BCOC 133 BUSINESS LAWS SOLVED ASSIGNMENT 2022 – 2023
IGNOU BCOM Solved Assignment 2022 – 23
Valid from 1st January 2023 to 31st December 2023
TUTOR MARKED ASSIGNMENT
COURSE CODE: BCOC-133 (Business Laws)
ASSIGNMENT CODE: BCOC-133/TMA/2022-23
COVERAGE: ALL BLOCKS
Maximum Marks: 100
Note: Attempt all the questions.
In this Post you will get BCOC 133 Business Laws Solved Assignment 2022 – 23 which is a very important subject in IGNOU BCOMG 2nd Semeter. In order to Secure Handsome Marks in IGNOU BCOMG Solved Assignment 2022 – 23 simply note down the solved assignment and submit it before 15th September 2023.
Section – A
1. Explain briefly the law relating to communication of offer, acceptance and revocation. Is there any limit of time after which an offer cannot be revoked? (10)
Ans: The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal acceptance or revocation, or which., has the effect of communicating it.
Communication of Offer:
An offer is a proposal by one person, whereby he expresses his willingness to enter into a contractual obligation in return for promise, act or forbearance. Section 2(a) of the Act defines ‘proposal’ or offer as when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence. The person making the proposal is called as ‘offeror’ or proposer’ and the person the proposal is made is called as ‘Offeree’.
For a valid contract to be formed, the offer must be communicated to the offeree. This means the offeree must be aware of the offer’s existence and its terms. Until the offer is properly communicated, it cannot be accepted by the offeree.
Communication of Acceptance:
Section 2(b) defines acceptance as “When a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.” Acceptance is an expression by the Offeree of his willingness to be bound by the terms of the offer.
Acceptance may be express or implied. It is express when it is communicated by words spoken or written or by doing some required act. It is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties. For e.g. At an auction sale, S is the highest bidder. The auctioneer accepts the offer by striking the hammer on the table. This is an implied acceptance.
Rules as to Acceptance
1. It must be absolute and unqualified. An Acceptance, in order to be binding, must be absolute and unqualified of all the terms of the offer, whether material or immaterial, major or minor.
2. The acceptance must be communicated in some acceptable form to the person making offer to conclude a contract. A mere mental determination or communication to some third party does not constitute communication.
3. It must be expressed according to the mode prescribed or usual and reasonable mode.
4. It must be given within a reasonable time.
5. It cannot precede an offer: Acceptance always follows an offer. Without the knowledge of offer there is no acceptance.
6. Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence of the Offeree or his failure to answer.
7. It must show an intention on the part of the acceptor to fulfill the terms of the promise.
Revocation of Offer
An offer can be revoked by the offeror at any time before it is accepted, except in cases where the offer is coupled with an option or consideration for keeping it open. Revocation is effective only when it is communicated to the offeree. If the offeree accepts the offer before receiving the revocation, a valid contract is formed.
Revocation how made: A proposal is revoked –
(1) by the communication of notice of revocation by the proposer to the other party
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the accept or to fulfill a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the accept or before acceptance.
Example:
(a) A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.
(b) B accepts A’s proposal by a letter sent by post. The communication of the acceptance is complete, as against A when the letter is posted as against B, when the letter is received by A.
(c) A revokes his proposal by telegram. The revocation is complete as against A when the telegram is dispatched. It is complete as against B when B receives it.
B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him.
Time limit for Revocation of proposals and acceptance:
Revocation of proposals and acceptances: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the accept or, but not afterwards.
For example: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
2. “Insufficiency of consideration is immaterial, but a valid contract must be supported by lawful and real consideration.” Comment. (10)
Ans: Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”
Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.
Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.
The following are the rules related to the consideration
(i) Consideration must move at the desire of promisor. If it is done at the instance of a third party without the desire of the promisor, it is not consideration. Act done at the desire of a third party is not a consideration. Act must be done voluntarily at the desire of the promisor.
(ii) It may move from the Promisee or any other person in the Indian Law so that a stranger to the consideration may maintain a suit. A consideration may move from the promise or any other person. Consideration from a third party is a valid consideration. Under English Law, however, consideration must move from the Promisee only.
(iii) Consideration may be past, present or future. The words used in Section 2(d) are “has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something” This means consideration may be past, present or future.
(iv) It must be real & not illusory, infinite or vague. Although consideration need not be adequate, it must be real, competent and of some value in the eye of law. Physical impossibility, legal impossibility, uncertain consideration & illusory consideration.
(v) Consideration must not be unlawful, illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the courts do not allow an action on the agreement.
(vi) Consideration need not be adequate. Consideration as already explained means “something in return”. This “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced.”
Exceptions to the rule ‘No consideration no contract’
The general rule is that an agreement made without consideration is void. Section 25 deals with the exceptions to this rule. In such cases the agreements are enforceable even though they are made without consideration. These cases are:
a) Love and Affection [Section 25(1)]: Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in a near relation to each other, it is enforceable even if there is no consideration.
b) Compensation for voluntary services [Section 25(2)]: A promise to compensate wholly or part a person, who has already voluntarily done something for the promisor, is enforceable, even though without consideration. A promise to pay for a past voluntary service is binding.
c) Promise to pay a time barred debt [Section 25(3)]: A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or by his agent generally or specifically authorized in that behalf. The debt must be such “of which the creditor might have enforced payment but for the law for limitation of suits”
d) Agency (Section 185): No consideration is necessary to create an agency.
e) Completed Gift (Explanation 1 to Section 25): The rule ‘No consideration no contract’ does not apply to completed gifts. This rule shall not affect the validity, as between donor and donee, of any gift actually made.
3. Enumerate the different types of partners and briefly explain the extent of their liabilities. (10)
Ans: Different Types of Partners along with their liabilities:
(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. An active partner, along with the other partners, is fully liable for the debts and obligations of the partnership firm. Their liability is unlimited which means they can be held personally responsible for all the debts and liabilities of the firm.
(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. Like active partner, their liability is also unlimited which means they can be held personally responsible for all the debts and 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. Even though a nominal partner does not contribute any capital or take an active participation in the business, they are also liable for the debts and obligations of the partnership to the extent of their representation as a partner.
(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.
A partner by estoppel may become also liable as a partner to the extent of the representation made. Their liability arises based on the faith that third parties place on their representation as a partner and can grant credit to the firm on the basis of their holding out.
(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.
Liabilities of a Minor before attending the age of Majority:
(i) A minor’s share is liable for the acts of the firm.
(ii) He is not personally liable for sharing any liabilities or losses of the firm in his personal capacity nor is his personal property liable.
(iii) A minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm vests in the official receiver/assignee.
Position of the Minor on attending the age of Majority:
On attending Majority, the minor partner has to decide within six months whether he want to continue as partner in the firm or discontinue as a partner from the firm. The period of six months starts from the date of his majority or from the date when he first comes to know that he has been admitted to the benefits of the partnership, whichever is later.
Within the said period of six months he should give a public notice of his choice whether to continue as a partner or not to continue as a partner. If he fails to give a public notice he is deemed to have become a partner in the firm on the expiry of the said six months.
4. “No seller of goods can give to the buyer a better title than he himself has”. Explain this rule. Are there any exceptions to this rule? (10)
Ans: The general rule is that only the owner of goods can sell the goods. Conversely, the sale of an article by a person who is not or who has not the authority of the owner, gives no title to the buyer. The rule is expressed by the maxim; “Nemo dot quod non habet” i.e., no one can pass a better title than what he himself has. It means a non-owner cannot make valid transfer of property in goods.
If the title of the seller is defective, the buyer’s title will also be subject to same defect. If the seller has no title, the buyer does not acquire any title although he might have acted honestly and might have acquired the goods after due payment.
Example:
1. A, the hirer of goods under a hire purchase agreement, sells them to B, then B though, a bonafide purchaser, does not acquire the property in the goods. At most he can acquire such an interest as the hirer had.
2. A finds a ring of B and sells it to a third person who purchases it for value and in good faith. The true owner, i.e. B can recover from that person, for A having no title to the ring.
Exception to the General Rule
The Act while recognizing the general rule that no one can give a better title than what he himself has, laid down important exceptions to it. Under the exceptions the, buyer gets a better title of the goods than the seller himself. These exceptions are given below:
a) Sale by a mercantile agent: A buyer will get a good title if he buys in good faith from a mercantile agent who is in possession either of the goods or’ documents of title of goods with the consent of the owner, and who sells the goods in the ordinary course of his business.
b) Sale by a co-owner: A buyer who buys in good faith from one of the several joint owners who is in sale possession of the goods with the permission of his co-owners will get good title to the goods.
c) Sale by a person in possession under a voidable contract: A buyer buys in good faith from a person in possession of goods under a contract which is voidable, but has not been rescinded at the time of the sale.
d) Sale by seller in possession after sale: Where a seller, after having sold the goods, continues in possession of goods, or documents of title to the goods and again sells them by himself or through his mercantile agent to a person who buys in good faith and without notice of the previous sale, such a buyer gets a good title to the goods.
e) Sale by buyer in possession: If a person has brought or agreed to buy goods obtains, with the seller’s consent, possession of the goods or of the documents of title to them, any sale by him or by his mercantile agent to a buyer who takes in good faith without notice of any lien or other claim of the original seller against the goods, will give a good title to the buyer. In any of the above cases, if the transfer is by way of pledge or pawn only, it will be valid as a pledge or pawn.
f) Estoppel: If the true owner stands by and allows an innocent buyer to pay over money to a third-party, who professes to have the right to sell an article, the true owner will be stopped from denying the third-party’s right to sell.
g) Sale by an unpaid seller: Where an unpaid seller has exercised his right of lien or stoppage in transit and is in possession of the goods, he may resell them and the second buyer will get absolute right to the goods.
h) Sale by person under other laws: A Pawnee, on default of the Pawnee to repay, has a right to sell the goods, pawned and the buyer gets a good title to the goods. The finder of lost goods can also sell under certain circumstances. The Official Assignee or Official Receiver, Liquidator, Officers of Court selling under a decree, Executors, and Administrators, all these persons are not owners, but they can convey better title than they have.
5. Discuss the essentials of a contract of bailment and state the rights and duties of a bailee. (10)
Ans: Bailment is a kind of activity in which the property of one person temporarily goes into the possession of another. The ownership of the property remains with the giver, while only the possession goes to another. Several situations in day to day life such as giving a vehicle for repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples of bailment.
Section 148 of Indian Contract Act 1872, defines bailment as follows: “A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.”
The following are the essential ingredients of the bailment:
a) Goods: There must be a delivery of movable goods by one person to another. Any immovable property cannot be bailed. Also, there must obligation to return the goods to the bailer by the bailee.
b) Purpose: The delivery must be for some purpose. The delivery may be actual or constructive delivery. Actual delivery is when bailer hands over the bailee physical possession and constructive delivery is when there is no physical delivery but something is done by bailee to put bailer in possession.
c) Delivery upon contract: The delivery must be upon a contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the bailer.
d) Delivery is temporary and conditional: The delivery of goods is temporary and must be returned to the bailer or disposed after the accomplishment of conditions for which goods are delivered.
Rights and Duties of a Bailee
Rights of a Bailee
1. Right to necessary expenses (Section 158): As per Section 158 says that 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. Duty not to set up jus tertii (Section 166): As per Section 166 if the bailer has no title and the bailee, in good faith returns the goods back to the bailer or as per the directions of the bailer, he is not responsible to the owner in respect of such delivery. Thus, once the bailee takes the goods from the bailer, he agrees that the goods belong to the bailer and he must return them only to the bailer. He cannot deny redelivery to the bailer on the ground that the bailer is not the owner.
Section – B
6. Define the term “proposal”. Discuss the essentials of a valid offer. (6)
Ans: The term ‘proposal’ is otherwise called as ‘offer’. An offer is a proposal by one person, whereby he expresses his willingness to enter into a contractual obligation in return for promise, act or forbearance. Section 2(a) of the Act defines ‘proposal’ or offer as when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence. The person making the proposal is called as ‘offeror’ or proposer’ and the person the proposal is made is called as ‘Offeree’.
Rules as to Offer:
1. Intention to create legal relationship: The Offeror while making the offer must do it with the intention to create legal relations. Offeror must be conscious that a contract will arise, if the Offeree accepts the same.
2. Certain or Unambiguous: The terms of the Offer to be valid must be certain, clear and unambiguous. For e.g. An offers to sell B, ten tons of oil. A is a dealer of various oil. Here the offer is ambiguous as the offer does not specify the type of oil. However, if A was a dealer only in Parachute Coconut oil then the offer is unambiguous.
3. Offer must be distinguished from:
(i) A declaration of intention: A declaration by a person that he intends to do something gives right of action to another. Such a declaration only means that an offer will be made or invited in future and not that an offer is made now.
(ii) An invitation to make an offer or do business: Display of goods by a shopkeeper in his window, with prices marked on them, is not an offer but merely an invitation to the public to make an offer to buy the goods at the marked prices. A buyer, in case the prices of the goods are marked, cannot force the seller to sell the goods at those prices.
He can, at the most, ask the seller to sell the goods to him, in which case he is making an offer to the seller and it is up to the seller to accept the offer or not. Likewise, quotations, menu card, catalogues, prospectus issued by a company for subscribing to shares are all example of an invitation to make an offer.
4. Offer must be to a definite person: The words of an Offer must apply to definite persons or class of persons to create a legal relationship.
5. Offer must be communicated: An offer, to be complete, must be communicated to the person to whom it is made. Unless an offer is communicated, there can be no acceptance of it.
6. Offer must be made with a view to obtaining the assent: The offer to do or not to do something must be made with a view to obtaining the assent of the other party addressed and not merely with a view to disclosing the intention of making an offer.
7. Special Terms to be made clear in the Offer: The offer may be conditional but the conditions or special terms must be clearly communicated in the offer. Whenever an offer has special terms attached to it, these special terms and conditions must be effectively communicated to the Offeree to bind him.
8. Offer should not contain a term, the non-compliance of which may be assumed to amount to acceptance: A person cannot say that if acceptance is not communicated within a certain time, the offer would be considered as accepted.
7. Define mistake and explain various types of mistakes. (6)
Ans: According to Indian Contract Act’ 1872, Mistake means wrong belief which is innocent, and leads one party to rise misunderstanding against other. Mistake happened when the terms and conditions of the agreement is not clear between the parties. When one said something and white was not clear in the mind of other.
Mistakes can impact the validity of a contract and can be classified into the following types:
1. Mistake of Fact: A mistake of fact occurs when both the parties misunderstand each other leaving them at a crossroads. Such a mistake can be because of an error in understanding, or ignorance or omission etc. But a mistake is never intentional, it is an innocent overlooking.
2. Mistake of Law: Under normal circumstances, a mistake of law is generally not considered as a valid ground to set aside a contract.The principal that ‘ignorance of law is no excuse’ implies that a wrongdoer cannot plead ignorance of law as a defence to avoid any liability. This principal base itself on the ground presuming that everybody knows the law. Hence, a mistake of law even if done in good faith cannot operate as exonerating factor unlike mistake of fact.
3. Bilateral Mistake: This type of mistake occurs when both parties to the contract have not consented to the same thing in the same sense, which is the definition of consent. Such mistake can be related to the subject matter of the contract or terms and conditions of the contract. For instance, if both parties agree to sell and purchase a specific art work, believing it to be an original work of a famous artist but in reality, it is a well-made replica.
4. Unilateral Mistake: Unilateral mistake refers to a situation where only one party to the contract is under a mistake. In such a case the contract will not be void.
5. Mistake Caused by Misrepresentation: Such mistake is arising when a party to a contract is induced to enter into the contract due to the misrepresentation by the other party. Such mistake can be substantial and the affected party may have the right to rescind the contract.
8. Describe the rights and liabilities of partners on dissolution of a firm. (6)
Ans: Consequent to the dissolution of a partnership firm, the partners have certain rights and liabilities which are stated below:
1. Liability for acts of partners done after dissolution (Sec. 45): Section 45 provides that the liability of the partners will continue for the acts done before the dissolution, even after the dissolution, until public notice is given of the dissolution. The following partner is not liable for the acts after the date on which he ceases to be a partner:
a) A deceased partner.
b) Partner who is adjudicated as an insolvent.
c) A Partner who is not known to the parties dealing with the firm as a partner retires from the firm.
2. Right to share surplus after dissolution (Sec. 46): Section 46 provides that on the dissolution of a firm, every partner or his representative is entitled as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights.
3. Continuing authority of partners (Sec. 47): Section 47 provides that after the dissolution of a firm, the authority of each partner to bind the firm and the other mutual rights and obligations of the partners continue, notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.
The liabilities of a partner on dissolution are as under:
(i) Liability for acts of partners done after dissolution: Until public notice of dissolution of the firm is given; partners continue to be liable to third parties for any act done by any of them. However, this liability does not apply to a partner who is dead or who is adjudged as insolvent or a sleeping partner.
(ii) Continuing authority of partners for purpose of winding up: After dissolution of a firm, the authority of each partner to bind the firm and the other mutual rights and obligations of the partners continue, so far as may be necessary:
(a) To wind up the affairs of the firm and
(b) To complete transactions began but unfinished, at the time of the dissolution.
(iii) Liability to share profits earned after dissolution: If any partner earns any profit from any transaction connected with the firm, after the dissolution, he must share it with the other partners and the legal representative of any deceased partner.
9. Distinguish between the right of lien and stoppage-in-transit. (6)
Ans: Right of Lien: The right of lien means the right to retain the possession of goods until the full price is paid or tendered. When can lien are exercised:
(a) Where the goods have been sold without any stipulation as to credit.
(b) Where the goods have been sold on credit, but the term of credit has expired, and
(c) Where the buyer becomes insolvent.
The right can be exercised even if the seller holds the goods as an agent or bailee. Where part delivery of goods has been made, it can be exercised on the remaining goods, unless circumstances show he has waived his right.
Termination of lien: The right gets terminated under following circumstances:
(a) When the goods are delivered to a carrier or bailee but without reserving the right of disposal.
(b) When the possession is acquired by the buyer or his agent lawfully.
(c) When the right of lien is waived by the seller.
(d) When the buyer has disposed of the goods by sale of in any manner with the consent of the seller.
Right of stoppage of goods in transit: The right of stoppage in transit means the right to stopping the goods while they are in transit, to regain possession and to retain them until the price is paid. The essential feature of stoppage in transit is that the goods should be in the possession of someone intervening between the seller and the buyer. The unpaid seller can exercise the right of stoppage in transit if:
(a) The seller has parted with the possession of the goods.
(b) The buyer has not taken possession of goods.
(c) Buyer has become insolvent.
The unpaid seller may exercise the right to stoppage in transit in any one of the following 2 ways:
(a) By taking actual possession of the goods, or
(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are.
The right to stoppage in transit is lost under the following circumstances:
(a) If the buyer or his agent obtains possession.
(b) If after arrival of the goods at the appointed destination, the carrier or the bailee acknowledges to the buyer that he holds the goods on his (buyer’s) behalf.
(c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent.
(d) Where the part delivery of the goods has been made to the buyer or his agent, the remainder of goods may be stopped in transit. But if such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods the transit comes to an end at the time of part delivery.
10. Discuss the common features among promissory note, bill of exchange and cheque. (6)
Ans: Section 13 of the Negotiable Instruments Act, 1881 states, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. Since promissory note, bills of exchange and cheques all are negotiable instruments, they have some common features which are given below:
a) Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
b) Payable by Money: Negotiable Instruments are payable by the legal tender money of India. The Liabilities of the parties are governed in terms of such money only.
c) Unconditional Promise: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
d) Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
e) Acquisition of Property: Any person, who possesses a negotiable instrument, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument. When it is payable to bearer, the property in its passes from one holder to another by mere delivery. If it is payable to order, the property passes by endorsement, i.e. by the signature of its holder on its back and its delivery.
f) Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.
g) No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
Section – C
11. Distinguish between: (5)
(i) Coercion and undue influence.
Ans: 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.
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.
(ii) Fraud and Misrepresentation.
Ans: 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 void-ability 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.
Misrepresentation: Section 18 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.
12. “An agreement in restraint of trade is void”. Examine this statement mentioning exceptions, if any.(5)
Ans: Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
Cases where the contracts specifically declared to be void under the Indian Contract Act:
1) Agreement made by incompetent person, for e.g. minor, a person of unsound mind
2) Agreement made under mutual mistake as to matter of fact essential to the agreement.
3) Agreement made under mistake as to a law not enforce in India.
4) Agreement, the consideration or object of which is unlawful in part or in full.
5) Agreement made without consideration.
An agreement in restraint of trade is valid, if:
1. There is a valid interest that the party imposing the restraint is trying to protect.
2. The restraint is no more than that which is necessary to protect this interest.
3. Restraint is not contrary to public interest.
13. What can’t be a partner of a Limited Liability Partnership? (5)
Ans: Section 5 provides that any individual or body corporate may be a partner in a LLP. The expression ‘body corporate’ is defined under Section 2(1)(d) of the Act as a company as defined in Section 3 of the Companies Act, 1956 and includes:
a) a limited liability partnership registered under the Act;
b) a limited liability partnership incorporated outside India; and
c) a company incorporated outside India;
but does not include:
a) a corporation sole;
b) a co-operative society registered under any law for the time being in force; and
c) any other body corporate, not being a company, or a LLP, which the Central Government may, by notification in the Official Gazette, specify in this behalf.
An individual shall not be capable of becoming a partner of LLP, if
a) he has been found to be of unsound mind by a Court of competent jurisdiction and the findings are in force;
b) he is undischarged insolvent; or
c) he has applied to be adjudicated as an insolvent and his application is pending.
14. Explain the essentials of valid contract of sale. (5)
Ans: The essentials of a contract of sale are:
1. Numbers of parties: Since a contract of sale involves a change of ownership, it follows that the buyer and the seller must be different persons. A sale is a bilateral contract. A man cannot buy from or sell goods to himself. To this rule there is one exception provided for in section 4(1) of the Sale of Goods Act. A part-owner can sell goods to another part-owner. Therefore, a partner may sell goods to his firm and the firm may sell goods to a partner.
2. Goods: The subject-matter of the contract of sale must be ‘goods’. According to Section 2(7) “goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.” 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.
3. Price: The consideration for a contract of sale is price. Price means money consideration. If it is anything other than money, it will not be sale. But if the exchange is made partly for goods and partly for price, it will still amount to sale. However, the price may be paid or promises to be paid.
4. Transfer of property: ‘Property’ here means ownership. Transfer of property in the goods is another essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer. Further, the term ‘property’, as used in the Sale of Goods Act, means ‘general property’ in goods as distinguished from ‘special property’ [Sec. 2(11)].
If P, who owns certain goods, pledges them to R, he has general property in the goods, whereas R (the Pawnee) has special property or interest in the goods to the extent of the amount of advance he has made to the Pawnor. Similarly, in the case of bailment of goods for the purpose of repair, the bailee has special interest in goods bailed to the extent of his labour charges.
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