In the advent of technology, many companies are engaging in international business. International markets present lucrative opportunities for companies where domestic markets are mature or saturated. However, international business also presents a challenge as the laws governing contracts and sale of goods vary from country to country. It is fundamental for all business managers to understand the intricacies governing the sale of goods and contracts in order to avoid the legal burden and negative publicity associated with breach of sale of goods contacts. Legal proceedings take time, are expensive, and bring bad publicity to the company thus should be avoided at all cost.
Understanding business law is critical for companies in any field. Companies should not only observe laws governing sale of goods and formation of contracts they should also ensure they engage in ethical business practice. Many legal issues today arise because companies are engaging in questionable business practices with an aim making more profit with no regard of the consequences of their actions on consumers. This paper presents an in-depth discussion into sale of goods contacts. It also explores the intricacies surrounding ethical business considerations due to moral obligation owed to consumers by companies.
Formation of Contacts
According to Beatty and Samuelson (2009) a legally binding agreement between two or more parties constitutes a contract. For a contact to be enforceable in court of law, it must contain some basic elements. The elements include: the contract should be between two or more parties; and the contact should have a legal subject matter, an offer, acceptance, and consideration. A company engaging in, business to business, or business to consumer transactions for the sale of goods should follow due process and ensure that all contact have the essential elements of a legal contract. In some types of business, transaction between the company and buyer may take a long period before completion while other transactions may take just a few minutes. However, despite of the time taken to complete a contact a company should ensure there is no breach of contact by the parties to the contract. According to Miller and Jentz (2010) a contract where the parties to the contract have not performed all their legal obligations is an executor contract whereas a contact where the parties to the contract have already performed their obligation is an executed contract.
According to Miller and Jentz (2010) for contract to be legally binding the parties to the contract must be competent that is: they have to be of the legal age, eighteen years and above, they should be sane, and not bankrupt. Where a company enters into a contact with a minor and there is breach the contract cannot be enforced in court of law. Additionally when entering into a contact a company should ascertain that, the other person is of sound mind and he or she is not bankrupt. An organizations that advances credit or sell goods and services to consumers on credit should carry out obtain background information on contract to ensure that the contracts binding.
Every contract must have a legal subject matter in order to be enforceable in court of law. The subject matter of the contract determines the legality of the contract (Miller & Jentz, 2010). Where parties A & B enter into a contract for the sale of a good C they should ascertain that it is legal to trade good C in the country where the contact is formed. Where a good subsequently becomes illegal before two parties perform their obligations to the contact for the illegal good the contact becomes voidable and cannot be enforced in court of law.
According to Liuzzo (2009) every contract begins with an offer. The offer permits the parties to establish the terms of the contract and identify the obligations that must be performed by each of the parties. This is done through bargaining until the parties to the contract reach an agreement. When entering into a contract for sale of goods or property the parties involved should avoid make statements that mislead or lure the other party into entering into the contract if those statements are not based on facts. Parties to a contact must differentiate between an invitation to treat and an offer. An invitation to treat is a mere statement of the willing to enter into contact (Miller and Jentz, 2010). An invitation to treat should not be taken as an offer.
According to Beatty and Samuelson (2009), there should be no vagueness in the terms of an offer, they must be definite otherwise that does not constitute an offer. During the offer, it is critical that the seller does not lure the buyer into the contract through misrepresentation of material facts. Misrepresentation of facts that are material when entering into a contract amounts to fraud. When the seller lures a buyer into entering into a contact through misrepresentation of material facts the buyer can void the contract. The buyer has to prove that the statements made by the defendant were not based on facts, the statements were meant to lure him or her into entering into the contract in order to prove misrepresentation and the defendant intended to commit fraud through misrepresentation. The buyer must prove beyond reasonable doubt that the decision to enter into the contract was based on the facts given to him or her by the other party to the contract or his or her agent.
According to Beatty and Samuelson (2009), the mirror image rule of acceptance states that for acceptance to be binding in the law of contract the terms accepted should be the same as the terms in the offer. Where the two parties deviate from the terms in the offer they will be creating a new contracting and the original contact cannot be enforced in court of law. Where there is deviation from the terms in the offer during acceptance and pone of the parties does not perform his or her obligation to the contact, the party who breaches the contact he or she is not liable for the initial contract. Any deviation from the terms in the acceptance makes the contract voidable (Burdick, 2009).
According to Miller and Jentz (2010), consideration is anything with value promised to the other party when getting into an agreement: consideration must be illegal. Where the consideration is not legal, the contract cannot be enforced in court of law.
Merchantability and fitness for purpose
According to the Sale of goods Act (1979) when consumer purchase goods from a trader there is an indirect situation that the goods are fit for use and their quality is merchantable. The Act further stipulates that to be of merchantable condition the goods should be safe for use. When the goods sold to a consumer are not fit for use or of merchantable condition, the buyer has a right to return the goods and claim compensation from the seller due to damages suffered. Sellers have an ethical obligation to sell goods, which are fit for use.
The Sale of goods Act (1979), states that when a sale is by description or sample, the goods delivered should correspond with the description or sample shown to the customer. In some instances when a buyer purchases a product in bulk, he or she may not be in a position to inspect each item. The seller may take advantage of the buyer’s inability to inspect every item and mix defective goods among a good batch. If the goods sold, do not correspond with the description or sample there is breach of contact by seller. The buyer has the right to void the contact and sue for damages or enforce the contract in court of law.
The Sale of goods Act (1979), stipulates that if the buyer had brought to the attention of the seller the purpose for the goods being purchased prior to the purchase the goods will be fit to perform the purpose effectively and efficiently. The buyer has the right to assume that the goods purchased are satisfactorily therefore fit for purpose; they will be able to be durable for reasonable period given the price paid and are safe for use. If the goods turn out to be defective, the buyer has a right to return them to the seller where the defects were not visible upon inspection during time of purchase. In case of defects discovered after purchase the buyer has a right to claim damages due to injury and distress suffered and can return the goods to the seller. Sometimes it may not be seller’s intention to sell defective goods, in determining merchantability of goods, nature of the defect must be taken into consideration and if the goods are reparable by the seller to become fit for purpose then they are said to be of merchantable quality. However if the goods cannot be repaired they are categorized to have not been of merchantable quality before the sale.
Sometimes consumers will purchase goods from a retailer who is just a supplier and then the goods turn out to defective. According to the Consumer protection, Act (1987) in the cases where defective goods cause damage to the consumer, liability will be on the producer of the goods, any person who has the right to produce such goods and suppliers of the goods if the good has changed hands many times. Although the supplier was not responsible for manufacturing the product, he or she should ensure that the goods he or she suppliers are fit for purpose and of merchantable condition.
Over the last few years there have been many legal issues concerning product callbacks due to manufacturing of goods, which are neither of merchantable condition or fit for use. Additionally, companies have been responsible for misrepresentation of material facts thus luring consumers into entering into contacts. Companies should not be blinded by profits thus turn to selling goods, which might be detrimental to the consumer. Examples of other unethical business practices include insider trading, consumer fraud, environmental pollution, manufacturing of products, which are hazardous to consumers and conflict of interest. Producers of goods and services have a moral obligation to consumers to produce goods, which are safe and fit for the purpose. E-commerce presents ethical dilemmas to the business community as some scrupulous organizations have found technologically advanced methods of defrauding consumers. Spamming, cyber crimes and redirecting traffic are ways that some organizations have turned to for financial gains.
In the formation of contracts, companies should ensure that due process is followed when entering into contracts with consumers. Companies have more legal knowledge than consumers have and may use this as a tool to defraud unsuspecting consumers. The law knows no ignorance and where the consumer fails to read the fine print before entering into a contract he or she has no defense in court of law. However, companies have moral obligation to advice their consumers accordingly before entering into contracts. Where a consumer entered into a contract without reading exclusion clause in a contract, he or she cannot enforce the contract in a court of law. Ethically the consumer would be able to have defense by following the law the consumer has no defense.
Consumer protection, Act (1987) guards consumers against scrupulous business organizations producing defective goods. The sale of goods Act governs all transactions for the sale of goods and services. However, scrupulous business organizations still find loopholes in the law, which they use to defraud consumers. Business organizations in an aim to get high profits sell defective goods to consumers, which they conceal through bribes of standard assurance agencies. The government through legislations should formulate policies to protect consumers from unethical business practices by organization. Hefty fines and public shaming of top management of companies engaging in unethical practices should be turned into law to deter other potential culprits. Management of companies manufacturing goods, which are not of merchantable conditions thus unsafe, should be banned from practicing and face jail terms.
During formation of contacts the parties of contact should be of legal competent, the contact should have a legal subject matter, offer, acceptance and consideration. A legally enforceable contract should have all the essential elements. The Sale of Goods Act (1987) goods provide an implied condition that stipulates goods sold to buyers should be in merchantable condition. The goods and services should be durable fit for use and fit for purpose. Where goods purchased have defects or fail to perform the purpose the purpose they purported to perform before purchase the buyer has the right to claim damages against the sale. Where the seller during advertising provided material facts to influence the buyer to purchase a good or service and the fact turns out to be false the buyer has a right to revoke the contract and sue fore damages.
Organizations have the moral obligations to act ethically in all their operations. Ethical businesses avoid legal expenses and negative publicity, which is detrimental to the financial performance of company. The governments should formulate laws to protect consumers against scrupulous business organizations. The government should formulate legislations to govern production of goods in order to avoid the fatalities and damage suffered by consumers due sale of a merchantable products and services.
Beatty, F. J. & Samuelson, S. S. (2007). Essentials of Business Law. Ohio: Cengage Learning.
Burdick, F. M. (2009). The essentials of business law. Missouri: BiblioLife Publishers.
Consumer Protection Act (1987) Retrieved on 8 September 2011 from http://www.legislation.gov.uk/ukpga/1987/43
Liuzzo, A. L. (2009). Essentials of Business Law. New York, NY: McGraw-Hill Higher Education
Miller, L. R., & Jentz, G. A. (2010). Fundamental of Business law: Excerpted Cases. Ohio: Cengage Learning.
Sale of Goods Act (1979). Retrieved on 8 September 2011 from http://www.legislation.gov.uk/ukpga/1979/54