Business Laws Solved Question Papers' 2019 | Dibrugarh University Solved Question Papers | B.Com 1st Sem CBCS Pattern

 DIBRUGARH UNIVERSITY SOLVED QUESTION PAPERS
BUSINESS LAWS’ 2019 (December)
COMMERCE (Core): Paper: C – 102 (Business Law)
Full Marks: 80
Pass Marks: 32
Time: 3 hours

The figures in the margin indicate full marks for the questions

1. Write True or False:                   1x8=8

a) Quasi-contracts are created by circumstances, not by the parties.

Ans: True, Peculiar circumstances

b) A specific offer can be accepted by any party.

Ans: True

c) Money is considered as ‘goods’ under the Sale of Goods Act.

Ans: False, Money and actionable claim are not goods.

d) An insolvent cannot enter into a contract.

Ans: True

e) An agent is a link in between the principal and the third parties.

Ans: True

f) Registration of a partnership firm is compulsory.

Ans: False

g) An agreement to sale is an executory contract.

Ans: True

h) The Indian Contract Act was enacted at 1972.

Ans: False, 1872

2. Write short notes (any four):                                4x4=16

a) Void Contract.

Ans: VOID CONTRACT: "An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

Features of Void Contract:

a. It is not enforceable by law.

b. It creates no legal rights.

c. It creates no obligations on any party.

d. An agreement which is against the public policy or against any law is also void.

e. Under this contract no compensation can be paid to any party.

Cases where the contracts specifically declared to be void under the Indian Contract Act:

1) Agreement made by incompetent person, for e.g. minor, a person of unsound mind

2) Agreement made under mutual mistake as to matter of fact essential to the agreement. 

3) Agreement made under mistake as to a law not enforce in India. 

4) Agreement, the consideration or object of which is unlawful in part or in full.

5) Agreement made without consideration.

6) Agreement in restraint of marriage: Every agreement in restraint of the marriage of any person other than the minor is void. Every adult person has a right to get married and that to have a right to exercise his choice.

b) Days of grace.

Ans: Days of grace: A time bill or promissory note is entitled to three days of grace. Earlier, the days of grace were allowed as per the custom prevailing, but now under Negotiable Instruments Act 3 days of grace are compulsorily allowed in case of time bill or promissory note. The days of grace are not allowed in case of bills payable on demand or cheque. If a bill or note is payable by installments, three days of grace are to be allowed on each installment. For example, if a bill is drawn on 1st Jan’ 2020 payable after 3 months, its due date after adding 3 days of grace will be 4th April’ 2020.

c) Types of goods.

Ans: Goods may be classified into various types as under:

1. Existing goods: These are goods which are owned and possessed by the seller at the time of sale. Only existing goods can be the subject-matter of a sale. The existing goods may be –

Specific goods: These are goods which are identified and agreed upon at the time of contract of sale is made. For e.g. a person visit s a Titan showroom and identifies a watch for purchase.

Ascertained goods: Though commonly used as similar in meaning to specific goods, these are the goods which become ascertained subsequent to the formation of contract of sale. For e.g. from say 10 Sony T.V. a person identifies the particular T.V.

Unascertained goods: These are the goods which are not identified and agreed upon at the time of the contract of sale. They are defined only by description and may form part of a lot. For e.g. a shopkeeper has a bag containing 50 kg of sugar. He agrees to sell 10 kg sugar to X out of that bag The 10 kg of sugar is unascertained goods as they are yet to be identified from the bag containing 50 kg.

2. Future Goods: These are goods which a seller does not possess at the time of the contract but which will be manufactured, or produced, or acquired by him after the making of the contract of sale. [Section 2(6)]. A contract of present sale of future goods, though expresses as an actual sale, purports to operate as an agreement to sell the goods and not a sale. This is because the ownership of a thing cannot be transferred before that thing comes into existence.

3. Contingent Goods: It is a type of future goods but these are goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

d) Crossing of cheque.

Ans: Crossing of a cheque: A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. It is simply a direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safe because the holder of the cheque is not allowed to encashed it across the counter of the bank. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.

The following parties can cross a cheque:

a)      The Drawer: The drawer of a cheque may cross a cheque before issuing it. He may cross it generally or specially.

b)      The Holder: The holder of a cheque can cross in the following way:

Ø  The holder may cross an open cheque generally or specially.

Ø  The holder may specially cross a generally crossed cheque.

Ø  The holder may add the words “Not-Negotiable” in a generally or specially crossed cheque.

c)       The Banker: The banker to whom the cheque is crossed specially may again cross it especially to another banker's agent, for collection. This is called double special crossing.

Types of crossing:

1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. In case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.

2. 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.”

3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing.

4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing.

e) Free consent.

Ans: Free Consent: Section 13 defines consent as “Two or more persons are said to consent when they agree upon the same thing in the same sense.” Consent of the party’s means, the parties to a contract must mean the same thing in the same sense. It means ‘Consensus ad idem’. For e.g. A have 2 cars – Maruti 800 and Maruti Zen. A offers to sell the Maruti 800 while B accepts the offer thinking the car to be sold is Maruti Zen. Here there is no consent.

Free consent refers to consent which has been rendered by free will of the parties i.e. consent is voluntary. Section 10 of the Act, specifically states that a contract is valid and enforceable if it is made with the free consent of the parties.

Section 14 defines ‘Free Consent’ as – Consent is said to be free consent when it is not caused by:

(i) Coercion, as defined in Section 15, or

(ii) Undue influence, as defined in Section 16, or

(iii) Fraud as defined in Section 17, or

(iv) Misrepresentation as defined in Section 18, or

f) Essentials of a contract of sale.

Ans: The essentials of a contract of sale are:-

1. Numbers of parties: Since a contract of sale involves a change of ownership, it follows that the buyer and the seller must be different persons. A sale is a bilateral contract. A man cannot buy from or sell goods to himself. To this rule there is one exception provided for in section 4(1) of the Sale of Goods Act. A part-owner can sell goods to another part-owner. Therefore a partner may sell goods to his firm and the firm may sell goods to a partner.

2. Goods: The subject-matter of the contract of sale must be ‘goods’. According to Section 2(7) “goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”

3. Price: The consideration for a contract of sale is price. Price means money consideration. If it is anything other than money, it will not be sale. But if the exchange is made partly for goods and partly for price, it will still amount to sale. However, the price may be paid or promises to be paid.

4. Transfer of property: 'Property' here means ownership. Transfer of property in the goods is another essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer.

5. No formalities to be observed (Sec. 5): The sale of Goods Act does not prescribe any particular form to constitute a valid contract of sale. A contract of sale of goods can be made by mere offer and acceptance. The offer may be made either by the seller or the buyer and the same must be accepted by the other. Neither payment nor delivery is necessary at the time of making the contract of sale.

6. Includes both a ‘sale’ and ‘an agreement to sell’: The term ‘contract of sale’ is a generic term and includes both a ‘sale’ and an ‘agreement to sell’.

7. Other essential elements: A contract for the sale of goods must satisfy all the essential elements necessary for the formation of a valid contract, e.g., the parties must be component to contract, there must be free consent, there must be consideration, the object must be lawful etc.

3. (a) What do you mean by contract? Describe briefly the essentials of a valid contract.     3+8=11

Ans: Meaning of Contract and Its essentials:

Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.

1. An agreement between two or more persons "To Do" or "Not to Do" something.

2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing.  All contracts are agreements but for agreement to be a contract it has to be legally enforceable.

Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”

An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must posses the following essential elements:

a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.

b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.

c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.

d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.

e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.

f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.

g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.

h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law. 

Thus, agreement is the genus of which contract is the specie.

Or

(b) Discuss the different types of contract.                                          11

Ans: Types of Contracts: A contract is of various types which are given below:

a) VALID CONTRACT: Valid contract is that which is enforceable at law. It creates legal obligations between the parties. It enables one party to compel another party to do something or not to do something. In case of valid contract all the parties to the contract are legally responsible for the performance of a contract. If one party breaks the contract other has right to be enforced through the court.

Example: Mr. A proposes sell his one acre land to Mr. B for one lac and the parties are capable to do the contract by law. So this contract is valid. If Mr. A fails to deliver the land to Mr. B can sue him in the court for the delivery of land. On other hand if Mr. B fails to make the payment, Mr. A can sue him for the recovery of payment.

b) VOID CONTRACT: "An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

Features of Void Contract:

a. It is not enforceable by law.

b. It creates no legal rights.

c. It creates no obligations on any party.

d. An agreement which is against the public policy or against any law is also void.

e. Under this contract no compensation can be paid to any party.

c) 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.

d) Unenforceable Contract: An unenforceable contract is that contract which cannot be enforced in courts due to some technical defect, such as absence of writing, payment of inadequate stamp duty etc.

e) Illegal Contract: An illegal agreement is one the object of which is: a) Fraudulent b) against the provisions of any law c) causes an injury or damage to any person or his property d) immoral or opposed to public policy.

f) Express Contract: In express contracts, the terms are stated in writing expressly.

g) Implied Contract: An implied contract is one which is the result of the conduct of the parties. For example when a person boards a public bus or drinks a cup of tea in a restaurant there is an implied contract and he has to pay the charges for it.

h) Executed Contract: An executed contract is that contract in which both the parties to the contract have performed their respective promises.

i) Executory Contract: An Executory contract is that contract in which both the parties to it have yet to perform their promises.

j) Unilateral Contract: A unilateral contract is that contract in which only one party is required to perform his obligation.

k) Bilateral Contract: A bilateral contract is one in which both the parties are required to perform their obligations.

4. (a) What is a contract of indemnity? How does a contract of indemnity differ from a contract of guarantee?                 3+8=11

Ans: Contract of Indemnity and Contract of Guarantee

Contract of indemnity: Section 124 of the Indian Contract Act defines it as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person”. The person who promises is called the Indemnifier and the person to whom the promise is made is called the Indemnified or Indemnity Holder. To indemnify does not merely means to reimburse in respect of moneys paid, but to save from loss in respect of the liability for which the indemnity has been given.

For example: A promises not to construct buildings on a particular site so as to prevent light and air to B’s house and in case of breach of such promise, to indemnify for the consequent loss. This is a contract of indemnity. A contract of insurance is also a contract of indemnity.

Contract of Guarantee: Section 126 of Indian Contract Act defines it as “a contract to perform the promise, or discharge the liability, of a third person in case of his default”. The person who gives the guarantee is called the “surety”, the person in respect of whose default, the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”. A guarantee may be either oral or written. It is a tripartite agreement which contemplates the principal debtor, the creditor and the surety.

For example: A purchases goods from B on credit. C agrees to stand as a surety which means that if A does not pay the price of the goods, he will pay. Here, A is the principal debtor, B is the creditor and C is the surety or guarantee.

Distinction between a contract of Indemnity and a contract of guarantee

The contract of indemnity differs from the contract of guarantee in the aspects shown in the following table:

Contract of Indemnity

Contract of Guarantee

1. In a contract of indemnity the promisor undertakes an independent liability.

1. A contract of guarantee is a contract to discharge the liability of a third person in case of default made by him.

2. A contract of indemnity involves two persons, viz., the indemnifier and the indemnity-holder.

2. A contract of guarantee requires the concurrence of three person viz. the principal debtor, the creditor and the surety.

3. The primary liability is on the indemnifier.

3. The principal liability is on the principal debtors.

Secondary liability is on the surety.

4. The loss to be indemnified in such contract is contingent.

4. There is an existing debt for which the surety gives guarantee.

5. The contract of indemnity is for the reimbursement of the loss.

5. The contract of guarantee is for the security of the creditor.

6. In the case of indemnity, there is one contract between the indemnifier and indemnified.

6. in the case of guarantee there are at least three contract between the principal debtor - creditor, surety - creditor; principal debtor – surety

7. The indemnifier cannot sue the third party in his own, unless there is an assignment.

7. The surety is entitled to proceed against the principal debtor when he is obliged to perform the guarantee.

Or

(b) Define bailment. Discuss the rights and responsibilities of a bailee.                                3+8=11

Ans: Bailment: Bailment is a kind of activity in which the property of one person temporarily goes into the possession of another. The ownership of the property remains with the giver, while only the possession goes to another. Several situations in day to day life such as giving a vehicle for repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples of bailment. 

Section 148 of Indian Contract Act 1872, defines bailment as follows: “A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.”

The bailment consists of two parties:

a) Bailor: The person delivering the goods.

b) Bailee: The person to whom they delivered the goods.

The following are the essential ingredients of the bailment:

a) Goods: There must be a delivery of movable goods by one person to another. Any immovable property cannot be bailed. Also, there must obligation to return the goods to the bailor by the bailee.

b) Purpose: The delivery must be for some purpose. The delivery may be actual or constructive delivery. Actual delivery is when bailor hands over the bailee physical possession and constructive delivery is when there is no physical delivery but something is done by bailee to put bailor in possession.

c) Delivery upon contract: The delivery must be upon a contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the bailor.

d) Delivery is temporary and conditional:  The delivery of goods is temporary and must be returned to the bailor or disposed after the accomplishment of conditions for which goods are delivered.

Rights and Duties of a Bailee

Rights of a Bailee

1.       Right to necessary expenses (Section 158): As per Section 158 says that where by conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful expenses according to this section.

2.       Right to compensation (Section 164): As per section 164, the bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailor had no right to bail the goods and if still bails them, he will be responsible for any loss that the bailee may incur because of this. 

3.       Right of Lien (Section 170-171): In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services. 

4.       Right to Sue (Section 180-181): Section 180 enables a bailee to sue any person who has wrongfully deprived him of the use or possession of the goods bailed or has done them any injury. The bailee's rights and remedies against the wrong doer are same as those of the owner. An action may be brought either by the bailor or the bailee.

Duties/Responsibilities of a Bailee

1.       Duty to take reasonable care (151): The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.

2.       Duty not to make unauthorized use (Section 154): Section 154 says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment; he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. 

3.       Duty not to mix (Section 155-157): The bailee should maintain the separate identity of the bailor's goods. He should not mix his goods with bailor's good without bailor's consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.  

4.       Duty to return (Section 160): Section 160 - It is the duty of the bailee to return or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.

5.       If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee's risk and he will be responsible for any loss or damage to the goods arising howsoever.

6.       Duty to return increase (Section 163): As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.

7.       Duty not to set up jus tertii (Section 166): As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods back to the bailor or as per the directions of the bailor, he is not responsible to the owner in respect of such delivery.  Thus, once the bailee takes the goods from the bailor, he agrees that the goods belong to the bailor and he must return them only to the bailor. He cannot deny redelivery to the bailor on the ground that the bailor is not the owner.

5. (a) What do you mean by ‘caveat emptor’? Discuss the exceptions to this rule.                            3+8=11

Ans: ‘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.

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 judgement 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. [Section 16(1)]. For e.g. an order was placed for some Lorries to be used “for heavy traffic in a hilly area”. The Lorries supplied were unfit and broke down. Held, there is a breach of condition as to fitness.

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. [Section 16(3)]

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.

Or

(b) Discuss the rights of an unpaid seller.                             11

Ans: Unpaid Seller and His Rights

Section 45 define an unpaid seller as “One who has not been paid or tendered the whole of the price or one who receives a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has not been fulfilled by reason of dishonour of the instrument or otherwise.” The following conditions must be fulfilled before a seller can be deemed to be an unpaid seller:

(i) He must be unpaid and the price must be due.

(ii) He must have an immediate right of action for the price.

(iii) A bill of exchange or other negotiable instrument was received but the same has been dishonoured.

Rights of an Unpaid Seller against the Goods

According to Section 46, an unpaid seller’s right against the goods is:

(a) A lien or right of retention

(b) The right of stoppage in transit.

(c) The right of resale.

(d) The right to withhold delivery

The above rights of the unpaid can be broadly divided under 2 main headings:

I] Rights against the goods and

II] Rights against the buyer

I] Rights against the goods:

A] Where the property in the goods has passed to the buyer: Where the ownership in the goods has already been transferred to the buyer the following rights are available to an unpaid seller –

1. 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.

2. 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.

3. Right of resale: Where the unpaid seller has exercised his right of lien or resumes possession of the goods by exercising his right of stoppage in transit upon insolvency of the buyer, he can re-sell the goods under the following circumstance:

(a) where the goods are of perishable nature.

(b) Where the seller has given notice of his intention to re-sell the goods and yet the price remains unpaid.

(c) Where the seller expressly reserves a right of resale if the buyer commits a default in making the payment.

B] Where the property in the goods has not passed to the buyer: Where the property in the goods has not passed to the buyer, the unpaid seller can exercise the right to withholding delivery of the goods. This right is similar to and co-extensive with the right of lien and stoppage in transit where the property has passed to the buyer. Other remedies may include the right to claim damages for the loss suffered, special damages, etc.

II] Rights of an unpaid seller against the buyer personally

In addition to the unpaid seller’s rights against the goods, he has rights even against the buyer personally. They are as follows:

1. Suit for Price: Generally the seller can sue for the price of the goods only when the property in the goods has passed to the buyer and the price is not paid as per the terms of the contract. In cases where the property in the goods has not passed to the buyer, suit for price generally, cannot be maintained, unless under the contract, price is payable on a certain date irrespective of the delivery of passing of the ownership of the goods.

2. Suit for damages: The unpaid seller can bring an action for damages where the buyer wrongfully refuses to accept the goods or repudiates the contract.

3. Suit for repudiation: Where the buyer repudiates the contract before the date of delivery, the seller may wait till the date of delivery or may treat the contract as cancelled and sue for damages for breach.

4. Suit for interest: In case of breach of contract on the part of the buyer, the unpaid seller can claim for interest from the date of tender of the goods or from the date, the price becomes payable along with a suit for price.

6. (a) Mention the parties to a bill of exchange and discuss their liabilities.                                        3+8=11

Ans: There are three parties in bills of exchange: Drawer, drawee and Payee.

a) Drawer: Drawer is a person who draws the bills of exchange against the amount due to him by the drawee. Drawer is also called creditor in case of a bills of exchange.

b) Drawee: Drawee is a person who accepts the bill of exchange drawn by the drawer and by accepting it he agrees to honour the bill on due date. Drawee is also called debtors in case of bills of exchange.

c) Payee: Payee is a person who receives the amount of the bill on due date. Drawer can be the payee of the bill if the bill is not endorsed by the drawer.

Liabilities of the parties of Negotiable Instruments:

1. Liability of drawer: According to Sec. 30 of the Negotiable Instruments Act, the drawer of the bills of exchange or cheque is bound to compensate the holder of the negotiable instruments if the bills of exchange or cheque is dishonoured on due date. In such a situation, notice of dishonour must be given to the drawer and unless and until notice is given the holder has no cause of action against the drawer of the cheque or bill of exchange. Sec. 30 of the Negotiable Instruments Act deals with civil liability in case of dishonouring of a cheque and the said section stipulates that the drawer has to compensate the holder of the cheque.

2. Liability of drawee: According to Sec. 31 of the Negotiable Instruments Act, the drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so and in case of default in payment of funds, the drawee must compensate the drawer for any loss or damage caused by such default. Sec.31 also states that, if there was any actual loss or damage caused by to the petitioner bank, then certainly the respondent bank was required to pay the compensation.

3. Liability of Maker of Promissory note and acceptor of bill: According to Sec. 32 of the Negotiable Instruments Act, the maker of promissory and acceptor of bill are bound to pay the amount of the note or bill to the holder at maturity. If they defaulted in payment, then they are liable to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default. This Section also states that the liability of the drawee arises only when he accepts the bill.

4. Liability of Endorser: Section 35 provides that in the absence of a contract to the contrary, whoever endorses and delivers a negotiable instrument before maturity without expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonour, provided due notice of dishonour has been given to or received by such endorser as hereinafter provided.

Or

(b) What do you mean by cheque? What are the distinctions between cheque and bill of exchange?    3+8=11

Ans: Meaning of Cheque: Cheque is a very common form of negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favor of others, thereby directing the bank to pay the specified amount to the person named in the cheque. A cheque is an instrument drawn on a specified banker and not expressed to be payable otherwise than on demand Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque.

The maker of a cheque is called the ‘drawer’, and the person directed to pay is the ‘drawee’. The person named in the instrument, to whom or to whose order the money is, by the instrument directed, to be paid, is called the ‘payee’

The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

From the above definition it appears that a cheque is an instrument in writing, containing an unconditional order, signed by the maker, directing a specified banker to pay, on demand, a certain sum of money only to, to the order of, a certain person or to the bearer of the instrument. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.

Difference between cheque and bills of exchange:

Basis

Cheque

Bills of Exchange

Drawee

A cheque is always drawn on a bank or banker.

A bill of exchange can be drawn on any person including a banker.

Acceptance

A cheque does not require any acceptance.

A bill must be accepted before the Drawee can be made liable upon it.

Payment

A cheque is payable immediately on demand without any days of grace.

A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

Stamp

A cheque does not require any stamp.

A bill of exchange must be stamped.

Protection

A banker is given statutory protection with regard to payment of cheques in certain circumstances.

No such protection is available to the Drawee or acceptor of a bill of exchange.

Crossing

A cheque may be crossed.

Bill can never be crossed.

Presentment

If not presented to the banker for payment, it does not discharge the drawer unless he suffers injury or damages.

Drawer is discharged, if bill is not presented for payment to the acceptor.

 Noting and Protesting

A cheque is not required to be noted or protested for dishonour.

A bill of exchange may be noted or protested for dishonour.

 

7. (a) Define partnership. Describe the different methods of dissolution of partnership firms.                  3+9=12

Ans: Meaning of Partnership

Partnership is an association of two or more person who agreed to do business and share profits and losses arises from it in an agreed ratio. The partners act both as agents and principals of the firm.

In India, Partnership firm is governed by the Indian Partnership Act 1932. Section 4 of this act defines partnership as: "The relationship between persons, who have agreed to share the profits of a business carried on by all or any one of them acting for all."

According to Prof. Haney, partnership is "the relation between persons competent to make contract who agree to carry on a lawful business in common with a view to private gain."

Partnership in this way is an agreement, between two or more persons to carry on legal business with profit motive, which is carried on by all or any one of them acting for all.

Various modes of Dissolution of Firm

The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm". A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. The Indian Partnership Act, 1932 provides that a partnership firm may be dissolved in any of the following modes:

1. Dissolution without Court’s order:

(i)     Dissolution by agreement (Sec. 40)

(ii)   Compulsory dissolution (Sec. 41)

(iii) Dissolution on the happening of certain contingencies (Sec. 42)

(iv)  Dissolution by notice of partnership at will (Sec. 43)

2. Dissolution by the court’s order

(i) Dissolution by agreement (Sec. 40): A firm may be dissolved with the consent of all the partners. A partnership is set up by an agreement; similarly, it can be dissolved by an agreement. If there is any contract between the partners about the mode of dissolution of the firm, it may be dissolved accordingly.

(ii) Compulsory Dissolution (Sec.41): A firm is dissolved compulsorily:

(a) If all the partners or a partner has been adjudicated as insolvent, then the firm is dissolved as on the date of his insolvency.

(b) If any event of the business of the firm becomes unlawful, then the firm is dissolved.

(iii) Dissolution on the Happening of Certain Contingencies (Sec. 42): Subject to contract between the partners, a firm is dissolved on the happening of certain contingencies:

a)      On expiry of the term for which the firm was constituted.

b)      If firm is constituted for a particular venture and that venture is completed.

c)       On the death of a partner; and

d)      By the adjudication of a partner as an insolvent.

(iv) Dissolution by Notice of Partnership at Will (Sec. 43): Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

(v) Dissolution by Court (Sec. 44): A court may order a partnership firm to be dissolved in the following cases:

a)      When a partner becomes of unsound mind.

b)      When a partner becomes permanently incapable of performing his/her duties as a partner.

c)       When partner deliberately and consistently commits breach of partnership agreement.

d)      When a partner’s conduct is likely to adversely affect the business of the firm.

e)      When a partner transfers his/her interest in the firm to a third party;

f)       When the business of the firm cannot be carried on except at a loss in future also.

g)      When the court considers it just and equitable to dissolve the firm. The following are the cases for the just and equitable grounds:

1. Deadlock in the management.

2. Where the partners are in talking terms between them.

3. Loss of substratum.

4. Gambling by a partner on a stock exchange.

Or

(b) What do you mean by limited liability partnership? What are the features of LLP?  4+8=12

Ans: The Partnership Act was enacted during the year 1932. Business environment is changing day by day but the Indian Partnership Act is not compatible with the development of world economy now because it suffers from many limitations such as:

a) Liability of partners is unlimited.

b) The partners are jointly and severally liable for the debts and liabilities of the firm.

c) The partner is not having right to transfer his holding in the partnership.

d) The number of partners is limited.

A need has been felt for a long time to provide for a business format that would combine the flexibility of a partnership and the advantages of the limited liability of the company at a low compliance cost. For this purpose Limited Liability Partnership Bill, 2006 was introduced in Rajya Sabha on 15-12-2006. It later on it was scraped and New Limited Liability Partnership Bill was introduced with some modification and it was enacted in the Year 2009.

Meaning of LLP

LLP is simply a combination of Partnership and Company form of business organisation. It is a corporate business vehicle that enables profession expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner. It provides an alternative to the traditional partnership firm with unlimited liability.

Section 2(1) (n) defines the expression ‘limited liability partnership’ as a partnership formed and registered under LLP Act.

Features of LLP:

a) An LLP is a body corporate formed and incorporated under this Act and is legal entity separate from its partners.

b) It is an alternative corporate business from that gives the benefit of limited liability of a company and the flexibility of the partnership;

c) An LLP shall have perpetual succession.

d) Minimum number of members for a LLP is 2 and no limit for maximum numbers.

e) Individuals and Corporate body can be partners in an LLP.

f) It can continue its existence irrespective of changes in partners. Admission, retirement or death of a partner does not affect the existence, rights or liabilities of the LLP.

g) It is capable of entering into contracts and holding property in its own name;

h) The provisions of the Indian Partnership Act, 1932 shall not apply to an LLP.

h) No partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

i) LLP can be dissolved by complying with the provisions of LLP (Winding up and Dissolution) Rules, 2012.

j) Registration of LLP is compulsory with ROC.

k) The term “LLP” is added with the name of an LLP.

l) Annual Statement of accounts and return is required to be file with ROC by an LLP.

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