec. 163)

 To return the goods – (Sec.161)

 Rights of Bailor
 Enforcements of rights

 Avoidance of contract

 Return of goods lent gratuitously

 Compensation from a wrong-doer

 Rights of Bailee
 Delivery of goods to one of several joint bailors of goods

 Delivery of goods to bailor without title

 Right to apply to court to stop delivery

 Right of action against trespassers

 Bailee’s lien
 Termination of Bailment
 On the expiry of the period

 On achievement of the object

 Inconsistent use of goods

 Destruction of the subject-matter

 Gratuitous bailment

 Death of the bailor or the bailee

 Questions

 Mention any two rights of Bailor and Bailee?

 Mention conditions for termination of Bailment?

 Mention two duties of Bailor and Bailee?

 Contract of Agency
 Definition – Involvement of third party to run the day-to-
day affair of a business

 The businessman acts as a principal and the third party

as his agent.

 An ‘Agent’ is a person employed to do any act for

another, or to represent another in dealings with third
persons.

 The person for whom such act is done, or who is so

represented is called the ‘Principal’.
 Kinds of Agency
 Agency by express agreement

 Agency by ratification

 Agency by implied agreement

1. Agency by estoppel

2. Agency by holding out

3. Agency by necessity
 Questions

 Define contract of agency?

 Mention the three main kinds of agency?

 Define an agent and principal?

 What are the general classification of agents?

 Classification of Agents
 General classification
 Special Agents
 General Agents
 Universal Agents
 Classification based on nature of work
 Commercial or Mercantile Agents
 Banker
 Non-mercantile Agents
 Duties - Agents

-
To carry out the work
 undertaken according to the directions given by the principal.
 With reasonable care, skill and diligence.
 Render proper accounts to his principal.
 Communicate with the principal in case of difficulty.
 Not to deal on his own account.
 Pay sums received for the principal.
 Protect and preserve the interest of the principal – Death or insolvency
 Not to use information obtained to the course of the agency against the
principal.
 Not to make secret profit from agency.
 Not to set up an adverse title.
 Not to put himself in a position where interest and duty conflict.
 Not to delegate authority.
 Rights - Agents
 Right of retainer.
 Right to receive remuneration.
 Right of lien.
 Right of indemnification.
 Right of compensation.
 Right of stoppage of transit.
 Duties - Principal
 To indemnify the agent against the consequences of all
lawful acts (Sec. 222)

 To indemnify the agent against the consequences of acts

done in good faith (Sec. 223 & 224)

 To indemnify agent for injury caused by principals neglect

(Sec. 225)


To pay agent the commission or other remuneration agreed.
 Rights - Principal
 To recover damages.

 To obtain an account of secret profits and

recover them and resist a claim for
remuneration.

 To resist agent’s claim for indemnity against

any liability incurred.
 Performance of
Agreement
the contract

Expiry of
Time
Revocation by
the principal By act of Parties

Death of either
party
Revocation by
Insanity of either the agent
party

Insolvency of
either parties

Destruction of the
Subject matter

i r Pgni moce b
la nA

Dissolution of a
Company
Termination of Agency (Sec. 201)

Termination of sub-
By Operation of Law

agent’s authority
 Questions
 What are the general classification of agents?
 What are the classification of agents based on the nature
of work?
 Mention Two rights of an agent and principal?
 Mention two main reasons for termination of an agency?
 Sale of Goods
 Law of Sale of Goods - 1930
 Prior to 1930, the Sale of Goods act is
contained in Chapter VII of Indian contract
act.
 Breach of contract of sale – The measure of
damage is prescribed in Sec. 73 and Sec. 74 of
the contract act.
 Formation of Contract of Sale
 A contract of sale of goods is a contract
whereby the seller transfers or agrees to
transfer the property to goods to the buyer for
a price.
 A contract of sale may be absolute or
conditional {Sec. 4(2)}
 Sale and agreement to sell.{Sec.4(4)}
 Essentials of a Contract of Sale
 Two Parties – Buyer and Seller
 Goods
 Price
 Transfer of general property
 Essential elements of a valid contract

 Contract of sale how made

 Classification of Goods

Contingent
Goods/
Contingent and
Future Goods
 Distinction – Sale and Hire Purchase
Sale
Ownership is transferred from seller to
buyer upon entering into contract
Hire-purchase agreement
Ownership is transferred from the seller to
the hire-purchaser only when a certain
agreed number of installments is paid

The position of the buyer is that of a The position of a Hire-purchaser is that of

owner a Bailee

The buyer cannot terminate the contract The hire-purchaser has the option to
and as such is bound to pay the price of terminate the contract at any stage and
the goods. cannot be forced to pay the further
instalments.

If the payment is made by the buyer in The instalments paid by the Hire-purchaser
instalments the amount payable by the are regarded as hire charges and not as
buyer to the seller is reduced for the payment towards the price of the goods till
payment made by the buyer for the goods option to purchase the goods is exercised.
 Questions
 What is contract of sale of goods?
 A contract of sale may be _________ or
__________
 What is the meaning of Property to goods in a
sale?
 What are the man classification of goods?
 Can consideration for sale be in the form of
goods? What is it called when it is in the form of
goods?
 Conditions and Warranties
Condition – {Sec. 12(2)}. A condition is a stipulation
which is essential to the main purpose of the contract .
It goes to the root of the contract.
Its on fulfillment upsets the very basis of the cotract.
Fletcher Moulton describes condition as an “obligation
which goes so directly to the substance of the contract
or, in other words is so essential to its very nature, that
its non-performance may fairly be considered by the
other party as a substantial failure to perform the
contract at all”
If there is a breach of condition, the aggrieved party can
treat the contract as repudiated.
 Conditions and Warranties
Warranty – {Sec. 12(3)}. A warranty is a
stipulation which is collateral to the main
purpose of the contract. It is not of such vital
importance as a condition is.
It is defined as “ obligation which, though it
must be performed, is not so vital that a
failure to perform it goes to the substance of
the contract”.
Distinction - Condition and Warranty
Condition Warranty
Is a stipulation which is Is a stipulation which is collateral
essential to the main purpose to the main purpose of the
of the contract contract.
If there is a breach of a In case of breach of Warranty,
condition, the aggrieved party the aggrieved party can claim
can repudiate the contract of damages only.
sale
A breach of a condition may be A breach of Warranty, however,
treated as a breach of cannot be treated as a breach of
Warranty. This would happen condition.
where the aggrieved party is
contented with damages only.
 Condition treated as Warranty
Voluntary Waiver of Condition – Where a contract of
sale is subject to any condition to be fulfilled by the seller,
the buyer may (a) waive the condition, or (b) elect to treat
the breach of condition as breach of warranty Sec. 13(1).
If the buyer decides to waive the condition, he cannot
insist on the fulfillment at a later point.
Acceptance of goods by the buyer – Where a contract of
sale is not servable and the buyer has accepted the goods
or part thereof, the breach of condition to be fulfilled by
the seller can only be treated as a breach of warranty,
unless there is a term of the contract, express or implied,
to the contrary. Sec. 13(2)
 Unpaid seller
Who is an Unpaid Seller?
A seller of goods is deemed to be an unpaid seller whe n –
(1)The whole of the price is not paid or tendered
(2) A bill of exchange or other negotiable instrument has
been received as a condition of payment and the condition
on which it was received has not been fulfilled by reasons
of dishonour of the instrument or other wise.
Conditions – Deemed as Unpaid Seller
Must be Unpaid and the price must be due
Must have an immediate right of action for the price.
A bill of exchange or other negotiable instrument was
received but the same was dishonored.

‘Seller’ here means not only the actual seller, but also any
person who is in the position of a seller

E.g.. An agent of the seller to whom a bill of lading has

been endorsed, or a consignee or agent who has himself
paid for the goods or is directly responsible for the price.
Sec. 45(2).
 Rights of an Unpaid Seller

Against the goods Against the buyer personally

Property in goods has Property in goods has not

passed Sec. 46(1) passed sec. 46(2)

Re – Sale
Lien Stoppage in With Holding Stoppage in
Transit Delivery Transit

Suit for Suit for Repudiation of Suit for

price damages contract interest
 Remedies for breach of contract
Seller’s Suit –
(1) Suit for price Sec. 55
(2) Suit for damages for non acceptance of goods
Sec. 56
(3) Suit for damages for repudiation of contract by
the buyer before the due date Sec. 60
(4) Suit for interest Sec. 61(2)(a)
 Remedies for breach of contract
Buyer’s Suit -
(1)Suit for damages for non delivery of goods Sec. 57
(2) Suit for specific performance Sec. 58
(3) Suit for breach of Warranty Sec. 59
(4) Suit for damages for repudiation of contract by the
seller before the due date Sec. 60
(5) suit for interest Sec. 61(2)(b)
 Questions
 Mention any two remedies of breach of contract by the
seller and buyer
 Against whom does the unpaid seller has rights
 Give two distinctions between condition and warranty
 Define condition and warranty