Slide 6.

Law and Ethical Issues

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Slide 6.2

Objectives
• Understand the importance of consumer protection in the
context of selling
• Apply appropriate terms and conditions to a contract of
sale
• Appreciate how legal controls affect sales activities
• Make voluntary and legal restraints work to the
advantage of both the buyer and the seller
• Appreciate ethical issues in sales

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Slide 6.3

Consumer Protection

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Slide 6.4

Terms and Conditions

• The circumstances under which the buyer
is prepared to purchase and the seller is
prepared to sell.
• Limit of responsibility for both buyer and
seller.
• Buyer and seller are at liberty to state their
terms and conditions.

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Slide 6.5

Terms and Conditions

Only orders issued on the company’s printed order form and signed on behalf
of the company will be respected.
Alterations to orders must be confirmed by official amendment and signed.
Delivery must be within the specified time period. The right to cancel is
reserved for late delivery.
Faulty goods will be returned and expenses charged to the supplier.
All insurance of goods in transit shall be paid for by the supplier.
This order is subject to a cash discount of 2.5 per cent, unless otherwise
arranged, for payment within 28 days of receipt. Any payment made is without
prejudice to our rights if the goods supplied prove to be unsatisfactory or not in
accordance with our agreed specification or sample.
Tools supplied by us for the execution of this order must not be used in the
service of any other firm without permission.

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Slide 6.6

Figure 6.1 Example of conditions of sale document

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Slide 6.7

Terms of Trade
• Apply when trading overseas. Differences in the
terms of trade can have serious profit
consequences for the unwary.

Used to define the following:

(a) who is responsible for control over the transfer of goods
between importer and exporter.
(b) who is responsible for each part of the cost incurred in moving
the goods between importer and exporter.

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Slide 6.8

Terms
• Bills of lading
• A bill of lading is a receipt for goods received on
board a ship that is signed by the shipper (or
agent) and states the terms on which the goods
were delivered to and received by the ship.
• Ex works
• An exporter may quote a price to an importer ‘ex
works’.

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Slide 6.9

Terms
• Free on board (FOB)
• This extends the responsibility, liability and costs of
delivery for the exporter until the goods have been
loaded on to the ship
• Free alongside ship (FAS)
• exporter is responsible for and must pay all the
costs of transport up to the point of placing the
goods alongside the ship.

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Slide 6.10

Terms
• Cost, insurance and freight (CIF)
• Exporter is responsible for the delivery of the
goods onto the ship and pays the insurance on the
part of the buyer against loss or damage while on
ship.
• Free delivered
• This places maximum responsibility and cost on
the exporter, who undertakes to deliver the goods
to the importer with all costs paid and all of the
administrative duties carried out by the exporter.

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Slide 6.11

Bills of Lading
• A bill of lading is a receipt for goods received on
board a ship that is signed by the shipper (or
agent) and states the terms on which the goods
were delivered to and received by the ship.

• The bill of lading is a receipt for the goods

shipped, a transferable document of title to the
goods allowing the holder to claim their goods,
and evidence of the terms of the contract of
shipping.

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Slide 6.12

Bills of Lading
• The bill of lading thus acts as evidence that the
goods have been received by the shipper. It can
also act as part of the contract between the
shipper and person or organization paying for
the shipping
• name of the shipper
• ship’s name
• description of the cargo
• payment details
• name of consignee
• terms of the carriage contract
• date when the goods were loaded in the ship
• who is to be notified on arrival of the shipment at its destination
• ports of departure and final destination
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Slide 6.13

Ex works
• This places the exporter’s liability for loss or
damage to the goods at a minimum and also
means that the exporter’s duties in delivering the
goods are minimal.

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Slide 6.14

Free on Board (FOB)

• The importer pays the costs of insurance and
freight. However, the exporter still has the right
of ‘stoppage in transit’ should the importer fail to
pay for those goods.

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Slide 6.15

Free Alongside Ship (FAS)

• A provision should be made covering who is responsible
for any loss or damage before the goods are actually
loaded on to the ship. The importer thus pays for the
loading of the cargo and the cost of insurance and freight
to its destination.

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Slide 6.16

Cost, Insurance and Freight (CIF)

• The term cost and freight (C&F) is similar to CIF
except, as its name suggests, the exporter is not
responsible for insurance during shipping.
Instead the importer incurs the cost of this
insurance.

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Slide 6.17

Business Practices and Legal Controls

• False descriptions
• Faulty goods
• Inertia selling
• Exclusion clauses
• Buying by credit
• Collusion between sellers

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Slide 6.18

False Descriptions
• Unscrupulous salespeople may be tempted to mislead
potential buyers through inaccurate statements about the
product or service they are selling.

Businesses are prohibited from:

• false trade description to products
• supplying falsely described products.
• false to a material degree
• misleading statements
• Misleading price indications

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Slide 6.19

False Descriptions
• Misleading price indications are covered by the
Consumer Protection Act
Prices can be misleading when:
 it is suggested that a price is less than it actually is;
 it is suggested that other charges are included in the price when, in fact,
they are not;
 it is suggested that prices will increase, decrease or stay the same;
 it is suggested that the price depends on certain circumstances or particular
facts;
 consumers are encouraged to depend on the truth of the price indication by
circumstances which do not apply.

Unit Pricing
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Slide 6.20

Practices and Legal Controls

Faulty goods
•The principal protection for the buyer against the sale of
faulty goods is to be found within the Sale of Goods Act
A product must correspond to its description and must
be of merchantable quality

Inertia selling
•Inertia selling involves the sending of unsolicited goods or
the provision of unsolicited services to people who, having
received them, may feel an obligation to buy.

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Slide 6.21

Practices and Legal Controls

Exclusion clauses
•Another practice that some sellers have employed in order to limit their
liability is the use of an exclusion clause.

Buying by credit
•lender should disclose the true interest rate in advertisements and sales
literature.

Collusion between sellers

•In certain circumstances it may be in the sellers’ interests to collude with
one another in order to restrict supply, agree upon prices or share out the
market in some mutually beneficial way.

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Slide 6.22

Ethical Issues
Importance of gaining customer trust in the establishment and
development of mutually beneficial buyer–seller relationships

•Bribery
•Deception
•The Hard Sell
•Reciprocal Buying
•Promotional inducements to the trade
•Slotting allowances
•Pyramid selling

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Slide 6.23

Ethical Issues
Bribery
•act of giving payments, gifts or other inducements to
secure a sale. Such actions are thought to be unethical
because they violate the principle of fairness in commercial
negotiations.

Deception
•The deception may take the form of exaggeration, lying or
withholding important information that would significantly
lessen the appeal of the product.

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Slide 6.24

Ethical Issues
The hard sell
•criticism that is sometimes made of personal selling
behavior is the use of high pressure (hard sell) sales tactics
to secure a sale.

Reciprocal buying
•occurs when a customer agrees to buy from a supplier
only if that supplier agrees to purchase something from the
customer.

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Slide 6.25

Ethical Issues
Promotional inducements to the trade
•Manufacturers like retailers to promote their products
rather than those of the competition. They, therefore,
sometimes offer inducements to retailers to place special
emphasis on their products.

Slotting allowances
•A slotting allowance is a fee paid by a manufacturer to a
retailer in exchange for an agreement to place a product on
the retailer’s shelves.

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Slide 6.26

Ethical Issues
Pyramid selling
•The primary purpose of pyramid selling schemes is to earn
money through recruiting other individuals. Individuals are
encouraged to join through the promise that they will
receive payments for introducing further participants.

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