BCOC-133

COURSE TITLE : BUSINESS LAW

ASSIGNMENT CODE : BCOC-133/TMA/2019-20
COVERAGE : ALL BLOCKS

Section-A

(This section contains five questions of 10 marks each)

Q1 What is a contract? Explain the essentials of a valid contract.

Answer- A valid contract is an agreement, which is binding and enforceable. In valid contract
all the parties are legally bound to perform the contract.

According to Section 2 (h) of the Contract Act, “an agreement enforceable by law is a contract.”

It means an agreement is regarded as a control when it is enforceable by law. It is a contract,

which can be enforced by either of the parties to the contract. If one of the parties refuses to
perform the contract, the other party can take an action in a court of law against such party. To
be enforceable by law, an agreement must possess some essentials of a valid contract, which
are stated in section 10.

According to Section 10, “all agreements are contracts if they are made by the free consent of
parties, competent to contract, for a lawful consideration and with a lawful object and are not
hereby expressly declared to be void.”

When necessary the agreement must satisfy the requirements of law regarding writing
attestation or registration.

Essentials of Valid Contract:

-Offers and Acceptance
-Legal Relationship
-Lawful Consideration
-Capacity of Parties
-Free Consent
-Lawful Objects
-Writing and Registration
-Certainty
-Possibility of Performance
-Not Expressly Declared Void

An agreement becomes enforceable by law when it fulfils essential conditions. These conditions
may be called the essentials of a valid contract, which are as follows:

Offers and Acceptance:

For an agreement there must be a lawful offer by one and lawful acceptance of that offer from
the other party. The term lawful means that the offer and acceptance must satisfy the
requirements of Contract Act. The offer must be made with the intention of creating legal
relations otherwise, there will be no agreement.

Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B accepts this offer,
there is an acceptance.

Legal Relationship:
The parties to an agreement must create legal relationship. It arises when parties know that if
one for the failure of a contract. Agreements of a social or domestic nature do not create legal
relations and as such cannot give rise to a contract. It is presumed in commercial agreements
that parties intend to create legal relations.

Example:
1. A father promises to pay his son Rs.500 every month as pocket money. Later, he refuses to
pay. The son cannot recover as it is a social agreement and does not create legal relations.

2. A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price, there is a
contract as it creates legal-relationship between them.

3. A husband promised to pay his wife a household allowance of 30 pounds every month. Later,
the parties separated and the husband failed to pay. The wife used for allowance. Held that the
wife was not entitled for the allowance as the agreement was social and did not create any legal
obligations.

Lawful Consideration:
The third essential of a valid contract is the presence of consideration. Consideration is
“something in return.” It may be some benefit to the party. Consideration has been defined as
the price paid by one party for the promise of the other. An agreement is enforceable only when
both the parties get something and give something. The something given or obtained is the
price of the promise and is called consideration.

Example:
1. A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s promise to sell the
house, and A’s promise to sell the house is the consideration for B’s promise to pay Rs.10 Lac.
These are lawful considerations.

2. A promise to obtain for B employment in the public service, and B promise to pay 10,000
rupees to A. the agreement is void, as the consideration for it is unlawful.

Capacity of Parties:
 An agreement is enforceable only if it is entered into by parties who possess contractual
capacity. It means that the parities to an agreement must be competent to contract. According
to Section 11, in order to be competent to contract the parties must be of the age of majority and
of sound mind and must not be disqualified from contracting by any law to which they are
subject. A contract by a person of unsound mind is void ab-initio (from the beginning).

If one of the parties to the agreement suffers from minority, madness, drunkenness etc., the
agreement is not enforceable at law, except in some cases.

Example:
1. M, a person of unsound mind, enters into an agreement with S to sell his house for Rs.2 lac.
It is not a valid contract because M is not competent to contract.

2. A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid contract because A is
competent to contract.

5. Free Consent:
It is another essential of a valid contract. Consent means that the parties must have agreed
upon the same thing in the same sense. For a valid contract it is necessary that the consent of
parties to the contact must be free.

Example:
1. A compels B to enter into a contract on the point of pistol. It is not a valid contract as the
consent of B is not free.

Lawful Objects:
It is also necessary that agreement should be made for a lawful object. The object for which the
agreement has been entered into must not be fraudulent, illegal, immoral, or opposed to public
policy or must not imply injury to the person or property of another. Every agreement of which
the object or consideration is unlawful is illegal and the therefore void.

Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as its object is
unlawful.

Writing and Registration:

According to Contract Act, a contract may be oral or in writing. Although in practice, it is always
in the interest of the parties that the contract should be made in writing so that it may be
convenient to prove in the court. However, a verbal contract if proved in the court will not be
considered invalid merely on the ground that it not in writing. It is essential for the validity of a
contact that it must be in writing signed and attested by witness and registered if so required by
the law.
Example:
1. A Verbally promises to sell his book to y for Rs.200 it is a valid contract because the law does
not require it to be in writing.

2. A verbally promises to sell his house to B it is not a valid contract because the law requires
that the contract of immovable property must be in writing.

Certainty:
According to Section 29 of the Contract Act, “Agreements the meaning of which are not certain
or capable of being made certain are void.” In order to give rise to a valid contract the terms of
the agreement, must not be vague or uncertain. For a valid contract, the terms and conditions of
an agreement must be clear and certain.

Example:
1. A promised to sell 20 books to B. It is not clear which books A has promised to sell. The
agreement is void because the terms are not clear.

2. A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The agreement is
void because of it uncertainty.

3. O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over
two years. Held there was no contract as the terms were not certain about rate of interest and
mode of payment.

Possibilty of Performance:
The valid contract must be capable of performance section 56 lays down that. “An agreement to
do an act impossible in itself is void.” If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.

Example:
1. A agrees with B to discover treasure by magic, the agreement is not enforceable.

2. A agrees with B to put life into B’s dead brother. The agreement is void as it is impossible of
performance.

10. Not Expressly Declared Void:

An agreement must not be one of those, which have been expressly declared to be void by the
Act. Section 24-30 explains certain types of agreement, which have been expressly declared to
be void. An agreement in restraint of trade and an agreement by way of wager have been
expressly declared void.

Example:
A promise to close his business against the promise of B to pay him Rs.2 lac is a void
agreement because it is restraint of trade.

Q2 What is breach of contract? Explain the remedies available to an aggrieved party on

the breach of contract.

Answer- Breach of contract - Breach of contract is a legal cause of action and a type of civil
wrong, in which a binding agreement or bargained-for exchange is not honored by one or more
of the parties to the contract by non-performance or interference with the other party's
performance. Breach occurs when a party to a contract fails to fulfill its obligation(s) as
described in the contract, or communicates an intent to fail the obligation or otherwise appears
not to be able to perform its obligation under the contract. Where there is breach of contract, the
resulting damages will have to be paid by the party breaching the contract to the aggrieved
party.

If a contract is rescinded, parties are legally allowed to undo the work unless doing so would
directly charge the other party at that exact time.

It is important to bear in mind that contract law is not the same from country to country. Each
country has its own independent, free standing law of contract. Therefore, it makes sense to
examine the laws of the country to which the contract is governed before deciding how the law
of contract (of that country) applies to any particular contractual relationship.

Remedies available to an aggrieved party on the breach of contract - When a promise or

agreement is broken by any of the parties we call it a breach of contract. So when either of the
parties does not keep their end of the agreement or does not fulfil their obligation as per the
terms of the contract, it is a breach of contract. There are a few remedies for breach of contract
available to the wronged party. Let us take a look.

1] Recession of Contract
When one of the parties to a contract does not fulfil his obligations, then the other party can
rescind the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that rescinds
the contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course of
business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary
course of business. There are two types of damages according to the Act,
 -Liquidated Damages: Sometimes the parties to a contract will agree to the amount
payable in case of a breach. This is known as liquidated damages.

-Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the
contract. In certain cases, the courts may insist that the party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so. This is a
decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can
order B to perform his duties under the contract and sell the land to A.

4] Injunction
An injunction is basically like a decree for specific performance but for a negative contract. An
injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the commission of an act and in a
mandatory injunction, it will stop the continuance of an act that is unlawful.

5] Quantum Meruit
Quantum meruit literally translates to “as much is earned”. At times when one party of the
contract is prevented from finishing his performance of the contract by the other party, he can
claim quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the
work he has already done.

Anticipatory breach of contract is when a party to contract fails to perform the part of the
contract before the performance of contract becomes due. The anticipatory breach of contract
can be either express or implied and gives two option to the injured or aggrieved party to the
contract against whom the anticipatory breach of the contract has been committed.

When an anticipatory breach of contract occurs, the law requires the compliant party to act
quickly to avoid potential losses, costs, or expenses that would take place as a result of the
failure to fulfill a contract.
The aggrieved person can also wait till the due date performance which enables him or her to
see whether the other party will actually deliver on his or her repudiation or whether he or she
decides to follow through on his or her contractual obligations.

Q3 Discuss the various ways by which a contract of agency can be terminated.

Answer- Agency means a relationship between one person and another, where the first
person brings the second mentioned person in a legal relationship with others. There are
different modes of the creation of agency and termination of agency.

Termination of Agency - An agent is a person employed to do any act or enter into a contractual
relationship with others (third parties) on behalf of his principal. An agent acts as a connecting
link between his principal and third parties.

While representing his principal, an agent acts in the same capacity as of his principal. An agent
is authorized by his principal to act on his behalf. An agent binds his principal legally in business
transactions with third parties due to their agency relationship.

According to Section 201 of the Indian Contract Act, 1872, Termination of agency takes place in
the following circumstances: –

● By revocation of authority by the principal.

● By renunciation of his authority by the agent.

● On the performance of the contract of agency.

● On the death of either principal or agent.

● By insanity of either principal or agent.

● With the expiration of time period fixed for the contract of agency.

● By an agreement made between the principal and his agent.

● With the insolvency of principal or agent (in few cases).

● When the principal and his agent is an incorporated company, by its dissolution

● With the destruction of the subject matter. (section 56)

Q4 Can a minor be admitted to a partnership? If so, what are his rights and liabilities
during minority and after he has attainted majority?

Answer- As we have seen in the Contract Act, minors cannot be a party to a contract. A
contract involving a minor is void-ab-initio. However, the Partnership Act has its own sets of
legal rules regarding minors. So let us study about minor partner and the benefits they gain from
a partnership.

Minors Admitted to Benefits of Partnership

Section 30 of the Indian Partnership Act 1932 contains legal provisions about a minor in a
partnership. Now we know the Indian Contract Act 1857 clearly states that no person less than
the age of 18, i.e. a minor can be a party to a contract. And a partnership is a contract between
the partners. Hence a minor cannot be a partner in a partnership firm.

However, according to the Partnership Act, a minor may be admitted to the benefits of a
partnership. So while the minor will not be a partner he will enjoy all the benefits of a
partnership. To admit all the minor to the benefits of the partnership all of the partners of the
firm must be in agreement.

Partnership: Minor Partner

Rights of a Minor Partner

Once the minor is given the benefits in a partnership there are certain rights that he enjoys. Let
us take a look at the rights of a minor partner.

A minor partner will obviously have the right to his share of the profits of the firm. But the minor
partner is not liable for any losses beyond his interests in the firm. So a minor partner’s personal
assets cannot be liquidated to pay the firms liabilities.
He can also like any other partner inspect the books of accounts of the firm. He can demand a
copy of the books as well.
If necessary he can sue any or all of the other partners for his share of the profits or benefits.
A minor partner on attaining majority has the right to become a partner of the firm. He has six
months from attaining majority to decide if he will execute this right. Whether he decides to
become a partner or not he must give public notice about the same.
Liabilities of a Minor Partner
A minor cannot be held personally liable for the losses of the firm. And if the firm declares
insolvency the minor’s share is kept with the Official Receiver
After turning 18 the minor partner can choose to become a partner of the firm. But he may
choose to not become a partner. In this case, the minor partner has to give a public notice about
this decision. And the notice has to be given within 6 months of gaining a majority. If such a
notice is not given even after 6 months then the minor partner will become liable for all acts
done by the other partners till the date of such notice.
Should the minor partner choose to become a partner he will be liable to all the third parties for
the acts done by any and all partners since he was admitted to the benefits of the partnership.
If he becomes a full-time partner he will be treated as a normal partner and have all the
liabilities of one. His share in the profits and property of the firm will remain the same as it was
when he was a minor partner.

Q5 Explain the rules relating to delivery of goods.

Answer- According to Section 33, delivery of goods sold may be made by doing anything
which the parties agree shall be treated as delivery or 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. Delivery
of goods may be actual, symbolic or constructive.

Payment and Delivery: Concurrent Conditions: According to Section 32, unless otherwise
agreed, delivery of the goods and the payment of.the price are concurrent conditions, that is to
say, the seller shall be ready and willing to give possession of the goods to the buyer in.
exchange of price, and the buyer shall be ready and willing to pay the price in exchange for the
possession of the goods. Thus delivery of goods and the payment of the price must be
according to the term of the contract.

Effect of Part Delivery: According to Section 34, a delivery of the part of the goods, in progress
of the delivery of the whole has the same effect, for the purpose of passing the property in such
goods, as a delivery of the whole, but a delivery of the part of the goods, with an intention of
severing it from the whole, does not operate as a delivery of the remainder.

Buyer to Apply for Delivery: According to Section 35, apart from any express contract, the seller
of goods is not bound to deliver them until the buyer applies for delivery. It is the duty of the
buyer to demand delivery. If he does not apply of delivery, the buyer has no cause of action
against the seller. The parties may, however, agree otherwise.

Place of Delivery: According to Section 36(1), the place at which the delivery of the goods is to
take place, may be specified in the contract and the seller must deliver the goods at that place
during business hours on a working day. Apart from any such contract, goods sold are to be
delivered at the place at which they are at the time of the sale, and goods agreed to be sold are
to be delivered at the place at which are at the time of agreement to sell, or, if not in existence,
at the place at which they are manufactured or produced. Section 40, says, “Where the seller
has agreed to deliver the goods to the buyer at a place-. other than that where they were, when
sold, the buyer must, in absence of agreement to the contrary,lake the risk of deterioration
necessarily incidental to the course of transit.”

Time of Delivery: According to Section 36(2), 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. According to Section 36(4) says, “demand and tender of
delivery must be at a reasonable hour. What is a reasonable hour is a question of fact.” If the
seller fails to do so, he will be guilty of breach.
Goods in Possession of a Third Party: According to Section 36(3), where the goods are in the
possession of a third person, there is no delivery unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf. Once the third person does
this that amounts to delivery. This rule is, however, subject to the transfer of documents of title.
Where the goods have been sold by the issue or transfer of any document of title to goods.

Expenses of Delivery: According to Section 36(5), unless otherwise agreed, the expenses of
and incidental to putting the goods into a deliverable state shall be borne by the seller, but all
expenses of and incidental to obtaining of delivery are borne by the buyer.

Delivery of Wrong Quantity: According to Section 37, the seller is under an obligation to deliver
that quantity of goods contracted for. A defective delivery entitles the buyer to reject the goods.
There can be the following three possibilities:

Short Delivery: According to Section 37(1), where the seller delivers to the buyer a quantity of
goods less than he contracted to sell, the buyer may reject the goods. lithe buyer accepts them,
he shall pay for them at the contract rate.

Excess Delivery: According to Section 37(2), where the seller delivers to the buyer a quantity of
goods larger than he contracted to sell, the buyer may (i) accept the whole and pay for them at
the contract rate or (ii) reject the whole or (iii) accept the goods he ordered and reject the rest. If
the excess is negligible and the seller does not ask any payment for the excess, the buyer may
not reject.

Mixed Delivery: According to Section 37(3), where the seller delivers to the buyer the goods
mixed with the goods of a different description not included in the contract, the buyer may. (i)
accept the goods which are in accordance with the contract and reject the rest or (ii) reject the
whole.

Installment Deliveries: Under Section 38, unless otherwise, agreed, the buyer of goods is bound
to accept delivery thereof by installments. Where there is a contract for the sale of goods to be
delivered by the stated installments which are to be separately paid for and the seller makes no
delivery or defective delivery in respect of one or more installments, or the buyer neglects or
refuses to take delivery of or pay for one or more installments, it is a question in each case,
depending on the terms of the contract and the circumstances of the case, whether the breach
of contract is a repudiation of the whole contract or whether it is sever-able breach giving rise to
a claim for compensation, but not to a right to treat the whole contract as repudiated.

Delivery to Carrier or Wharfinger: According to Section 39, where in pursuance of a contract of

sale, goods are delivered to a carrier for the purpose of transmission to the buyer or to a
wharfinger for safe custody, delivery of the goods to the buyer. In such a case, the seller must
enter into a reasonable contract with the cagier or wharfinger on behalf of the buyer for the safe
transmission of the goods, otherwise, if the goods are destroyed the buyer may decline to treat
the delivery to the carrier or wharfinger as a delivery to himself or may hold the goods are sent
by the .seller to the buyer by a route involving sea-transit, the seller must inform the buyer in
time to get the goods insured otherwise the goods will be at seller’s risk during such sea-transit.

Buyer’s right of examining the goods: According to Section 41, where goods are delivered to a
buyer, which he has not previously examined, he is not deemed to have accepted them, unless
he has reasonable opportunity of examining them and ascertaining whether they conform to the
contract. The provision will not be applicable if the parties agree otherwise.

Liability of the Buyer: According to Section 44, when the seller is ready and willing to deliver the
goods and requests the buyer to take delivery, and the buyer does not, within a reasonable time
after such requests take delivery of the goods, he is liable to the seller for any loss occasioned
by his neglect or refused to take delivery and also for a reasonable charge for the care and
custody of the goods. Where the neglect or refusal of the buyer to take deliver), amounts to a
repudiation of the contract, the seller may sue for the price or for damages.

According to Section 43, unless otherwise agreed, where goods are delivered to the buyer and
he rejects them, he is not bound to return them to the seller. It is sufficient if he intimates to the
seller that he has rejected the goods. If the seller refuses to take away the goods, the buyer
becomes the bailee of the goods.

Section-B

(This section contains five short questions of 6 marks each)

Q1 Define fraud. What are the effects of fraud?

Answer- In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a
victim of a legal right. Fraud can violate civil law (i.e., a fraud victim may sue the fraud
perpetrator to avoid the fraud or recover monetary compensation), a criminal law (i.e., a fraud
perpetrator may be prosecuted and imprisoned by governmental authorities), or it may cause no
loss of money, property or legal right but still be an element of another civil or criminal wrong.
The purpose of fraud may be monetary gain or other benefits, for example by obtaining a
passport, travel document, or driver's license, or mortgage fraud, where the perpetrator may
attempt to qualify for a mortgage by way of false statements.

One of the most expensive crimes endured by millions of U.S. consumers every year is fraud.
These days, it's hard to escape as scams will find you anywhere - on internet, at the car
dealership and certainly in the streets. Collectively, criminals who commit fraud have no
personal preference.
 They look to victimize the youth, senior citizens, home computers and large corporations alike.
It is crucial to understand why even you can be negatively impacted by this rapid moving crime
wave.

It is often stated that many of these crimes such as insurance and welfare fraud have no direct
victims.

In truth, the "victimless" approach is the wrong way to view the situation. Fraud has a negative
effect on everyone. Here are few consequences we all endure:

• economic decline due to direct physical damage

• economic decline due to losses suffered by publicly used services such as transportation,
police and fire departments

• indirect economic losses endured by prominent corporations due to losses suffered by their
clients

• physical injury or death to innocent victims caught in the middle of a scam gone wrong

• emotional and psychological burdens placed on the fraud victims

Q2 Describe particular lien and general lien of a bailee.

Answer- General Lien

A general lien is a right of one person to retain any property or goods which are in his
possession belonging to another person until the promise or liability is discharged.

It is a right to retain the property belonging to another for a general balance of the account.

A general lien is available to bankers, factors, attorneys of High Court and policy brokers.

Example of General Lien;

A has two accounts in a bank. In the savings bank account, he has a credit balance of 500
dollars.

In the current account, lie has an overdraft of 1,000 dollars. The bank can exercise the right of
lien on the savings account for the amount due on the current account.

It should be noted that the right of the lien will not apply to properties deposited for safe custody
or a specific purpose.

This right can be exercised against any property belonging to the other party in possession of
the person exercising the right.
This right can be exercised for a general balance of the account, i.e., for any amount due.
This right is available only to bankers, factors wharfingers, attorneys of High Courts and policy
brokers.
A lender of last resort is an institution that is willing to offer loans as a last resort. Such an
institution is usually a country’s central bank.

A central bank offers an extension of credit to financial institutions experiencing financial

difficulties that are unable to obtain necessary funds elsewhere.

The main task in front of the lender of last resort is to preserve the stability of the banking and
financial system by protecting individuals’ deposited funds and preventing panic-ridden
withdrawing from banks with temporarily limited liquidity.

For more than a century and a half, central banks have been trying to avoid great depressions
by acting as lenders of last resort in times of financial crisis.

At first, this act provides liquidity at a penalty rate.

Subsequently, through open market operations, it lowers interest rates on safe assets. And
finally, this process involves direct market support.

Commercial banks usually resort to lender’s help only in times of crisis because such actions
indicate financial difficulties.

Loans may be granted not only to commercial banks but also to any other eligible financial
institution, even private companies, which is considered highly risky.

There are wide-spread arguments against. Such an extension of credit can conceal the true
financial state of an institution, and prolong its failure. Eventually, the body fails to cure the
current financial crises and instead creates new ones.

Particular Lien
A particular lien is available only against the particular property in respect of which the bailee
has expended labor and skill.

A bailee is entitled to a particular lien only.

Example of Particular Lein

A gives two cars – an Ambassador and a Fiat, for repairs to B. B repaired only the Ambassador
car.
A took delivery of the Ambassador car without making the payment of the repair charges. B
cannot retain the Fiat car for the repair charges due in respect of the Ambassador car.

It should be noted that lien is possessory; hence if possession is lost, the lien is also lost.

Q3 Discuss briefly the circumstances when a partnership firm is dissolved by the order
of the court.

Answer- The court may, on an application by a partner, order the dissolution of the partnership
firm under the following circumstances: (1) When a partner has become of unsound mind. (2)
when a partner, other than the partner filing a suit, has become permanently incapable of
performing his duties as a partner.

According to section 44 of the Indian Partnership Act, a partner can approach the court asking
for the dissolution of the firm. As per the discretion of the court, it may order a dissolution under
certain circumstances. Let us take a look at these,

Dissolution of partnership

1] Partner of Unsound Mind

The insanity (temporary or permanent) does not automatically dissolve the partnership.
However, the guardian of the unsound partner or any other partner can file a suit with the court
for dissolution of a partnership firm. The dissolution will be effective from the date of the court
order.

2] Incapacity of Partner
If a partner has become incapable in a permanent capacity, for example blind, paralytic etc.
then the court will dissolve the firm if a suite is filed by any partner.

3] Misconduct by Partner
If the misconduct of a partner is adversely affecting the business and their reputation, then the
court will consider dissolving the firm in response to a suit filed by any other partner of the firm.
For example, the gambling addiction of one particular partner is adversely affecting a firm, the
court can order the dissolution of the firm.

4] Breaching of Agreement
If one of the partners is persistently breaching the partnership agreement then the other
partners can approach the court. One point to note is that the partner must be repeatedly
breaching the contract, and continues to do so even after warnings. An on-off breach does not
warrant the action. But persistent breaching will result in the court ordering the dissolution of the
firm.

dissolution of partnership
5] Transfer of Share by Partner
A partner cannot transfer his shares and interests of the firm to another party without the
permission of all the partners of the firm. He cannot admit a new partner in the partnership in the
firm in such a manner. So if he has sold his rights/interests the other partners can approach the
court and file for dissolution of the firm.

6] Losses
If the business is operating at a loss and the courts are convinced that the business cannot turn
a profit, it will dissolve the firm.

7] Any Other Just Cause

The list given in Section 44 is not exhaustive. There can be other reasons for the dissolution of
the firm. If the court is convinced the cause in the suit is justifiable and equitable, it will dissolve
the firm. For example, if there is a deadlock between partners that is not showing signs of
respite, the court can dissolve the firm.

Q4 Define condition in a contract of sale. When can a breach of condition be treated as a

breach of warranty?

Answer- The contract of sale of goods contains certain terms/stipulations for fulfillment of that
contract. Such stipulations that are important for fulfillment of the contract are called
“Conditions”. Whereas the stipulations contained in the contract which may not be very
essential for fulfillment of the contract are called warranties. Therefore, we may describe that
the condition is the essential stipulation of the contract of sale and warranty is an additional
stipulation.

Sale of Goods Act is one of very old mercantile law. Earlier this was a part of Indian Contract
Act, 1872 in chapter VII (sections 76 to 123). But after the completion of it’s half century, the
then legislature found that Sale of Goods is one of the special types of Contract and in
perspective of it’s huge use, a special enactment to this effect is necessary. Thus, the above
mentioned relevant sections in Contract Act were dug out, and separate Sale of Goods Act was
passed in 1930.The Sale of Goods Act is complimentary to Contract Act. Though it is a special
law but it has the root in Contract Act and so basic provisions of Contract Act apply to contract
of Sale of Goods also.

The use of the word “condition” appears to have originated in the 17th century. In my second
chapter I have discussed about it in brief. The Sale of Goods Act, 1930 defines the term
condition in section 12(2). According to this definition a condition can be defined as a stipulation
which is so vital to the contract that its complete and exact performance by one party is
condition precedent to the obligation of the other party to perform his part.

Q5 Discuss the essential characteristics of a promissory note.

Answer- A Promissory Note, as the name itself gives a brief description, is a legal financial
instrument issued by one party, promising to pay the debt owed to another party.

It is a written negotiable instrument duly signed by the maker that contains an unconditional
promise to pay the stated sum of money to a particular person or to any other person, on the
order of that particular person, either on-demand or on a specified date, under given terms.

It is a short-term credit instrument which does not amount to a banknote or a currency

note. Characteristics of Promissory Note

● It is a written document.
● There must be a clear and unconditional promise to pay a certain sum to a specified
person or on-demand.
● It must be drawn and duly signed by the maker.
● It must be properly stamped.
● It specifies the name of the maker and payee
● The amount to be paid must be certain, given in both figures and words.
● Payment is to be made in the country’s legal currency.

A promissory note may consist of various terms and conditions related to indebtedness like the
principal amount, date of maturity, the rate of interest, terms of repayment, issue date, name
and signature of the drawer, name of the drawee and so forth. A promissory note needs no
acceptance.

Section-C

(This section contains four short questions of 5 marks each)

Q1 Who is holder in due course?

Answer- Holder in Due Course is a legal term to describe the person who has received a
negotiable instrument in good faith and is unaware of any prior claim, or that there is a defect in
the title of the person who negotiated it.

For example; a third-party check is a holder in due course.

The 3rd party who gets the check is not aware of any prior issues with a check, such as it was
overdue, dishonored when presented for payment, had any claims against it,

Holder in Due Course called protected holder or bona fide holder for value.

So Holder in Due Course means;

● If payment is not made on a negotiable instrument when it is due, the holder can use the
court system to enforce the instrument.
 ● Various parties, including both signers and non-signers, may be liable for it.
● Accommodation parties (i.e., guarantors) can also be held liable.

The holder of a negotiable instrument means any person entitled in his name to the possession
thereof and to receive or recover the amount due thereon from the parties thereto.

Q2 “Delivery does not amount to acceptance of goods?” Comment.

Answer- Mere intimation to the seller that he refuses to accept is sufficient. The goods are then
at the seller's risk. Provided that where the neglect or refusal of the buyer to take delivery
amounts to a repudiation of the contract, the seller may sue for the price or for damages.

The buyer is deemed to have accepted the goods when:

1) he intimates to the seller that he has accepted them; or

2) where goods have been delivered to him and he does any act in relation to the goods which
is inconsistent with the ownership of the seller, for example, he pledges the goods, or sends the
goods to his sub-purchaser or when he re-sells them.
3) When after the lapse of a reasonable time, he retains the goods without intimating to the
seller that he has rejected them. The buyer after direct or indirect acceptance cannot reject the
goods. He may be however, entitled to damages.

Buyer not bound to return the rejected goods: Unless otherwise agreed where goods are
delivered to the buyer and he refuses to accept them he is not bound to return the rejected
goods to the seller.

Q3 The relationship of partnership arises from agreement and not from status.

Answer- Partnership is the form of business organization, where two or more persons can join
together or jointly carrying on some business. It is an improvement over the 'sole-trade
business', where one single individual with his own resources, skill and effort carries on his own
business.
In a partnership, a number of persons could pool their resources and efforts and could start a
much larger business. In case of loss also, the burden gets divided amongst various partners in
a partnership.

According to Section 4 of the Indian Partnership Act, " The relation of partnership arises from
contract and not from status; and , particular, the members of a Hindu undivided family carrying
on a family business as such, or a Burmese Buddhist husband and wife carrying on business as
such, are not partners in such business." Partnership is the result of agreement. Agreement
here means a contract. It arises from an agreement between two or more people. It cannot arise
from status. The presence of agreement is a must. It indicates the voluntary contractual
relationship of partnership.
Q4 Explain agency by estoppel with example.

Answer- Agency by estoppel means that a defendant will be liable to a plaintiff because the
defendant’s negligence caused the plaintiff to reasonably rely on there being an agency
relationship between the defendant and someone who purported to act on behalf of the
defendant. The defendant will be estopped (legally prevented) from denying that that the third
party is its agent. Below we will review what an agent is, discuss agency by estoppel, and then
provide a few examples from cases where courts analyzed whether there was an agency by
estoppel. An agent acts on behalf of a Principal. Sometimes a person acts on another’s behalf.
We can say that the person acting on behalf of the other person is the agent. The person on
whose behalf the agent is acting is called the principal.

For example, a person might be allowed to bind someone else to a contract if he has authority
as an agent to act on that person’s behalf. A salesperson (agent) can bind his company
(principal) to a sales contract because the salesperson has authority as an agent to represent
the company. By way of another example, if an agent sells a house on the owner’s (principal)
behalf, the owner can’t suddenly refuse to sell the house. The agent was authorized to act on
the principal’s behalf. We would say the salesperson and real estate agent are actual agents,
with authority to act on behalf of their principals.