Professional Documents
Culture Documents
ASSIGNMENT
Q1.
Ans. According to Section 2(h) of the Indian contract Act: “An agreement enforceable
by law is a contract”. A contract, therefore, is an agreement the object of which is
to create a legal obligations between the parties entering into the contract.
Capacity of Certainty
Parties Essential Elements
of A Valid Contract
Free Consent Compliance with
Legal Formalities
ii) Intention To Create Legal Relations: There must be an intention among the
parties that the agreement should be attached by legal consequences and create
legal obligations. Agreements of a social or domestic nature do not contemplate
legal relations and as such they do not give rise to a contract.
E.g. Balfour Vs. Balfour and Rose & Franke Co. Vs. Crompton & Brothers Ltd.
were dismissed on the ground that no legal relations had been contemplated.
iii) Lawful Consideration: Consideration has been defined as the price pad by one
party for the promise of the other. It is an act or promise to do or not to do
something. It need not necessarily be in cash or kind. But, only those
considerations are valid which are ‘lawful’.
v) Free Consent: ‘Consent’ means that the parties must have agreed upon the same
thing in the same sense (Sec. 13). There is absence of ‘free consent’, if the
agreement is induced by (a) Courier (b) under influence (c) fraud (d)
misrepresentation or (e) mistake.
vi) Lawful Object: The object of the contract or agreement must necessarily be legal.
The object for which the agreement has been entered into must not be graudulent
or illegal or immoral or against public interest.
E.g. Thus, if a landlord knowingly lets out his house on rent to a prostitute to carry
on prostitution cannot recover the rent through a court of law.
vii) Compliance With Legal Formalities: According to the Indian Contract Act, a
contract may be oral or in writing. But in certain special cases it lays down that
the agreement, to be valid, must be in writing or/and registered.
For e.g., it requires that an agreement to pay a time barred debt must be in writing
and an agreement to make a gilt for natural love and affection must be in writing
and registered.
viii) Certainty: Section 29 of the contract act provide that “Agreements, the meaning
of which is not certain or capable of being made certain, are void. It must be
possible to ascertain the meaning of the agreement, for otherwise, it cannot be
enforced.
Fog e.g.: A agrees to sell B a hundred tons of oil. There is nothing to show what
kind of oil was intended. The agreement is void for uncertainty.
x) Not Expressly Declared Void: The agreement to be entered into must not have
been expressly declared void by any law in force in the country. Sections 24-30
specify certain types of agreements which have been expressly declared to be
void.
Conclusion
It has been rightly stated by Sir John Salmond, “The law of contracts is not the whole law
of agreements, nor is it the whole law of obligations. It is the law of those agreements
which create obligations, and those obligations, which have their source in agreements.
Q3. What do you mean by discharge of a contract? What are various ways in
which a contract may be discharged?
Ans. When the rights and obligations arising out of a contract are extinguished, the
contract is said to be discharged or terminated. In other words, discharge of a
contract means termination of the relationship between the parties to a contract
There are many ways in which a contract may be discharged or dissolved. They
can be diagrammatically represented as:-
Discharge of Contract
By By By By Impossibility
performance Lapse of time Breach of performance
By By By By Material
Agreement Operation of law Assignment Alteration
a) Actual Performance: When each party to a contract fulfils his obligation arising
under the contract within the time and in the manner prescribed, it is called actual
performance of the contract and the contract is discharged.
d) Remission: Remission may be defined “as the acceptance of a lesser sum than
what was contracted for or a lesser fulfillment of the promise made”.
Eg.: A borrows Rs.2,00 from B. B repays only Rs.1000 which A accepts in will
satisfaction of the whole debt.
f) Merger – Under this an unferior right of one of the parties merges into a superior
right of the same party under the same contract or another.
E.g: X holds a house on lease. Later he buys this house. Here, his right as a lesse
merges into the right of an owner.
c) Merger – When an inferior right contract merges with the superior right contract,
the former stands discharged automatically.
d) Complete loss of evidence – If the evidence providing the existence of the
contract is lost, it stands terminated.
e) Rights and liabilities vest in one and the same person – In such a case also the
contract stands discharged.
Eg. If a bill of exchange is accepted by its acceptor, other parties are discharged.
a) Actual Breach – It occurs when a party fails to perform his obligation upon the
date fixed for performance by the contract. It is committed either at time when
performance is due or during performance.
b) Anticipatory Breach – It is breach of contract occurring before the time fixed for
performance has arrived. It is expressly by words spoken or written when a party
to the contract communicates to the other party, before the due date of
performance, his intention not the perform it. It is implied by the conduct of the
party when a party disables himself from performing the contract.
viii) By Material Alteration: If one of the parties makes any material alterations i.e.
alterations that would affect the rights and liabilities of the parties, without the
consent of the other party, the other party can discharge the contract. Thus, in such
a case the contract is discharged and cannot be enforced.
Conclusion
Thus, as a contract is formed so can it be discharged or determinate in the way illustrated.
A discharge actually terminates the rights and liabilities of the parties to contract that may
kind them.
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Ans. Section 182 of the contract Act States, “An agent is a person employed to do ay
act for another or to represent another in dealings with third persons. The person
for whom such act is done, or who is represented, is called the principal”.
The contract which creates the relationship of ‘principal & agent’ is called an
‘agency’.
E.g.: Where A appoints B to buy 10 bags of sugar on his behalf, A is the
‘principal’. B is the ‘agent’ and the contract between the two is ‘agency’.
Agents can be classified in various ways according to the point of view adopted.
Their classification can be explained as:-
i) Special Agents: A special agent is one who is employed to do some particular act
or represent his principal in some particular transaction. As soon as the act is
performed, the authority of such an agent comes to an end. If a special agent does
anything outside his authority, the principal is not bound by it. A special agent is
also called a specific or a particular agent.
Eg.: A broker appointed specially for the sale of a particular property. As soon as
the property is sold the authority of the broken will end.
ii) General Agent: A general agent is one who is employed to do all acts connected
with a particular business or employment. He can bind the principal by doing
anything which falls within the ordinary scope of that business. Such authority of
an agent continuous till it is put to an end. If the principal secretly restricts the
rights of his agent and if the agent still acts beyond that the principal will be
bound by the acts which fall within the scope of business, unless the third parties
have notice of the limitation.
iii) Universal Agents: A universal agent is one whose authority is unlimited, i.e. who
is authorized to all the acts which the principal can lawfully do and can delegate.
A universal agent is practically a substitution for his principal for all those
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transactions wherein his principal cannot participate. A universal agent with very
extensive powers.
iv) Co-agents: When a principal appoints two or more persons as agents jointly or
severally, such agents are known as co agents. If nothing is specified regarding
their authority it is considered to be joint authority. When their authority is
several, any one of the co-agents can act without the concurrence of other.
Eg.: A is a solicitor & B directs A to sell his estate by auction and to appoint an
auctioneer for the same. A names X to conduct the sale. Here , X is substituted
agent.
vi) Sub-Agents – Section 191 defines a sub-agent as, “A person employed and acting
under the control of the original agent in sub agent of the original agent. The
relation of the sub-agent of the original agent. The relation of the sub-agent with
the principal depends on the fact whether the agent has the authority to appoint a
sub-agent. If he is authorized to do so, then the acts of a sub-agent will bind the
principal as that for original agent. The agent is responsible to the principal for the
acts of sub-agent.
If, however, the agent is not authorized to appoint a sub-agent and still he does so
the principal will not be bound by his acts Rather, the agent will be responsible
both to the principal and the third parties.
Eg.: A delivers his car to a mercantile agent B for its sale at Rs. 1,00,000. B sells
it to C for Rs. 90,000 & hands over the full amount of Rs. 90,000 to A. A sues B
for the recovery of car. But, since B is a mercantile agent appointed by A he
cannot be sued. Thus, the transaction is binding on A.
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ii) Brokers: A broker is employed to make contracts for the purchase and sale of
goods. He is not entrusted with the possession of goods but acts as a link between
the seller and the buyer. He brings the two parties together and if the transaction is
completed he is entitled to his commission called brokerage. His authority ends
when the transaction is completed.
An auction is a public sale of goods where the highest bidder gets the possession
of goods. An auctioneer conducts auction on behalf of the seller.
iv) Commission Agents: He is a mercantile agent who buys or sells goods for his
principal on the best possible terms in his own name and who receives
commission for his labours. He may have possession of goods are to be distributed
in distant markets or are to be purchased from far off markets.
Thus, he serves an insure to his principal against bad debts on account of credit
sales besides being an agent.
vii) Clearing Agents: Clearing agents provide help to importers. They complete
various customs and exchange formalities on behalf of the importers who appoint
them. These agents help in saving the time and energy of importers.
viii) Indenting Agents: He is an important mercantile agent who facilitates the
distribution of goods at international level. He is a commission agent who
procures a sale or purchase from a merchant abroad against a commission at the
rate mentioned in the indent.
Conclusion
Thus, to conclude the agent is actually a representative of his principal. The basic
difference in different types of agents being the difference in their authority and
the kind of work they do.
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Ans. Section 182 of the contract act defines, “An agent is a person employed to do any
act for another or to represent another in dealings with third persons. The person
for whom such act is done, or who is represented, is called the principal”.
Rights of an Agent
i) Right to Receive Remuneration – The agent is entitled to receive an agreed
remuneration or reasonable remuneration unless otherwise agreed upon. An agent
has a right to claim his remuneration on completion of his work, even if the
contract never materializes on account of breach. But, if an agent is found guilty
of misconduct or fraud, etc. he has no right over remuneration. In addition, he is
entitled or liable to compensate the principal for any such loss.
ii) Right of Retainer: An agent has the right to retain any sum, received by him on
behalf of his principal from the third parties, which may fall due as part of his
remuneration, or advances or expenses incurred in the general conduct of
business.
iii) Right of Lien: An agent has the right to retain any movable or immovable
property, papers or goods of the principal received by him, until the amount of
commission due to him is received. This kind of a lien is a ‘Particular lien’ which
will end as soon as the possession is cost. However, by a special contract such a
lien can be extended to a ‘General Lien’.
Eg.: A employs B to sell the goods in A’s possession B sells the goods unaware of
the fact that C is the actual owner of the goods. C sues B for the recovery of the
value of goods. In this case B has a right to be indemnified by A and to rum burse
the expenses incurred by B is the liability of A.
vi) Right to Compensation: The agent has a right to be compensated for injuries
sustained by him due to the principals neglect or want of skill. However, the
principal is not liable for any compensation for the injuries caused by the own
neglect of the agent.
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vii) Right of Stopping of Goods in Transit: An agent has a right to stop the goods in
transit if:-
a) He has bought goods either with his own money or by incurring a personal
liability for the price on behalf of the principal,
b) The principal has become insolvent of/and
c) When an agent, e.g. del Credere agent is personally liable to his principal to his
principal for the price of the goods sold, he can exercise the unpaid seller’s right
and stop the goods in transit on the unsolvency of the buyer.
viii) Agent’s Right To do All Lawful Things: A person who is appointed as an agent
has the right to do all lawful things which fall under the usual course of business.
ix) Right in Emergency: An agent has a right to do all such acts which could protect
his principal from loss in case of emergency as would have been done in his own
case, in a similar situation.
x) Right to Appoint Sub-Agent & Substitute Agent: An original agent has a right
appointed would be responsible to the original agent, except in case of fraud, etc.
Where an agent has an express or implied authority he may name another person
as substitute agent to act for his principal.
xi) Right to Renounce His Agency: An agent is in full right to renounce his agency
by giving a reasonable notice to his principal.
DUTIES OF AN AGENT
i) Duty of Follow Principal’s Directions of Customs: The first and the foremost
duty of an agent is to act within the scope of authority conferred upon him and act
according to the directions given by his principal. In the absence of any such
instructions the agent should work according to the customs prevailing in the
agency. If he acts otherwise he is liable to make good the loss caused by him.
ii) duty to Carry Out Work With Reasonable Skill & Diligence: The agent must
conduct the business with reasonable skill and diligence unless otherwise
specified i.e. if the principal has notice of want of skill. In general the agent is
expected to work in the manner as he would do in his own name.
iii) Duty to Render Accounts: It is the duty of the agent to maintain proper accounts
of his principal’s property and render it to him on demanded, or periodically if so
agreed upon.
iv) Duty to Communicate: It is the duty of the agent to communicate to the principal
with full diligence any difficulty that may arise from time to time. He should
obtain proper instructions from the principals, before taking any steps in facing
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v) Duty Not to deal on his On Account: It is the duty of the agent not to buy from
or sell goods to the principal in his own account, which he is actually asked to sell
or buy on his principal’s behalf, without obtaining prior consent of his principal,
all material facts being disclosed.
vi) Duty not to make any profit out of his Agency Except his Remuneration: An
agent stands in a fiducidary relation to his principal and therefore he must not
make any secret profits from the agency. He is authorized only to a fixed
remuneration or commission as the case may be. If the principal gets the notice of
any such secret profit he can either recover the amount of profit from the agent,
refuse to pay his remuneration, terminate the agency without prior notice, file a
suit against his agent or can even repudiate the contract entered by his agent with
the third party.
viii) Duty not to delegate His Authority: It is the duty of an agent not to do his work
i.e. to perform the work which he has expressly or impliedly undertaken to
perform personally except of specifically agreed upon.
ix) Duty not to use the Information Obtained in the course of the Agency
Against his Principal: It is the duty of the agent not to use the information
obtained in the course of business against his principal. If he does so, he must
compensate the loss incurred by his principal.
x) Duty to Pay Sums Received for the Principal: It is the duty of the agent to pay
all such sums to his principal which he may have received for him. He has the
right to deduct any amount which may be outstanding in this account like
remuneration, etc.
xi) Duty not to set up an Advance Adverse Title: When an agent receives goods
from his principal or other sources, on behalf of the principal, it is the duty of the
agent not to set up on adverse title i.e. his own title or title of third parties to it. If
he does so, he can be held liable.
xii) Duty in Naming an Agent for his Principal: Selecting an agent for his principal,
an agent is bound to put in same amount of discretion, as he would do in his own
case, under similar circumstances.
ii) Personal Liability of an Agent where Fixed by Trade Custom or Usage: If the
trade custom or usage in business specifies the personal liability of an agent, then
hill be held personally liable for his misconducts, until unless specified.
iii) When an Agent Expressly Agrees to be Liable: When the contract expressly
specifies that the agent shall be held personally liable in case of breach of
contract, then he can be held liable personally.
iv) Liability for his wrongful Acts: An agent is held liable personally when he acts
beyond his authority or commits fraud or misrepresentation.
v) Liability for the Acts of Sub-agents: When an agent appoints a sub-agent,
without having the authority to do so, hill be liable for all acts of the sub agent,
both to the principal and the third party.
Conclusion
Rights and duties or liabilities are like the two sides of a coin. An agent cannot enjoy just
his rights, without performing certain duties and owing certain liabilities. The rights of an
agent give him the necessary freedom to perform a particular kind of business and on the
other hand the duties and liabilities kind him to act in good faith, depending upon the
nature of business.
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Q6. Explain the mutual rights and liabilities of partners in a partnership firm?
Ans. Section 4 of Indian Partnership Act, 1932 defines Partnership as, “Partnership is
the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all”.
The rights, duties and liabilities of partners make the mutual relationship between
the partners more clear. Partners can themselves determined their rights by
contract, but the partnership act confers certain rights upon the partners. The
rights and liabilities of partners can be illustrated as:-
Rights of Partners
i) Right to take part in the Conduct or Management of Business: Every partner,
irrespective of the amount contributed by him, has an inherent right to participate
in the conduct of business of the firm. However, by mutual agreement, some
partners may be restricted to take part but, the right to participate in the
management must be available to all
ii) Right to be Consulted & To Take Decisions by Majority: Before taking up any
major decisions, it is the right of the partners to be consulted and heard. Any
disagreement should be solved by majority decision. But, no change in the nature
or constitution of the business can be done without the consent of all partners.
iii) Right of Access To Books: Every partner has a right to have access to and to
inspect and copy the books of firm.
iv) Right to Share the Profits: Every partner has a right to share the profits equally,
unless otherwise agreed upon, and bear the losses as well.
vi) Right to be Indemnified: Every partner has a right to claim indemnity from the
firm in respect of payments made or liabilities incurred by him in the ordinary and
proper conduct of business and in emergency to protect the firm from loss,
provided the act should be such as would have been done by a person of ordinary
prudence, in his own case and under similar circumstances.
vii) Right to Receive Interest on Advances: If a partner makes any advances beyond
the amount of capital he has agreed to subscribe, he has a right to claim an interest
at the rate of six percent per annum.
viii) Right to Act in Emergency: A partner has every right and authority to act in
emergency, in order to protect the firm from loss, and the firm would be bound by
such an act, provided the act would similar in his own case, under same situation.
ix) Right to Apply to the Property of the Firm for Business of the Firm: Subject
to contract between the partners, every partner has a right to apply and use the
property of the firm exclusively for business of the firm.
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x) Right to Apply to the Property of the Firm for Business of the Firm: Subject
to contract between the partners, every partner has a right to apply and use the
property of the firm exclusively for business of the firm.
xi) Right to Prevent Introduction of a New Partner: Every partner has a right to
prevent the introduction of any new partner in the firm. No person can be admitted
into partnership firm without the consent of all the partners.
xii) Right to Retire: A partner has a right to retire with the consent of all the partners.
If the partnership is at will, he has the right to retire by giving due notice in
writing to all other partners.
xiii) Right Not to be Expelled: A partner has a right not to be expelled by any
majority of partners without any cause.
Liabilities of Partners
i) Joint & Several: Every partner is liable jointly and severally for all the acts of the
firm done while he was a partner. The liability of a partner is always unlimited.
ii) Liability for Losses causes by HIM: Every partner shall be liable to make good
any loss caused to the firm by his fraud or willful neglect in the conduct of
business. No partner can in any way exempt himself from such loss.
iii) Liability for Secret Profits: A partner is liable to account for and pay to the firm
any private profits earned from the business of the firm or property or goodwill of
the firm.
iv) Liability for Profits From Competing Business: If a partner carries on any
business of the same nature and competing with that of the firm, he would be
liable to account for and pay to the firm all profits made by him in that business.
vi) Liability for Losses of the firm: As a partner has a right to share the profits of
the firm so is he liable to share the losses equally unless otherwise agreed upon.
Conclusion
Every partner acts as an agent of the firm in the ordinary course of business and so
his acts kind the firm. The rights and liabilities of the partners lay down the extent
of freedom of work enjoyed by them and the extent of liability to the borne by
them. The rights and liabilities are according to the general concept of partnership
deed and the partners are at power to amend the agreement accordingly, but with
the unanimous consent of all the partners.
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Q7. What is the nature and extent of partner’s authority to bind the firm by his
acts?
Ans. Sections 18 declares that from the point of view of the third parties a partner is an
agent of the firm for the purposes of the business of the firm. Even if only one
partner acts on behalf of the firm liable. One partner can make all the other
partners liable only if he acts within his express or implied authority.
Thus, it is the express and implied authority of the partners which decides the
nature and extent of their authority to kind the firm.
Sections 19(1) & 22 lays done certain provisions. For an act to be covered within the
implied authority it is necessary that,
(a) the act is done in the name of the form,
(b) in the ordinary course of the business of the firm and,
(c) with the intention to bind the firm.
However, the partners in a firm may, by contract among themselves, extend or restrict the
implied authority of any partner.
Thus, any such notice to an acting partner, not to a dormant partner, cannot to ignored by
other partners.
Conclusion
Thus, any act done by a partner within the express or implied authority of a partner will
bind the firm. The partner implied authority is extended in certain special cases in order to
give them the necessary space to take actions to protect the firm from any loss.
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Q8. Distinguish between a sale and an agreement to sell & explain fully the
essential of a contract of sale of goods?
Ans. Section 4(1) of the sale of Goods Act defines a contract of sale of goods as – “a
contract whereby the seller transfers or agrees to transfer the property in goods to
the buyer for a price”.
The definition of contract of sale of goods reveals that either actual sale or an
agreement to sell both are covered under the act. But, there are certain differences
between the two.
Where under a contract of sale, the transfer of property in the goods is to take
place in the future or after the fulfillment of certain conditions, it is called ‘An
agreement to sell”.
ii) Risk of Loss: The general rule is that, unless otherwise agreed, the risk of loss
passes with property. In case of sale, if the goods are destroyed the loss falls on
the buyer, even if the buyer is not in possession of goods because the ownership
has been transferred.
In an agreement to sell, the loss is to be borne by the seller because the ownership
has still not passed on to the buyer, even if the buyer has possession of it.
iii) Consequences of Breach: In case of sale, if the buyer fails or refuses to pay the
price of the goods, the seller can sue for the price, even if he has the possession of
goods.
In an agreement to sell, if the buyer fails to accept and pay the price, the seller can
sue him only for damages and not for the price, even if the goods in possession of
the buyer.
iv) Right of Resale: In a sale the property of goods is immediately transferred to the
buyer and so the seller (even if the goods are in his possession) cannot result the
goods. If the seller does so, the subsequent buyer cannot acquire the title to the
goods. The original buyer can recover the goods from the third person and can
also sue the seller for the breach of contract.
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In an agreement to sell, the seller can sell the goods to anyone as he has the
property of goods and the new buyer gets the title of goods as he purchases the
goods for consideration and without any notice of prior agreement. In such a case
the original buyer can only sue for damages.
v) Buyers Insolvency: In a sale, if the buyer becomes insolvent before he pays the
price of the goods, the seller will have to deliver the goods to the official assignee
or receiver and he can only claim dividend for the price of the goods.
In an agreement to sell, if the buyer becomes insolvent and has not paid the price,
the seller can refuse to deliver the goods to the official assignee or receiver until
paid in full.
vi) Seller’s Insolvency: If the seller becomes insolvent then in case of sale the buyer
is entitled to recover the goods from the official assignee of receiver since the
ownership has been transferred to the buyer.
In case of an agreement to sell, if the buyer has paid the full price, he can only
claim a rateable dividend and not the goods because the property in the goods still
rests with the seller.
viii) Types of Goods: A sale can only be in the case of existing and specific goods. An
agreement to sell mostly takes place in the case of future and contingent goods.
ii) Transfer of Property: Property here means ownership transfer of property in the
goods means general property and not special property. A mere transfer of
possession of the goods cannot be termed as sale.
If P owns certain goods, he has general property and if he pledges them to R then
R is said to have special property and R cannot sell them.
iii) Goods: The subject matter of contract of sale should be goods. Goods mean every
kind of movable property other than actionable claim means against which a legal
action can be taken.
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iv) Price: The consideration for a contract of sale must be money consideration called
the ‘price’. If goods are exchanged goods it is not covered under the contract of
sale of goods. Any transfer of property which is not for a price i.e. gift, etc is also
excluded. But, where goods are exchanged party for money and partly for goods,
will be a contract of sale.
v) Includes Both ‘Sale’ and ‘An Agreement to Sell: A contract of sale may either
be a sale or an agreement to sell.
‘An agreement to sell’ is a contract of sale where the property in the goods is
transferred at a later period, either at time of expiry of the period or at the time of
fulfillment of some condition as the case may be.
vi) Essential Elements of A Contract: A contract of sale, to be valid, must have all
the essential elements of a contract as laid down in section 10 of the Contract Act
e.g. consideration, mutual consent of the parties, etc.
Conclusion
The sale of goods act covers the law relating to sale of movable goods. Thus, a contract of
sale of goods is one whereby the seller transfers or agrees to transfer the property in the
goods to the buyer for a price. This definition reveals in itself the essentials of a contract
of sale, without which the contract will not be valid.
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Q9. Define the term “Negotiable Instrument’ and explain its types and various
parties of the types of negotiable instruments?
The word negotiable means transferable by delivery, and the word instrument
means a written document by which a right is created in favour of some person.
Literally, the term means, a written document transferable by delivery.
The Act recognizes only three instruments but it, does not prohibit to include other
instruments in the category of negotiable instruments which satisfy the conditions
of negotiability, the conditions being:-
a) It should be freely transferable either by delivery or by endorsement and delivery,
and
b) The person who obtains it in good faith and for value, he gets it free from all
defects and is entitled to recover the money of the instrument in his own name.
undertaking signed by the maker, to pay a certain sum of money only to or to the
order of a certain person or the bearer of the instrument.
iii) Cheque: Section 6 puts that a cheque is a bill of exchange which is drawn an a
specified banker and is payable only on demand and not otherwise.
iv) Trade Bill & Accommodation Bill: When a bill is drawn and accepted for a
genuine trade transaction it is termed as a trade bill. When a bill drawn and
accepted not for a trade transaction but to provide financial help or assistance to
some party is called an accommodation bill. This bill may be for the
accommodation bill. This bill may be for the accommodation of both the drawer
and acceptor. In such a case they share the proceeds of the bill by discounting it.
v) Fictitious Bill: When in a bill of exchange the name of either drawer or payee or
both is fictitious, the bill is called a fictitious bill. When either payee or drawer or
both are fictitious, the acceptor, is liable to a holder in due course, provided he
proves that the signature of the drawer and payee are the same.
vi) Documentary and Clean Bills: When documents relating to the goods
represented by the bill, e.g. invoice, bill of lading, etc. are attached to a bill, it is
called a documentary bill. Such bills are delivered to the buyer only on acceptance
or payment of the bill. Such bills are usually used in foreign trade.
When no documents relating to the bills represented by the bill are attached to it,
the bill is called a clean bill and is generally used in inland trade.
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c) Holder- A holder can either be the payee or the person to whom the
promissory note has been endorsed. He is a person entitled to the
possession of the note and to receive or receiver the amount due from the
liable party.
b) Drawee – The drawee is always the bank of the drawer. The bank is
directed to pay the amount mentioned on the cheque
c) Payee – The payee is the person to whom the payment is made. It can be
a person or an organisation
d) Holder – He can be the payee or any other person to whom the cheque is
endorsed.
b) Drawee – The person on whom the bill is drawn is called the drawee.
c) Acceptor – He is the person who accepts the bill. Once the drawee puts his
signature on the bill showing his assent, he is called the acceptor. At times
a stranger accepts the bill on behalf of the drawee.
h) Acceptor For Honour: Any person may become a party to the bill on
his own as an acceptor. When the original drawee refuses to accept
the bill, a person who accepts the bill or pay the amount of bill, a person
who accepts the bill in order to safeguard the honour of the drawer or
endorser is called the acceptor for honour.
Conclusion
Thus, a negotiable instrument is a piece of paper which entities a person to a certain sum
of money and which is transferable from one to another person by delivery or by
endorsement and delivery. The person who receives it is entitled to money and also gets
the right to transfer it further. It is a special type of a contract.
Business Law- Page 26
Ans. Section 2(13) defines a Director as, “any person occupying the position of director
by whatever name called”.
RIGHTS OF DIRECTORS
i) Right to Participate in the Affairs of the Company: A director, validly
appointed, has a right to attend the meetings and participate in the affairs of the
company regarding direction, supervision and control, etc.
ii) Right to have Remuneration: Every director has a right to remuneration fixed
either under any contract or under the articles of association of a company. The
remuneration of the directors is not directly related to the profits of the company
i.e. even if the company. The remuneration of the directors is not directly related
to the profits of the company i.e. even if the company does not earn profit the
directors will be paid their fixed remuneration.
DUTIES OF DIRECTORS
i) Duty of Greatest Good Faith of Fudiciary Duties: The directors of a company
are fudiciary agents of their company and so they must exercise their powers
honestly and in best interest of the company. The business opportunities should
never be exploited for their personal benefits but for the prosperity of the
company.
ii) Duty of Reasonable Care, Skill & Diligence: The directors are expected to
perform with reasonable care, skill and diligence and if not they are guilty of
negligence. The actions of a directors should be such as would be expected in
similar circumstances on his behalf.
Business Law- Page 27
iii) Duty to Attend Board Meetings: It is not compulsory to attend all such meetings
but it is his duty to attend them whenever he is able to do so.
vi) Statutory Duties: Directors are bound to perform certain duties as prescribed by
the Companies Act of 1956:
a) Duty to see that the prospectus issued by the company makes a
disclosure of all the matters.
b) Duty to see that no prospectus is used to the public unless a copy of
it has been delivered to the Registrar of Companies for registration.
c) To call on extra ordinary general meeting when demanded by a valid
requisition.
d) To present annual accounts and balance sheet and if any director fails
to take all reasonable steps in this regard, he is punishable in respect
of each offence with imprisonment which may extend to six month
or a fine upto rupees ten thousand or both.
e) Duty to forward a statutory report to every member and must also get
it filed with the Registrar. The board of directors must also call and
hold the statutory meeting, which does not apply to a private
company.
f) Duty to provide and make good any losses in capital before
recommending any dividend.
g) Must prepare and place the report of the company’s affairs with the
Balance Sheet and profit and Loss.
h) To disclose his interest while entering into any transaction with the
company.
i) To uniform is name, address, occupation, nationality and other
information required by the Act for the purpose or entering the same
in the Register of Directors.
j) To disclose the number of shares of the company held by him.
k) To send to the Registrar his consent in writing to the post of director
l) To hold certain qualification shares according to the provisions of the
articles of association.
m) Duty not to enter into any contract with the company without the consent
of Board of Directors for the sale, purchase, etc.
o) When the company is liquidated, a director must refrain himself from
acting on behalf of company except to the extent authorized by court,
liquidator or shareholder in the general
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DISQUALIFICATIONS OF DIRECTORS
ii) Age Limit: With he object of ensuring physical and mental fitness on the part of
the director it has been provided that no person who is above the age of 70 years
or below the age of 25 years should be appointed as a director.
iii) Convicted: A person who has been convicted by court of any offence involving
moral turpitude and sentenced to imprisonment for not less than 6 months and a
period of 5 years has not elapsed from the date of expiry of the sentence cannot be
appointed as a director.
Conclusion
Every company public private is required to have directors to manage its affairs. Directors
are the persons elected by shareholders to direct, conduct, manage and supervise the
affairs of the company. The Board of Directors have a pivotal role to play and as such it
occupies very important position in a company. Directors are the mainspring and brain of
the company.
Business Law- Page 29
Q10. Explain the object of the consumer protection act and state explain the
following terms as used in the consumer protection act, 1986 (a) consumer (b)
Dispute (c) Deficiency & (d) Restrictive Trade Practice and Unfair Trade
Practice
Ans. The Consumer Protection Act provides the forum for redressal of consumer
grievances. This act makes available rights of the consumers to be the same as
before. Section 3 of this Act clearly states that, “the provisions of this Act shall be
in addition to and not in derogation of the provisions of any other law for the time
being in force.
This implies that the remedies provided under this Act are in addition to the
provisions of any other law being in force for the time. The consumer protection
act of 1986, extends to the whole of India except for the state of Jammu and
Kashmir.
ii) Establishment of Consumer Councils and Other Authorities: The act makes
provisions for establishing various consumer councils and other authorities to
protect the consumer’s interest.
iii) Fast and Simple Redressal to Consumer Disputes: The other object of the Act
is to provide fast and simple redressal to consumer disputes through a quasi-
judicial machinery set up at the District, state and central leaves. These bodies
observe the principle of natural justice keeping in view the provisions of the Act.
These bodies have been entrusted with the power to give specific reliefs and to
award compensation to consumers on the basis of merit. Such bodies can even
impose penalties for non-compliance of their order.
Certain terms used in the Consumer Protection Act of 1986 can be explained as:-
a) Consumer – A consumer is one who purchases the commodities not for trading
but for self consumption. The definition of consumer given in Section 2(1) (d) of
the act lays down the following points of a consumer:-
A consumer is:-
i) Any person who buys or hires/avails any service or goods for a consideration.
ii) Any user of the goods who may not have purchased it but uses it with the approval
of the person who has purchased the goods for consideration.
iii) Any person who is a beneficiary of such services with the consent of the original
consumer.
iv) Consideration for the goods is an important factor. Such consideration must have
actually been paid or promised or partly paid and partly promised.
According to section 2(1) (e), consumer dispute is a dispute where the person
against whom a complaint has been made and he denies the allegations contained
in such complaint.
d) Restrictive Trade Practice and Unfair Trade Practice – A consumer has a free right
to purchase any kind of good according to his needs in order to get maximum
satisfaction. According to section 2(1) (nn), a Restrictive trade Practice, refers to
any practice that requires a consumer to buy, hire or avail any goods or services
prior to buying, hiring or availing any other goods or services.
The consumer protection act of 1986 provides for better protection of the interests
of consumers and also has provisions to protect their interests from Unfair trade
practices. Section 2(1)(r) states that an ‘unfair trade practice’ means a trade
practice which for the purpose of prompting sale, use or supply of any goods of
for the provision of any service, adopts any unfair methods or practice, which may
include the following.
iii) Talselty represents and old, re-built, renovated goods as new goods.
iv) Representing that the goods have certain characteristics, uses, accessories, etc
which they may not actually have
vi) Assuring of life of goods or giving a guarantee thereof without proper checking
3. Permitting the offers of gifts or other items with the intention of charging the
amount from the transaction, partly or as a whole.
4. Permits the sale or supply of goods or services which do not comply with the
general standards set.
5. Boarding or destructing the goods or refusing to sell goods with a view to raise the
prices.
Conclusion
Consumer is one of the important components of an economy as he exhibits his important
role both on demand and supply side. His major economic activity is consumption which
actually leads to demand and supply. This means that the consumer is the center of all
economic activities. In order to protect the consumers from exploitation the Consumer
Protection Act of 1986 was laid, which puts forward various provisions for them.