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.
Also Read Business Laws Solved Papers (CBCS Patter) - Dibrugarh University
1. Business Laws Solved Paper 2019
2. Business Laws Solved Paper 2020 (Held in 2021)
3. Business Laws Solved Paper 2021 (Held in 2022)
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: Parties
to a bill of exchange
1. The Drawer: The person who draws a
bill of exchange is called the drawer.
2. The
Drawee: The party on whom such bill of exchange is drawn and who is
directed to pay is called the drawee.
3. The Acceptor: The person who accepts
the bill is known as the acceptor. Normally the drawee is the acceptor. But a
stranger can also accept a bill on behalf of a drawee.
4. The Payee: The person to whom the
amount of the bill is payable is called the payee.
5. The Endorser: When the holder
transfers or endorses the instrument to any other person the holder becomes the
endorser.
6. The Endorsee: The person to whom the
bill is endorsed is called the endorsee.
7. The Holder: Holder of a bill of
exchange means any person who is legally entitled to the possession of it and
to receive or recover the amount due thereon from the parties. He is either the
payee or the endorsee. The finder of a lost bill payable to bearer or a person
in wrongful possession of such instrument is not a holder.
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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