BCOC – 133: BUSINESS LAW SOLVED ASSIGNMENT (2021-2022) | IGNOU

 Bachelor of Commerce (B.Com)
CHOICE BASED CREDIT SYSTEM
BCOC – 133: BUSINESS LAW ASSIGNMENT (2021-2022)
Second Semester: School of Management Studies
Indira Gandhi National Open University
Maidan Garhi, New Delhi -110068
BACHELOR OF COMMERCE
CHOICE BASED CREDIT SYSTEM
BCOC – 133: BUSINESS LAW ASSIGNMENT: 2021-22

Dear Students,

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 2021 Term End Examination they have to submit latest by in 15 March 2021.

2. Those students who are appearing in December 2021 exams. They should download the new assignment and submit the same latest by 15 October 2021.

You have to submit the assignment of all the courses to the Coordinator of your Study Centre.

TUTOR MARKED ASSIGNMENT

COURSE CODE: BCOC-133

COURSE TITLE: BUSINESS LAW

ASSIGNMENT CODE: BCOC-133/TMA/2021-22

COVERAGE: ALL BLOCKS

Maximum Marks: 100

Note: Attempt all the questions.

Section – A

Q.1. Distinguish between a Contract of indemnity and a contract of guarantee. (10)

Ans: Contract of Indemnity and Contract of Guarantee

Contract of indemnity:

Section 124 of the Indian Contract Act defines it as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person”. The person who promises is called the Indemnifier and the person to whom the promise is made is called the Indemnified or Indemnity Holder. To indemnify does not merely means to reimburse in respect of moneys paid, but to save from loss in respect of the liability for which the indemnity has been given.

For example: A promises not to construct buildings on a particular site so as to prevent light and air to B’s house and in case of breach of such promise, to indemnify for the consequent loss. This is a contract of indemnity. A contract of insurance is also a contract of indemnity.

Contract of Guarantee:

Section 126 of Indian Contract Act defines it as “a contract to perform the promise, or discharge the liability, of a third person in case of his default”. The person who gives the guarantee is called the “surety”, the person in respect of whose default, the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”. A guarantee may be either oral or written. It is a tripartite agreement which contemplates the principal debtor, the creditor and the surety.

For example: A purchases goods from B on credit. C agrees to stand as a surety which means that if A does not pay the price of the goods, he will pay. Here, A is the principal debtor, B is the creditor and C is the surety or guarantee.

Distinction between a contract of Indemnity and a contract of guarantee

The contract of indemnity differs from the contract of guarantee in the aspects shown in the following table:

Contract of Indemnity	Contract of Guarantee
1. In a contract of indemnity the promisor undertakes an independent liability.	1. A contract of guarantee is a contract to discharge the liability of a third person in case of default made by him.
2. A contract of indemnity involves two persons, viz., the indemnifier and the indemnity-holder.	2. A contract of guarantee requires the concurrence of three person viz. the principal debtor, the creditor and the surety.
3. The primary liability is on the indemnifier.	3. The principal liability is on the principal debtors. Secondary liability is on the surety.
4. The loss to be indemnified in such contract is contingent.	4. There is an existing debt for which the surety gives guarantee.
5. The contract of indemnity is for the reimbursement of the loss.	5. The contract of guarantee is for the security of the creditor.
6. In the case of indemnity, there is one contract between the indemnifier and indemnified.	6. in the case of guarantee there are at least three contract between the principal debtor - creditor, surety - creditor; principal debtor – surety
7. The indemnifier cannot sue the third party in his own, unless there is an assignment.	7. The surety is entitled to proceed against the principal debtor when he is obliged to perform the guarantee.

Q.2. Explain the various ways by which a contract can be discharged. (10)

Ans: Meaning of Discharge of a Contract

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Q.3. Explain the doctrine of ‘Caveat Emptor’. What are the exceptions to this rule? (2+8)

Ans: ‘Caveat Emptor’ and exceptions to this rule

The term ‘Caveat Emptor’ means ‘Let the buyer beware’ i.e. in sale of goods, the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a buyer buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, or if he depends upon his own skill and judgment and makes a bad selection, he cannot blame anybody excepting himself.

For e.g. H bought oats from S a sample of which had been shown to H. H erroneously thought that the oats were old. However the oats were new. Held, H could not avoid the contract. The doctrine of Caveat Emptor has certain important exceptions as under:

1. Fitness for buyer’s purpose: 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.

2. Sale under a patent or trade name: In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any particular purpose.

3. Merchantable quality: 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. But if the buyer has examined the goods, there is no implied condition as regard defect which such examination ought to have revealed. [Section 16(2)]

4. Usage of trade: An implied warranty or condition as regards quality or fitness for a particular purpose may be annexed by the usage of trade. [Section 16(3)]

5. Consent by fraud: Where the consent of the buyer, in a contract of sale, is obtained by the seller by fraud or where the seller knowing conceals a defect which could not be discovered on a reasonable examination, the doctrine of Caveat Emptor does not apply.

Q.4. Who is finder of lost goods? Explain his rights and duties. (2+8)

Ans: Finder of Goods – Meaning, Rights and Duties

Meaning: A person, who finds goods belonging to another and takes them into his custody, is subject to the responsibility of taking due care of them and trying to find out the real owner of the goods. It is also to be remembered that the finder has a good title over the things found and that his right is enforceable against all except the real owner.

In the words of section 71 “A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee”. It is true that a person who comes by an article is not obliged to take charge of it, but if he does pick it up, he becomes a bailee.

Rights of finder of goods: The right of finder of goods is given below:

1. Right to receive compensation: The finder of goods has right to recover compensation for the trouble and expenses incurred in preserving.

2. Right of lien: He can exercise his right of lien and may retain the goods until he receive the expenses incurred in preserving the property or for finding out the true owner.

3. Right to Sue: He can file a suit against the owner for any reward that might have been offered to give him.

4. Right of legal Action: The finder may take necessary legal action against third party who wrongfully deprives him of the possession of the goods.

5. Right of Selling: The finder has a right to sell the thing of another found by him under the circumstances given below.

a. The thing found is commonly the subject of sale.

b. The owner cannot be found with reasonable diligence.

c. The owner refuses to pay the lawful charges.

d. The thing is in danger of perishing or losing the greater part of its value or the lawful charges amount to two thirds of its value.

Duties of Finder of Goods: The duties of finder of goods are given below:

1. Finding out the real owner: It is the duty of the finder of the goods to make possible effort in order to find out the real owner of the goods. He may retain such goods until he finds true owner by advertisement in case of costly thing.

2. Care to be taken by the finder: The finder is bound to take as much care of the goods lost 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 lost.

3. Returning of goods: It is the duty of finder to return the lost goods to real owner when he receives reasonable compensation for his services he has rendered in respect of them.

Q.5. An agreement in restraint of trade is void. Discuss this statement with exceptions to it. (10)

Ans: The Constitution of India guarantees to all the citizens of India fundamental right to practise any profession, or to carry on any occupation, trade or business. So, any agreement by which one is restrained from exercising a lawful profession, trade or business of any kind, is void.

Section 27 of the Indian Contract Act’ 1872 provides that every agreement by which any one is restrained from exercising a lawful possession, trade or business of any kind, is to that extend void.

Exceptions to this rule:

The exception to this section is saving of agreement not to carry on business of which goodwill is sold. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits, so long as the buyer, or any person deriving title to the goodwill from his, carries on a like business therein. Such limits appear to the Court reasonable, regard being had to the nature of business.

For example: A is a seller of product X in Guwahati. After selling the goodwill of his business to B he agreed that he will not sale product X in Guwahati. As the restraint of trade in this case is reasonable, the agreement is not void.

Section – B

Q.6. Define undue influence. What is the effect of it on the validity of a contract? (2+4)

Ans: 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.

Q.7. How can a firm be dissolved by the order of the court. (6)

Ans: Dissolution by the court’s order: 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.8. Who is a minor? When can a minor enter into a valid contract? (2+4)

Ans: As per section 3 of the Indian Majority Act of 1875, every person in India is a minor if he has not attained the age of 18 years of age. However in case of a minor of whose person or property or both a guardian has been appointed under the Guardian and Wards Act, 1890 or whose property is under the superintendence of any court of wards before he attains 18 years of age is 21 years.

The position of minor as regards his agreements may be summed up as under:

1. An agreement with or by a minor is void and inoperative ab initio.

2. He can be a promise or a beneficiary.  Incapacity of a minor to enter into a contract means incapacity to bind him by a contract. There is nothing which debars him from becoming a beneficiary.

3. His agreement cannot be ratified by him on attaining the age of majority.

4. If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it. Sec. 65 which provides for restitution in case of agreements discovered to be void does not apply to a minor.

5. There can be no specific performance of the agreement entered into by him as they are void ab ignition. A contract entered into on his behalf by his parent/guardian or the manager of his estate can be specifically enforced by or against the minor provided the contract is (a) within the scope of the authority.

6. He cannot enter into a contract of partnership. But he may be admitted to the benefits of an already existing partnership with the consent of the other partners.

7. He cannot be adjudged insolvent. This is because he is incapable of contracting debts.

Q.9. Under what circumstances an agency can be terminated by the operation of law. (6)

Ans: Termination of agency by the operation of law. 

The following are the situations where the agency is terminated 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.

Q.10. What are essentials of a valid endorsement? (6)

Ans: Essentials of a valid endorsement

a)      Signature of the endorser: A regular endorsement implies signature of the holder of the negotiable instrument himself or his duly authorised agent on its face or back for the purpose of negotiation.

b)      Spelling: The endorser must sign his name in the exact spelling as appearing on the negotiable instrument.

c)       Prefixed and suffixes to be excluded: Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr., Mrs., Shri, Smt etc.

d)      Sign in Ink: Endorsement in pencil or by a rubber stamp is usually not accepted.

e)      Endorsement by a married woman: In the case of married women, the name of her husband must also be mentioned in the endorsement.

f)       Endorsement by illiterate person: An illiterate person can make a valid endorsement by putting his thumb impression on the instruments in the presence of a witness.

g)      Endorsement by companies, firms: In case of joint stock companies, firms, associations etc., the endorsement should be made by persons who are dully authorised to sign on behalf of these institutions.

h)      Delivery of the instrument: An endorsement must be completed by delivery of the instrument.

Section – C

Q.11. What is irrevocable agency? (5)

Ans: Irrevocable agency: Irrevocable agency means an agency which cannot be terminated. An agency is irrevocable in the following cases:

1. Where agency is coupled with interest: Where the agent has himself an interest in the property which forms the subject-matter of agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

2. Where the authority has been party exercised: The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arisen from acts already done in the agency.

3. Where the agent has incurred personal liability: When the agent has purchased the goods on his personal liability, or where he made the payment of the good, the agency cannot be terminated.

Q.12. What is negotiation? (5)

Ans: Negotiation refers to the act of transferring a negotiable instrument by one person to another with a view to convey the title or ownership to the other. It can be done by mere delivery and by endorsement and delivery.

Section 14 of the Negotiable Instrument Act states that, ‘when a promissory note, bills of exchange or cheque is transferred by any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.

Negotiation can be done in two ways:

a) By delivery: Bearer negotiable instrument may be negotiated by mere delivery.

b) By endorsement: The negotiable instrument payable on order is negotiated only by endorsement and delivery.

Q.13. An unregistered partnership firm is illegal, comment. (5)

Ans: The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty for non registration. It is optional for the firm to get itself registered or not. However, Section 69 puts down certain disabilities to a non registered firm which normally forces the partners the partners to get the firm registered. The effects of non registration are as follows:

(a) No suit by a partner against other partners or firm: A partner of an unregistered firm cannot sue the firm or any partner of the firm to enforce a right arising from the contract or conferred by the Partnership Act. He can do so only if the firm is registered and the person suing is shown as a partner in the register of firms.

(b) No suit against any third party: An unregistered firm cannot sue a third party to enforce a right arising from a contract. The firm can only do so if the firm is registered and the person suing is shown as a partner in the register of firms.

(c) No right to counter claim or to claim setoff: An unregistered firm or any partner thereof cannot claim setoff in the proceedings instituted against a firm by a third party to enforce a right arising from a contract. Setoff means a claim by the firm which would reduce the amount of money payable to the claimant.

(d) Arbitration proceedings: In Jagdish Chandra Gupta vs. Kajaria Traders (India) Limited it was held that arbitration proceedings were barred if the firm was unregistered.

Non registration of the firm however, does not affect the following rights:

(i) The right of a third party to sue the unregistered firm or its partners.

(ii) The right of a partner to sue for dissolution of a firm or for accounts of a dissolved firm or any right to realise the property of the dissolved firm.

(iii) The Power of an official assignee or court receiver to realise the property of an insolvent partner.

(iv) The right of a firm or partners of a firm having no place of business in India.

(v) The right of an unregistered firm to enforce a right arising otherwise then out of a contract.

(vi) One partner can bring a suit for damages for misconduct against the other partner.

(vii) The right to claim Set off in a suit for an amount not exceeding Rs.100/- in value.

Q.14. What is free consent? (5)

Ans: Free Consent: Section 13 defines consent as “Two or more persons are said to consent when they agree upon the same thing in the same sense.” Consent of the party’s means, the parties to a contract must mean the same thing in the same sense. It means ‘Consensus ad idem’. For e.g. A have 2 cars – Maruti 800 and Maruti Zen. An offer to sell the Maruti 800 while B accepts the offer thinking the car to be sold is Maruti Zen. Here there is no consent.

Free consent refers to consent which has been rendered by free will of the parties i.e. consent is voluntary. Section 10 of the Act, specifically states that a contract is valid and enforceable if it is made with the free consent of the parties.

Section 14 defines ‘Free Consent’ as – Consent is said to be free consent when it is not caused by:

(i) Coercion, as defined in Section 15, or

(ii) Undue influence, as defined in Section 16, or

(iii) Fraud as defined in Section 17, or

(iv) Misrepresentation as defined in Section 18.