Thursday, February 20, 2020


Bachelor’s Degree Programme (BDP)
ASSIGNMENT (2019-20)
Elective Course in Commerce
For July 2019 and January 2020 admission cycle
School of Management Studies
Indira Gandhi National Open University
Maidan Garhi, New Delhi -110068
Elective Course in Commerce
Dear Students,
As explained in the Programme Guide, you have to do one Tutor Marked Assignment in this Course.
Assignment is given 30% weightage in the final assessment. To be eligible to appear in the Term-end examination, it is compulsory for you to submit the assignment as per the schedule. Before attempting the assignments, you should carefully read the instructions given in the Programme Guide.
This assignment is valid for two admission cycles (July 2019 and January 2020). The validity is given below:
1)         Those who are enrolled in July 2019, it is valid up to June 2020.
2)         Those who are enrolled in January 2020, it is valid up to December 2020.
You have to submit the assignment of all the courses to The Coordinator of your Study Centre. For appearing in June Term-End Examination, you must submit assignment to the Coordinator of your study centre latest by 15th March. Similarly for appearing in December Term-End Examination, you must submit assignments to the Coordinator of your study centre latest by 15th September.

Course Code: ECO - 05

Assignment Code: ECO – 05/TMA/2019-20
Coverage: All Blocks
Maximum Marks: 100
Attempt all the questions.
1. (a) Explain with example communication of offer and communication of acceptance.                              (6+6)
Ans: Communication of offer: According to Section 4 of the Contract Act, the communication of an offer is complete when it comes to the knowledge of the person to whom it is made i.e., when the letter containing the offer reaches the offeree. For example, A of Delhi sends a letter by post to B of Bombay offering to sell his house for Rs. 10 lakh. The letter is posted on April 5, and this letter reaches B on April 7. The communication of the offer is complete on April 7. In the above example, if the letter containing the offer never reaches B, but B comes to know about the proposal from some other source and sends his acceptance, it will not amount to proper communication of the offer and so no contract will arise.
Communication of Acceptance: The rules regarding communication of acceptance have to be studied from the point of view of offerer and as well as the offeree because the communication of acceptance is complete at different times for the offerer and the offeree. According to Section 4 of the Contract Act, "the communication of acceptance is complete:
(a) as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor, and
(b) as against the acceptor, when it comes to the knowledge of the proposer.
Thus, the offerer becomes bound by the acceptance as soon as the letter of acceptance is duly posted by the acceptor, but the acceptor is bound by his acceptance only when the letter of acceptance reaches the offerer. It is quite interesting to note that a valid contract arises even if the letter of acceptance is lost in transit or is delayed. We should remember that the offerer will be bound by the acceptance only when the letter of acceptance was correctly addressed, properly stamped and actually posted. Thus, if the acceptance letter is not correctly addressed, it will not be binding upon the offerer. From the above rules, it must be amply clear that so far as the acceptor is concerned, he is not bound by acceptance till it reaches the offerer. We must have noted that there is a time gap between the two dates, the date on which the letter of acceptance is posted and the date on which the offerer actually receives it. This time gap can be utilised by the acceptor to withdraw his acceptance by a speedier means of communication. In the above example if B of Bombay sends his acceptance by post on April 10 the communication of acceptance is complete against A on April 10 i.e., when the letter of acceptance is posted, but the communication of acceptance shall be complete as against B only when this letter reaches A. Suppose A receives the letter of acceptance on April 12, at 11 a.m. then B will be bound by his acceptance on April 12 only. In other words, the law has given a chance to the acceptor to withdraw his acceptance.
(b) Explain the term ‘consideration’ and state the exceptions to the rule ‘No Consideration No Contract’.          (2+8)
Ans: Consideration and Its Essentials
Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”
Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.
Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.
Exceptions to the rule ‘No consideration no contract’
The general rule is that an agreement made without consideration is void. Section 25 deals with the exceptions to this rule. In such cases the agreements are enforceable even though they are made without consideration.  These cases are:
a) Love and Affection [Section 25(1)]: Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in a near relation to each other, it is enforceable even if there is no consideration. 
For e.g. F, for natural love and affection, promises to give his son A, Rs. 1 Lac. F puts this promise in writing and registers it. This is a contract.
b) Compensation for voluntary services [Section 25(2)]: A promise to compensate wholly or part a person, who has already voluntarily done something for the promisor, is enforceable, even though without consideration. A promise to pay for a past voluntary service is binding. 
For e.g. A says to B At the risk of your life you saved me from a serious accident. I promise to pay you Rs.1, 000.” There is a contract between A and B even though there is no consideration.
c) Promise to pay a time barred debt [Section 25(3)]: A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or by his agent generally or specifically authorized in that behalf. The debt must be such “of which the creditor might have enforced payment but for the law for limitation of suits”
For e.g. D owes C Rs.1, 000 but the debt is barred by the Limitation Act. D signs a written promise to pay C Rs.500 on account of the debt. This is a valid contract.
d) Agency (Section 185): No consideration is necessary to create an agency.
e) Completed Gift (Explanation 1 to Section 25): The rule ‘No consideration no contract’ does not apply to completed gifts. This rule shall not affect the validity, as between donor and donee, of any gift actually made.
2. (a) Distinguish between:                         (7+7)
1. Condition and Warranty.
Ans: Condition: Section 12(2) states that a condition is a stipulation which is essential to the main purpose of the contract. The breach of a condition gives rise to a right to treat the contract as repudiated or broken. So according the above definition it is clear that condition is very essential for the performance of a contract. The breach of condition will be regarded as the breach of the whole contract.
Warranty: Section 12(3) states that a warranty is a stipulation which is collateral to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated. The above definition shows that for the implementation of a contract warranty is not essential. For the breach of warranty only damages can be claimed.
Difference between Condition and warranty:
Basis of Difference
A stipulation which is essential to the main purpose of the contract.
A stipulation which is collateral to the main purpose of the contract.
Result of Breach
The aggrieved party can terminate the contract due to breach.
The aggrieved party cannot terminate the contract.
The aggrieved party can terminate the contract, claim damages or treat it as breach of warranty.
The aggrieved party cannot terminate the contract but can only claim damages.
A breach of condition can be treated as a breach of warranty.
A breach of warranty cannot be treated as breach of condition.
Link with contract
It is directly associated with the objective of the contract.
It is a subsidiary provision related to the object of the contract.
2. Right of lien and right of stoppage of goods in transit.
Ans: Right of Lien: The right of lien means the right to retain the possession of goods until the full price is paid or tendered.  When can lien are exercised:
(a) Where the goods have been sold without any stipulation as to credit.
(b) Where the goods have been sold on credit, but the term of credit has expired, and
(c) Where the buyer becomes insolvent.
The right can be exercised even if the seller holds the goods as an agent or bailee. Where part delivery of goods has been made, it can be exercised on the remaining goods, unless circumstances show he has waived his right.
Termination of lien: The right gets terminated under following circumstances:
(a) When the goods are delivered to a carrier or bailee but without reserving the right of disposal.
(b) When the possession is acquired by the buyer or his agent lawfully.
(c) When the right of lien is waived by the seller.
(d) When the buyer has disposed of the goods by sale of in any manner with the consent of the seller.
Right of stoppage of goods in transit: The right of stoppage in transit means the right to stopping the goods while they are in transit, to regain possession and to retain them until the price is paid. The essential feature of stoppage in transit is that the goods should be in the possession of someone intervening between the seller and the buyer. The unpaid seller can exercise the right of stoppage in transit if:
(a) The seller has parted with the possession of the goods.
(b) The buyer has not taken possession of goods.
(c) Buyer has become insolvent.
The unpaid seller may exercise the right to stoppage in transit in any one of the following 2 ways:
(a) By taking actual possession of the goods, or
(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are.
The right to stoppage in transit is lost under the following circumstances:
(a) If the buyer or his agent obtains possession.
(b) If after arrival of the goods at the appointed destination, the carrier or the bailee acknowledges to the buyer that he holds the goods on his (buyer’s) behalf.
(c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent.
(d) Where the part delivery of the goods has been made to the buyer or his agent, the remainder of goods may be stopped in transit. But if such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods the transit comes to an end at the time of part delivery.
(b) Who is competent to contract? State the position of agreements by a minor.                             (4+16)
Ans: Meaning of Minor: A minor is a person who is not a major. According to The Indian Majority Act, 1875, a minor is one who has not completed his or her 18th year of age. A person attains majority on completing his 18th year in India.
The position of minor as regards his agreements may be summed up as under:
1. An agreement with or by a minor is void and inoperative ab initio: The Privy Council affirmed this view most emphatically in Mohiri Bibi v. Dharmodas Ghos, in this case, a minor mortgage his house in favour of a money-lender to secure a loan of Rs. 20,000 out of which the mortgagee (the money-lender) paid the minor a sum of Rs.8, 000. Subsequently the minor sued for setting aside the mortgage, stating that he was underage when he executed the mortgage. Held, the mortgage was void and. Therefore, it was cancelled. Further the money lender’s request for the repayment of the amount advanced to the minor as part of the consideration for the mortgage was also not accepted.
2. He can be a promise or a beneficiary - Incapacity of a minor to enter into a contract means incapacity to bind himself by a contract. There is nothing which debars him from becoming a beneficiary, e.g. a payee [Sharafat Ali v. Noor Mohd.], endorsee or a promise in a contract. Such contracts may be enforced at his option, but not at the option of the other party. The law does not regard him as incapable of accepting a benefit.
3. His agreement cannot be ratified by him on attaining the age of majority- “Consideration which passed under the earlier contract cannot be implied into the contract into which the minor enters on attaining majority.” [Nazir Ahmed v. Jiwan Das]. Thus consideration given during minority is no consideration. If it is necessary a fresh contract may be entered into by the minor on attaining majority, provided it is supported by fresh consideration.
4. If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it. Sec. 65 which provides for restitution in case of agreements discovered to be void does not apply to a minor.
5. He can always plead minority: Even if he has, by misrepresentation tenting his age, induced the other party to contract with him, he cannot be sued either in contract or in tort for fraud because if the injured party were allowed to sue for fraud, it would be giving him an indirect means of enforcing the void agreement.
6. There can be no specific performance of the agreement entered into by him as they are void ab ignition: A contract entered into on his behalf by his parent/guardian or the manager of his estate can be specifically enforced by or against the minor provided the contract is (a) within the scope of the authority.
7. He cannot enter into a contract of partnership: But he may be admitted to the benefits of an already existing partnership with the consent of the other partners. For a detailed discussion of minor as a partner refer to the chapter on Law of Partnership.
8. He cannot be adjudged insolvent: This is because he is incapable of contracting debts.
9. He can be an agent: An agent is merely a connecting link between his principal and a third party. As soon as the principal and the third party are brought together, the agent drops out. A minor binds the principal by his acts without incurring any personal liability.
10. His parents/guardian are/is not liable for the contracts entered into by him, even though the contract is for the supply of necessaries to the minor. But if the minor is acting as an agent for the parents/guardian the parents/guardian shall be liable under the contract.
3. Is registration of a partnership firm compulsory? What are the effects of non-registration of a partnership firm?  (2+8)
Ans: Registration of Firms: The registration of a partnership is not compulsory but to avoid future problems it is necessary for a firm to get itself registered under the Indian Partnership Act, 1932. Sec. 58 of the Indian Partnership Act lays down the provisions relating to the registration of a firm. If partners want to get their firm registered, they have to file statement in the prescribed form. The statement can be send by post or delivered to the registrar of the area in which the place of business is situated. The following points must be stated in the statement of registration:
a)      The firm’s name
b)      The principal place of business of the firm
c)       The names of any other places of business
d)      The date when each partner joined the firm
e)      The name and address of the firm
f)       The duration of the firm
The statement of registration shall be signed by the partners or their authorised agents. When the registrar is satisfied that the provisions of Sec. 58 have been duly complied with, he shall record an entry of this statement in the register of firms and shall file the statement.
Consequences of Non-registration of firms
The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty for non registration. It is optional for the firm to get itself registered or not. However, Section 69 puts down certain disabilities to a non registered firm which normally forces the partners the partners to get the firm registered. The effects of non registration are as follows:
(a) No suit by a partner against other partners or firm: A partner of an unregistered firm cannot sue the firm or any partner of the firm to enforce a right arising from the contract or conferred by the Partnership Act. He can do so only if the firm is registered and the person suing is shown as a partner in the register of firms.
(b) No suit against any third party: An unregistered firm cannot sue a third party to enforce a right arising from a contract. The firm can only do so if the firm is registered and the person suing is shown as a partner in the register of firms.
(c) No right to counter claim or to claim setoff: An unregistered firm or any partner thereof cannot claim setoff in the proceedings instituted against a firm by a third party to enforce a right arising from a contract. Setoff means a claim by the firm which would reduce the amount of money payable to the claimant.
(d) Arbitration proceedings: In Jagdish Chandra Gupta vs. Kajaria Traders (India) Limited it was held that arbitration proceedings were barred if the firm was unregistered.
Non registration of the firm however, does not affect the following rights:
(i) The right of a third party to sue the unregistered firm or its partners.
(ii) The right of a partner to sue for dissolution of a firm or for accounts of a dissolved firm or any right to realise the property of the dissolved firm.
(iii) The Power of an official assignee or court receiver to realise the property of an insolvent partner.
(iv) The right of a firm or partners of a firm having no place of business in India.
(v) The right of an unregistered firm to enforce a right arising otherwise then out of a contract.
(vi) One partner can bring a suit for damages for misconduct against the other partner.
(vii) The right to claim Set off in a suit for an amount not exceeding Rs.100/- in value.
4. What is an agent? When is an agent personally liable to the third parties?                     (4+10)
Ans:  Section 182 provides that an ‘agent’ is a person employed to do any act for another or to represent another in dealing with the third person. The person for whom such act is done, or who is so represented is called the ‘principal’. A person may become an agent:
a)      if he is of the age of majority according to the law to which he is subject;
b)      he is of sound mind;
c)       no consideration is necessary for the appointment of agent;
d)      the authority of an agent may be expressed or implied;
Example: A owns a shop in Serampur, himself living in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for purposes of the shop.
Agents personally liable in the following cases:
1.       When there is an express agreement for so.
2.       When he does not have authority for what he has done or he represents himself as having that authority which he does not have.
3.       Section 226 provides for the enforcement and consequences of agent’s contracts. Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences as if the contracts had been entered into, the acts done by the principal in person. Example: A, being B’s agent, with authority to receive money on his behalf, receives from C a sum of money due to B. C is discharged of his obligation to pay the sum in question to B.
4.       Section 227 provides that when an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority, is binding as between him and his principal. Example: A being owner of a ship and cargo, authorizes B to procure an insurance for 4,000/- on the ship. B procures a policy for 4,000/- on the ship and another for the like sum on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo.
5.       Section 228 provides that principal is not bound when excess of agent’s authority is not separable. Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction. Example: A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6000/-. A may repudiate the whole transaction.
6.       When contract is entered into by a person apparently in the character of agent, but in reality on his own account, he is not entitled to require performance of it. (Sec 236)
7.       In circumstances given by Sec 230.
i) Where the contract expressly provides for the personal liability of the agent
ii) When the agent signs a negotiable instrument in his own name without making it; clear that he is signing as agent.
iii) Where the agent worked for a foreign principal
iv) Where the agent acts for a principal who cannot be sued on account of his being a foreign Sovereign, Ambassador, etc.
8.       Where according to use of trade in certain kinds of businesses, agents are personally liable.
9.       Where the agent has himself an interest in the subject-matter of the agency. Interest not only of remuneration but some special type of interest should be there. In the case of an agency coupled with such interest it can not be revoked even by the insanity or death of the principal.
5. Explain the rule that “a person cannot give a title better than what he himself has”. Are there any exceptions to this rule? Discuss.                                    (5+15)
Ans: "A seller cannot convey a better title to the buyer then he himself has." Only the owner of the goods or his authorized person can sell the goods. If the seller is not the owner of the good then a buyer can not become the owner of the good even he has paid the value of good. Example: Mr. Nonee steals a car and sells to Mr. Rao for sale. Mr. Rao cannot become the owner of a car because Mr. Nonee seller was not the owner of car.
But there are certain exceptions to this rule which are given below
1. Agent Exceptions of Rules: If goods are in a possession of a mercantile agent, he can pass a good title even he had no authority or his authority was restricted.
2. Sale By Unpaid Seller: An unpaid seller can sell the goods to the subsequent buyer if first buyer fails to make the full payment.
3. Sale By Pledgee: Under some special circumstances a pledgee can also sell the goods and buyer also gets a good title.
4. Sale of Lost Goods: If a person finds some lost well. Finder can sell the goods under some circumstances. The buyer gets the good title.
5. Mercantile Agent: If the goods or documents of title are in the possession of a mercantile agent, he can pass a good title. He can convey a better title to the buyer without having any authority to do so.
6. Second Sale Due To Possession: A person has sold the goods but the goods or a document continuously remains in his possession. He may sell them to the third party. If third party obtains the delivery of the goods and he has no knowledge about the previous sale he will get a good title.
7. Sale By One of the Joint Owner: If there are many partners in business and one of them has the sole possession of goods with the permission of the other partners. If he sells the goods, the buyer will get a good title of goods, if he buys in good faith.
8. Sale Under Implied Authority: In some cases the conduct or any act of owner of goods leads the buyer to believe that seller id the owner of the goods. It is presumed that seller has the authority to sell the goods. In such cases buyer can get a better title of goods than the seller.
9. Sale Under Voidable Contract: If a person obtains the goods under voidable contract and sells before the revocation of contract to other person. The buyer who obtains such goods has better title of goods if he acts in good faith.
10. Solvency Case: In case of companies and individuals the official receiver can convey better title to the buyer.

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