Business Laws Solved Question Papers' 2021 (Held in 2022) | Dibrugarh University Solved Question Papers | B.Com 1st Sem CBCS Pattern

 DIBRUGARH UNIVERSITY SOLVED QUESTION PAPERS
BUSINESS LAWS’ 2021 (December) Held in 2022
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. (a) Write True or False:            1x5=5

(1)       Possibility of performance is an essential element for a valid contract. True

(2)       Contract with a minor is void ab initio.                True

(3)       A bill of exchange is an order to pay money.     True

(4)       The Sales of Goods Act was enacted in the year 1932.   False

(5)       The Indian Partnership Act and Negotiable Instruments Act were enacted in the same year. False

(b) Fill in the blanks:                       1x3=3

(1)       ‘Caveat Emptor’ means buyer be aware. (buyer/seller)

(2)       Registration of a partnership firm is Optional. (compulsory/optional)

(3)       Partners of an unregistered firm cannot sue against their co-partners. (can/cannot)

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

a) Express contract.

Ans: An express contract is an agreement with clearly stated terms to which both parties are bound at the time it is formed. This contract may be either oral or written. It must demonstrate an offer and unconditional acceptance, and be expressed in an easy-to-understand manner.

An express contract is different from an implied contract in the mode of manifesting assent and the mode of proof required but there is no distinction in respect of legal effects. Both forms of contract require mutual assent and a meeting of the minds, but an express contract is proved by an actual agreement where an implied contract is proved by circumstances and the contract of the parties.

If an express contract exists, there may not be another implied contract that covers the same situation, because the law does not allow any substitutes for the express contract terms.

b) Executory contract.

Ans: Executory Contract. Where the contract is yet to be performed either wholly or partially or one or both the parties have yet to perform their obligations, the contract is Executory contract.

Examples: A agrees to make furniture for B for Rs. 5,000 Mr. A has yet to make furniture and Mr. B has not made the payment. So, both A & B are yet to perform their obligations. Suppose A has made the furniture but B has yet to make payment, it is executed on A’s part by Executory on B’s part.

Thus, Executory contract may be:

1) Unilateral.

2) Bilateral.

(1) Unilateral Contract: A unilateral contract is one in which a promise on one side is exchanged for an act on the other side.

A contract is said to be unilateral where one party has discharged his obligation either before or at time of entering into contract.

Example: Mr. A, a worker does manual labour at the request of Mr. B on a particular day. On completion of work it is B’s obligation to pay him wages because A has already performed his obligation.

(2) Bilateral Contract: These are the contracts where a promise on one side is exchanged for a promise on the part of other party.

Classification of Contracts under English Law: English Law classified contracts into:

1) Formal Contracts.

2) Simple Contracts.

c) Agreement to sell.

Ans: Agreement to sell or Conditional Sale: Where the transfer of property (ownership) in the goods shall take place in future or one the fulfillment of certain conditions, it shall be an agreement to sell or a conditional sale. The property (ownership) in goods shall not be transferred from the seller to the buyer until and unless some condition is fulfilled for the completion of the contract of sale.

In the first stage every contract of sale is an agreement to sell. When seller and buyer agrees to sell and buy some goods at a price, there is an agreement between the two for the sale of the goods. Now what remains, is the transfer of ownership of the goods from the seller to the buyer. If the ownership is transferred by the seller immediately it becomes a sale and if he does not transfer the ownership until some conditions is fulfilled it shall remains an agreement to sell till the condition is fulfilled and the ownership is transferred.

d) Essentials of partnership.

Ans: Essentials of Partnership

(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.

(ii)    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.

(iii)  Profit-Sharing: The agreement between/among partners must be to share profit or losses. Sharing of profit is an essential feature of partnership. But an agreement to share losses is not an essential element. There may be specific provision in the partnership deed that a particular partner or partners shall not bear the losses.

(iv)     Business: The existence of business is essential in case of partnership. The term business includes every trade, occupation and profession.  Also the motive of the business is the acquisition of gain which leads to the formation of partnership. If there is no intention to carry on the business and to share the profit thereof, there can be no partnership.

(v)       Business carried on by all or any of them acting for all: Business must be carried on by all the partners or any one of them acting as agent of other partners. Each partner carrying on the business is the principle as well as the agent for all the other partners. Any act of one partner in the course of the business of the firm is in fact an act of all the partners. This relationship between the partners is the true test of partnership.

e) Partnership deed.

Ans: Partnership deed: Meaning

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.’

Importance: It is a very important document of the firm which defines relationship amongst the partners. It is necessary to avoid disputes amongst the partners and can be presented in the court as evidence.

Contents (Clauses) of the Deed:

a)       Name and address of the firm.

b)      Names and addresses of the partners.

c)       Nature of Business.

d)      Amount of capital to be contributed by each partner.

e)      Profit or loss sharing ratio.

f)        Date of commencement of partnership.

g)       Interest of Capital, if provided the rate of interest must be specified.

h)      Partner’s salaries and commission, if provided.

i)        Interest on Drawings, if charged, the rate of interest should also be specified.

f) Parties to a bill of exchange.

Ans: 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.

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) “All contract are agreements, but all agreements are not contract.” Discuss the statement. 11

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 possess 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) Under which circumstances consent is not treated as free consent? Discuss.    11

Ans: 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

(i) Coercion: When a person is compelled to enter into a contract by the use of force by the other party or under a threat, ‘coercion’ is said to have been employed.  Section 15 of the Indian Contract Act, 1872 defines coercion as – “committing or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

Coercion includes fear, physical compulsion and menace of the goods.  For e.g. A threatens to shoot B if B does not release A from the debt which he owed. B releases A under the threat. The release has been brought about by coercion and therefore voidable at the option of B.

Effect of coercion: According to section 19 when the consent is caused by coercion, fraud, misrepresentation, the agreement is avoidable at the option of the party whose consent was so caused. The aggrieved party may opt to rescind the contract. If the aggrieved party seeks to rescind the contract, he must restore the benefit so obtained under the contract from other party.

(ii) Undue influence: Undue influence is the term used to demonstrate unfair use of one’s position or power. There is once party who is in a dominant position, while the other party is in a sub-ordinate position. The dominant party exercising its influence over the subordinate party and getting an unfair advantage. Unlike Coercion where there is physical pressure, in undue influence, there is mental pressure.

Section 16 defines as “Where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.” 

Effect of undue influence: Section 19 A provides that when the consent is caused by undue influence, the agreement is voidable at the option of the party whose consent was so caused. The aggrieved party may opt to rescind the contract. If the aggrieved party seeks to rescind the contract, he must restore the benefit so obtained under the contract from other party, upon such terms and conditions as to the court may seem just.

(iii) Fraud: Fraud means cheating. It is intentionally stating something untrue as true. Section 17 defines Fraud as “Fraud means and included any of the following acts committed by a party to a contract or with his connivance, or his agent, which intent to decide another party thereto or his agent, or to induce him to enter into a contract.”

Effect of Fraud: According to section 19 when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been, if the representations made had been true.

However, there is one exception to the rule of voidability of contract at the option of aggrieved party. If such consent was caused by misrepresentation, or by silence, fraudulent within the meaning of section 17, the contact, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

(iv) Misrepresentation: Section18 defines misrepresentation as “a false representation a fact made innocently or non-disclosure of a material fact without any intention to deceive the other party. “The essential features of misrepresentation are

(i) Party to the contract making misrepresentation: The false statement must be by the party to the contract or by his agent or by his connivance. Further it must be addressed to the party who is misled. If not address to the party who has been misled it will not be misrepresentation.

(ii) False representation: The statement made by the party must be false, but the person making statement must honestly believe it to be true.

(iii) Representation as to fact: it is very important that the false statement made must be of material facts. A mere expression of once opinion is not statement of facts.

(iv) Object: The representation must be made with the view to inducing the other party to enter into a contract but having no intention to deceive the other.

(v) Actually acted upon: The innocent party must have actually acted on the basis of the statement which turns out to be false.

Effect of Misrepresentation: As per section 19 when consent to an agreement is caused by misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been, if the representations made had been true.

4. (a) 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.”

Rights and Duties of a Bailee

Rights of a Bailee

1.       Right to necessary expenses (Section 158): As per Section 158 says that whereby 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 bailer and the bailee is to receive no remuneration, the bailer 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 bailer is responsible to the bailee for any loss which the bailee may sustain by reason that the bailer was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailer 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 bailer until the bailer 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 bailer 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 bailer 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 bailer 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 bailer’s goods. He should not mix his goods with bailer’s good without bailer’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 bailer 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 bailer’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.

Or

(b) What do you mean by principal? Discuss the rights and duties of a principal.            3+8=11

Ans: An 'agent' is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the 'principal'.

Rights of Principal:

1. To repudiate the contract (Sec 215): If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent or that the dealings of the agent have been disadvantageous to him.

2. To claim benefit (Sec 216): If an agent, without the knowledge of the principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted from the transaction.

3. To ratify or disown an agent’s acts (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 disown such acts.

4. To revoke the agent’s authority (Sec 203): The principal may revoke the authority given to his agent by giving reasonable notice of revocation at any time before the authority has been exercised.

5. To claim loss or profit (Secs 211 & 212): The principal is entitled to compensation for any loss sustained by him or to any profits accrued: 1) Where the agent acts contrary to the directions given by the principal; or 2) Where loss is caused due to agent’s neglect, want of skill, or misconduct.

6. To demand accounts (Sec 213): The principal is entitled to demand proper accounts from the agent.

7. To refuse remuneration when the agent is guilty of misconduct (Sec 220): The principal has a right to refuse remuneration to the agent who is guilty of misconduct in the business of the agency.

Duties of Principal

1. To indemnify the agent:

a) Against consequences of the lawful act (sec 222): the employer is bound to indemnify his great against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. It must be noted that the principal is liable only for such damages as are direct and immediate and naturally follow the execution of the agency.

b) Against consequences of the acts done in good faith (Sec 223): Where one person employs another to do an act and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act though it causes an injury to the third person.

2. To pay remuneration and dues (sec 217): It is the principal’s duty to pay his agent such remuneration as may be payable to him as an agent, and also all monies due to the agent in respect of advances made or expenses properly incurred by the agent in conducting the principal’s business.

3. Compensate the agent for injury caused (Sec 225): The principal must make compensation to his agent in respect of injury caused to the agent by the principal’s neglect or want of skill.

4. Misrepresentations or fraud by agent (sec 238): Misrepresentations made, or frauds committed, by an agent acting in the course of business for his principal, has the same effect on an agreement made by such agent as if such misrepresentations or fraud had been made or committed by the principal. In order that a principal shall be made liable for the misrepresentations and frauds committed by the agent, such misrepresentations or frauds must be committed by the agent:

1) In the course of the business of his principal; and

2) The act must be within the scope of the agent’s authority.

5. (a) Define the term ‘goods’. What are the different types of goods?                   3+8=11

Ans: “Goods’ under the Sale of Goods Act, 1930

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. 

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 in 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.

Or

(b) Who is an unpaid seller? What are the rights of an unpaid seller?                     3+8=11

Ans: Unpaid Seller Meaning

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 rights against the goods are:

(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) Discuss the nature and features of limited liability partnership.                     11

Ans: 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.

Nature and 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.

Or

(b) Define partnership. Explain the various types of partners.                     11

Ans: Partnership deed: Meaning

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.’ 

Different Types of Partners: The different types of Partners are:

(i) Active Partner: A person who is actively, actually or effectively engaged in the conduct of business of the partnership firm is known as an Active Partner. He is the agent of the other partners and has authority to bind the firm and the other partners in the ordinary course of business.

(ii) Sleeping or Dormant Partner: A sleeping partner is one who does not take an active part in the conduct of business of the firm. He invests capital and shares the profits of the firm and is also equally liable along with other partners for all the liabilities of the firm.

(iii) Nominal Partner: A person who lends his name to the firm, without having any real interest in it is called a Nominal Partner. He does not invest any capital in the business nor does he takes any active part in the business nor does he share any profit of the firm. However, he is liable along with other partners for all the liabilities of the firm.

(iv) Partner in Profit only: Where a partner agrees with the other partners that he shall share only profits and shall not be liable for any losses of the firm he is called Partner in Profit only. However, he remains liable to the creditors for the debts of the firm since under the Partnership Act the liabilities of the partners are joint, several and unlimited.

(v) Sub-Partner: Where a partner agrees to share his profits earned form the firm with a third person then that third person is known as the sub-partner. A sub-partner has no rights against the firm and cannot represent himself as a partner of the firm. He is in no way connected with the firm and is thus not liable for the liabilities of the firm.

(vi) Partner by Estoppel or by Holding Out: Sometimes strangers represent themselves to be partners in a firm and thereby induce third parties to give credits to the firm such strangers are called as partners by Estoppel or Partners by Holding Out. Section 28 of the Partnership Act prescribes that a person be liable as a partner by Holding out must fulfill the following condition:

(a) He must have by words, written or spoken or by his conduct, represented himself to be a partner or

(b) He must have knowingly permitted himself to be represented as a partner to the other person and

(c) The other person must have acted on the faith of such representation and have given credit to the firm.

(vii) Minor Partner: As per Section 11 of the Indian Contract Act, 1872 a minor cannot enter into an agreement. However, Section 30 of the Partnership Act provides that with the consent of all the partners for the time being a minor may be admitted to the benefits of Partnership.

7. (a) What is meant by crossing of cheque? Explain the various types of crossing.            3+9=12

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.

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. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abbreviations thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, in case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.

A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, it means only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifying and suitable action taken against him. (Specimen - 2012

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.”

Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.

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. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same. 

4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.

Or

(b) Write notes on:         6+6=12

(1) Dishonor of cheque.

Ans: Dishonour of cheque means non-payment of cheque by banks due to some unavoidable reasons. The bank may dishonour a cheque for the following cases.

a)       When the cheque is postdated and it is presented for payment before the date it bears.

b)      When there are insufficient funds to the credit of the drawer.

c)       When the cheque is presented for payment at branch where the drawer of the cheque has no account.

d)      When a cheque is not duly, presented, as for example a cheque presented outside banking hours.

e)      When the cheque is ambiguous, mutilated, materially altered or irregular.

f)        When the cheque has become stale, that is it is not presented within six months of the issue of the cheque.

g)       When the signatures of the drawer of a cheque do not tally with the specimen signatures in the records of the bank.

h)      When the amount in figures and in words is not the same in a cheque.

i)        When the cheque is crossed and it is not presented through a bank.

j)        Where the bank receives a notice of the insolvency or insanity of the customer.

(2) Different types of negotiable instruments.

Ans: Negotiable Instruments are money/cash equivalents. These can be converted into liquid cash subject to certain conditions. They play an important role in the economy in settlement of debts and claims. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act. This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.

There are mainly three types of negotiable instruments: Promissory note, bills of exchange and cheque.

a) Promissory Note, in the law of negotiable instruments, is a written instrument containing an unconditional promise by a party, called the maker, who signs the instrument, to pay to another, called the payee, a definite sum of money either on demand or at a specified or ascertainable future date. The note may be made payable to the bearer, to a party named in the note, or to the order of the party named in the note.

According to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a bank note or a current note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or do the order of, a certain person, or to the bearer of the instrument.”

In other words, we can say that a promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer.

b) Bills of exchange: A bill of exchange or “draft” is a written order by the drawer to the drawee to pay money to the payee. It is an unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date.

As per Section 5 a “bill of exchange” is “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”

c) 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.

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