Business Laws Solved Question Papers' 2018 | Assam University Solved Question Papers | B.Com 1st Sem CBCS Pattern

 ASSAM UNIVERSITY SOLVED QUESTION PAPERS
TDC (CBCS) Odd Semester Exam, 2018
COMMERCE (1ST Semester)
Course No.: COMHCC – 102T (Business Law)
Full Marks: 70 (Pass Marks: 28)
Time: 3 hours

The figures in the margin indicate full marks for the questions

Answer all questions

UNIT – I: Indian Contract Act, 1872

1. Answer any two of the following:                       2x2=4

a)      Define contract.

Ans: 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.

b)      What is quasi contract?

Ans: It means a contract which lacks one or more of the essentials of a contract. In a contract, a promisor voluntarily undertakes an obligation in favour of the promisee. When a similar obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. Such contracts are the quasi-contracts. Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no person shall be allowed to enrich himself at the expense of another the legal obligations of parties remains same.

c)       Define contingent contract.

Ans: According to the Contract Act a contingent contract is one whose performance us uncertain. The performance of the contract which comes under this category depends on the happening or non- happening of certain uncertain-events. On the other hand, an ordinary or absolute contract is such where performance is certain or absolute in itself and not dependent on the happening or non-happening of an event. A contingent contract is defined as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen (sec. 31).

2. Answer any one of the following:                       10

a)      “All contracts are agreement but all agreements are not contracts.” Discuss.

Ans: 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.

b)      What do you mean by discharge of contracts? What are the different modes of discharge contracts? Discuss.

Ans: Meaning of Discharge of a Contract: Discharge of a contract means termination of the contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties under the contract come to an end.

Modes of discharge of a contract: A Contract is said to be discharged when the rights and obligations created by it come to an end. A contract may be discharged in the following modes:-

1.       Discharge by performance: Discharge by performance takes place when the parties to a contract fulfill their obligations arising under the contract within the time and in the manner prescribed. Performance may be actual performance or attempted performance.

2.       Discharge by Agreement or Consent: A Contract comes into existence by an agreement and it may be discharged also by an agreement. The following are modes of discharge of a contract by an agreement:

a)      By Waiver: Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract. For e.g. A an actor promised to make a guest performance in the film made by B. Later B forbids A from making the guest appearance. B is discharged of his obligation.

b)      By Novation: Novation occurs when a we contract is substituted  for an existing contract, either between the same parties or between different parties, the consideration being the discharge of old contract, mutually. E.g.: A is indebted to B & C to C. By mutual agreement B’s debt to C & B’s loan to A are cancelled & C accepts as his debtor.

c)       By Rescission: Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur by mutual consent or where one party fails in the performance of his obligations, the other party may rescind the contract.

d)      By alteration: Alteration of a contract may take place when one or more of the terms of the contract is/are altered by mutual consent of the parties to the contract.

e)      By Remission: Remission means acceptance of a lesser fulfillment of the promise made, E.g. Acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt.

f)       By Merger: Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract. For e.g. P holds a property under a lease. He later buys the property. His rights as a lessee merge into his rights as an owner.

3.       Discharge by impossibility of performance: If a contract contains an undertaking to perform impossibility, it is void ab initio. As per Section 56, impossibility of performance may fall into either of the following categories –

(i) Impossibility existing at the time formation of the contract: This is known as pre-contractual impossibility. The fact of impossibility may be:

a) Known to the parties: Both the parties are aware or know that the contract is to perform an impossible act. For e.g. A agrees with B to put life into dead wife of B, the agreement is void.

b) Unknown to the parties: Both the parties are unaware of the impossibility. The contract could be on the ground of mutual mistake of fact. For e.g. contract to sell his house at Andaman to B. Both the parties are in Mumbai and are unknown to the fact that the house is actually washed away due to Tsunami.

(ii) Impossibility arising subsequent to the formation of the contract: Where impossibility of performance of the contract is caused by circumstances beyond the control of the parties, the parties are discharged from further performance of the obligation arising under the contract.

4.       Discharge by lapse of time:  The Limitation Act, 1963 lays down certain specified periods within which different contracts are to be performed and be enforceable. If a party to a contract does not perform, action can be taken only within the time specified by the Act. Failing which the contract is terminated by lapse of time. For e.g. A sold a gold chain to B on credit without any period of credit, the payment must be made or the suit to recover it, must be instituted within three years from the date of delivery of the instrument.

5.       Discharge by Operation of Law: A contract may be discharged independently of the wished of the parties i.e. by operation of law. This includes discharge:

a)      By death: In contract involving personal skill or ability, the contract is terminated on the death of the promisor. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person.

b)      By insolvency: When a person is declared insolvent, he is discharged from all liabilities incurred prior to such declaration.

c)       By unauthorized material alteration of the terms of a written agreement: Any material alteration made by a party to the contract, without the prior permission of the other party, the innocent party is discharged.

d)      By rights and liabilities becoming vested in the same person: When the rights and liabilities under a contract vests in the same person.

6.       Discharge by Breach of Contract: A breach of contract occurs when a party thereto without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. A breach to a contract occurs in two ways:-

a)      Actual Breach: When a party fails, or neglects or refuses or does not attempt to perform his obligation at the time fixed for performance, it results in actual breach of contract. For e.g. A promises to deliver 100 packs of ice-cream to B on his wedding day. A does not deliver the packs on that day. A has committed actual breach of the contract.

b)      Anticipatory Breach: Anticipatory Breach is a breach before the time of the performance of the contract has arrived. This may take place either by the promisor doing an act which makes the performance of his promise impossible or by the promisor, in way showing his intention not to perform it.

UNIT – II: Specific Contract

3. Answer any two of the following:                       2x2=4

a)      What is Contract of Indemnity?

Ans: 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.

b)      Define the Contract of Guarantee.

Ans: 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.

c)       What is Agency by Ratification?

Ans: Agency By Ratification: According to Sec. 196, where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he accepts, it is called agency by ratification. Soon after ratification, the person who has done the activity becomes agent and that person who has given ratification becomes principal. Ratification is of two types. Namely;

a)      Express Ratification and

b)      Implied Ratification.

The ratification where there is wording and expression is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A from C. There after, A has given his Support to B`s activity, it is called ratification and now A is principal and b is agent.

4. Answer any one of the following:                       10

a)      Compare the Contract of Indemnity and Contracts of Guarantee.

Ans: 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.

b)      Discuss the rights and duties of Bailor.

Ans: Rights and Duties of Bailer

Rights of bailer

1.       Right to take back: As the purpose completes, the bailor has right to get back the property bailed and if any damage is caused to the property, he is entitled for compensation from the bailee.

2.       Right in case of unauthorized use: If the bailee uses property in unauthorized manner, the bailor can terminate the bailment as well as can claim for compensation also.

3.       Right to gratuitous bailor: The bailor has right to terminate the contract of gratuitous bailment at any time even before the specified time, subject to the limitations that where such termination of bailment causes loss in excess of benefit, the bailor must compensate the bailee.

4.       Right to get benefit/profit: If the bailed property has been accredited, the bailor has right to the benefit/profit.

Duties of Bailer

1.       Duty to dispose faults: Bailer should disclose faults present in goods at the time of making delivery. Faults are of two types namely; Known faults and Un-known faults. On the other hand bailment also is of two type’s namely Gratuitous bailment and Non-Gratuitous bailment. In case of gratuitous bailment, bailer is liable to compensate for bailee injuries arising out of known faults. In Gratuitous bailment, bailer is not answerable to un-known faults. In case of Non-Gratuitous bailment, bailer is answerable to both known faults and Un-known faults.

2.       Duty to contribute for expenses: Bailer should contribute for expenses incurred by bailee. In case of Gratuitous bailment, bailer need not contribute for ordinary expenses and extra ordinary expenses or to the contributed by bailer. In case of Non-Gratuitous bailment, bailer should contribute for both ordinary expenses and extra ordinary expenses.

3.       Duty with regard to defective title: In case where bailer has delivered the goods with defective title, the bailee may come across suffering from the side of true owner due to bailer’s defective title. In such a case bailer with defective title should compensate bailee.

4.       Duty to Indemnify: Principal of indemnity operates between bailer and bailee, where bailer becomes implied indemnifier and bailee becomes implied indemnity holder. So bailer has duty to indemnify bailee.

5.       Duty to take the Goods back: After fulfillment of purpose bailee returns the goods to bailer. Then bailer should take them back. If bailer refuses to take the goods back, bailer has to compensate bailee.

UNIT – III: Sale of Goods Act, 1930

5. Answer any one of the following:                       2x2=4

a)      Define goods.

Ans: 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.” Goodwill, trademarks, copyrights, patents right, water, gas, electricity,, decree of a court of law, are all regarded as goods. In the case of land the grass which forms part of land have to be separated from the land. Thus where trees sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself’ are not contracts for sale of goods. 

b)      Write down two essential elements of Contract of Sale.

Ans: Essential Elements of Sale of Goods Act are listed below:

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.” Goodwill, trademarks, copyrights, patents right, water, gas, electricity,, decree of a court of law, are all regarded as goods. In the case of land the grass which forms part of land have to be separated from the land. Thus where trees sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself’ are not contracts for sale of goods. 

c)       What is warranty?

Ans: Warranty: Section 12(3) states that a warranty is a stipulation which is collateral to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated. The above definition shows that for the implementation of a contract warranty is not essential. For the breach of warranty only damages can be claimed.

6. Answer any one of the following:                       10

a)      Distinguish between Sale and Agreement to Sale.

Ans: Difference between ‘Sale’ and ‘agreement to sell’:

Basis

Sale

Agreement to Sell

Definition

Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once); the contract is called a ‘sale’.

where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’

Transfer of ownership

Transfer of ownership of goods takes place immediately.

Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition.

Executed contract or Executory contract

It is an executed contract.

It is an Executory contract.

Conveyance of property

Buyer gets a right to enjoy the goods against the whole world including seller.

Buyer does not get such right.

Transfer of risk

Transfer of risk of loss of goods takes place immediately because ownership is transferred.

Transfer of risk of loss of goods does not take place because ownership is not transferred.

Right of seller against the buyer’s breach

Seller can sue the buyer for the price, even though the goods are in his possession.

Buyer can sue the seller for damages only.

Rights of buyer against the seller’s breach

Buyer can sue the seller for damages and can sue the third party who bought those goods for goods.

Buyer can sue the seller for damages only.

Effect of insolvency of seller having possession of goods.

Buyer can claim the goods from the official receiver or assignee because the ownership of goods has transferred to the buyer.

Buyer cannot claim the goods, even when he has paid the price because the ownership has not transferred to the buyer. The buyer who has paid the price can only claim rateable dividend.

Effect of insolvency of the buyer before paying the price.

Seller must deliver the goods to the official receiver or assignee because the ownership of goods has transferred to the buyer. He can only claim rateable dividend for the unpaid price.

Seller can refuse to deliver the goods unless he is paid full price of the goods because the ownership has not transferred to the buyer.

Right in rem / personam

It is a right in rem i.e. right against the whole world.

It creates a right in personam i.e. right against a person.

In risk of destruction of goods.

Buyer has to bear the risk even if possession is with the seller as ownership has passed.

Seller has to bear the risk, even if possession is with the buyer, as ownership has not passed.

b)      Who is an unpaid seller and what are the rights of an unpaid seller?

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 be 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.

UNIT – IV: Indian Partnership Act, 1932

7. Answer any two of the following:                       2x2=4

a)      What is Partnership Deed?

Ans: Partnership deed: A partnership is formed by an agreement. This agreement may be oral or in writing. Though the law does not expressly require that the partnership agreement should be in writing, it is desirable to have it in writing. A written agreement, which contains the terms of partnership, as agreed to by the partners is called ‘Partnership Deed.’

b)      Write two features of Limited Liability Partnership.

Ans: 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)       State any two properties of partnership firm.

Ans: Properties of partnership firm:

(i)     Agreement: Partnership is the result of an agreement, either written or oral, between two or more persons. An agreement between the partners may be expressed or implied. It arises from contract and not from status or process of law.

a)      Number of Persons: In a partnership firm there must be at least two people to form the business. Partnership Act 1932, does not specifies the maximum numbers of persons, but Section 464 of the Indian Companies Act 2013, restricts the number of Partners to 50 for a partnership firm. But in case of limited liability partnership there is no maximum limit.

8. Answer any one of the following:                       10

a)      Discuss the mutual rights and duties of partners.

Ans: Rights and Duties of Partners of a Firm

The Rights of a partner are as under:

(i) To take active part in the business: Every partner has a right to take active part in the conduct and management of the business of the firm.

(ii) To share Profits: Every partner has a right to share profits earned and are liable to contribute to the losses incurred by the firm.

(iii) To be consulted: Every partner has a right to be consulted in all matters affecting the business of the partnership firm before any decision is been taken. In case of difference of opinion it may be settled by decision of majority of the partners.

(iv) To have access to the accounts: Every partner has a right to have access, inspect and copy the books of accounts of the firm.

(v) To be indemnified: Every partner has a right to be indemnified for the expenses incurred or payments made in the ordinary course of business.

(vi) To use the property of the firm: Every partner has a right to use the property of the firm for the purposes of the business of the firm. If the partner uses the firm’s property for private purpose then he is liable to compensate the firm for the same.

(vii) Interest on capital: Every partner has a right to receive interest on capital at a certain rate as may be specified and agreed in the partnership agreement. Such interest is payable only out of profits, in any, earned by the firm.

The duties of a partner are as under:

(i) To carry on the business to the common advantage: Every partner is bound to:

(a) Carry on the business of the firm to the greatest common advantage.

(b) To be just and faithful to each other in the mutual dealings.

(c) To use reasonable care and skill in the performance of his duties and

(d) Render true accounts and full information of all things, affecting the firm, to any partner or his legal representative.

(ii) To indemnify: Every partner is bound to indemnify the firm:

(a) For any loss cause to it by his fraud in the conduct of business of the firm.

(b) For any loss incurred due to his willful neglect in the conduct of the business of the firm.

(iii) To attend diligently to his duties: Every partner is bound to attend diligently to his duties in the conduct of the business of the firm. He must use his knowledge and skill for the benefit of the firm.

(iv) To account for private profits: If a partner derives any benefit, without the consent of the other partners from any transactions of the firm or from any use of the partnership property, name or business connection. He must account for it and compensate it to the firm. There exists a fiduciary relationship between partners and therefore no partner is entitled to make any personal profit.

(v) To account for profit in competing business: A partner must not carry a business as of competing nature with the firm. If he does that then he is bound to account for and compensate to the firm all the profits made by him in that competing business.

(vi) To act within authority: Every partner is bound to act within the scope of his actual or implied authority.

(vii) To hold and use the property of the firm exclusively for firms business: Every partner is bound to hold and use the property of the firm exclusively for the purposes of the business of the firm.

b)      Distinguish between Partnership and Joint Stock Company.

Ans: Difference between Partnership and Company:

Basis

Partnership

Company

1.Definition

Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

A Company means a company formed and registered under this Act or an existing Company.

2.A Legal Person

A firm is not a legal Entity.

A Company on the other hand, is a Legal Person.

3. Liability

In a Partnership, the liability of partners is unlimited.

In case of a company, which is limited, the liability of the members is limited to the extent of its share capital.

4.Transfer of Shares

In a firm, a partner cannot transfer or assign the whole of his share without the consent of all the partners of the firm

In a company, a shareholder can transfer his share subject to the provisions of the Articles of the Company.

5.Mutual Agents

In a firm, all partners are mutual agents.

In a company, a member is not an agent of

6.Registration

Registration of a firm is not compulsory under the Partnership Act, 1932.

Registration of a company is compulsory under the Companies Act, 2013.

7.Management

Management vests in the hands of the Partners except in the case of Sleeping Partners.

Management vests in the board of Directors, elected periodically by the shareholders.

8.Creditors

Creditors of firm are also creditors of the partners individually as well.

Creditors are only the creditors of the company and not of the individual shareholders.

9.Statutory obligations

A partnership has less statutory obligations

A company is strictly regulated under the Companies Act, 2013.

10.Accounts

Accounts of a partnership firm need not be audited by the auditor.

Accounts of a company must be audited by an auditor.

11. To whom property belong.

The property of affirm belongs collectively to the partners.

The property of a company, on the other hand, belongs to the company, and not to the shareholders.

12.Effect of death of partners and members

In the case of a firm, death or insolvency of a partner resolution the dissolution of the firm, unless there is a contract to the contrary.

In the case of a company, death or insolvency of a member of the company does not result in the dissolution of the company.

13.Contract with the firm or company

A Partner cannot enter into a contract with the firm, in which he is a partner, because the firm is not a legal person.

A shareholder, on the other hand, can enter into a contract with the company, of which he is a member, because the company is a legal person.

14.Power to dispose of property

A partner can dispose of the property of the firm.

A Shareholder cannot dispose of the property of the company.

15.Limit on number of members

There is a statutory limit on maximum number of Partners. Section 464 of the Indian Companies Act 2013, restricts the number of Partners to 50 for a partnership firm.

In the case of a company, a Private Company: Minimum 2 and Maximum 200 and in case of Public Company: Minimum 7 and Maximum unlimited.

UNIT – V: Negotiable Instruments Act, 1881

9. Answer any two of the following:                       2x2=4

a)      What is meant by ‘payment in due course’?

Ans: The payment of a negotiable instrument should be made to the right person by the paying banker or the acceptor of the bill; otherwise the latter shall be responsible for the same. The negotiable instrument Act provides protection to the paying banker or the acceptor of the bill only when payment is made as per the provisions of the Act. Payment of the amount due as per the provisions of the Act is called payment in due course.

b)      What is negotiable instrument?

Ans: Negotiable instrument: Negotiable Instrument means a written document which guarantees the specific amount of money to the person named therein and is transferable by delivery or by endorsement. According to Section 13 of the Negotiable Instrument Act 1881, “A Negotiable Instrument means a Promissory Note, Bill of Exchange and Cheque, payable either to order or to bearer.

c)       What is meant by ‘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.

10. Answer any one of the following:                     10

a)      What is meant by ‘holder in due course’ and what are his privileges?

Ans: Holder and Holder in due course

According to Section 8 of the Negotiable Instrument Act, 1881, “Holder of a promissory note, bills of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties there to.”

According to Section 9 of the Negotiable Instrument Act, 1881, “Holder in due course means any person who, for consideration, become the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned, in it became payable and without having sufficient course to believe that defect existed in the title of the person from whom he derived his title.”

A person is said to be holder in due course in the following cases:

a)      A negotiable instrument must be in the possession of the holder-in-due-course.

b)      A negotiable instrument must be regular and complete in all aspects.

c)       The instrument must have been obtained for valuable consideration.

d)      The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity.

The Holder of a Negotiable Instrument enjoys the following rights:

a)      He can claim payment of the instrument and can sue in his own name on the instrument.

b)      An endorsement in blank may be converted by him into an endorsement in full.

c)       He is entitled to cross a cheque either generally or special and also with the words “Not Negotiable”.

d)      He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque.

e)      A duplicate copy of a lost cheque may be obtained by a holder.

Holder in Due Course enjoys the following rights and privileges:

a)      He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.

b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.

c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.

d)      Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.

e)      Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally an inchoate (incomplete) instrument and subsequent transferor completed the instrument for a sum greater than what was the intention of the market, the right of a holder in due course to recover the money of the instrument is not at all affected.

f)       Right is cane the instrument is obtained by unlawful means or for unlawful consideration: A person liable on negotiable instrument cannot denied himself against payment to a holder in due course on the ground that the instrument was lost or obtained from him by means of an offense or fraud or far an unlawful consideration.

g)      Estoppel against endorser to deny capacity of prior parties: The endorser of a negotiable instrument in a suit thereon by the holder-in-due-course cannot deny the signatures or capacity to contract of any prior party to the instrument.

b)      What are the distinctions between bill of exchange and Cheque?

Ans: Difference between cheque and bill 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.

It requires acceptance by the Drawee or someone else on his behalf.

Payment

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

A bill of exchange may or may not be payable on demand.

Stamp

A cheque does not require any stamp.

A bill of exchange must be stamped.

Payee

A cheque may be issued payable to the bearer.

A bill can never be issued payable to bearer.

Days of grace

No days of grace are allowed for a payment of a cheque.

3 days of grace are allowed for payment of a bill unless it is payable on demand.

Crossing

A cheque may be crossed.

A bill of exchange cannot be crossed.

Difference between Promissory Note and Cheque:                        2015, 2020

Basis

Promissory Note

Cheque

Nature

It is an unconditional promise by the maker to pay the money.

It is an unconditional order to the bank to pay certain sum of money.

Days of Grace

Three days of grace are allowed for payment.

No days of grace are allowed for payment.

Crossing

A promissory note cannot be crossed.

A cheque can be crossed.

Stamping

A promissory note must be stamped.

A cheque does not require a stamp.

Drawer

The maker of a promissory note is one who pays the money.

The drawer of a cheque is one who withdraws the money from the drawee.

Payee

The maker of promissory note cannot be payee.

The drawer of a cheque can be the payee.

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