Business Regulatory Framework - Nov '2011 (Solved)

Voidable Contract
An agreement, which is enforceable by law at the option of one more of the parties, but not at the option of the other (s), is a voidable contract.
For example: - Mr. A, at knife - point, asks B to sell his scooter for Rs. 50. Mr. B gives consent. The agreement is voidable at the option of B, whose consent is not free.

Features of Voidable Contract
a)      It is a contract, which is enforceable by law at the option of one or more parties thereof, but not at the option of others.
b)      A voidable contract takes its full and proper legal effect unless it is disputed and set aside by the person entitled to do so.
c)       A contract may be voidable since very beginning or may subsequently become voidable.
d)      A voidable contract gives right to the aggrieved party to rescind the contract and claim the damages, etc in certain cases.
e)      A voidable contract does not effect the collateral transactions.

‘Caveat Emptor’ and exceptions to this rule
The term ‘Caveat Emptor’ means ‘Let the buyer beware’ i.e. in sale of goods, the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a buyer buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, or if he depends upon his own skill and judgment and makes a bad selection, he cannot blame anybody excepting himself.

For e.g. H bought oats from S a sample of which had been shown to H. H erroneously thought that the oats were old. However the oats were new. Held, H could not avoid the contract. (Smith vs. Huges)

The doctrine of Caveat Emptor has certain important exceptions as under:
1. Fitness for buyer’s purpose: Where the buyer, expressly or by implication makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgment of the seller whose business it is to supply goods of that description, there is an implied condition that the goods are reasonable fit for that purpose.

2. Sale under a patent or trade name: In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any particular purpose.

3. Merchantable quality: Where goods are bought by description from a seller who deals in goods of that description, here is an implied condition that the goods are of merchantable quality. But if the buyer has examined the goods, there is no implied condition as regard defect which such examination ought to have revealed. [Section 16(2)]

4. Usage of trade: An implied warranty or condition as regards quality or fitness for a particular purpose may be annexed by the usage of trade.

5. Consent by fraud: Where the consent of the buyer, in a contract of sale, is obtained by the seller by fraud or where the seller knowing conceals a defect which could not be discovered on a reasonable examination, the doctrine of Caveat Emptor does not apply.

Special crossing
Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines.

Objectives of Consumer Protection Act
The main objective of the act is to provide for better protection of consumers. Unlike existing laws which are punitive or preventive in nature, the provisions of this Act are compensatory in nature. The act is intended to provide simple, speedy and inexpensive redressal to the consumers' grievances, and reliefs of a specific nature and award of compensation wherever appropriate to the consumer.

a)      To assist countries in achieving or maintaining adequate protection for their population as consumers;
b)      To facilitate production and distribution patterns responsive to the needs and desires of consumers;
c)       To encourage high levels of ethical conduct for those engaged in the production and distribution of goods and services to consumers;
d)      To assist countries in curbing abusive business practices by all enterprises at the national and international levels which adversely affect consumers;
e)      To facilitate the development of independent consumer groups;
f)       To further international cooperation in the field of consumer protection;
g)      To encourage the development of market conditions which provide consumers with greater choice at lower prices.