Amity Campus Uttar Pradesh India 201303 ASSIGNMENTS PROGRAM: BFIA SEMESTER-II Subject Name: Study COUNTRY: Roll

Number (Reg. No.): Student Name: INSTRUCTIONS a) Students are required to submit all three assignment sets. ASSIGNMENT Assignment A Assignment B Assignment C DETAILS Five Subjective Questions Three Subjective Questions + Case Study Objective or one line Questions MARKS 10 10 10 LEGAL ASBECTS OF BUSINESS SOMALIA BFIA01512010-2013019 MOHAMED ABDULLAHI KHALAF

b) Total weight-age given to these assignments is 30%. OR 30 Marks c) All assignments are to be completed as typed in word/pdf. d) All questions are required to be attempted. e) All the three assignments are to be completed by due dates and need to be submitted for evaluation by Amity University. f) The students have to attach a scanned signature in the form. Signature : _________________________ Date: 26. Dec. 2011 ( ) Tick mark in front of the assignments submitted Assignment A Assignment B Assignment C

Legal Aspects of Business PART-A Q: 1). All contracts are agreements, but all agreements are not contracts. Explain. Answer: A contract is an agreement legally enforceable by law, made between two or more persons or businesses, by which rights are acquired by one or more, to act on the part of the other. It creates and defines obligations between the parties involved. Contracts are not contrary to any law. It creates an obligation to do or not to do something. A contract involves two or more people or businesses; it sets forth what they will or will not do and can be either oral or written. A contract involves competent parties usually adults of sound mind or business entities one of whom makes an offer to which the other agrees by acceptance, by which each provides the other some benefit called consideration, such as a promise to pay money in return for a promise to deliver, or the actual delivery of particular goods or services, within a stated time frame. Contracts are at the heart of most business dealings, and contract law is one of the most significant areas of legal concern. Agreement is an understanding between two or more parties about a particular issue, covering their obligations, duties and rights. The term can also mean contract (i.e., a legally binding agreement), but it has a broader application and extends to understandings that are not legally binding. All agreements are not necessarily enforceable by law. Therefore, every agreement is not necessarily a contract. Only those agreements which are enforceable by the court of law are termed as contracts. For example; an agreement between two or more parties to sell a car or house may be a contract enforceable by law. But, an agreement between two or more parties to go to cinema together or attend a party is not enforceable by law; therefore, it is not a contract. The Indian contract act describes the essentials of a valid contract in Section 10 which says: all agreements are contracts if they are made by free consent of parties competent to contract, for a lawful consideration and with a lawful object and are no hereby expressly declared to be void Agreement between two parties valid offer and a valid acceptance Parties should be competent to contract
3

There should be lawful consideration and lawful object There should be free consent of the parties The agreement must not be one, which has been expressly declared to be void. If any of the above elements or essentials is not fulfilled, there cannot be a valid contract.

Only those agreements which satisfy the above mentioned essential conditions qualify as contracts. Q: 2). What is a contract of indemnity? What are the rights of an indemnity-holder? Explain the difference between a contract of indemnity and contract of guarantee? Answer: A contract of indemnity is a contract whereby 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. For example, a shareholder executes an indemnity bond favouring the company thereby agreeing to indemnify the company for any loss caused as a consequence of his own act. The person who gives the indemnity is called the indemnifier and the person for whose protection it is given is called the indemnity-holder or indemnified. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person. The loss must be caused by some human agency. Losses arising from accidents like fire or perils of the sea are not covered by a contract of indemnity. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. The right to indemnity and the duty to indemnify ordinarily stem from a contractual agreement, which generally protects against liability, loss, or damage. Rights of indemnity holder include: The promisee indemnity holder in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor: 1) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2) All costs of suit which he may have to pay to such third party, provided in bringing or defending the suit (a) he acted under the authority of the indemnifier or (b) he did not act in contravention of

the orders of the indemnifier and in such a way as a prudent man would act in his own case. 3) All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the indemnifier, and was one which it would have been prudent for the promisee to make. Differences between Contract of Indemnity and Guarantee A contract of indemnity is a contract whereby 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. A contract of guarantee is defined by the Indian Contract Act, as A contract to perform the promise or discharge the liability or a third person in case of his default. The person who gives the guarantee is called the Surety, the person for whom the guarantee is given is called the Principal Debtor, and the person to whom the guarantee is given is called the Creditor. A contract of guarantee is a conditional promise by the surety that if the principal debtor defaults he shall be liable to the creditor. A few important distinctions between a contract of indemnity and contract of guarantee are as follows:

In a contract of indemnity only two parties are involved, whereas in a contract of guarantee, three parties are involved. A contract of indemnity is formed to provide compensation of loss. A contract of guarantee is formed to give assurance to the creditor in lieu for his money. In other words, a contract of indemnity is for reimbursement of a loss, while a contract of guarantee is for security of the creditor. In a contract of indemnity, the indemnifier is the sole person who is held liable. In a contract of guarantee, the liability is shared by the surety and principal debtor. The principal debtor owes the primary liability and the surety owes the secondary liability. In a contract of indemnity the liability of the indemnifier is primary and arises when the contingent event occurs. In case of contract of guarantee the liability of surety is secondary and arises when the principal debtor defaults. The indemnifier after performing his part of the promise has no rights against the third party and he can sue the third party only if there is an assignment in his favour. Whereas in a contract of guarantee, the surety steps into the shoes of the creditor on discharge of his liability, and may sue the principal debtor.

Q: 3). Explain the rules nemo det quod non habet (you cant give what you dont have) in the context of transfer of property to buyer. Give a list of exception to this rule. Answer: Nemo dot quod non habet, which means that no one can give or pass a better title than he/she possesses. It actually means a legal context that no one can transfer a better title than the one they have. This principle applies in the following context; that is, title to property can be sold or otherwise transferred, but the title is no stronger than the original title (with certain exceptions). For example, if X buys a stolen car from Y, then X does not acquire a title that is stronger than the thiefs title. Since this is weaker than the original owners title, X has a weaker title than the original owner, and may be liable to him. According to Section 27, where there is a sale of goods by a person who is not the owner or where a person sells goods without the authority or consent of the true owner, the buyer of such goods does not acquire a good title. In such a case, the title of buyer is no better than that of the seller. Section 27, also lays down certain exceptions to the rule nemo dat quod non habet. The seller of goods can confer a better title to the buyer: 1) Where he sells the goods with the authority and consent of the true owner. Sales under this category include those made by agents acting within the scope of their authority and sales made in the course of business by persons holding a limited interest in the goods.

2) Where the true owner is prevented by his conduct from denying the sellers authority to sell. 3) The buyer of goods from a mercantile agent, who has no authority to sell, gets a good title to the goods if (a) the agent is in possession of the goods or documents of title to the goods with the consent of the owner. (b) the agent sells the goods while acting in the ordinary course of business of a mercantile agent (c) the buyer acts in good faith (d) the buyer has not at the time of sale notice that the agent has no authority to sell. 4) Sale by one of the joint owners If one of the several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell them. 5) Sale by person in possession under a voidable contract. Where the seller of goods has obtained possession thereof under a contract voidable under Section 19 or Section 19-A of the Indian Contract Act, 1872. 6) Sale by seller in possession after sale: Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the
6

goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same. 7) Sale by buyer in possession after having bought or agreed to buy goods. The applicability of this depends on the following conditions:

a) The person who is to pass title should have bought or agreed to buy the goods. b) He should have obtained possession of the goods or document of title to the goods with the approval of the seller. c) The goods or documents of title to the goods should have been delivered to a third person under a contract of sale, either by the buyer or his mercantile agent. d) The person receiving the goods or the documents should have taken it in good faith and without notice of the lien or the right of the original seller.
8) Sale by an unpaid seller. The validity of a re-sale depends upon:

a) The seller being an unpaid seller. b) The exercise of the right of lien or stoppage in transit by the unpaid seller. (i.e., the unpaid seller should have possession of the goods and the possession should be lawful). List of exception to this rule include: 1) Sale by a person not the owner or title by estoppel (Sec.27): When the owner by his conduct, or by an act or omission, leads the buyer to believe that the seller has the authority to sell and induces the buyer to buy the goods, he shall be estopped from denying the fact of want of authority of the seller. The buyer in such a case gets a better title than that of the seller. 2) Sale by a mercantile agent: A mercantile agent is one who, in the customary course of his business, has, as such agent, or to buy goods, or to raise money on the security of goods. The buyer of goods from a mercantile agent, who has no authority from the principal to sell, gets a good title to the goods. 3) Sale by one several joint owners: If one of the several joint owners, who is in sole possession of the goods by permission of the other co-owners, sells the goods, a buyer in good faith of those goods gets a goods title to the goods. 4) Sale by a person in possession under a voidable contract: When the seller of the goods obtained their possession under a voidable contract,
7

but the contract has not to been rescinded at the time of the sale, the buyer acquires a goods title to the goods, provided he buys them in good faith and without notice of the sellers defect of title. 5) Sale by seller in possession after sale: Where a seller, having sold goods, continues to be in possession of the goods or of the documents of title to the goods and sells them either himself or through a mercantile agent to a person who buys them in good faith and without notice of the previous sale, the buyer gets a goods title. 6) Sale by buyer possession after having bought or agreed to buy goods: Where a person, having bought or agreed to buy goods, obtain, with the consent of the seller, possession of the goods or documents of title to the goods and sells them either himself or through an agent, the buyer who acts in good faith and without notice of any lien or other right of the original sell in respect of the goods, gets a good title. Q: 4). Q4. What do you understand by the term unpaid seller under the sale of Goods Act, 1930? Explain the rules regarding unpaid sellers right to resell the goods. Answer: A contract is comprised to reciprocal promises. In a contract of sale, if the seller is under an obligation to deliver goods or services, the buyer is also under an obligation to pay for it. In case buyer fails or refuses to pay, the seller, as an unpaid seller, shall have certain rights of an unpaid seller. An unpaid seller of goods is a person who has not been paid the whole of the price or to whom the whole of the price has not been tendered. The term seller includes any person who is in the position of a seller e.g. an agent of the seller. The Seller of goods is deemed to be an unpaid seller if: 1) The whole of the price has not been paid or tendered; 2) When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise. Rights of an unpaid seller are classified into two categories namely; Rights against goods and Rights against the buyer personally. Rights against goods include: Lien on the goods, a right of stoppage in transit and a right of re-sale.
8

The unpaid seller, who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods under the Goods Act. [Section 46(1) (c) and 54]: 1) If the goods are of a perishable nature, without nay notice to the buyer; and 2) After notice to buyer calling upon him to pay or tender the price within reasonable time, and upon failure of the buyer to do so. The seller is entitled to recover from the original buyer damages caused to him by the resale. But if any profit accrues from the resale, such profit shall go to the unpaid seller and not to the buyer. However, it should be noted that notice to the buyer is necessary except when goods are of perishable nature. Q: 5). The Partnership Act has effectively ensured the registration of firms without making it compulsory. Comment. Answer: Partnership is an ongoing business enterprise entered into for profit that is owned by more than one person, each of whom is a partner. A partnership can be created by a formal written agreement or based on an oral agreement or a handshake. Registration with a governmental agency is not necessary to create a partnership, although tax registration and other requirements of conducting a business e.g., filing a doing business as statement may still apply. Formation of partnership is controlled and governed by the Partnership Act. According to which the partnership should be registered as soon as it is formed with the Registrar of Firms of the area. In the absence of registration, the firm will not be able to enforce its legal remedies against outsiders, and the partners also cannot enforce the conditions laid down in the 'partnership deed' through a court of law. In the Partnership act, Registration of a firm is not compulsory, but at the same time it has effectively ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. The disabilities associated with the non-registration of firm are: 1) No suit in a civil court by the partner against the firm or other copartners. If any dispute arises among the partners or between the partner and the firm or between the partner and ex-partners and the
9

dispute is based upon the rights arising from contract or upon the rights conferred by the Partnership Act, then a partner of an unregistered firm cannot institute a suit to settle such disputes. 2) No suit in a civil court by firm against third parties. An unregistered firm cannot file a suit against a third party. If it so becomes necessary, to enforce any right arising from contract, e.g. for the recovery of the price of goods supplied. 3) The firm or its partners cannot make a claim of set-off or other proceeding based upon a contract. The above two disabilities also apply to a claim of set-off or other proceeding to enforce a right arising from a contract. Thus, if a third party sues the firm to recover a sum of money, the firm cannot claim a set-off. i.e., the firm cannot say that the third party also owes some money to the firm and the same should be adjusted against the claim in question. Similarly, if an unregistered firm institutes a suit for the reduction of rent against its landlord, such a suit is not maintainable because the suit falls under the disability relating to other proceeding to enforce the right arising from a contract. Conclusion: Registration of a partnership firm has been given significant attention by the legislature by incorporating it in a whole chapter in the Act. Though the Act never makes registration compulsory but it would become too onerous for a firm to conduct its operations. Even routine activities like suing a third party for monies due to the firm would be not allowed and thus any partnership with relatively long period of operation would have to get them-selves registered. The registration of firm is condition precedent to its right to institute a suit and thus a court of law cannot proceed with the trial of a suit when the condition precedent has not been fulfilled. In order to institute a suit, a partnership firm must not only be a registered firm but all the persons, who are partners in the firm at the time of institution of suit, must also be shown as such in the register of firms. Q: 6). Discuss the mutual rights and duties as between the partners in the absence of any express contract between them. Answer: The mutual rights and duties of the partners and the mutual rights and duties between the partners shall be governed by the partnership agreement. In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties between the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule.
10

The duties, rights and liabilities of partners in the conduct and management of the affairs of the partnership are contained in its partnership deed. However, if on any point, the deed is silent, then the relevant rule of the Partnership Act, 1932, will apply. In the absence of a written partnership agreement, the mutual rights and duties of partners shall be governed by the Partnership Act which is as follows. General Duties of Partners Partnership Act describes the general duties of partners as under: Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render the true accounts and full information of alt things affecting the firm to any partner or his legal representative. All the duties of partners arise from the principle of good faith which is to be all and end all of a partnership. These duties as described n Section 9, 10, 12 and 13 of Partnership Act are described as follows: Duties of a Partner 1) Co Advantage: Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render the true accounts and full information of all the things affecting in the firm any partner or his legal representative. 2) Indemnity: Partner shall compensate the firm for any loss caused to it by his fraud in the conduct of the business of the firm. 3) Loss Caused by Willful Neglect: The Act provides that a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. 4) Due Diligence: Every partner shall attend honestly and carefully to his duties in the conduct of business. 5) Provision of Information: is the duty of the partners to give full information about the affairs of the firm to one another. Rights of a Partner According to Section 12 and 13 of the Partnership Act, the rights of a partner are as follows:1) Right to Take Part in the Management: A partner has a right to take part in the management of a business subject to the agreement.
11

2) Expression of Opinion: A partner has a right to express his opinion before the matter is decided, but no. change may be made in the nature of a business without the consent of all the partners. 3) Inspection of Books: A partner has a right to inspect and copy any of the books of the firm. 4) Right to Be Indemnified: A partner has the right to be compensated by the firm in respect of expenses incurred by him or any losses suffered by h in the conduct of his business. 5) Right to Continue: partner has the right to continue in the business unless he is expelled according to the provisions of Deed and in good faith. 6) Use of Property: The partner has the right to see and ensure that the property of the firm is held and used exclusively for the purpose of the business. 7) Sharing of Profit/Loss: Every partner shall have an equal share in profits/loss in a business, unless otherwise mentioned in partnership deed. 8) Interest on Capital: A partner is entitled to receive interest at the rate of 6% per annum on the excess money supplied over his capital. 9) Right to Retire: A partner has the right to retire according to the provisions of agreement or with the consent of the other partners. Liabilities of a Partner According to Section 13(c) of the Partnership Mt subject to contract between the partners, the obligations of a partner are as follows. 1) Joint Liability: Since every partner is the agent of the firm for the purpose of carrying on the business, he is, therefore, jointly and separately liable for all business debts of the firm. 2) Liability of a New Partner: A new partner cannot be held responsible for the loss or claim the share of profit before his date of admission. 3) Property of the Deceased: The property of the deceased cannot be held liable for any obligation incurred by the firm after his death. 4) Liability of Retiring Partner: retiring partner is liable for the debts of the firm incurred before the date of his retirement. 5) Competitive Business: A partner cannot engage h in any business in competition with the business of the firm. If he does so, he is liable to surrender the profits to the firm of which he is a partner. 6) No Private Use of Property: A partner cannot use the property of the firm or its goodwill for his private gains, if he does so he is liable to surrender the profits so earned to the firm

12

PART-B Q: 1). a). Explain the various forms of discharge by mutual agreement. Answer: A contract is said to be discharged, terminated or dissolved when the rights and obligations created by a contract comes to an end. In simple words, discharge of contract means termination of the relationship between the parties to a contract. A contract may be discharged or dissolved in many ways; one of it is discharge by mutual agreement. Discharge of a contract by mutual agreement or consent: Since a contract is created by entering into agreement, it can also be discharged by another agreement between the parties to the contract and such agreement may be express or implied. Eodem mode quo quid constituitur, eodem modo destruitur is the maxim in this regard. It simply means a thing may be destroyed in the same way or manner in which it is created or constituted. This may happen in one of the following ways so far as the discharge of a contract is concerned. 1) Discharge of contract by novation: when a promisee agrees to accept performance of a contract from a third party, an original or old contract is extinguished along with all rights and obligations of the old contract, it is technically known as novation. In other words, novation of contract means a substitution of a new contract in the place of old existing contract. Novation discharges the original contract. New contract can be entered into between the same parties or between different parties but the consideration of the old contract must be mutually discharged. One important thing must be noted is that novation should take place before the expiry of the time or the performance of the original contract. 2) Discharge of contract by rescission: Rescission simply means cancellation of the contract. It takes place when all or some of the terms and conditions of the contract are cancelled. Thus rescission of a contract may take place in one of the following ways: a) By the party whose consent is obtained by either fraud or coercion; b) By the aggrieved party. When any one party to the contract fails to perform his obligation, the other party may rescind the contract without prejudice to his right of claiming compensation of the breach of contract. c) By the mutual consent of the parties to the contract.
13

3) Discharge of contract by alternation: Alternation of a contract means change in one or more of the terms and conditions of the contract by mutual consent of the parties to the contract. Alteration and novation are not same. In alternation, there may be a change in one or more conditions of a contract but the parties to the contract remain the same. But in novation, there may be a change of parties also. 4) Discharge of contract by remission: Remission refers to the acceptance of a lesser performance or the fulfillment of the promise made than what was actually contracted for according to Section 63, "Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. 5) Discharge of contract by waiver: Waiver means the deliberate abandonment of a right by a party to a contract. Sometimes, the parties to a contract decide that they shall not be bound any longer by the contract. This is nothing but the mutual abandonment of rights by the parties to the contract. 6) Discharge of contract by merger: In merger, an inferior right accruing to one of the parties to a contract merges into a superior right accruing to the same party under the same or other contract. 7) Discharge of contract by owing to the occurrence of an event: If it is agreed that on happening of a particular event, all rights and liabilities should cease and if that event occurs, the contract is discharged. b). What are the remedies available to an aggrieved party for breach of contract. Answer: The remedies available to the aggrieved party for breach of contract are:Suit for rescission of the contract: Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract. 2) Suit for damages: the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party. 3) Suit for injunction: An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject matter of contract. The power to grant injunction is discretionary and it may be granted temporarily or for an indefinite period. 4) Suit upon 'Quantum Meruit': The term "quantum meruit" means, 'as much as is merited' or 'as much as earned'. A suit of quantum
1)
14

meruit is a claim for the value of the material used or supplied under a contract that has become void on account of breach by the other party. When a contract becomes void, any person who has received any advantages under such contract is bound to restore it, to the person from whom he received it. 5) Suit for specific performance: When the loss suffered by breach of contract cannot be compensated by damages or where there are no standards to ascertain the quantum of damages, the aggrieved party may approach the Court for the grant of a decree for specific performance of the contract. Specific performance is granted when: a) Money is an adequate remedy b) It will be inequitable to either party c) The contract is of a personal nature d) the court cannot supervise its execution Q: 2). What is meant by implied authority of a partner? Are third parties affected by restrictions placed on such implied authority? Answer: The authority of a partner means the capacity of a partner to bind the firm by his act. This act may be express or implied. The authority conferred on a partner by mutual agreement is called express authority. The authority conferred on a partner by the provision of Section 19 of the Indian Partnership Act is called Implied Authority. Section 19 (I) and Section 22, defined the scope of the implied authority of a partner. Accordingly, for an act to be covered within the implied authority it is necessary that it fulfills the following three conditions;1) The act must be related to the normal business of the firm. 2) The act must have been done in the usual way of carrying on the business of the firm. It may be noted that the question as to what is usual and what is unusual in a business depends on the nature of business and usage of trade e.g. taking loan is considered as usual activity in case of trading concern but unusual activity in case of professional concern of solicitors. 3) The act must be done in the firm name or in any other manner expressing or implying an intention to bind the firm. The word implied authority denotes the authority to bind the firm which arises by implication of law from the fact of partnership. With the presence of implied authority, a partner binds the firm with any of his act done in connection with the business.

15

The firm is bound by all acts of partner done within the scope of his implied authority. An implied authority of a partner can be inferred from the circumstances of the case. Generally speaking, such acts of a partner which are incidental to or usually done in the course of the proper conduct of the business come within the scope of his implied or apparent or ostensible authority. Restrictions on Authority of a Partner are governed by Contract and by the Partnership Act. The partners may by contract extend or restrict the implied authority of any partner. The restrictions on the implied authority of a partner may be discussed under the following two headers: Statutory restrictions and Restrictions imposed by mutual agreement. Statutory restrictions - Section 19 (2) in the absence of any usage or custom of trade to the contrary, the implied authority of does not empower him to do the following acts

Under the Partnership Act in the absence of any usage of trade to the contrary, the implied authority of a partner does not empower him to do the following acts: 1) To submit a dispute to arbitration relating to the business of a firm. 2) To open a bank account on behalf of the firm in partners own name. 3) To compromise or relinquish any claim or portion of the claim by the firm. 4) To withdraw a suit or proceeding filed on behalf of the firm. 5) To admit any liability in a suit or proceeding against the firm. 6) To acquire immovable property on behalf of the firm. 7) To transfer immovable property belonging to the firm. 8) To enter into partnership on behalf of the firm. The firm is not liable to third party for these restricted acts of a partner whether or not the person dealing with the firm knew about such restrictions. Restrictions imposed by mutual agreement (Section 20) the partners of a firm by mutual agreement may extend or restrict the scope of implied authority of any partner. But a third party is not bound by any such restriction unless it has the knowledge of such restrictions. In other words, the firm is liable to third party only if the third party has no knowledge of the restrictions.
16

All partners are liable to third parties for all acts of a partner which fall within the scope of his implied authority. Q: 3). Explain the rules nemo det quod non habet (you cant give what you dont have) in the context of transfer of property to buyer. Give a list of exception to this rule. Answer: Nemo dot quod non habet, which means that no one can give or pass a better title than he/she possesses. It actually means a legal context that no one can transfer a better title than the one they have. This principle applies in the following context; that is, title to property can be sold or otherwise transferred, but the title is no stronger than the original title (with certain exceptions). For example, if X buys a stolen car from Y, then X does not acquire a title that is stronger than the thiefs title. Since this is weaker than the original owners title, X has a weaker title than the original owner, and may be liable to him. According to Section 27, where there is a sale of goods by a person who is not the owner or where a person sells goods without the authority or consent of the true owner, the buyer of such goods does not acquire a good title. In such a case, the title of buyer is no better than that of the seller. Section 27, also lays down certain exceptions to the rule nemo dat quod non habet. The seller of goods can confer a better title to the buyer: 1) Where he sells the goods with the authority and consent of the true owner. Sales under this category include those made by agents acting within the scope of their authority and sales made in the course of business by persons holding a limited interest in the goods.

2) Where the true owner is prevented by his conduct from denying the sellers authority to sell. 3) The buyer of goods from a mercantile agent, who has no authority to sell, gets a good title to the goods if (a) the agent is in possession of the goods or documents of title to the goods with the consent of the owner. (b) the agent sells the goods while acting in the ordinary course of business of a mercantile agent (c) the buyer acts in good faith (d) the buyer has not at the time of sale notice that the agent has no authority to sell. 4) Sale by one of the joint owners If one of the several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell them.

17

5) Sale by person in possession under a voidable contract. Where the seller of goods has obtained possession thereof under a contract voidable under Section 19 or Section 19-A of the Indian Contract Act, 1872. 6) Sale by seller in possession after sale: Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same. 7) Sale by buyer in possession after having bought or agreed to buy goods. The applicability of this depends on the following conditions:

a) The person who is to pass title should have bought or agreed to buy the goods. b) He should have obtained possession of the goods or document of title to the goods with the approval of the seller. c) The goods or documents of title to the goods should have been delivered to a third person under a contract of sale, either by the buyer or his mercantile agent. d) The person receiving the goods or the documents should have taken it in good faith and without notice of the lien or the right of the original seller.
8) Sale by an unpaid seller. The validity of a re-sale depends upon:

a) The seller being an unpaid seller. b) The exercise of the right of lien or stoppage in transit by the unpaid seller. (i.e., the unpaid seller should have possession of the goods and the possession should be lawful). List of exception to this rule include: 1) Sale by a person not the owner or title by estoppel (Sec.27): When the owner by his conduct, or by an act or omission, leads the buyer to believe that the seller has the authority to sell and induces the buyer to buy the goods, he shall be estopped from denying the fact of want of authority of the seller. The buyer in such a case gets a better title than that of the seller. 2) Sale by a mercantile agent: A mercantile agent is one who, in the customary course of his business, has, as such agent, or to buy goods, or to raise money on the security of goods. The buyer of goods from a mercantile agent, who has no authority from the principal to sell, gets a good title to the goods. 3) Sale by one several joint owners: If one of the several joint owners, who is in sole possession of the goods by permission of the other co-owners,
18

sells the goods, a buyer in good faith of those goods gets a goods title to the goods. 4) Sale by a person in possession under a voidable contract: When the seller of the goods obtained their possession under a voidable contract, but the contract has not to been rescinded at the time of the sale, the buyer acquires a goods title to the goods, provided he buys them in good faith and without notice of the sellers defect of title. 5) Sale by seller in possession after sale: Where a seller, having sold goods, continues to be in possession of the goods or of the documents of title to the goods and sells them either himself or through a mercantile agent to a person who buys them in good faith and without notice of the previous sale, the buyer gets a goods title. 6) Sale by buyer possession after having bought or agreed to buy goods: Where a person, having bought or agreed to buy goods, obtain, with the consent of the seller, possession of the goods or documents of title to the goods and sells them either himself or through an agent, the buyer who acts in good faith and without notice of any lien or other right of the original sell in respect of the goods, gets a good title.

19

CASE STUDY Case: 1). M owes Rs. 14,000 to K. P, who is Ms friend but not his agent, pays on his own to K for M Rs. 11,000 and K accepts this in full settlement of Ms dues. Later K demands the balance of Rs. 3,000 from M. Can he succeed? Further, can P recover Rs. 11,000 from M? Answer: In this case it seems to me that K cannot demand the balance of Rs. 3000 from M, because his previous contract with M in which M owed Rs. 14000 to K is discharged by the new contract K made with P, and by accepting lesser amount for full settlement, these mutual discharge of contracts are called Novation and Remission respectively. Novation means substitution of new contract for the original one. When a promisee agrees to accept performance of a contract from a third party, an original or old contract is extinguished along with all rights and obligations of the old contract, it is technically known as novation. In other words, novation of contract means a substitution of a new contract in the place of old existing contract. Novation discharges the original contract. New contract can be entered into between the same parties or between different parties but the consideration of the old contract must be mutually discharged. Remission: (Section 63) Remission is the acceptance of a lesser sum than what was contracted for or a lesser fulfillment of the promise made. On the other hand, M is bound to make good to P for the amount of Rs. 11,000 P paid to K, due to Reimbursement of person paying money due by another in payment of which he is interested. A person who is interested in the payment of money which another is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other (Section 69). Case: 2). A and B were partners in an unregistered firm carrying on business of sugar manufacturing. C was advanced Rs. 1,000 by the firm in lieu of his promise to supply sugarcane. There was short supply of sugarcane and Rs. 700 were due from C to the partnership firm. The firm was afterwards dissolved and on the division of assets of partnership this debts of Rs. 700 was allotted to A. Can A sue C to recover the amount? Answer: In this case A cannot sue C to recover the amount of Rs. 700 because the firm to which C owed the amount was an unregistered firm. According to
20

the Indian Partnership Act, Unregistered firms are not allowed to enforce its legal remedies against outsiders. In the Partnership Act, unregistered firms suffer from the following disabilities: a) No suit in a civil court by the partner against the firm or other copartners. If any dispute arises among the partners or between the partner and the firm or between the partner and ex-partners and the dispute is based upon the rights arising from contract or upon the rights conferred by the Partnership Act, then a partner of an unregistered firm cannot institute a suit to settle such disputes. b) No suit in a civil court by firm against third parties. An unregistered firm cannot file a suit against a third party. If it so becomes necessary, to enforce any right arising from contract, e.g. for the recovery of the price of goods supplied. c) The firm or its partners cannot make a claim of set-off or other proceeding based upon a contract. The above two disabilities also apply to a claim of set-off or other proceeding to enforce a right arising from a contract. Thus, if a third party sues the firm to recover a sum of money, the firm cannot claim a set-off. i.e., the firm cannot say that the third party also owes some money to the firm and the same should be adjusted against the claim in question. Case: 3). M and P make a contract for the sale of two machines. The price for each is to be determined by K. M delivers one machine to P and P accepts it. Later, K refuses to fix the price. Then, P offers to pay a reasonable price for both the machines and M wants to take back the delivered machine. Decide. Answer: In this case, M has the right to take back the delivered machine because there was a condition in the contract of sale which was the determination of the price by P, and that condition is unfulfilled. So in the Sales of goods act section (25) M has RESERVATION OF RIGHT OF DISPOSAL Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may by the terms of the contract or appropriation, reserve the rights of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. [Section 25(1)].
21

PART-C (MULTIPLE CHOICE QUESTIONS: Q: 1). a) b) c) d) Q: 2). a) b) c) d) Which of the following statement is false? An agreement is enforceable by law is a contract An agreement is an accepted proposal A contract may have only one promise There cannot be a contract between two brothers (). Discharge of contract by rescission means: Acceptance of lesser performance Cancellation of the existing contract (). Change in one or more terms of contract Abandonment of rights by a party

Q: 3). A party may be entitled to claim remuneration for actual work done by him. It is called a suit for: a) b) c) d) Damages Injunction Quantum meruit (). None of these

Q: 4). X sent a letter of offer on 10th August. It reaches Y on 14th August. Y posts his letter of acceptance on 17 th August, which reaches X on 22nd August. The communication of offer is complete on: a) b) c) d) Q: 5). a) b) c) d) 10th August 14th August (). 17th August 22nd August Which of the following persons are competent to contract? Minors Persons of unsound mind Persons disqualified by law Judges ().

Q: 6). D threatens to commit suicide if his father F did not make him general manager in his factory. F agrees. Here Fs consent is obtained by: a) b) c) d) Undue influence Mistake Coercion (). Mis representation
22

Q: 7). A promise to pay a time-barred debt in enforceable if some conditions is fulfilled. Which of the following conditions is not required? a) b) c) d) It must be signed by the promisor It must be definite and express It must be in writing It must be registered in court of law ().

Q: 8). Where an agreement consists of two parts one legal and the other illegal, and the legal part is separable from the illegal one, such legal part is: a) b) c) d) Q: 9). a) b) c) d) Valid (). void voidable illegal An insurance contract is: Wager Valid (). Void Voidable In case of a pledge, the pawnee

Q: 10).

a) Can retain the goods, until the debt is paid b) Can retain the goods for payment of interest due on debt c) Cannot retain the goods for necessary expenses incurred in respect of goods pledged d) Both (a) & (b) above (). Q: 11). a) b) c) d) Quasi contracts are:

Valid (). Voidable Illegal Void The party who gives promise of indemnity is known as:

Q: 12). a) b) c) d)

Indemnity-holder Indemnifier (). Surety Principal debtor The liability of a surety:

Q: 13).

a) May be more than that of debtor

b) May be less than that of debtor (). c) Is always same as that of principal debtor d) Is dependent on court Q: 14). a) b) c) d) The bailment of goods can be made by the owner of:

Movable goods only (). Immovable goods only Both of these None of these

Q: 15). A mercantile agent to whom the possession of goods is given for the purpose of selling the same, is known as: a) b) c) d) Broker Factor (). Commission agent Insurance agent

Q: 16). A person appointed by an agent as his own agent to set in the business of agencies known as: a) b) c) d) Second agent Sub-agent (). Substituted agent Del credere agent

Q: 17). A contract dependent on the happening of a collateral event is called: a) b) c) d) Void contract Voidable contract Contingent contract (). Uncertain contract Match the following c) does not arise from the operation of law d) test of partnership b) not necessary a) Evidence of Partnership

Q: 18).

i) Partnership business carried on by all ii) Sharing of profits iii) Registration of firm iv) Contract of Partnership

Q: 19). An unregistered firm wants to enforce against a third party a right arising from a contract it: a) Can sue the third party b) Cant sue the third party ().
24

c) Can sue the third party subject to certain conditions Q: 20). firm a) b) c) d) The non-registration of a firm does not affect the right of the

To file a suit for the recovery of more than Rs. 100 To file a suit for the recovery of less than Rs. 100 (). To file a suit against a partner for recovery of money due by him To claim a set off exceeding Rs. 100

Q: 21). The position of a minor partner is dealt with in the Partnership act in a) b) c) d) sec 25 sec. 29 sec. 30 (). sec. 35 An unregistered firm cannot claim

Q: 22). a) b) c) d)

Set on Set off in excess of Rs. 100 (). Set on & set off None of the above Partnership by holding out is also known as

Q: 23). a) b) c) d)

Sub partnership Partnership at will Partnership by estoppels (). None of the above Extension or restriction of implied authority can be made by

Q: 24). a) b) c) d)

All the partners unanimously (). Any one partner Majority of the partners At least 90% of total partners strength If a partner carries on a competing business, he will be liable

Q: 25). to a) b) c) d)

Serve imprisonment Damages for default Account for the profit (). Pay fine

Q: 26). The expression property of the firm is not commonly referred to as:
25

a) b) c) d)

Joint stock Common inventory (). Joint estate Partnership assets

Q: 27). A Partnership firm reconstitutes in one of the following situations: a) b) c) d) where an admission of a new partner is made where a partner retires where a partner dies All of the above (). A Partnership firm has to get registered with

Q: 28). a) b) c) d)

Registrar of companies Registrar of partners Registrar of firms (). District court

Q: 29). A ________________ does not take active part in the conduct of a business i) Minor partner ii) Sub partner iii) Partners by estoppel a) b) c) d) (i) only (ii) & (iii) only (i) & (iii) only All of the above ().

Q: 30). ______________ refers to the value of the reputation of a business house in respect of profits expected in future a) b) c) d) Patent Copyright Trademark Goodwill ().

Q: 31). Which of the following is not the right of a partner i.e which he cannot claim as a matter of right a) b) c) d) Right to take part in business Right to have access to account books Right to share profits Right to receive remuneration (). A partner of a trading firm has implied authority to
26

Q: 32).

a) Submit a dispute relating to the business of the firm to arbitration b) Open a banking account on behalf of the firm in his own name c) Employ a solicitor to defend an action against the firm (). d) Withdraw a suit or proceeding filed on behalf of the firm Q: 33). Which of the following is correct

a) The liability of partners of a firm is unlimited b) Generally the liability of a member of a company is limited but it can be unlimited c) All of the above (). d) The liability of partner of firm is same as a member of a co. Q: 34). a) b) c) d) Which of the following is a contract of sale of goods?

Hire-purchase contract Barter Delivery of photographs by a photographer (). Delivery of photocopied material by a photocopy shop The term goods under Sale of goods Act does not include

Q: 35). a) b) c) d)

Goodwill Actionable claims (). Stocks and shares Harvested crops

Q: 36). A contracted to sell to B a machine of carrying brand name Elite. But he sold a machine of another brand name which was equally good. A is guilty of violation of: a) b) c) d) Express condition Express warranty Implied condition (). Implied warranty

Q: 37). _____________ means voluntary transfer of possession of goods by one person to another a) b) c) d) Sale Auction Delivery (). Mortgage Passing of property implies passing of

Q: 38).

a) Ownership (). b) Possession

c) Ownership & possession d) Benefit & possession Q: 39). In case the buyer rejects the whole quantity of goods due to short delivery or excess delivery, the contract is treated as: a) b) c) d) Continuing (). Broken by buyer Void Broken by seller

Q: 40). When by exercising the right stoppage-in-transit the unpaid seller regains the possession of goods then a) b) c) d) Contract of sale becomes voidable Buyers lien revives (). Buyers lien does not revive Sellers possession is unlawful

28