Business Laws Solved Question Papers | Nov' 2012 (Old Course) | Dibrugarh University

Ans: Meaning of Contract and Its essentials or (“All contracts are agreements, but all agreements are not contracts.” [Essentials of a Valid Contract] or “A Contract is an agreement enforceable by Law”)

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

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

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

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

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

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

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

Ans: Consideration and Its Essentials

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) There must be mutuality in consideration.

(v) 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.

(vi)  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.

(vii) 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. 

For e.g. F, for natural love and affection, promises to give his son A, Rs. 1 Lac. F puts this promise in writing and registers it. This is a contract.

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. 

For e.g. A says to B’ At the risk of your life you saved me from a serious accident. I promise to pay you Rs.1, 000.” There is a contract between A and B even though there is no consideration.

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”

For e.g. D owes C Rs.1, 000 but the debt is barred by the Limitation Act. D signs a written promise to pay C Rs.500 on account of the debt. This is a valid contract.

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.

Ans: Unpaid Seller and His Rights

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

The following conditions must be fulfilled before a seller can be deemed to be an unpaid seller –

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

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

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

The rights of an unpaid seller can be broadly divided under 2 main headings –

I] Rights against the goods and

II] Rights against the buyer

I] Rights against the goods:

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

1. Right of Lien: The right of lien means the right to retain the possession of goods until the full price is paid or tendered.  When can lien be exercised:

(a) Where the goods have been sold without any stipulation as to credit.

(b) Where the goods have been sold on credit, but the term of credit has expired, and

(c) Where the buyer becomes insolvent.

The right can be exercised even if the seller holds the goods as an agent or bailee. Where part delivery of goods has been made, it can be exercised on the remaining goods, unless circumstances show he has waived his right.

Termination of lien: The right gets terminated under following circumstances:

(a) When the goods are delivered to a carrier or bailee but without reserving the right of disposal.

(b) When the possession is acquired by the buyer or his agent lawfully.

(c) When the right of lien is waived by the seller.

(d) When the buyer has disposed of the goods by sale of in any manner with the consent of the seller.

2. Right of stoppage of goods in transit: The right of stoppage in transit means the right to stopping the goods while they are in transit, to regain possession and to retain them until the price is paid. The essential feature of stoppage in transit is that the goods should be in the possession of someone intervening between the seller and the buyer. The unpaid seller can exercise the right of stoppage in transit if:

(a) The seller has parted with the possession of the goods.

(b) The buyer has not taken possession of goods.

(c) Buyer has become insolvent.

The unpaid seller may exercise the right to stoppage in transit in any one of the following 2 ways:

(a) By taking actual possession of the goods, or

(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are.

The right to stoppage in transit is lost under the following circumstances:

(a) If the buyer or his agent obtains possession.

(b) If after arrival of the goods at the appointed destination, the carrier or the bailee acknowledges to the buyer that he holds the goods on his (buyer’s) behalf.

(c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent.

(d) Where the part delivery of the goods has been made to the buyer or his agent, the remainder of goods may be stopped in transit. But if such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods the transit comes to an end at the time of part delivery.

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

(a) where the goods are of perishable nature.

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

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

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

II] Rights of an unpaid seller against the buyer personally

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

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

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

3. Suit for 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.

Ans: Implied Conditions:

1. Condition as to title: In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that –

(a) In the case of a sale, he has a right to sell the goods and

(b) In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.

2. Sale by description: Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description (Section 15). If you contract to sell peas, you cannot oblige a party to take beans.

3. Sale by sample: In a case of a contract for sale by sample, there is an implied condition:

(a) That the bulk shall correspond with the sample in quality

(b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.

(c) That the goods shall be free from any defect, rendering them unmerchantable.

4. Sale by description as well as sample: Section 15 further provides that if the sale is by sample as well as by description, the goods must correspond both with the sample and with the description.

5. Condition as to quality or fitness: Normally, in a contract of sale there is no implied condition as to quality or fitness of goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for the purpose for which he is buying them. However, in the following instances, the condition as to quality or fitness applied –

(a) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgement of the seller whose business it is to supply goods of that description, there is an implied condition that the goods are reasonable fit for that purpose. [Section 16(1)]. For e.g. an order was placed for some Lorries to be used “for heavy traffic in a hilly area”. The Lorries supplied were unfit and broke down. Held, there is a breach of condition as to fitness.

(b) An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade. [Section 16(3)]

6. Condition as to merchantability: Where goods are bought by description from a seller who deals in goods of that description, here is an implied condition that the goods are of merchantable quality. This means that the goods should be such as are commercially saleable under the description by which they are known in the market at their full value.

7. Condition as to wholesomeness: In the case of eatable and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome. For e.g. C bought a bun containing a stone which broke one of C’s teeth. Held, he could recover damages.

8. Condition implied by custom: An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade in the locality concerned.

Ans: Promissory Note

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.

There are two parties to a Promissory Note:

a) Maker: It is the debtor, who promises to make the payment. It must be signed by its maker.

b) Payee: The person who receives the payment of the promissory note is the payee.

A signs instruments in the following terms:

(a) "I promise to Pay B or order Rs.500".

(b) "I acknowledge myself to be indebted to B in Rs.1, 000, to be paid on demand, for value received”.

(c) “I promise to pay B Rs.500/- on 01-10-2005. etc are promissory notes”.

The essentials of a valid Promissory note

Ans: Difference between cheque and bills of exchange:

Ans: CONSUMER PROTECTION COUNCILS/Agenecies

There shall be established for the purposes of this Act, the following agencies, namely,-

Membership:

Objects of the Central Council

The objects of the Central Council shall be to promote and protect the rights of the consumers such as-

The State Government may, by notification, establish with effect from such date as it may specify in such notification, a council to be known as the Consumer Protection Council (hereinafter referred to as the State Council).

Membership:

Objects of state council:

The objects of every State Council shall be to promote and protect within the State the rights of the consumers laid down in clauses (a) to (f) of section 6. (Objects of National Council)

Section 8-A as inserted by the Consumer Protection (Amendment) Act, 2002. The State government shall establish for every district, by notification, a council to be known as the District Consumer Protection Council.

Membership

The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the following members:

Objects of the District Council:

The Objects of every District Council shall be to promote and protect within the district the rights of consumers laid down in the clause (a) to (f) of Section 6 (National Consumer Protection Council)

CONSUMER COURTS AS PER VALUE / AREA OF CLAIM

The Consumer courts are 3 tiered.

Ans: Ans: Complaint

In Section 2 (1) (c) "complaint" means any allegation in writing made by a complainant that:

With a view to obtaining any relief provided by or under this Act; the essential features of a “Complaint” are:

Ordinarily, the complaint must contain name, description and address of the Complainant and the purpose for which he bought the goods. It must also contain the name, description and address of the trader or manufacturer. It must state clearly, the facts of the case e.g. when the things was purchase? For what purpose? When the things were consumed or used? Defects in goods or deficiency in the service etc., what injury suffered etc. These facts must be supported by all relevant and proper documents. Lastly, the complaint must mention the relief or relief’s asked for against the trader or manufacturer i.e. the opposite party.

Procedure for Filing Complaint

The complainant or his authorised agent can present the complaint in person or send it by post to the appropriate forum or Commission, as the case may be. No fee is charged for filing a complaint before the District Forum or the State Commission or the National Commission.

Important Points

The time period within which a complaint must be filed

The District Forum, the State Commission, or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. However, where the complainant satisfies the District Forum/State Commission, that he had sufficient cause for not filing the complaint within two years, such complaint may be entertained by it after recording the reasons for condoning the delay.

Decision Time: The District Forum, State Commission and National Commission are required to decide complaints, as far as possible, within three months from date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of commodities, the period is extended to five months.