2013-

14

BUSINESS
LAW
Semester - I

Saket Jeswani
Department of Management Studies,
Rungta College of Engineering & Technology, Bhilai
 2013-14

Business Law
Indian Contract Act – 1872
Sale of Goods Act - 1930

UNIT 1

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 Business
Law

Saket Jeswani
Associate Professor,
MBA, RCET, Bhilai

Index
• What is Business?
• Meaning & Nature of Law
• Characteristic of Law
• Relationship between Business & Law
• Course Objective
• Course Content
• Outline of the Course
• Course Outcomes
• Important Business Laws
• Books

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 What is business?

1. A business (also known as enterprise or firm) is an organization engaged in

the trade of goods, services, or both to consumers/customers.

2. Businesses are privately owned and administered to earn profit to increase

the wealth of their owners. Businesses may also be not-for-profit or state-
owned.

3. A business owned by multiple individuals may be referred to as a company.

4. An economic system in which goods and services are exchanged for one
another or money, on the basis of their perceived worth. Every business
requires some form of investment and a sufficient number of customers to
whom its output can be sold at profit on a consistent basis.
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Meaning & Nature of Law

• What is Law? ( Legally Accepted Ways)

1. “A set of rules derived by the State to regulate the conduct of its

people, recognized by the State and enforced by it on its people
termed as Law”
2. “Business Law represents all those legal rules which are connected
with Trade, Industry & Commerce”

• Nature of Law -- Changing (Non Static)

• Objective – Establishing Order

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 Characteristics of Law
• A body of rules
• For the guidance and conduct of persons
• Imposed
• Enforced by the executive
• Presupposes a State
• Contents are non-static
• Develop Social Order & Compel Social Member to
remain in order
• Serves Social/Political/Economic purpose
• Law & Morality
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Relationship between Business & Law

• The Business Law focuses on the fundamental relationship between law and
business and is ideal for those planning careers in a wide range of business
areas including professional accounting, business management, international
trade and industrial relations.

• Business Law helps to recognise, analyse and, where possible, avoid many of
the legal problems that can arise in the course of common business
transactions.

• Further, and perhaps more importantly, where such avoidance is not possible,
business can acquire knowledge and skills that will empower you to
intelligently request, understand and act on legal services and advice.

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 COURSE OBJECTIVES

• The objective of this course is to assist the students in

understanding basic laws affecting the operations of a
business enterprise.
• A student is supposed to understand the basic business
implications of these laws.
• To make students aware of the legal issues involving
businesses and how to deal with them.

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Course Content
•Indian Contract Act, 1872: Nature of Contract, Offer and Acceptance, Consideration,
Capacity to Contract, Free Consent, Performance of Contract, Discharge of Contract,
Remedies for Breach of Contract. Special Contract: Indemnity and Guarantee.
UNIT I
•Sale of Goods Act, 1930: Formation of Contract of Sale: Contract of Sale of Goods, Sale
and Agreement to Sell Distinction, Sale and Hire-purchase Agreement, Subject matter of
Contract of Sale: Effect of Destruction of Goods, document of Title to Goods.
•Patent law: Application for patents, procedure for grants of patents, working of patents,
compulsory licenses and revocation, renewal of lapsed patents.
UNIT II
•Law relating to consumer protection: Consumer and consumer dispute- consumer
protection courts – consumer dispute redressal agencies.
•The Partnership Act, 1932: Definition, Partnership Distinguished from other relationship,
UNIT III Formation of Partnership, Duration of Partnership, registration of Firm, Procedure of
Registration of Firms, effects of Non-Registration.
•The Companies Act, 1956: Definition of Company, Nature of Company, Kinds of
UNIT IV Companies, Formation and Incorporation of Company, Memorandum of Association,
Articles of Association, Prospectus, membership in a Company.
•The Negotiable Instruments Act, 1881.
UNIT V •Law of Information Technology Act, 2000: Digital signature, electronic governance,
electronic records and cyber laws.
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 Outline of the Course

1. Indian Contract Act, 1872

2. Sale of Goods Act, 1930
3. Patent law
4. Consumer protection Act, 1986
5. The Partnership Act, 1932
6. The Companies Act, 1956
7. Negotiable Instruments Act, 1881
8. Law of Information Technology Act, 2000

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Course Outcomes
Sl. Mapping Pedagogical Assesssment
Course Outcomes
No. Units Tools Tools
Understand various laws related to
1 All
business

Understand the practical implications of Attendance,

2 various business laws in the operations of All Assignments,
a business enterprise. Lecture,
Class Tests,
Video Cases,
End-Sem
Case Analysis,
Gain skills and knowledge to operate a Exams,
3 All Presentation
business under legal consideration. Case Analysis

Gain ability to advice, recommend and give

4 All
suggestions as legal advisor.

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 Important Business Laws
• Business structure laws: It depends on types of business.
• Zoning Laws: It deals with the kind or type of business allowed in certain areas,
how the land surrounding a business is used, signboards, advertisements, and
parking.
• Licensing Laws: In order to operate a business certain licenses are required a.
If a business operates without these licenses, it is illegal and the business may
be dissolved or forced to close.
• Trademark and Patent Laws: These are laws that deal with ownership;
intellectual property rights, and inventions. They are necessary to protect the
business.
• Employment Laws: These are laws regarding the hiring and firing of
employees, their rights, compensation, safety, work place discrimination, child
labor laws, overtime pay structure, disability laws and unemployment laws.

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Important Business Laws

• Tax Laws: This section deals with filing of tax returns and depends on the kind of
business entity and the state the business operates in, sales tax. These include
franchise tax, income tax and other state and federal tax requirements of a
business.
• Environmental Laws: The government enforces the environmental laws for the
discharge of hazardous waste and the recycling laws pertaining to the business.
• Health Department Permits: This is necessary if your business deals with food
products. You must get health department permits to operate your business.
• Fire Department Permits and Air and Water Pollution Control Permits: There are
laws that certain kinds of business entities must get permits from these
departments to operate.
– The list above contains basic business laws you need to know before starting a
company.
– It is necessary to take precautions that you are not violating any law by
operating your business.
– You must obtain all the necessary permits and licenses from the appropriate
authority.

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 Books

Sr. No. Name of the Book Author Publisher

Mercantile Law
1 [Link] [Link] & Sons

New Age
Business Law Including S.S. Gulshan
2 International
Company Law G.K. Kapoor
Publisher
Legal Aspects of Cengage
3 Ravindra Kumar
Business Learning
Business Law for Himalaya
4 K.R. Bhulchandani
Management Publication

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 Sale of Goods Act
1930

Saket Jeswani
Associate Professor,
MBA, RCET, Bhilai

Index
• Introduction
• Contract of Sale
• Essential Elements of Contract of Sale
• Contract of Sale Includes
• Sale and Agreement to sell
• Distinction: Sale and Agreement to sell
• Formalities of a contract of sale
• Transfer of property
• Subject Matter of Contract
• Hire-Purchase Agreement
• Distinction between Sale & Hire-Purchase Agreement
• Examples

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 Introduction

• The law of sale of goods was contained in chapter VII

of Indian Contract Act, 1872 under section 76 to 123.
• Now, the laws relating to it is contained in the Sale of
Goods Act, 1930.
• The act contains all the rules and regulations relating
to various types of contracts for the sale of goods.
• It only deals with the sales of movable goods.
• Contract of immovable properties are regulated by
Transfer of Property act, 1882.

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Contract of Sale
• “A contract of sale of goods is a contract
whereby the seller transfers or agrees to
transfer the property in goods to the buyer
for a price”.
• Under the contract of sale, a seller in the capacity of owner,
or part-owner of goods, transfer or agrees to transfer the
ownership in goods to the buyer for an agreed value in
money called the price, paid or promise to pay same.
• There may be a contract of sale between one part-owner
and another [sec.4(1)]
• A contract of sale may be absolute or conditional [sec.4(2)].
• The term ‘Contract of Sale’ includes both a sale and an
agreement to sell.
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 Contract of Sale

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Contract of Sale

Sec. 5(1)

Sec. 5(2)

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 Essentials of a Contract of Sale
1. A contract.
(all essentials of valid contract applicable)
2. Between two parties.
3. To transfer or agree to transfer the property
(Transfer of ownership)
4. In goods.
5. For a price, i.e. the consideration is money.
6. Includes both a ‘Sale’ and ‘an agreement to sell’.

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Contract of Sale Includes

Contract of Sale
includes

Agreement
Sale to Sale

The good is transferred from Transfer of goods is to take place

seller to the buyer i.e at future time or subject to some
immediate transfer of conditions thereafter to be
ownership fulfilled

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 Sale and Agreement to sell
• Under a Contract of Sale, the property in the goods is
transferred from seller to the buyer, the contract is called
a ‘Sale’.

• When the transfer of the property in the goods is to take

place at future time or subject to some conditions
thereafter to be fulfilled, the contract is called an
‘agreement to sell’. [sec 4(3)].

• An agreement to sell becomes a sale when the time

elapses or the conditions, subject to which property in the
goods is to be transferred are fulfilled [sec.4(4)].

• "Sale" is a NOUN meaning "the act of selling. "Sell" is a

VERB meaning to sell, or exchange something for money
or other goods.

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Distinction: Sale and Agreement to sell

Feature Sale Agreement to Sell
Transfer of Immediately at time of making of At future time subject to conditions
Ownership contract to be fulfilled
Nature of Executed Contract (Contract Executory Contract
Contract +Conveyance or fulfilled contract) (Pure & Simple Contract)

Nature of rights Jus in rem Jus in personam

of buyer (rights of buyer to claim goods) (rights of either party against each
other for any default)
Consequences of Seller may sue for the price Seller may sue for damages
breach by buyer

Risk of loss Buyer will bear the risk of loss Seller will bear the risk of loss
Insolvency of Buyer is entitled to recover the Buyer cannot claim the goods even if
seller goods price is paid
Insolvency of Seller must deliver the goods -
buyer
Consequences in Suit for damages against the seller Suit for damages against the seller
case of resale & right to recover the goods from
the subsequent buyer
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 Formalities of a contract of sale
• A statement or conduct inviting the making of an
offer such as by display of goods in a shop, binds
the shopkeeper to accept the customer’s offer at
the price displayed or advertised. Such invitation,
therefore, differs from an offer, which is intended
to be binding on the person making it and is
capable of being accepted without any further
negotiation.
• Where, however, the accessibility to goods is intended to an offer capable
of acceptance by customer’s act such as filling the petrol tank of a car
from a self service pump or choosing items in a self service shop or taking
goods intended for sale for an automatic vending machine the question of
obtaining seller’s assent does not arise.

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Transfer of property
• Transfer of property means transfer of ownership. Mere
transfer of possession can not be termed as a sale.
• ‘Property means general property in goods and special
property.’
• General property means having all ownership rights.

• Special property means limited rights

property. It is a property right or qualified
interest in property (as the interest of a
bailee, lawful possessor, a conditional
vendee prior to full payment, or a
lienholder) subordinate to the absolute,
unconditional or general property or
ownership Agriculture Land
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 Subject Matter of Contract
• Goods: According to section 2(7) of the Sale of Goods Act,
1930, Goods means every kind of movable property, other
than actionable claims and money; and includes stocks,
shares, growing crops, grass, and things attached to or
forming part of the land which are agreed to be severed
before sale or under the contract of sale.

Thus, goods defined as every kind of movable property except

actionable claims and money.

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Kind of goods
1. Existing goods - these are the goods which are in existence and are
physically present in the sellers possession. They are further classified as
1) Specific goods - these are the goods identified and agreed upon at the
time the contract is made.
2) Ascertained goods - these are identified after the formation of the
contract.
3) Unascertained goods - these are the goods which are not specifically
identified or agreed upon at the time of the contract of sale.

2. Future goods – goods either do not exist at the time of contract or exist
but have to be acquired by the seller.

3. Contingent goods - goods whose acquisition by the seller depends on a

contingency, which may or may not happen.

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 Price consideration

• The consideration for the contract of sale must be money. If goods

are exchanged against goods the transaction is barter and not
covered by the act. However consideration may be partly in money
and partly in goods.
• Sec.2(10) defines the price as ‘the money consideration for the sale
of goods.’
• Price has to be in terms of money.
• All monitory payments do not amount to price.
• Fixing the price is determined by the course of dealings of the
parties. when price is not fixed by any of the above modes a
‘reasonable price’ is considered as the price of the contract.
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Time

• Stipulated time for payment of price:-

• Time of payment is not considered the essence of the
contract unless a different intention appears from the terms
of the contract. Thus, if payment is not made in time the
seller can not avoid the contract but can claim damages.

• Stipulated time for delivery of goods:-

• Time of delivery of goods is normally considered essence of
the contract. Thus non performance at stipulated time will
render the contract voidable at the option of the buyer.

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 Perishing of goods
The possible causes of perishing of goods:-

1. Physical destruction of goods.

2. Damage of goods in such a manner that they loose their
commercial value.
3. Loss of goods by theft.
4. Lawful acquisition of goods by government.

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Effect of perishing of goods

• Goods perishing before formation of the contract - in case of specific goods
such contract is void as the performance of the contract is impossible due to
destruction of subject matter.
• Goods perishing before the sale but after the agreement to sell - in case of
specific goods the contract of sale becomes void and both parties are excused
from the performance.
• Effect of perishing of future goods - where there is an agreement to sell
specific goods, and subsequently the goods without any fault on the part of the
seller or buyer perish or become so damaged as no longer to answer to their
description in the agreement before the risk passes to the buyer, the
agreement is thereby avoided.’

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 Hire-Purchase Agreement

• It is basically a contract of hiring under which owner delivers goods on

lease basis to a person ‘hirer’, but in addition, owner gives the hirer an
option to purchase the goods at the end of the hiring period.
• Possession is with the hirer, the ownership of the goods remains with
the original owner until the full price is discharged by the hirer.
• The hirer, under this agreement, is required to pay a fixed sum of
money on periodical basis. And, if he pays the agreed amount in
instalments, the hirer will become the owner of the goods after paying
the last instalment.
• Incase, the hirer fails to pay any instalment, the owner can terminate
the contract and take back the goods.
• The essence is that, there is no agreement to buy, but only an option for
the hirer to buy the goods by paying all the installments, or put an end
to the agreement & return the goods to the owner

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Distinction between
Sale & Hire-Purchase Agreement
Feature Sale Hire-Purchase Agreement
Transfer of Executed Contract Upon payment of all
Ownership installments
Position of Buyer Owner of goods Bailee till last installment is paid

Right to Buyer cannot terminate the Hirer can terminate at any stage
terminate the contract
contract
Mode of Contract Oral or written In writing

Possession of Immediate possession is not Immediate possession is must

goods needed along with transfer without transfer of ownership
of ownership
Act applicable Sales of Goods Act, 1930 Hire Purchase Act, 1972
Sales Tax Sales Tax/VAT is applicable Not applicable until it becomes
sale
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 Distinction between
Sale & Hire-Purchase Agreement
Feature Sale Hire-Purchase Agreement
Benefit of conditions & warranties are Hirer cannot claim the benefits
implied implied of conditions & warranties
conditions &
warranties
Insolvency of Seller takes the risk & gets Owner can take back the
buyer ratable dividend goods
Resale Buyer can resale the goods Hirer cannot transfer any title
as he becomes owner as he is only bailee
Risk of loss Lies with buyer even if price Risk of loss or deterioration
paid in installments lies with owner

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Documents of Title to Goods

• A document of title to goods is one, which entitles and enables its

rightful holder to deal with the goods represented by it, as if he were
the owner.
• It is used in the ordinary course of business as proof of the
ownership, possession or control of goods.
• It authorizes the possessor to receive the goods.
• It also confers a right on the possessor to transfer the goods to
another person, by mere delivery or by proper endorsement the
delivery.
• Cash memo, bill of lading, dock warrant, warehouse keeper's
certificate, lorry receipt (L/R), railway receipt (R/R) and delivery order
are some of the instances of document of title to goods.

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 Examples
• A agrees to buy a haystack from B on B’s land with liberty to come on B’s
land to take it away. This is a sale and B cannot revoke the licence given
to A to woo on his land.

• Agreement by A to buy 20 tonnes of oil from the seller’s cisterns. The

seller has many cisterns, with more than 20 tonnes in them. This is
merely an agreement to sale.

• Agreement for sale of a quantity of nitrate of soda to arrive at a certain

ship. This is an agreement to sell at a future date subject to the double
condition of the arrival of the ship with the specified cargo on board.

• A customer who picks up goods in a self-service shop is merely offering

to buy them and the sale is not complete until they are paid for.

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Examples
Q1. X agreed to sell Y 100 bags of cement from his stock of 1000 bags.
The entire stock was reduced to concrete due to rainwater. Decide?
Ans: The contact is void for the destruction of subject matter.
Q2. A sells a rare painting to B on cash-on-delivery basis. B
subsequently refuses to accept the delivery. Decide?
Ans: A can sue B for the price. Besides he can also resale the product.
Q3 X sold his car to Y to be delivered on a future date upon payment of
price. While the car was still in possession of X, buyer proved insolvent.
Decide?
Ans: X shall be entitled to ratable dividend.
Q4. A delivers a horse to B on trial for a week. The horse dies on the
forth day without any negligence on part of B. Is b liable to pay the
price?
Ans: No. B is not liable to pay the price because the ownership has not
yet transferred to him.
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 Examples
• For the purpose of making uniform for the employees, Bansi Bhaiya
bought dark blue coloured cloth from Vivek, but did not disclose to the
seller the purpose of said purchase. When uniforms were prepared and
used by the employees, the cloth was found unfit. However, there was
evidence that the cloth was fit for caps, boots and carriage lining. Advise
Bansi Bhaiya whether he is entitled to have any remedy under the sale of
Goods Act, 1930?
• Answer: As per the Sale of Goods Act, 1930, an implied condition in a
contract of sale that an article is fit for a particular purpose only arises
when the purpose for which the goods are supplied is known to the
seller, the buyer relied on the seller’s skills or judgement and seller deals
in the goods in his usual course of business. In this case, the cloth
supplied is capable of being applied to a variety of purposes, the buyer
should have told the seller the specific purpose for which he required
the goods. But he did not do so. Therefore, the implied condition as to
the fitness for the purpose does not apply. Hence, the buyer will not
succeed in getting any remedy from the seller under the Sale of Goods
Act.
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Examples
• With a view to boost the sales, Hanuman Automobiles sells a
motorcar to Mr. A on trial basis for a period of three days with a
condition that if Mr. A is not satisfied with the performance of the
car, he can return back the car. However, the car was destroyed in a
fire accident at the place of Mr. A before the expiry of three days.
Decide whether Mr. A is liable for the loss suffered.
• Answer: According to the Sale of Goods Act, 1930, the contract
becomes void if the goods are destroyed or do not answer to the
description in the agreement before the risk passes on to the buyer.
In the given case that the subject matter of the contract i.e Motorcar
was destroyed before the transfer of property from the seller to the
buyer. Thus the risk passes only when the ownership is transferred to
the buyer. Therefore, in the present case Mr. A is not liable for the
loss suffered due to the fire accident over which A has no control.
Thus M/s. Hanuman Automobiles will have to bear whatever loss that
has taken place due to the fire accident.

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