BCOC-133 Solved Assignment 2025
Section – A
1) Who are treated as persons of unsound mind? State the legal positions of contracts with such persons.
2) "Insufficiency of consideration is immaterial, but a valid contract must be supported by lawful and real consideration." Comment.
3) Explain the law related to ambiguous and inchnate instruments.
4) What are the rules regarding settlement of accounts of a firm after dissolution? Explain fully.
5) Discuss the essentials of a contract of bailment and state the rights and duties of a bailee.
Section – B
6) "An agreement in restraint of trade is void". Examine this statement mentioning exceptions, if any.
7) Define and distinguish between 'condition' and 'warranty'.
8) Define an unpaid seller. What are his rights?
9) Discuss the common features among promissory note, bill of exchange and cheque.
10) Define 'agent' and 'principal'. Can a minor be an agent? Discuss.
Section – C
11) "In commercial and business agreements, the presumption is that the parties intend to create legal relations." Comment.
12) "Mere silence as to facts is not fraud". Explain with examples.
13) Write a note on pledge by mercantile agent.
14) Differentiate between a bill and a cheque.
Answer:
Section – A
Question:-01
Who are treated as persons of unsound mind? State the legal positions of contracts with such persons.
Answer:
1. Legal Definition of Persons of Unsound Mind
In legal systems worldwide, persons of unsound mind are individuals who lack the mental capacity to make rational decisions or understand the consequences of their actions. This classification typically includes those with severe mental illnesses, intellectual disabilities, or cognitive impairments that render them incapable of managing their affairs. The determination of unsoundness of mind is not based solely on medical diagnosis but also on legal assessments of cognitive functionality. Courts often rely on psychiatric evaluations and behavioral evidence to establish whether an individual meets the criteria for legal incompetence.
The concept of unsound mind is not static; it varies across jurisdictions and may be temporary or permanent. For instance, a person experiencing a psychotic episode may be temporarily deemed of unsound mind, while someone with advanced dementia may be permanently classified as such. The legal system aims to balance protection for vulnerable individuals with respect for their autonomy, ensuring that those who cannot safeguard their own interests receive appropriate oversight.
2. Legal Position of Contracts with Persons of Unsound Mind
Contracts involving persons of unsound mind are treated with caution in legal frameworks due to the inherent vulnerability of such individuals. The general principle is that contracts entered into by persons of unsound mind are voidable, meaning they can be affirmed or rejected by the individual or their legal guardian once mental capacity is restored or assessed. However, the specifics depend on the circumstances surrounding the contract and the jurisdiction’s laws.
Voidable Contracts
In most legal systems, a contract made by a person of unsound mind is not automatically void but voidable at their discretion or that of their legal representative. This allows for flexibility, as the contract may be ratified if the person regains capacity and chooses to honor it. For the contract to be voided, the person (or their guardian) must prove that they lacked the mental capacity to understand the contract’s nature and consequences at the time of agreement.
Exceptions for Necessaries
Even when a person is of unsound mind, contracts for "necessaries" (goods or services essential for survival, such as food, shelter, or medical care) are often enforceable. The rationale is that denying such contracts would harm the individual’s well-being. However, the price charged must be reasonable, and the provider must demonstrate that the goods or services were indeed necessary.
Burden of Proof
The burden of proving unsoundness of mind typically falls on the party seeking to invalidate the contract. They must provide evidence, such as medical records or witness testimony, to show that the individual lacked capacity at the time of contracting. Conversely, the other party may argue that the contract was fair and entered into during a lucid interval.
Restitution and Fairness
Courts may order restitution if a contract is voided, requiring the return of benefits received by the person of unsound mind. However, if the other party acted in good faith and without exploitation, the court might allow them to retain some compensation for goods or services provided.
3. Safeguards and Legal Protections
Legal systems incorporate safeguards to protect persons of unsound mind from exploitation. Guardianship or conservatorship arrangements are common, where a court-appointed representative manages the individual’s affairs. Additionally, some jurisdictions require contracts involving significant assets or long-term commitments to be reviewed by a legal authority if one party is of unsound mind.
Capacity Assessments
Regular capacity assessments may be mandated for individuals with fluctuating mental states to ensure they are not unfairly deprived of their rights. These assessments help determine whether the person can participate in contractual agreements or require continued oversight.
Good Faith and Exploitation
Courts scrutinize contracts for signs of undue influence or unfair advantage. If a party knowingly exploited the person’s mental state, the contract may be declared void, and punitive measures could apply. This underscores the legal system’s commitment to fairness and justice.
Conclusion
The treatment of persons of unsound mind in contract law reflects a delicate balance between protection and autonomy. While their contracts are generally voidable to prevent exploitation, exceptions exist for necessaries, and safeguards ensure fairness. Legal frameworks prioritize evidence-based assessments of mental capacity and aim to rectify injustices while respecting the dignity of vulnerable individuals. This approach ensures that those of unsound mind are neither unfairly bound by agreements nor deprived of essential services, upholding both their rights and societal equity.
Question:-02
"Insufficiency of consideration is immaterial, but a valid contract must be supported by lawful and real consideration." Comment.
Answer:
1. The Fundamental Principle of Consideration in Contract Law
Consideration stands as one of the essential pillars of contract formation, serving as the legal value exchanged between parties to bind an agreement. At its core, consideration represents the price one party pays for the promise of another, creating mutual obligations that the law recognizes and enforces. The principle that "insufficiency of consideration is immaterial" reflects the judiciary's reluctance to evaluate the adequacy or market value of what is exchanged, provided the consideration meets the threshold of being real and lawful. This approach preserves contractual freedom while ensuring fairness through procedural rather than substantive scrutiny.
The distinction between sufficiency and adequacy is critical in this context. While adequacy refers to the economic or market value of the consideration, sufficiency concerns whether the consideration holds some recognizable legal value. Courts consistently maintain that they will not assess whether parties made a good bargain, as long as the consideration exists in the eyes of the law. This principle protects the autonomy of contracting parties to determine the value of their exchanges without judicial interference, provided no fraud, duress, or unconscionability taints the agreement.
2. The Dual Requirements of Lawful and Real Consideration
For consideration to validate a contract, it must satisfy two fundamental criteria: it must be lawful, and it must be real. Lawful consideration means the promised act or forbearance cannot involve illegal activities or violate public policy. For instance, a promise to pay someone for committing a crime fails as consideration because it contravenes legal norms. Similarly, real consideration requires that the promise involves some discernible value, whether economic or otherwise, and cannot be illusory or based on past actions.
Lawful Consideration and Public Policy
The requirement that consideration be lawful ensures contracts align with societal values and legal standards. Agreements involving illegal substances, fraudulent schemes, or activities harmful to public welfare automatically fail for lacking lawful consideration. This restriction prevents the legal system from enforcing arrangements that would undermine social order or ethical norms.
Real Consideration Versus Illusory Promises
Real consideration demands that parties exchange something of tangible value, eliminating empty or one-sided promises from contractual enforcement. The "peppercorn theory" illustrates this well—even a nominal consideration like a peppercorn suffices if genuinely exchanged, because the law focuses on the presence of mutual obligation rather than its economic worth. However, promises based solely on moral obligations or past consideration (acts performed before the promise was made) typically fail to qualify as real consideration, as they lack the requisite element of bargained-for exchange.
3. Judicial Non-Interference in Consideration Adequacy
The doctrine that courts will not inquire into the adequacy of consideration reinforces the principle of freedom of contract. Parties are presumed to understand their own interests best, and the law respects their autonomy to define the terms of their agreements. This stance prevents courts from being drawn into endless disputes over whether one side received a "fair deal," which would create uncertainty and inefficiency in commercial transactions.
Exceptions and Limitations
While insufficiency generally does not invalidate a contract, exceptions arise when the imbalance in consideration signals underlying issues like fraud, undue influence, or unconscionability. In such cases, courts may intervene not because the consideration is inadequate, but because the circumstances surrounding the agreement suggest unfair exploitation or coercion. These exceptions ensure that the principle of freedom of contract does not become a tool for injustice.
Conclusion
The maxim that "insufficiency of consideration is immaterial" underscores a foundational tenet of contract law: the value of consideration lies in its existence, not its equivalence. By requiring consideration to be real and lawful, the legal system strikes a balance between upholding contractual freedom and safeguarding against abuses. This framework allows parties to negotiate terms that suit their unique needs while ensuring agreements remain within the bounds of legality and genuine mutual commitment. Ultimately, the emphasis on procedural fairness over substantive equality reflects the law's respect for individual autonomy and its pragmatic approach to enforcing voluntary agreements.
Question:-03
Explain the law related to ambiguous and inchnate instruments.
Answer:
1. The Legal Framework of Ambiguous Instruments
Ambiguous instruments represent a unique category in negotiable instruments law, where the document's structure or terms create uncertainty about whether it should be classified as a promissory note or a bill of exchange. This ambiguity typically arises when the drawee and drawer are the same person, when the drawee is fictitious, or when the instrument's wording leaves room for dual interpretation. The holder of such an instrument is granted the legal right to elect how to treat it, and this choice becomes binding for all subsequent transactions involving the document.
The rationale behind this legal provision is to protect the holder's interests while maintaining the instrument's commercial utility. Once the holder exercises their option to treat the instrument as either a promissory note or bill of exchange, the classification becomes fixed and cannot be altered later. This ensures certainty in commercial transactions while providing flexibility where the original instrument's nature was unclear. Common situations creating ambiguity include instruments where the acceptor's role is unclear or where the payee's designation creates confusion about the instrument's fundamental character.
2. Essential Characteristics of Inchoate Instruments
Inchoate instruments represent another special category under negotiable instruments law, referring to documents that are incomplete when signed and delivered. These instruments typically contain blank spaces that are intended to be filled in later, either for amounts, dates, or other essential terms. The legal framework governing such instruments establishes important safeguards while recognizing their practical necessity in commercial transactions.
Three critical elements must be present for an instrument to be considered validly inchoate: it must bear proper stamping according to legal requirements, it must contain the signature of the maker or drawer, and it must be delivered with the clear intention of authorizing its subsequent completion. The signer's liability is limited to the amount they authorized or, in cases involving holders in due course, to the maximum amount covered by the stamp. This balance protects both the original signer from unauthorized expansions of liability and subsequent holders who may rely on the instrument's face value.
3. Comparative Analysis of Key Features
While both ambiguous and inchoate instruments represent special cases in negotiable instruments law, they differ fundamentally in their nature and legal treatment. Ambiguous instruments concern classification uncertainty between two established forms of negotiable instruments, while inchoate instruments deal with documents that are intentionally incomplete at the time of signing.
The holder's role differs significantly between these two categories. With ambiguous instruments, the holder exercises a one-time election to determine the instrument's legal character. For inchoate instruments, the holder typically completes the instrument within authorized parameters. The legal effects also vary – ambiguous instrument determinations are absolute, while inchoate instrument liabilities may be limited by the original authorization or stamp value.
Conclusion
The legal treatment of ambiguous and inchoate instruments reflects negotiable instruments law's attempt to balance commercial practicality with necessary safeguards. Ambiguous instrument provisions prevent transactional paralysis by allowing holders to resolve classification uncertainties, while inchoate instrument rules facilitate business efficiency without exposing parties to unlimited liability. Together, these legal concepts demonstrate how commercial law adapts to real-world business practices while maintaining essential protections for all parties involved in financial transactions. Understanding these distinctions is crucial for anyone working with negotiable instruments, as they directly affect the rights, obligations, and risks associated with these important financial documents.
Question:-04
What are the rules regarding settlement of accounts of a firm after dissolution? Explain fully.
Answer:
1. Legal Framework for Settlement of Accounts Upon Dissolution
The dissolution of a partnership firm triggers a structured process for settling accounts, governed primarily by statutory provisions and contractual agreements. This process ensures an orderly liquidation of assets, payment of liabilities, and equitable distribution of remaining funds among partners. The foundational principle is that all financial obligations must be resolved before any surplus is distributed, with clear priorities established to protect creditors and partners alike.
2. Sequential Order of Settlement
The settlement follows a strict hierarchy to ensure fairness and legal compliance:
Priority of Liabilities
External debts owed to third parties, such as creditors and financial institutions, take precedence. These must be settled first to clear the firm’s legal obligations. Secured loans are prioritized over unsecured ones, reflecting standard commercial practices.
Repayment of Partner Loans
After external liabilities, any advances or loans provided by partners to the firm are repaid. This step acknowledges the financial contributions partners may have made beyond their capital investments, ensuring they recover these amounts before final capital distributions.
Return of Capital Contributions
Partners’ capital accounts are settled next. Each partner receives their initial capital investment, adjusted for any losses or deficiencies. If the firm’s assets are insufficient to cover capital returns, partners bear the shortfall proportionally, typically in line with their profit-sharing ratios.
Distribution of Surplus
Any remaining funds after settling debts and returning capital are distributed among partners according to their agreed profit-sharing ratios. This step ensures that the final surplus reflects the partners’ contractual entitlements.
3. Treatment of Losses and Deficiencies
Losses incurred during dissolution are addressed systematically. Profits are first applied to offset losses. If profits are inadequate, capital accounts are adjusted to absorb the remaining losses. Should a deficit persist, partners contribute additional funds based on their profit-sharing ratios. This layered approach ensures that losses are fairly allocated without disproportionately burdening any single partner.
4. Special Considerations in Settlement
Goodwill and Intellectual Property
The firm’s goodwill, often a significant intangible asset, is included in the liquidation process. It may be sold separately or with other assets, with proceeds distributed as part of the surplus. Restrictions on former partners using the firm’s name or competing post-dissolution may apply, provided they are reasonable and agreed upon.
Private vs. Firm Debts
A critical distinction is made between the firm’s debts and partners’ personal liabilities. Firm assets are solely used to settle business obligations before addressing personal debts. Conversely, partners’ personal assets are first applied to their individual liabilities, with any surplus potentially available to cover firm debts if necessary.
Insolvency of Partners
If a partner is insolvent, their inability to contribute to losses does not absolve the firm’s obligations. Solvent partners must cover the insolvent partner’s share, ensuring creditors are paid. This underscores the joint liability inherent in partnerships.
Conclusion
The settlement of accounts upon dissolution is a meticulously regulated process designed to balance the interests of creditors and partners. By adhering to a defined hierarchy of payments and addressing losses equitably, the framework ensures transparency and fairness. Understanding these rules is essential for partners navigating dissolution, as it safeguards their rights while fulfilling the firm’s obligations. This structured approach not only aligns with legal standards but also reinforces the principles of accountability and mutual responsibility central to partnership law.
Question:-05
Discuss the essentials of a contract of bailment and state the rights and duties of a bailee.
Answer:
1. Essentials of a Contract of Bailment
A contract of bailment represents a unique legal relationship governed by specific fundamental elements that distinguish it from other contractual arrangements. The foundation of bailment rests on three core components: the voluntary delivery of goods, temporary possession transfer, and the eventual return or disposal of the goods as agreed. These elements combine to create a fiduciary relationship where one party (the bailor) entrusts goods to another (the bailee) under particular terms.
The delivery of goods must be both voluntary and intentional, involving a physical transfer or constructive possession where the bailee gains control over the goods. The subject matter must constitute movable property, as immovable property cannot form the basis of bailment. The agreement must specify the purpose of the bailment, whether for safekeeping, repair, transportation, or other defined objectives. Crucially, the arrangement contemplates the eventual return of the identical goods or their agreed disposition, distinguishing bailment from sales or gifts where permanent transfer occurs.
2. Rights of the Bailee
The bailee enjoys several well-defined rights that protect their interests and facilitate the proper execution of their responsibilities. Foremost among these is the right to retain possession of the goods until receiving proper compensation for services rendered or expenses incurred regarding the bailed goods. This lien right ensures the bailee can recover legitimate costs associated with the bailment.
Bailees possess the right to receive remuneration when the bailment is for reward, including payment for services, storage fees, or transportation charges as contractually agreed. They may also claim reimbursement for extraordinary expenses necessarily incurred in preserving the goods. In cases where the bailor fails to take back the goods, the bailee typically has the right to serve reasonable notice and subsequently sell the goods to recover costs, following proper legal procedures.
3. Duties of the Bailee
The bailee's obligations form the cornerstone of the bailment relationship, creating a framework of responsibility and care. The duty of reasonable care stands paramount, requiring the bailee to protect the goods as a prudent person would protect their own property of similar value and nature. The standard of care varies depending on whether the bailment benefits the bailor, bailee, or both parties.
Bailees must strictly adhere to the terms of the bailment agreement regarding the use and handling of goods. Unauthorized use constitutes conversion and breaches the bailment terms. They bear responsibility for returning the goods in their original condition, accounting for normal wear and tear where applicable. Proper record-keeping and segregation of bailed goods from personal property represent additional responsibilities that maintain the integrity of the bailment arrangement.
Conclusion
The contract of bailment establishes a carefully balanced legal relationship that facilitates numerous commercial and personal transactions while protecting both parties' interests. Its essential elements create a clear framework for temporary possession transfers, while the rights and duties of bailees ensure proper care and accountability for entrusted goods. Understanding these principles proves essential for anyone engaging in storage agreements, repair contracts, leasing arrangements, or any situation involving temporary custody of another's property. The bailment framework demonstrates how law adapts to practical needs while maintaining fairness and responsibility in temporary possession scenarios.
Section – B
Question:-06
"An agreement in restraint of trade is void". Examine this statement mentioning exceptions, if any.
Answer:
An Agreement in Restraint of Trade is Void: A Legal Examination
The principle that "an agreement in restraint of trade is void" is a fundamental doctrine in contract law, rooted in public policy considerations that favor free competition and economic liberty. Under Section 27 of the Indian Contract Act, 1872, any agreement that restricts a person from exercising a lawful profession, trade, or business is deemed void. This rule prevents individuals or businesses from imposing unreasonable restrictions that stifle competition, innovation, and an individual's right to earn a livelihood.
Rationale Behind the Rule
The law recognizes that excessive restraints on trade can harm economic growth and individual freedom. Agreements that prevent employees from working for competitors after leaving a job or that bar traders from engaging in business within a specified region are typically unenforceable. Courts generally strike down such clauses unless they fall under recognized exceptions, as they contravene public interest by creating monopolies or unfair trade practices.
Exceptions to the Rule
Despite the general prohibition, certain restraints are legally permissible if they are:
Reasonable in Scope – Restrictions must be limited in time, geographical area, and nature of trade. For instance, a non-compete clause in an employment contract that applies for one year within a specific city may be valid if it protects legitimate business interests.
Ancillary to a Sale of Business – When selling a business, the seller may agree not to compete within a reasonable limit to protect the buyer’s investment. Such restraints are valid if they are necessary and not excessive.
Partnership Agreements – Partners may agree not to engage in similar business during or after dissolution, provided the restriction is reasonable and protects the firm’s goodwill.
Trade Secrets & Confidentiality – Employees may be restrained from disclosing trade secrets or confidential information, as such clauses protect proprietary business interests without imposing undue hardship.
Conclusion
While the general rule voids agreements in restraint of trade, exceptions exist where restrictions are reasonable, necessary, and serve legitimate business interests. Courts balance individual freedom against commercial fairness, ensuring that restraints do not go beyond what is essential for protecting trade, employment, or business transactions. Thus, not all restrictive covenants are invalid—only those that are unjustifiably broad or oppressive.
Question:-07
Define and distinguish between 'condition' and 'warranty'.
Answer:
Definition and Distinction Between 'Condition' and 'Warranty'
In contract law, 'condition' and 'warranty' are two fundamental types of terms that determine the parties' rights and obligations. While both are essential to contractual agreements, they differ significantly in their legal consequences and importance.
Definition of Condition
A condition is a vital term that goes to the root of the contract. Its breach allows the aggrieved party to terminate the contract and claim damages. Conditions are so crucial that without them, the contract would not have been formed. For example, in a sale of goods contract, the stipulation that the goods must be of merchantable quality is a condition—if breached, the buyer can reject the goods and sue for losses.
Definition of Warranty
A warranty is a secondary term that is not central to the contract. Its breach does not permit termination but only entitles the injured party to claim damages. Warranties are collateral in nature and do not affect the main purpose of the agreement. For instance, a seller’s assurance that a car’s paint is scratch-free may be a warranty—if false, the buyer can claim compensation but cannot cancel the sale.
Key Distinctions
Importance in Contract
- Condition: Fundamental to the contract; breach destroys its essence.
- Warranty: Ancillary to the contract; breach does not void the agreement.
Remedies for Breach
- Condition: The innocent party can repudiate the contract and sue for damages.
- Warranty: Only damages can be claimed; the contract remains enforceable.
Legal Treatment
- Conditions are strictly enforced under the Sale of Goods Act and other commercial laws.
- Warranties are treated as minor assurances, with remedies limited to compensation.
Example
- Condition: A contract for perishable goods requiring delivery on a specific date.
- Warranty: A seller’s promise that a laptop battery will last five years.
Conclusion
While both conditions and warranties are binding terms, their legal impact differs. Conditions are essential and their breach justifies contract termination, whereas warranties are subsidiary, with remedies restricted to damages. Understanding this distinction is crucial for enforcing contractual rights effectively.
Question:-08
Define an unpaid seller. What are his rights?
Answer:
Unpaid Seller: Definition and Rights
An unpaid seller is defined under the Sale of Goods Act, 1930 as a seller who:
- Has not received the full price of the goods sold, or
- Has received a negotiable instrument (e.g., cheque, bill of exchange) that was later dishonored.
An unpaid seller retains ownership rights over the goods until payment is made and enjoys specific legal protections to secure payment.
Rights of an Unpaid Seller
1. Rights Against the Goods
- Lien (Right to Retain Possession):
The seller can retain the goods until full payment is made, provided the goods are still in their possession and no credit period was agreed upon. - Stoppage in Transit:
If the buyer becomes insolvent and the goods are still in transit, the seller can stop delivery and reclaim the goods. - Right of Resale:
If the buyer defaults, the seller can resell the goods after giving notice (unless perishable). Any loss from resale can be recovered from the original buyer.
2. Rights Against the Buyer Personally
- Suit for Price:
The seller can sue the buyer for the unpaid price if ownership has passed to the buyer. - Suit for Damages:
If the buyer wrongfully refuses to accept the goods, the seller can claim damages for breach of contract. - Suit for Interest:
The seller may recover interest on the unpaid amount if agreed upon or under legal provisions.
Conclusion
An unpaid seller is protected by law to prevent financial loss. Their rights include retaining, stopping, or reselling goods, as well as legal remedies like suing for price or damages. These rights ensure fairness in commercial transactions where payment defaults occur.
Question:-09
Discuss the common features among promissory note, bill of exchange and cheque.
Answer:
Common Features Among Promissory Note, Bill of Exchange, and Cheque
Promissory notes, bills of exchange, and cheques are negotiable instruments governed by the Negotiable Instruments Act, 1881. Despite serving different commercial purposes, they share several key features:
1. Written and Unconditional Undertaking
All three instruments must be in writing and contain an unconditional promise or order to pay a specified sum. A promissory note includes a maker’s promise, a bill of exchange contains a drawer’s order, and a cheque is a directive to a bank.
2. Certainty of Parties
Each instrument clearly identifies the parties involved:
- Promissory Note: Maker (debtor) and Payee (creditor).
- Bill of Exchange: Drawer (creditor), Drawee (debtor), and Payee (recipient).
- Cheque: Drawer (account holder), Drawee (bank), and Payee (recipient).
3. Fixed Sum of Money
The payment amount must be certain and denominated in legal currency. Vague or conditional amounts invalidate the instrument.
4. Payable on Demand or at a Fixed Time
- Cheques are always payable on demand.
- Promissory notes and bills of exchange can be payable on demand or at a future date.
5. Transferability (Negotiability)
All three can be transferred to another party via endorsement and delivery, enabling easy circulation in trade.
6. Presumption of Consideration
The law presumes that every negotiable instrument is issued for lawful consideration, unless proven otherwise.
7. Right to Sue
The holder can sue in their own name if payment is dishonored, ensuring enforceability.
8. Special Rules for Cheques
While cheques share the above features, they are always drawn on a bank, payable immediately, and subject to stamping and banking regulations.
Conclusion
These instruments facilitate credit and payment in commerce. Their standardized features—written format, fixed sums, transferability, and legal enforceability—ensure reliability in financial transactions. Understanding these commonalities helps in their effective use in trade and banking.
Question:-10
Define 'agent' and 'principal'. Can a minor be an agent? Discuss.
Answer:
Definition of Agent and Principal
An agent is a person authorized to act on behalf of another (the principal) in dealings with third parties. The relationship is governed by the Indian Contract Act, 1872, which outlines that the principal is bound by the agent’s lawful acts within the scope of their authority.
Key Characteristics
- Agent: Acts under the principal’s control, creating legal obligations between the principal and third parties.
- Principal: Delegates authority and is liable for the agent’s authorized actions.
Can a Minor Be an Agent?
Yes, a minor (person below 18 years) can act as an agent, but with limitations:
- No Personal Liability: Since minors cannot enter into binding contracts, they incur no personal liability for their acts as agents. However, the principal remains liable to third parties for the minor’s authorized actions.
- No Contractual Capacity: A minor cannot be held liable for breaching the agency agreement, as contracts with minors are voidable at their option.
- Valid Agency: The agency itself is valid because it does not require the agent to be contractually competent. The principal’s liability arises from their own authorization, not the agent’s age.
Legal Implications
- Third Parties: Can enforce agreements against the principal but not the minor agent.
- Principal’s Risk: Appointing a minor as an agent is risky, as the minor cannot be sued for misconduct or negligence.
Example
If a minor is authorized to sell a principal’s goods, the sale binds the principal, but the minor cannot be penalized for failing to deliver profits.
Conclusion
While a minor can serve as an agent, the arrangement is inherently unstable due to their lack of contractual capacity. Principals must exercise caution, as they bear full responsibility for the minor’s actions within the delegated authority. The law protects third parties by holding the principal liable, ensuring commercial fairness despite the agent’s minority.
Section – C
Question:-11
"In commercial and business agreements, the presumption is that the parties intend to create legal relations." Comment.
Answer:
Presumption of Legal Relations in Commercial Agreements
In commercial and business agreements, the law presumes that the parties intend to create legally binding relations, unlike social or domestic arrangements where such intent is not assumed. This presumption ensures enforceability and certainty in business transactions. Courts examine the language, context, and conduct of parties to determine if they intended legal consequences.
Key aspects include:
- Clear Terms: Written contracts with defined obligations strengthen the presumption.
- Commercial Context: Agreements involving trade, services, or sales are presumed binding unless explicitly stated otherwise.
- Exceptions: Agreements labeled as "subject to contract" or "without legal effect" may rebut this presumption.
This principle upholds business integrity, ensuring parties honor commitments. However, explicit disclaimers or informal understandings can negate legal intent. The presumption reflects the law’s emphasis on certainty and accountability in commercial dealings.
Question:-12
"Mere silence as to facts is not fraud". Explain with examples.
Answer:
"Mere Silence as to Facts is Not Fraud" – Explanation & Examples
Under contract law, silence alone does not constitute fraud, as parties are generally not obligated to disclose all facts. Fraud requires active concealment or false representation. However, exceptions exist when:
- Fiduciary Relationship: A trustee must disclose material facts to beneficiaries.
- Half-Truths: Partial disclosure that misleads (e.g., selling a car without revealing a major accident).
- Changing Circumstances: Silence becomes fraud if a initially true statement later turns false (e.g., an insurer hiding a policy lapse).
Examples:
- A seller need not volunteer that their property’s value may rise (mere silence).
- But hiding a leaking roof (latent defect) is fraud, as it distorts the buyer’s decision.
The principle balances caveat emptor (buyer beware) with honesty in transactions, penalizing only deliberate deception, not passive silence.
Question:-13
Write a note on pledge by mercantile agent.
Answer:
Pledge by a Mercantile Agent
A pledge by a mercantile agent occurs when an agent, entrusted with goods or documents of title (e.g., warehouse receipts, bills of lading), creates a valid pledge (bailment for security) with a third party, even without the owner’s explicit consent. Under Section 178 of the Indian Contract Act, 1872, such a pledge is binding on the owner if:
- Agent’s Authority: The mercantile agent (e.g., broker, factor) is in lawful possession of the goods with the owner’s consent.
- Good Faith: The third-party pledgee acts in good faith, without notice of the agent’s lack of authority.
- Business Capacity: The pledge is made while the agent is acting in their ordinary business dealings.
Example: A textile merchant leaves goods with an agent for sale. If the agent pledges the goods to a lender for a loan, the owner is bound if the lender acted honestly.
This rule protects commercial transactions, ensuring lenders can rely on agents’ apparent authority, while balancing owners’ interests against unauthorized pledges.
Question:-14
Differentiate between a bill and a cheque.
Answer:
Difference Between a Bill and a Cheque
Definition:
- A bill of exchange is a written order by the drawer directing the drawee to pay a specified sum to the payee on a fixed or future date.
- A cheque is a type of bill of exchange drawn on a bank, payable only on demand.
Parties:
- Bill: Involves drawer, drawee (acceptor), and payee.
- Cheque: Involves drawer (account holder), drawee (bank), and payee.
Payment Time:
- Bill: Can be payable on demand or after a specified period.
- Cheque: Always payable on demand.
Acceptance:
- Bill: Requires acceptance by the drawee to be valid.
- Cheque: Does not require acceptance; the bank pays if funds are available.
Grace Period:
- Bill: Allows a grace period (3 days in India) for payment after maturity.
- Cheque: No grace period; must be paid immediately upon presentation.
Stamp Duty:
- Bill: Requires stamping (except demand bills).
- Cheque: Exempt from stamp duty.
Crossing:
- Bill: Cannot be crossed.
- Cheque: Can be crossed to restrict payment through a bank account.
Conclusion: While both are negotiable instruments, a cheque is a specialized form of a bill with distinct features like bank drawee, demand payment, and no acceptance requirement. Bills are broader in scope, used for credit transactions, while cheques facilitate immediate bank payments.
