Commercial law gp solved part 2

IQRA COMMERCE NETWORK
B-COM PART 2
BUSINESS AND INDUSTRIAL LAW: GUESS PAPERS (SOLVED)
Commercial Law
OTHER TOPICS
10) Give essentials of agreement to sale. How price
determined under Sales of goods.
Ascertainment of Price
The Sale of Goods Act, 1930 has two sections, that discuss the ascertainment of a price.
Ascertainment of price means to specify without ambiguity the price of a commodity. The Act has
two sections that discuss this – sec 9 and sec 10. Let us see each of these separately and try to
understand what provisions exist herein.
The sec 9 of the Act states the following:
 The price in a contract of sale may be fixed by the contract, or it may be left to be fixed in
manner thereby agreed or it can be determined by the course of dealing between the parties to
the contract
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 Where the price is not determined in accordance with the said provisions, the buyer shall pay
the seller a reasonable price. Reasonable price will depend on the individual case or
circumstance.
If you look at the first part, the term price has to be defined. The Section 2 (10) of the Act defines
price as the monetary consideration or value decided for a sale of goods. Thus we see that for a price
to come into existence, a sale has to come into existence.
Price of a Contract
Also, from the Section 9 (1), we can see that the price in the contract of sale may be determined or
stated by:
i. the contract, i.e. the price is explicitly mentioned or decided within the contract of sale itself
or
ii. the contract has some clause(s) that has the or defines the authority that will eventually
ascertain the price. For example, the contract asks for a valuer to be commissioned for the
purpose of the ascertainment of price.
iii. the price may also be determined by the course of dealings. For example, if the two parties
have a long history of dealing with each other, then the price if not specified clearly can be
ascertained from the previous history of dealings and prices. Clearly, this portion of the
section is only applicable if the parties have a tradition or history of similar deals.
11) Distinguish between sale and agreement to sale.
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12) Give the rights of an unpaid seller.
In a contract, there is always a reciprocal promise. Even in a contract of sale, both the buyer and the
seller must perform their duties. And if the buyer does not pay the seller his due, the seller becomes
an unpaid seller. This means such unpaid seller has some rights against the buyer. Let us see.
Rights of Unpaid Seller Against Buyer
When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller.
And now the seller has certain rights against the buyer. Such rights are the seller remedies against
the breach of contract by the buyer. Such rights of the unpaid seller are additional to the rights
against the goods he sold.
1] Suit for Price
Under the contract of sale if the property of the goods is already passed but he refuses to pay for the
goods the seller becomes an unpaid seller. In such a case. the seller can sue the buyer for wrongfully
refusing to pay him his due.
But say the sales contract says that the price will be paid at a later date irrespective of the delivery of
goods,. And on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of
these goods. The actual delivery of the goods is not of importance according to the law.
2] Suit for Damages for Non-Acceptance
If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the
buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the
goods without any just cause, the seller may face certain damages.
The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which
deals with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100
liters of milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason.
A is not able to find another buyer and the milk goes bad. In such a case, A can sue B for damages.
3] Repudiation of Contract before Due Date
If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for
damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach
of contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of
Contract
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4] Suit for Interest
If there is a specific agreement between the parties the seller can sue for the interest amount due to
him from the buyer. This is when both parties have specifically agreed on the interest rate to be paid
to seller from the date on which the payment becomes due.
But if the parties do not have such specific terms, still the court may award the seller with the
interest amount due to him at a rate which it sees fit.
13) What is bill of lading and describe its kinds?
A bill of lading is a shipping document that outlines the voyage of a shipment. An express bill of lading is
a type of bill of lading that doesn't require the cargo to be "released." An original bill of lading is a
shipping document that serves as the title of the cargo and a shipment receipt.
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14) Distinguish between bill of lading and charter party,
Indemnity and Guarantee, Bailment and Pledge.
BILL OF LADING CHARTER PARTY
Bill of lading is an evidence of receiving the goods. Charter party is a contract between the ship owner and
shipper about hiring the ship.
A bill of lading can be transferred by endorsement and
delivery.
Charter party is not transferable.
A bill of lading is a document which declares the title to the
goods specified.
Charter party is not a document which declares the title of
the goods.
A bill of lading is drawn in these sets. A charter party is not drawn in sets.
Such type of intention is not conveyed in the bill of lading. A charter party may be for amount to a lease of the ship
A bill of lading is related with the particular destination. A charter party may be for the particular voyage.
he freight is to be paid in advance, in case of bill of lading. In case of charter party the freight is usually paid when the
ship reaches to the port.
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15) Private and common carrier, Auction Sale and implied
warranties.
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Implied Warranties
In case the buyer is content is content with his right to damages or can‟t reject the goods,
a condition (implied or express) may reach to the level of a warranty. Implied Warranties are
disclosed in Section 14 and 16 of the Sale of Goods Act, 1930 and are the warranties which the law
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implies into the contract. In case the parties don‟t want any of the implied warranties to be included,
they will have to expressly mention that in the contract. Implied Warranties are as follows.
Warranty As To Undisturbed Possession
Well once you buy the goods, they shouldn‟t be taken away from you. This warranty means that the
buyer should have and enjoy quiet possession of the goods after having gotten the possession of the
goods. If he is disturbed in his possession, he is entitled to sue the seller for the breach of the
warranty.
For example, A buys a laptop from B. After the purchase, A spends some money on its repair and
uses it for some time. Unknown to the parties, it turns out that the laptop was stolen and was taken
from A and delivered to its rightful owner. B shall be held responsible for a breach and A is entitled
to damages of not only the price but also the cost of repairs.
Warranty As To Non-Existence Of Encumbrances
This is an implied warranty which maintains that the goods are free from any encumbrance or
charge from any third party who has not been introduced or known to the buyer at or before the time
of the contract of sale is entered into.
For example, a person A pledges his computer to another person B against a loan of Rs. 30,000. “A”
also promises B that A will produce the laptop and give it to B the next day. Later that day, A goes
on to sell the laptop to C who is unaware of the course of dealings between A and B. In this case, C
can ask A to clear the loan immediately or clear the loan by himself or herself and then proceed to
file a suit against A for the recovery of the money spent including the interest.
Disclosure Of Dangerous Nature Of Goods
In case the goods are inherently dangerous or they are likely to be dangerous to the buyer and the
buyer is ignorant or unaware of the danger, an implied warranty on the part of the seller emerges.
The seller must warn the buyer duly about the dangerous nature of the goods if any. In case of a
breach of this warranty, the seller will be liable in damages.
For example, a person X purchases a bottle of disinfectant from a person Y. Y knows that the cap of
the bottle is defective or cheap and if opened by a novice without care, it may spill and result in
partial burning or other damages of the person. When X opens the bottle, he is injured. In this case,
X is liable in damages to Y as Y should have been duly warned of the probable danger.
Warranty as To Qualify Or Fitness By Usage Of Trade
An implied warranty as to the quality or the fitness for a particular purpose may be annexed by the
usage of the trade. For example, consider the following example:
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A drug was sold through an auction and according to the usage of trade. It was to disclose in
advance any sea-damage, otherwise, it will be taken as a breach of warranty if no such disclosure
has been made and the goods found to be defective.
This concludes the topic of the Implied Warranties. We can say that any warranty that is not
expressed becomes an implied warranty. Let us now understand the Express Warranties.
16) Price and different kinds of goods.
Price: The consideration (usually In money) given for the purchase of a thing.
Goods may be classified into
1. Existing goods;
2. Future goods; and
3. Contingent goods
1. Existing goods: At the time of sales if the goods are physically in existence and are in
possession of the seller the goods are called „Existing Goods‟. Existing goods can be classified
into „specific or unascertained.‟
(a) Specific goods. Goods identified and agreed upon at the time of the making of the contract of
sale are called „specific goods‟ [Sec. 2(14)]. It may be noted that in actual practice the term
„ascertained goods‟ is used in the same sense as „specific goods,‟ For example, where A agrees
to sell to B a particular radio bearing a distinctive number, there is a contract of sale of specific
or ascertained goods.
(b)Unascertained goods. The goods, which are not separately identified or ascertained at the time of the
making of the contract, are known as „unascertained goods.‟ They are indicated or defined only by
description. For example, if A agrees to sell to B one bag of sugar out of the lot of one hundred
bags lying in his godown; it is a sale of unascertained goods because it is not known which bag isto
be delivered. As soon as a particular bag is separated from the lot for delivery, it becomes ascertained
or specific goods.
The distinction between „specific‟ or „ascertained‟ and „unascertained‟ goods is important in
connection with the rules regarding „transfer of property‟ from the seller to the buyer.
2. Future goods: Future goods are goods to be manufactured or produced or yet to be acquired by
seller. There cannot be present sale in respect future goods because the property cannot pass.
Example
(a) A agrees to sell to B all the milk that his cow may yield during the coming year. This is a contract for
the sale of future goods.
(b)X agrees to sell to Y all the mangoes, which will be produced in his garden next year. It is contract of
sale of future goods, amounting to „an agreement to sell.‟
3. Contingent Goods: Though a type of future goods, these are the goods the acquisition of which
by the seller depends upon a contingency, which may or may not happen [Sec. 6 (2)].
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Example
A agrees to sell specific goods in a particular ship to B to be delivered on the arrival of the ship.
If the ship arrives but with no such goods on board, the seller is not liable, for the contract is to
deliver the goods should they arrive.
17) What are negotiable instruments? Differentiate between
holder and holder in due course, bill of exchange and
promissory notes. Kinds of Endorsement.
Negotiable Instrument. A Commercial Paper, such as a check or promissory note, that contains
the signature of the maker or drawer; an unconditional promise or order to pay a certain sum in
cash that is payable either upon demand or at a specifically designated time to the order of a
designated person or to its bearer.
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18) What are various kinds of partners, also describe rights
and liabilities of partners and dissolution of partnership.
Minor as a partner. Formation of Partnership.
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19) What are rights and duties of surety, bailor and bailee,
Agent and Principal, Mortgagor.
Rights of Surety
Rights of Surety can be classified into three groups, as follows;
1. Rights against Principal debtor.
2. Rights against Creditor.
3. Rights against Co-Sureties.
Rights against Principal Debtor
 Right to give Notice: When ever creditor comes to surety, for the purpose of seeking
payment, surety can give a notice to principal debtor to settle the debt.
 Rights of Sub-rogation: Sub rogation is a process where rights will get shifted from one
person to the other. If surety makes payment to creditor, surety gets all rights of creditor by sub-
rogation and from then onwards surety can behave like a creditor.
 Right of Indemnity: Principal of indemnity operates between principal debtor and surety
where principal debtor becomes implied indemnifier and surety becomes implied indemnity holder.
Therefore, surety can make principal debtor answerable for all sufferings.
 Right to get Securities: In case where surety makes payment to creditor, surety has right to
get the securities given by principal debtor to creditor.
 Right to ask for Relief: From the date of guarantee, besides creditor, surety also can bring
pressure on principal debtor in connection with settlement of debt.
Rights against Creditor
 Right to get Securities: If Surety makes payment to creditor, surety can get all securities into
his possession from creditor.
 Right to ask for Set-off: Surety can give advice to creditor to sell away the security and to
utilize the amount thus realized for set off.
 Rights of Sub-rogation: When ever surety makes payment to creditor, creditor foregoes or
looses all of his rights in his capacity as creditor and those rights will be attained by surety.
 Right to advice to Sue Principal Debtor: Surety has right to give advice to creditor to
proceed legally against principal debtor for the purpose of recovering the amount.
 Right to insist on Termination of Services: In case where guarantee is with regard to
conduct of an employee, surety can insist on termination of services of employee. Here employees
status is equal to that of creditor and employee‟s status is equal to that of principal debtor.
Rights against Co-Sureties
 Right to ask for Contribution: Surety can ask his co-sureties to contribute the amount when
principal debtor comes across default. If they have given guarantee for equal amounts, they have to
contribute equally. In case where guarantee is given for in equal amounts, the mode of contribution
differs from England law to Indian law. As per England law contribution is to be made in the ratio of
guarantee amounts. But as per Indian law the deficit amount is to be distributed to all sureties equally
and every surety will contribute share of deficit or guarantee amount which ever is less.
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 Right to claim Share in Securities: When co-Sureties make payment to creditor, they get
securities from creditors procession. Then every surety can claim his share in those securities.
Sureties Secondary Liability
Situations where sureties secondary liability comes to an End
In a contract guarantee surety comes across secondary liability. The following are situations where
sureties secondary liability comes to an end.
 Discharge by revocation of guarantee.
 Discharge by activities of creditor.
 Discharge by invalidation of guarantee contract.
Discharge by revocation of guarantee: The following are Situations where revocation of guarantee
takes place by terminating secondary liability of Surety.
1. By Notice
2. By Death
3. By Renewal.
 By Notice: Surety can revoke his guarantee by giving a notice to creditor. Guarantees are of
two types. Namely; Specific guarantee and Continuing guarantee. If guarantee is given to a particular
debt, it is called specific guarantee. Specific guarantee cannot be revoked by notice on the other hand
if guarantee extends to a group of debts, it is called continuing guarantee. Continuing guarantee can
be revoked by giving notice. But here surety will be held liable to debts borrowed by principal debtor
before such notice.
 By Death: Whenever surety comes across death, then his secondary liability comes to an end.
But sureties legal representative will be held liable. In case where surety has given specific guarantee
legal representative has to take up the secondary liability absolutely. In case where surety has given
continuing guarantee, legal representative is liable to the debts granted by creditor to principal debtor
till data of filing death notice by legal representative.
 By Renewal: Whenever renewal of guarantee contract takes place, old guarantee comes to an
end. For example: There is a contract of guarantee among X, Y and Z who are creditor, principal
debtor and surety respectively. There after Y has arranged Mr. A as surety in place of Z. As a
consequence Z`s guarantee gets revoked and Z`s secondary liability goes off.
Discharge by activities of creditor: Whenever creditor renders any of the following activities,
surety gets discharges from his secondary liability.
1. Alterations.
2. Realizing principal debtor.
3. Improper dealings with principal debtor.
4. Loosing securities.
 Alterations: In case where creditor makes material alterations in guarantee contract deed,
without consent of surety discharge of Surety takes place. A case on this point is Witcher Vs Hall. In
this case, creditor fraudulently alters the deed and surety gets decree from the court saying that he has
no secondary liability.
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 Releasing principal debtor: If creditor releases principal debtor from principal liability
automatically sureties secondary liability also comes to an end. A case on this point is Hewson Vs
Ricketts. In this case the creditor releases principal debtor and after coming to know about it, surety
gets decree from court that he (surety) is also discharged.
 Improper dealings with principal debtor: If creditor collides with principal debtor and tries
to defraud Surety, then also discharge of surety takes place. A case on this point is Midlon motor
show rooms Vs Newman. In this case creditor joins hands with principal debtor and thus makes
effort to cheat surety. Here court decides that surety has no secondary liability.
 Loosing securities: At times the principal debts may give additional securities also in support
of the death besides personnel validity. Whenever creditor looses such securities, both primary and
secondary liabilities will go out of existence.
Discharge by invalidation of guarantee contract: When guarantee contract becomes invalid and
surety will have no secondary liability. The following are situations where guarantee Contract
becomes invalid.
1. Mis-Representation
2. Concealment
3. No flow of consideration
4. Absence of other essentials of valid contract.
5. Co-surety not joining.
 Mis-Representation: When surety is made involved in guarantee contract by means of fake
representation, guarantee contract becomes invalid and Surety gets discharged.
 Concealment: When Surety is made involved in guarantee contract by concealing material
facts, then also discharge of surety takes place.
 No flow of consideration: When creditor does not grant the loan as per the terms, there is no
question of primary as well as secondary liabilities.
 Absence of other essentials: Besides consideration, the contract should have certain other
features also, to attain validity. When guarantee contract is deficient in any one of those features,
guarantee contract becomes invalid.
 Co-surety not joining: At times the surety may insist on presence of another surety. Then
the guarantee contract becomes contingent contract. In case where such condition is not full filed i.e.
co-surety does not join, it becomes invalid.
Rights and Duties of Bailer
Rights of Bailer
1. If bailee does not take care and destruction of goods takes place, bailer can claim
compensation.
2. If bailee uses the goods for un-authorized purposes, bailer has the right to claim
compensation.
3. Bailer has the right to claim return of goods.
4. Bailer has right to claim not only delivered goods but also accruals on goods if any.
5. In case where bailee has mixed the goods and they are of sufferable nature, bailer can
claim cost of separation from bailee.
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6. In case where the goods are of insufferable nature, bailer has right to claim
compensation.
7. Bailer has right to repudiate the Contract of bailment whenever he wants but, by
doing so, if bailee comes across any suffering, bailer has to compensate.
Duties of Bailer
1. Duty to dispose faults: Bailer should disclose faults present in goods at the time of
making delivery. Faults are of two types namely ; Known faults and Un-known faults. On the
other hand bailments also are of two types namely Gratuitous bailment and Non-Gratuitous
bailment. In case of gratuitous bailment, bailer is liable to compensate for bailee injuries
arising out of known faults. In Gratuitous bailment, bailer is not answerable to un-known
faults. In case of Non-Gratuitous bailment, bailer is answerable to both known faults and Un-
known faults.
2. Duty to contribute for expenses: Bailer should Contribute for expenses incurred by
bailee. In case of Gratuitous bailment, bailer need not contribute for ordinary expenses and
extra ordinary expenses or to the contributed by bailer. In case of Non-Gratuitous bailment,
bailer should contribute for both ordinary expenses and extra ordinary expenses.
3. Duty with regard to defective title: In case where bailer has delivered the goods with
defective title, the bailee may come across suffering from the side of true owner due to
bailers defective title. In such a case bailer with defective title should compensate bailee.
4. Duty to Indemnify: Principal of indemnity operates between bailer and bailee, where
bailer becomes implied indemnifier and bailee becomes implied indemnity holder. So bailer
has duty to indemnify bailee.
5. Duty to take the Goods back: After fulfillment of purpose bailee returns the goods to
bailer. Then bailer should take them back. If bailer refuses to take the goods back, bailer has
to compensate bailee.
Rights and Duties of Bailee
Rights of Bailee
1. Bailee has right to claim compensation for injuries arising out of faults present in
goods, If it is gratuitous bailment, bailee can make bailer answerable with regard to known
faults only. But not to un-known faults. In case of Non-gratuitous bailment bailee can make
bailer answerable to known as well as un-known faults.
2. Bailee has right to claim contribution for expenses. If it is Gratuitous bailment, bailee
can claim only extraordinary expenses. But in case of Non-Gratuitous bailment, bailee can
claim both ordinary and ordinary expenses.
3. In case where bailer has given goods with defective title and bailee, therefore, comes
across suffering, then such bailee has right to get compensated by defective titled bailer.
4. Bailee has right of indemnity, for making involvement in bailment Contract, bailer
can make bailee answerable.
5. Bailee has right of lien. It is only particular lien. That means he can exercise right of
lien against those goods only on which amount is due.
6. Bailee can return the goods to any one of the joint owners.
7. In times of need Bailee has right to approach Court of law.
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Duties of Bailee
1. Bailee should take reasonable care on goods.
2. Bailee should not use the goods for an unauthorized purpose.
3. Bailee should not setup adverse title.
4. Bailee should return the goods after fulfillment of purpose.
5. Bailee should return not only delivered goods, but also additions.
6. Bailee should not mix up the goods with his own goods or others goods. If bailee has
mixed the goods and the goods are of sufferable nature, bailee has to face the cost of
separation. If the goods are of insufferable nature, bailee has to compensate bailer
Rights and Duties of Agents
Rights of Agents.
1. Right of Retainer: Agent has right to deduct the amount which is due to him by
principal, from amount payable to principal.
2. Right of stoppage in transit: In case where agent is personally liable, he has right to
stop the goods in transit. The good may be moving towards customer or principal.
3. Right to claim Remuneration: As per the terms of agency contract, agent has rights
to claim remuneration.
4. Right of Indemnity: Principle of indemnity gets operated between principal and
agent where principal is implied indemnifier and agent is implied indemnity holder. So agent
can make principal answerable for all types of sufferings.
5. Right of lien: Agent can exercise right of lien but contract act has not specified
whether it is general lien or particular lien. Therefore the nature of agent‟s lien depends upon
mutual understanding.
Duties of Agents
1. Agent should follow the instructions given by the principal.
2. If agent comes across any complicated situation, he has to communicate that situation
to principal and his advice is to be obtained.
3. Agent should behave in his capacity as agent, he should not run the transaction in his
own name.
4. Agent should not make secret profits by utilizing reputation of the principal.
5. Agent should safe guard property of principal particularly upon happening of events
like death of principal, insolvency of principal, etc.
6. Agent should maintain proper accounting records to enrol the transactions run by
him. Agent has to remit amounts to principal properly.
7. Agent has to remit amounts to principal properly.
8. Agent should not carry on delegation.
Liabilities of Agents.
Actually agents binds over principal to his activities but there are some situations where agent comes
across personal liability. Those situations are as follows;
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1. Terms of contract of agency may create personal liability to agent.
2. The tradition which is in operation in that particular type of business. May also create
personal liability to agent.
3. If agent does not behave in his capacity as agent and thus runs the transaction in his
own way, personal liability arises.
4. When agent acts for foreign principal, agent is personally liable.
5. Pretending agent is personally liable.
6. When agent acts for principal who has not come into existence, agent is personally
liable.
7. In case where principal cannot be sued, Customer sues agent and thus agent is
personally liable.
8. When agency is coupled with interest then also agent is personally liable.
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20) Kinds of Mortgage. Distinguish between Charge and
Mortgage.
MORTGAGE :-
It means the transfer of interest of specific immoveable property for securing the payment of loan is
called mortgage. It is a legal assurance. Which is given to the lender. After the repayment of debt the
property will return to the borrower.
TYPES or KINDS OF MORTGAGE :-
Following are the important kinds of mortgage :
1. Simple Mortgage :-
In this case the borrower keeps the possession of the property in his hand. He is personally responsible for
the payment of debt. If he fails to repay the debt then lender has the right to obtain the decree for the sale
of property. It is called simple mortgage.
2.Usufructuary Mortgage :-
In this mortgage the borrower (mortgagor) actually delivers the possession of the property to the lender
(mortgagee). He can use it or rent out but after repayment of loan, the possession is transferred back to the
mortgagor.
3. English Mortgage :-
In this case, ownership and possession both are transferred to the mortgagee on the condition that loan
will be repaid on a certain fixed date. After the repayment of loan it is returned.
4. Equitable Mortgage :-
The mortgagor (borrower) deposits the title deed of property as a security to the lender. From the banker
point of view it is not popular.
5. Anomalous Mortgage :-
In this mortgage rights and liabilities of both the parties are strictly determined according the contract of
mortgage deed.
6. Mortgage By Conditional Sale :-
The borrowed sells the property on this condition that if he fails to repay the loan then lender (mortgagee)
will obtain the absolute proprietorship of the property. On other side if he returns the loan then property
will be restored.
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Commercial law gp solved part 2

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