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Bachelor of Commerce (B.Com – CBCS PATTERN)
CHOICE BASED CREDIT SYSTEM
BCOC – 133: Business Law
ASSIGNMENT (2019-20)
Second Semester
School of Management Studies
Indira Gandhi National Open University
Maidan Garhi, New Delhi -110068
Dear Students,
As explained in the Programme Guide, you have to do one Tutor Marked Assignment in this Course. The assignment has been divided into three sections. Section A Consists of long answer questions for 10 marks each, Section B consists of medium answer questions for 6 marks each and Section C consists of short answer questions for 5 marks each.
Assignment is given 30% weightage in the final assessment. To be eligible to appear in the Term-end examination, it is compulsory for you to submit the assignment as per the schedule. Before attempting the assignments, you should carefully read the instructions given in the Programme Guide.
1. Those students who are appearing in June 2020 Term End Examination they have to submit latest by in 15 March 2020.
2. Those students who are appearing in December 2020 exams. They should download the new assignment and submit the same latest by 15 October 2020.
You have to submit the assignment of all the courses to the Coordinator of your Study Centre.
Section-A
(This section contains five questions of 10 marks each)
Q.1 What is a contract? Explain the essentials of a valid contract. 10
Ans: Meaning of Contract and Its essentials:
Section 2 (h) defines ‘Contract’ as an agreement enforceable by law. If we analyse the definition it has two components viz.
1. An agreement between two or more persons "To Do" or "Not to Do" something.
2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.
Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing. All contracts are agreements but for agreement to be a contract it has to be legally enforceable.
Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”
An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts.
In order to become a valid contract an agreement must posses the following essential elements:
a) Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.
b) Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.
c) Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.
d) Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to. An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.
e) Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.
f) Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.
g) Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.
h) Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law.
Q.2 What is breach of contract? Explain the remedies available to an aggrieved party on the breach of contract. 10
Ans: Breach of Contract: A breach of contract occurs when a party thereto without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. A breach to a contract occurs in two ways:-
a) Actual Breach: When a party fails, or neglects or refuses or does not attempt to perform his obligation at the time fixed for performance, it results in actual breach of contract. For e.g. A promises to deliver 100 packs of ice-cream to B on his wedding day. A does not deliver the packs on that day. A has committed actual breach of the contract.
b) Anticipatory Breach: Anticipatory Breach is a breach before the time of the performance of the contract has arrived. This may take place either by the promisor doing an act which makes the performance of his promise impossible or by the promisor, in way showing his intention not to perform it.
Remedies for Breach of Contract
The five basic remedies for breach of contract are available:
1) Money damages: When the contract is breached by a party, the common law remedy available for aggrieved party is monetary compensation which is called money damage. Money damage includes a sum of money that is given as compensation for financial losses caused by a breach of contract. The purpose of providing monetary compensation to the aggrieved party to put him into the same financial position he would have been in the contract had been properly performed.
2) Restitution: Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract.
3) Rescission: Rescission is the name for the remedy that terminates the contractual duties of both parties. it seeks to place the parties back in their pre-contractual position.
4) Injunction: The injunction is an order of the court requiring a person to refrain from doing some act which has been the subject matter of contract. The power to grant injunction is discretionary. This remedy is preventive in nature. This remedy is helpful in case of anticipatory breach of contract.
5) Specific performance: Specific performance is an equitable remedy that compels one party to perform, his or her duties specified by the contract. In some case, the performance of contractual obligations for a party may be more valuable which cannot be compensated in money. In such circumstances, he can approach to the court for specific performance of the contract.
6) Quantum meruit: The term “quantum merit” means, ‘as much as he deserves’ or ‘as much as earned’. A suit of quantum meruit is a claim for the value of the material used or supplied under a contract that has become void on account of breach by the other party. When a contract becomes void, any person who has received any advantages under such contract is bound to restore it, to the person from whom he received it.
Q.3 Discuss the various ways by which a contract of agency can be terminated. 10
Ans: Termination of Agency Contract
Termination of agency may take place in two ways either by the operation of law or by the act of parties:
1) Termination of agency by the operation of law.
a. Expiry of time: At times contract of agency may get formed for a particular period. In such a case after expiry of that agreed period, termination of agency takes place.
b. Fulfillment of object: At times the contract of agency may be found for a particular objective or to do a particular venture. In such a case termination of agency takes place after completion of that venture.
c. Death or lunacy of either party: Whenever principal or agent come across death or lunacy, agency contract gets terminated.
d. Insolvency of Principal: Principal should have capacity to contract. When principal becomes insolvent, He foregoes capacity to contract and termination of agency takes place. But the act is silent with regard to insolvency of agent. As minor also can act as agent, it can be conformed that insolvent person may act as agent.
e. Destruction of subject matter: When subject matter of contract gets destructed, agency contract comes to an end.
f. Principal – Alien Enemy: When principal is alien and war breaks out between the countries, then principal becomes alien enemy and agency contract gets terminated.
g. Liquidation of company: On account of legal entity company may act either as principal or agent. Whatever the status may be, if company enters into liquidation, termination of agency takes place.
h. Termination of Sub-agency: When ever man agency gets terminated on account of any reason, sub-agency also goes off.
2) Termination of agency by the act of Parties.
The following are the situations where the agency is terminated by the act of parties.
a. Termination of agency by the Principal: Principal can terminate the contract of agency by giving notice to agent. By doing so if agent comes across any suffering. Principal has to compensate the agent.
b. Termination of agency by the Agent: Agent also can terminate the agency contract by giving notice to principal but by doing so if principal comes across any suffering, agent has to compensate.
c. Termination of agency by both the parties to the contract: By means of mutual understanding between principal and agent, the contract of agency may come to an end.
Q.4 Can a minor be admitted to a partnership? If so, what are his rights and liabilities during minority and after he has attainted majority? 10
Ans: Minor Partners and the position of a minor in a Partnership Firm
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, a minor can be admitted for the benefits of partnership. This provision is based on the rule that a minor cannot be a promisor but he can be a Promisee or a beneficiary.
Rights of a Minor before attending the age of Majority:
(i) He has a right to share the profits and the property of the firm as may be agreed.
(ii) He has a right to have access to and inspect the books of accounts of the firm.
(iii) Right to sue for payments of his share of profit or property in case of his severance of connection with the firm.
(iv) He has a right to elect to become a partner on attaining the age of Majority.
(v) He has a right to elect not to become a partner on attaining the age of Majority.
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 month whether he want to continue as partner in the firm or discontinue as a partner from the firm. The period of six months start 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 month.
Position of a minor if he elects to become the Partner after attending the age of Majority:
(i) He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the partnership.
(ii) His share to the profits of the firm is the same as he was entitled to as a minor partner.
Position of a minor if he elects not to become the Partner after attending the age of Majority:
(i) His rights and liabilities of the partner as a minor continue up to the date of the notice.
(ii) His share is not liable for any acts of the firm done after the date of the public notice.
(iii) He is entitled to sue the partners for his share of the profits and property of the firm.
Q.5 Explain the rules relating to delivery of goods. 10
Ans: Delivery: Section 33 provides that the delivery of goods sold may be made
a) by doing anything which the parties agree; or
b) which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf;
Section 35 provides that the seller of goods is not bound to deliver them until the buyer applies for the delivery apart from any express contract.
Rules as to delivery: Rules for the delivery as detailed below:
a. Part delivery: A delivery of part of goods, in progress of the delivery of the whole, has the same effect as a delivery of the whole for the purpose of passing the property in such goods. If a delivery of part of the goods is done with an intention of severing it from the whole, then it does not operate as a delivery of the reminder.
b. Place of delivery: In the absence of an agreement, express or implied, the goods sold are to be delivered at the place at which they are at the time of sale. The goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, or if not then in existence, at the place at which they are manufactured or produced.
c. Time of Delivery: Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.
d. Delivery by third party: Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless until such third person acknowledges to the buyer that he holds the goods on his behalf.
e. Expenses on delivery: Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller.
f. Delivery of wrong quantity: The transfer of goods, in a sale, is expected to be delivered as agreed to in the contract. If there is variation in the quantity of goods delivered, the buyer may reject the whole or accept the part of the goods delivered and reject the rest. If the buyer accepts the goods so delivered he shall pay for them at the contract rate;
g. Instalment deliveries: The buyer of the goods is not bound to accept the delivery of goods by installments unless otherwise agreed to between both the parties.
h. Delivery to carrier or wharfingers: If the seller is authorized or required to send the goods to the buyer, through a carrier whether it is named by the buyer or not or delivery of the goods to a wharfinger for safe custody, the delivery of goods to such a carrier or wharfinger shall be deemed to be a delivery of the goods to the buyer.
Section-B
(This section contains five short questions of 6 marks each)
Q.1 Define fraud. What are the effects of fraud? 6
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 decided 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.
Q.2 Describe particular lien and general lien of a bailee. 6
Ans: A particular lien is a lien which is available to a bailee against the goods on which he has expended labour and skill. The main reason of such lien is that bailee can recover charges for labour or other expenses incurred on the goods. In general there is no right to sale the goods, however in special circumstances bailee can sale the goods to realise his expenses. Such lien is automatic in nature.
A general lien is a lien which gives right to a bailee to retain any property or goods which are in his position until the promise or liability is discharged. General lien is available to the bankers, wharfingers, attorney of High courts, policy brokers etc. In such lien there is no right to sale the goods. Such lien is not automatic is nature.
Q.3 Discuss briefly the circumstances when a partnership firm is dissolved by the order of the court. 6
Ans: Dissolution by Court (Sec. 44): A court may order a partnership firm to be dissolved in the following cases:
a) When a partner becomes of unsound mind.
b) When a partner becomes permanently incapable of performing his/her duties as a partner.
c) When partner deliberately and consistently commits breach of partnership agreement.
d) When a partner’s conduct is likely to adversely affect the business of the firm.
e) When a partner transfers his/her interest in the firm to a third party;
f) When the business of the firm cannot be carried on except at a loss in future also.
g) When the court considers it just and equitable to dissolve the firm. The following are the cases for the just and equitable grounds:
1. Deadlock in the management.
2. Where the partners are in talking terms between them.
3. Loss of substratum.
4. Gambling by a partner on a stock exchange.
Q.4 Define condition in a contract of sale. When can a breach of condition be treated as a breach of warranty? 6
Ans: Condition: Section 12(2) states that a condition is a stipulation which is essential to the main purpose of the contract. The breach of a condition gives rise to a right to treat the contract as repudiated or broken. So according the above definition it is clear that condition is very essential for the performance of a contract. The breach of condition will be regarded as the breach of the whole contract.
Example: A buys from B hair oil advertised as pure coconut oil. The oil turns out to be mixed with herbs. A can return the oil and claim the refund of price.
When condition to be treated as warranty.
a) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
b) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.
c) Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise.
Q.5 Discuss the essential characteristics of a promissory note. 6
Ans: The essentials of a valid Promissory note
1) The Promissory Note Must Be in Writing: Mere verbal promises or oral undertaking does not constitute a promissory note. The intention of the maker of the note should be signified by writing in clear words on the instrument itself that he undertakes to pay a particular sum of money to the payee or order or to the bearer
2) It Must Contain an Express Promise or Clear Undertaking to Pay: The promise to pay must be expressed. It cannot be implied or inferred. A mere acknowledgment of indebtness is not enough.
3) The Promise to Pay must be Definite and Unconditional: The promise to pay contained in the note must be unconditional. If the promise to pay is coupled with a condition, it is not a promissory note.
4) The Maker of the Pro-note Must Be Certain: The instrument should show on the fact of it as to who exactly is liable to pay. The name of the maker should be written clearly and ascertainable on seeing the document.
5) It Should be Signed By the Maker: Unless the maker signs the instrument, it is incomplete and of no legal effect. Therefore, the person who promises to pay must sign the instrument even though it might have been written by the promisor himself.
6) The Amount Must Be Certain: The amount undertaken to be paid must be definite or certain or not vague. That is, it must not be capable of contingent additions or subtractions.
7) The Promise Should Be to Pay Money: The promissory note should contain a promise to pay money and money only, i.e., legal tender money. The promise cannot be extended to payments in the form of goods, shares, bonds, foreign exchange, etc.
8) The Payee Must Be Certain: The money must be payable to a definite person or according to his order. The payee must be ascertained by name or by designation. But it cannot be made payable either to bearer or to the maker himself.
Section-C
(This section contains four short questions of 5 marks each)
Q.1 Who is holder in due course? 5
Ans: According to Section 9 of the Negotiable Instrument Act, 1881, “Holder in due course means any person who, for consideration, become the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned, in it became payable and without having sufficient course to believe that defect existed in the title of the person from whom he derived his title.”
A person is said to be holder in due course in the following cases:
a) A negotiable instrument must be in the possession of the holder-in-due-course.
b) A negotiable instrument must be regular and complete in all aspects.
c) The instrument must have been obtained for valuable consideration.
d) The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity.
Holder in Due Course enjoys the following rights and privileges:
a) He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.
b) All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.
c) No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.
d) Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.
Q.2 “Delivery does not amount to acceptance of goods?” Comment. 5
Ans: Delivery: Section 33 provides that the delivery of goods sold may be made
a) by doing anything which the parties agree; or
b) which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf;
Section 35 provides that the seller of goods is not bound to deliver them until the buyer applies for the delivery apart from any express contract.
Acceptance of Goods: Section 42 provides that the buyer is deemed to have accepted the goods:
a) when he intimates to the seller that he has accepted them; or
b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller; or
c) when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
From the above discussion we can say that delivery of goods is different from acceptance of goods.
Q.3 The relationship of partnership arises from agreement and not from status. 5
Ans: Partnership is an association of two or more person who agreed to do business and share profits and losses arises from it in an agreed ratio. The partners act both as agents and principals of the firm.
According to Sec.4 of the Indian Partnership act, 1932 “Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
According to Prof. Haney, partnership is "the relation between persons competent to make contract who agree to carry on a lawful business in common with a view to private gain."
Generally a partnership consists of three essential elements:
(a) There must be agreement between partners.
(b) The agreement must be to share the profits of the business.
(c) The business must be carried on by all or any of them acting for all.
In order to determine the existence of partnership between a group of persons, agreement between persons must be taken into consideration. If the agreement is to share the profits of a business, and the business is carried on by all or any of them acting for all, there is partnership otherwise not. Partnership in this way is an agreement, between two or more persons to carry on legal business with profit motive, which is carried on by all or any one of them acting for all. 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.
Q.4 Explain agency by estoppel with example. 5
Ans: Section 182 provides that an ‘agent’ is a person employed to do any act for another or to represent another in dealing with the third person. The person for whom such act is done, or who is so represented is called the ‘principal’.
Agency by estoppel means that when an agent has without authority done acts or incurred obligations to third person on behalf of his principal, the principal is bound by act or obligation if he has by words or conduct induced third person to believe that such act were within the scope of authority.
For example: X tells Y in the presence and within the hearing of Z that he is Z’s agent. C does not contradict the statement and keeps quite. Later on B enters into a transaction with A believing honestly that A is C’s agent. C is bound by this transaction and he will be estopped from denying the existence of agency, even though such as agency does not exist.
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