Warranty is a contractual term which is concerned with the quality, longevity, condition, performance, and character of a particular good. It is offered and validated after a sales transaction. Warranties of various kinds are recognised under the law.
Warranty types can be grouped into two broad groups. They are:
Implied Warranty
Express Warranty
Both express and implied warranties are extremely crucial to settle a contract of sale between the purchaser and the seller.
Express Warranty
A seller provides a guarantee of quality and reliability in the form of an express warranty. As per express warranties, if a product fails to meet the mentioned claims, the manufacturer or seller will be liable to fix or replace it without charging any additional cost.
Warranties which are incorporated in a contract at the mutual will and knowledge of both the parties (the seller/manufacturer and the buyer) are known as express warranties. This sort of warranty is commonly seen on product packaging or warranty cards.
An express warranty can be created by any statement, promise, description of goods, or sample which must conform to the guarantee claimed by a seller while selling any product.
Implied Warranties
An implied warranty is a warranty which arises automatically from a sale or its circumstances. In such cases, implied conditions automatically apply under law. It exists without needing to be expressed or written. Such warranties are referred to when a buyer observes a dispute in the goods and claims his rights to damage. Section 14 and 16 of the Sale of Goods Act (1930) discloses implied warranty definition.
In sale transactions, implied warranties can be of two kinds. They are as follows-
Implied Warranty of Fitness for a Specific Purpose.
Implied Warranty of Merchantability.
Implied warranty of fitness for a particular purpose guarantees that a product will serve the specific purpose for which a buyer purchased it. Here, the buyer relies on the judgement of a seller and lets him or her select the best product to meet specific purposes.
On the other hand, an implied warranty of merchantability means it will meet the purpose for which it was designed or manufactured in the first place. This warranty automatically forms a part of every sale until a seller or the merchant modifies it otherwise. Implied warranty for merchantability meaning is that when a product guarantees the following:
Perfectly Eligible for trade.
Boasts Uniform Quality and Quantity.
Conforms to its Claims.
Fits the Ordinary or the Specific Purpose for which it is being sold.
Properly Packaged and Labelled.
Other sorts of Implied Warranties are detailed below:
Warranty as to Undisturbed Possession
This guarantees a buyer that once he buys a certain product, he cannot be deprived of it. He has the right to enjoy its sole possession after making the necessary payment to the seller. In case he faces any disturbance related to the possession of that good, he can file a complaint against the seller for offending the warranty claims.
For example, a customer buys a car from a person and repairs it for use. However, it is later discovered that the car was actually stolen or fraudulently acquired by that seller. In such a case, that seller will have to bear the cost of damage done to both the parties as well as pay the repair charges.
Warning against the Dangerous Nature of a Good
If a certain product is naturally dangerous, implied warranties automatically arise where the buyer has the right to be informed about the risk. A seller is bound to let the buyer know of the danger a product is liable to cause. If a seller intentionally or unintentionally does not warn the buyer of the risk, he will later be responsible in case of any damage caused to that buyer.
Warranty for the absence of Third-party Charges
Implied warranties against encumbrances or third-party charges are mandatory on the sale of certain products. This warranty frees a buyer from having to face added costs from any third-party individual or entity. He is not liable to pay any amount which he has not been briefed about during the contract of sale.
FAQs on Features of a Company: Explained
1. What are the main features of a company as per the Companies Act, 2013?
A company, as defined under the Companies Act, 2013, has several distinct features that separate it from other forms of business. The primary features include:
- Separate Legal Entity: A company is legally distinct from its members (shareholders).
- Artificial Person: It is created by law and exists independently of its owners.
- Perpetual Succession: The company's life is not affected by the death or departure of its members.
- Limited Liability: The liability of shareholders is limited to the value of their shares.
- Transferability of Shares: Shares in a public company can be easily bought and sold.
- Common Seal: The official signature of the company, though now optional.
- Separation of Ownership and Management: Shareholders are the owners, but the company is managed by a Board of Directors.
2. What does it mean for a company to have a 'separate legal entity'?
The concept of a separate legal entity means that the law views a company as a distinct person, separate from its owners (shareholders) and directors. This allows the company to own assets, incur debts, enter into contracts, and sue or be sued in its own name. For example, the debts of the company belong to the company itself, not to the shareholders personally.
3. Explain the concept of 'perpetual succession' with an example.
Perpetual succession is the feature that ensures a company's continued existence until it is legally wound up. Its life is not dependent on the lives of its shareholders, directors, or employees. A famous saying illustrates this: 'members may come and go, but the company goes on forever.' For instance, if all shareholders of a company like Tata Steel were to pass away, the company itself would not cease to exist; their shares would simply be transferred to their legal heirs.
4. How does the 'limited liability' feature of a company protect its shareholders?
Limited liability is a crucial feature that protects the personal assets of shareholders. A shareholder's financial obligation is restricted to the amount, if any, unpaid on the shares they hold. If a company incurs massive debts and becomes insolvent, creditors can only claim against the company's assets. They cannot seize the personal property (like house, car, or personal savings) of the shareholders to clear the company's dues.
5. Why is a company legally considered an 'artificial person'?
A company is called an artificial person because it is a creation of law, not a natural human being. While it cannot perform physical acts like eating or breathing, the law grants it a legal personality with the right to perform many actions of a real person. It can buy and sell property, open a bank account, enter into legal contracts, and be held responsible for its actions, all in its own name, independent of the people who own or manage it.
6. How does the 'transferability of shares' feature differ between a public and a private company?
The ease of transferability of shares is a key distinction between public and private companies.
- In a public company, shares are freely transferable without the consent of other members and are often listed on a stock exchange, allowing anyone to buy or sell them.
- In a private company, the articles of association place restrictions on the transfer of shares. A shareholder usually needs the consent of other shareholders before selling their shares to an outsider.
7. What is a 'common seal' and is it still a mandatory feature for all companies in India?
A common seal was traditionally the official signature of a company, an engraved seal used to execute important documents and contracts, signifying the company's assent. However, as per the Companies (Amendment) Act, 2015, the requirement for a company to have a common seal has been made optional. Now, a document can be legally authorised if it is signed by two directors, or by one director and a company secretary.
8. How does the separation of ownership from management impact a company's functioning?
The separation of ownership and management means that the shareholders, who are the owners, do not typically run the day-to-day business. Instead, they elect a Board of Directors to manage the company on their behalf. This leads to professional management by experts, which can improve efficiency and growth. However, it can also create a potential conflict of interest, known as the 'agency problem,' where the management's interests may not always align perfectly with the shareholders' interests.
