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Wednesday, March 21, 2012

BRF 2008 (Solved)


Contract of Sale of Goods:
According to Section 4 of the Sale of Goods Act, 1930, ‘A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.’
The term ‘Contract of sale’ is a generic term and includes both a sale and an agreement to sell. Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once), the contract is called a ‘sale’ but where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’. [Section 4(3)].
The following are thus the essentials of a contract of sale are:-
a.       Number of parties: Two or more parties are necessary namely the seller and buyer.
b.      Goods: The subject matter of a contract of sale must be goods.
c.       Price: The consideration for a contract of sale is price.
d.      Transfer of property – In a contract of sale, there must be transfer of property, from the seller to the buyer.
e.      All essential elements of a valid contract.

Two Parties
Two or more parties are necessary in a contract of sale namely the seller and buyer.
Buyer [ Sec 2 (1) ] :- Buyer means a person who buys or agrees to buy goods.
Seller [Sec 2 (13)] :- Seller means a person who sells or agrees to sell goods.
Goods
Goods is defined in Section 2 (7) as ‘Every kind of moveable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.’ Trademarks, copyrights, patent rights, goodwill, electricity, water and gar are all considered as goods.
Goods may be (a) existing, (b) future, or (c) contingent. The existing goods may I be (i) specific or generic, (ii) ascertained or unascertained.
Price
No sale can take place without a price. Thus, if there is no valuable consideration to support a voluntary surrender of goods by the real owner to another person, the transaction is a gift, and is not governed by the Sale of Goods Act. Therefore, price. which is money consideration for the sale of goods, constitutes the essence for a contract of sale. It may be money actually paid or promised to b/3 paid. If a consideration other than money is to be given, it is not a sale.
a)      Modes of Fixing Price (Sections 9 and 10):  The price may be fixed:
b)      at the time of contract by the parties themselves, or
c)       may be left to be determined by the course of dealings between the parties, or
d)      may be left to be fixed in some way stipulated in the contract, or
e)      may be left to be fixed by some third-party.
Passing of Property or Transfer of Ownership (Sections 18-20)
In a contract of sale, there must be transfer of property, from the seller to the buyer.
Essential Elements of a Valid Contract
a)      Intention to create legally binding relationship
b)      Their must be Offer and Acceptance
c)       Their must be Two or more persons
d)      Competence of parties to the contract
e)      Lawful consideration
f)       Free consent of parties
g)      Lawful Object
h)      Certainty of performance
i)        Legal Formalities
j)        Not declared to be void

BRF 2011 (Solved)


Transfer of Title by Person not the Owner (Section 27-30)
The general rule is that only the owner of goods can sell the goods. Conversely, the sale of an article by a person who is not or who has not the authority of the owner, gives no title to the buyer. The rule is expressed by the maxim; "Nemo dot quod non habet" i.e., no one can pass a better title than what he himself has. As applied to the sale of goods, the rule means that a seller of goods cannot give a better title ~o the buyer than he himself possess. Thus, even bona fide buyer who buys stolen goods from a thief or from a transferee from such a thief can get no valid title to them, since the thief has no title, nor could he give one to any transferee.
Example:
1. A, the hirer of goods under a hire purchase agreement, sells them to B, then B though, a bonafide purchaser, does not acquire the property in the goods. At most he can acquire such an interest as the hirer had.
2. A finds a ring of B and sells it to a third person who purchases it for value and in good faith. The true owner, i.e. B can recover from that person, for A having no title to the ring.
Exception to the General Rule
The Act while recognizing the general rule that no one can give a better title than what he himself has, laid down important exceptions to it. Under the exceptions the, buyer gets a better title of the goods than the seller himself. These exceptions are given below:
a)      Sale by a mercantile agent: A buyer will get a good title if he buys in good faith from a mercantile agent who is in possession either of the goods or' documents of title of goods with the consent of the owner, and who sells the goods in the ordinary course of his business.
b)       Sale by a co-owner: A buyer who buys in good faith from one of the several joint owners who is in sale possession of the goods with the permission of his co-owners will get good title to the goods.   
c)       Sale by a person in possession under a voidable contract: A buyer buys in good faith from a person in possession of goods under a contract which is voidable, but has not been rescinded at the time of the sale.
d)      Sale by seller in possession after sale: Where a seller, after having sold the goods, continues in possession of goods, or documents of title to the goods and again sells them by himself or through his mercantile agent to a person who buys in good faith and without notice of the previous sale, such a buyer gets a good title to the goods.
e)      Sale by buyer in possession: If a person has brought or agreed to buy goods obtains, with the seller's consent, possession of the goods or of the documents of title to them, any sale by him or by his mercantile agent to a buyer who takes in good faith without notice of any lien or other claim of the original seller against the goods, will give a good title to the buyer. In any of the above cases, if the transfer is by way of pledge or pawn only, it will be valid as a pledge or pawn.
f)       Estoppel: If the true owner stands by and allows an innocent buyer to pay over money to a third-party, who professes to have the right to sell an article, the true owner will be estopped from denying the third-party's right to sell.
g)      Sale by an unpaid seller: Where an unpaid seller has exercised his right of lien or stoppage in transit and is in possession of the goods, he may resell them and the second buyer will get absolute right to the goods.
h)      Sale by person under other laws: A Pawnee, on default of the Pawnee to repay, has a right to sell the goods, pawned and the buyer gets a good title to the goods. The finder of lost goods can also sell under certain circumstances. The Official Assignee or Official Receiver, Liquidator, Officers of Court selling under a decree, Executors, and Administrators, all these persons are not owners, but they can convey better title than they have.

BRF 2011 (Solved)


Caveate Emptor
The term ‘Caveat Emptor’ means ‘Let the buyer beware’ i.e. in sale of goods, the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a buyer buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose, or if he depends upon his own skill and judgment and makes a bad selection, he cannot blame anybody excepting himself.
For e.g. H bought oats from S a sample of which had been shown to H. H erroneously thought that the oats were old. However the oats were new. Held, H could not avoid the contract. (Smith vs. Huges)
The doctrine of Caveat Emptor has certain important exceptions as under –
a.      Fitness for buyer’s purposeWhere the buyer, expressly or by implication makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgement of the seller whose business it is to supply goods of that description, there is an implied condition that the goods are reasonable fit for that purpose. [Section 16(1)]. For e.g. an order was placed for some Lorries to be used “for heavy traffic in a hilly area”. The Lorries supplied were unfit and broke down. Held, there is a breach of condition as to fitness.
b.      Sale under a patent or trade name – In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any particular purpose.
c.       Merchantable quality - Where goods are bought by description from a seller who deals in goods of that description, here is an implied condition that the goods are of merchantable quality. But if the buyer has examined the goods, there is no implied condition as regard defect which such examination ought to have revealed. [Section 16(2)]
d.      Usage of trade – An implied warranty or condition as regards quality or fitness for a particular purpose may be annexed by the usage of trade. [Section 16(3)]
e.       Consent by fraudWhere the consent of the buyer, in a contract of sale, is obtained by the seller by fraud or where the seller knowing conceals a defect which could not be discovered on a reasonable examination, the doctrine of Caveat Emptor does not apply. 

BRF 2011 (Solved)

Partnership
In India, Partnership firm is governed by the Indian Partnership Act 1932. Section 4 of this act defines partnership as:
"The relationship between persons, who have agreed to share the profits of a business carried on by all or any one of them acting for all."
According to Prof. Haney, partnership is "the relation between persons competent to make contract who agree to carry on a lawful business in common with a view to private gain."
Partnership in this way is an agreement, between two or more persons to carry on legal business with profit motive, which is carried on by all or any one of them acting for all.
From the above definition the following can be drawn as essentials or characteristics of a Partnership Firm.
a)      Association of two or more persons :- There must be atleast two persons to form a partnership. The maximum no. of persons in a partnership is not provided in the Partnership Act but Section 11 of the Companies Act, 1956 provides for the same. Accordingly, if the partnership firm is engaged in a banking business the maximum number of partners permissible is 10 and in case the partnership firm is in any other business the maximum number of partners permissible is 20.
b)      Presence of a Contract:- There is a contractual relationship between the partners. Therefore there must be a agreement between the partners. The agreement may be express or implied. This agreement must fulfill all the essentials of a valid contract under the Indian Contract Act.
c)       To conduct Business :- The idea of few persons coming together and doing some activity for charitable purpose cannot be termed as partnership. The intention to conduct business is essential for the partnership. The term business is defined in Section 2(b) as ‘business includes every trade, occupation and profession.’ The word business generally covers the intention of doing transactions to achieve some goal.
d)      Profit-Sharing: The agreement between/among partners must be to share profit or losses. It is not essential that all the partners must share the losses also. There may be specific provision in the partnership deed that a particular partner or partners shall not bear the losses.
e)      Motive: For a partnership firm there must be motive to earn profit. A partnership firm cannot be formed with service motive.

BRF 2011 (Solved)

Wagering Agreements
According to Sir William Anson “A wagering agreement is a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event.”
Cockburn C.J. defined it as ‘A contract by ‘A’ to pay money to ‘B’ on the happening of a given event in consideration of ‘B”s promise to pay money to ‘A’ on the event not happening.” Thus, a wagering agreement is an agreement under which money or money’s worth is payable, by one person to another on the happening or non-happening of a future, uncertain event.
The essence of gaming and, wagering is that one party is to win and the other to lose upon a future event, which at the time of the contract is of an uncertain nature-that is to say, if the event turns out one way A will lose but if it turns out the other way, he will win. For examples: A and B bet as to whether it would rain on a particular day or not A promising to pay Rs. 100 to B if it rained, and B promising an equal amount to A, if it did not. This agreement is wager.
Wagering Agreements are Void
An agreement by way of wager is void. Section 30 provides “Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made”. Thus, in India all agreements by way of wager are void. Wagering Agreement Void and not Illegal. In India, unless the wager amounts to a lottery, which is a crime according to Section 294-A of the Indian Penal Code, it is not illegal but simply void. Thus, except in case of lotteries, the collateral transactions remain enforceable.
Contracts of insurance are not wagering agreements:
Contracts of insurance are not wagering agreements even though the payment of money by the insurer may depend upon a future uncertain event. Contracts of insurance differ from the wagering agreements in the following respects:
a)     It is only person possessing an insurable interest that is permitted to insure life or property, and not any person, as in the case of a wager.
b)     In the case of fire and marine insurance, only the actual loss suffered by the party is paid by the company, and not the full amount for which the property is insured. Even in the case of life insurance, the amount payable is fixed only because of the difficulty in estimating the loss caused by the death of the assured in terms of money, but the underlying idea is only indemnification.
c)      Contracts of insurance are regarded as beneficial to the public and are, therefore, encouraged. Wagering agreements, on the other hand, are considered to be against public policy.

BRF 2011 (Solved)

Supervening Impossibility (Section 56)
Impossibility in a contract may either be inherent in the transaction or it may be introduced later by the change of certain circumstances material to the contract.
Examples of Inherent Impossibility
(1) A promises to pay B Rs. 50,000 if B rides on horse to the moon. The agreement is void.
(2) A agrees with B to discover treasure by magic. The agreement is void.
The impossibility in these cases is inherent in the transaction. Such a contract is void ab-initio. On the other hand, where a contract originates as one capable of performance but later due to change of circumstances its performance becomes impossible, it is known to have become void by subsequent or supervening impossibility.  A contract is deemed to have become impossible of performance and thus void under the following circumstances:
1.       Accidental destruction of the subject matter of the contract.
2.       Non existence or non occurrence of a particular state of things
3.       Incapacity to perform a contract of personal services
4.       Change in law
5.       Outbreak of war: 
a)      by emergency legislation controlling prices or otherwise relaxing restrictions of trade
b)      by prohibiting or restraining transaction with alien enemy.
Effects of Supervening Impossibility
1.       A contract to do an act which, after the contract is made becomes impossible, or by reason of some event which the promisor couldn’t prevent, unlawful, becomes void when the act becomes impossible or unlawful. (Section 56, para 2).
2.       According to para 3 of Section 56, where a person has promised to do something which he knew, or with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.
3.       When a contract becomes void, any person who has received any advantage under such contract is bound to restore it, or to make compensation for it to the person from whom he received it (Section 65).
Examples
a)      A contract to sing for B at a concert for Rs. 1,000, which is paid in advance. A is too ill to sing. A must refund to B 1,000 rupees.
b)      A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s daughter. C dies before marriage. B must repay A the 1,000 rupees.

Tuesday, March 20, 2012

BRF 2009 (Solved)

Position of a minor in a Partnership Firm:
Minor Partner:  As per Section 11 of the Indian Contract Act, 1872 a minor cannot enter into an agreement. However Section 30 of the Partnership Act provides that with the consent of all the partners for the time being a minor may be admitted to the benefits of Partnership. This provision is based on the rule that a minor cannot be a promisor but he can be a Promisee or a beneficiary.

Rights of a Minor before attending the age of Majority:
(i)     He has a right to share the profits and the property of the firm as may be agreed.
(ii)   He has a right to have access to and inspect the books of accounts of the firm.
(iii) Right to sue for payments of his share of profit or property in case of his severance of connection with the firm.                        
(iv)  He has a right to elect to become a partner on attaining the age of Majority.
(v)    He has a right to elect not to become a partner on attaining the age of Majority.

Liabilities of a Minor before attending the age of Majority:
(i)     A minor’s share is liable for the acts of the firm.
(ii)   He is not personally liable for sharing any liabilities or losses of the firm in his personal capacity nor is his personal property liable.

Position of the Minor on Attending the age of Majority
                On attending Majority the minor partner has to decide within six month whether he want to continue as partner in the firm or discontinue as a partner from the firm. The period of six months start from the date of his majority or from the date when he first comes to know that he has been admitted to the benefits of the partnership, whichever is later. Within the said period of six months he should give a public notice of his choice whether to continue as a partner or not to continue as a partner.
                If he fails to give a public notice he is deemed to have become a partner in the firm on the expiry of the said six month.

Position of a minor if he elects to become the Partner after attending the age of Majority.
(i)     He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the partnership.
(ii)   His share to the profits of the firm is the same as he was entitled to as a minor partner.

Position of a minor if he elects not to become the Partner after attending the age of Majority.
(i)     His rights and liabilities of the partner as a minor continue up to the date of the notice.
(ii)   His share is not liable for any acts of the firm done after the date of the public notice.
(iii) He is entitled to sue the partners for his share of the profits and property of the firm. 

BRF 2009 (Solved)

Condition and Warranty:
Section 12(2) states that a condition is a stipulation which is essential to the main purpose of the contract. The breach of a condition gives rise to a right to treat the contract as repudiated or broken. Example – A buys from B hair oil advertised as pure coconut oil. The oil turns out to be mixed with herbs. A can return the oil and claim the refund of price.
Section 12(3) states that a warranty is a stipulation which is collateral to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated. Example – A while selling his car to B, stated the car gives a mileage of 12 kms per litre of petrol. The car gives only 10 kms per litre. B cannot reject the car. It is breach of warranty. He can only claim damages for the loss due to extra consumption of petrol.
Difference between Condition and warranty:
Basis of Difference
Condition
Warranty
Definition
A stipulation which is essential to the main purpose of the contract.
A stipulation which is collateral to the main purpose of the contract.
Remedy
The aggrieved party can terminate the contract, claim damages or treat it as breach of warranty
The aggrieved party cannot terminate the contract but can only claim damages
Treatment
A breach of condition can be treated as a breach of warranty
A breach of warranty cannot be treated as breach of condition.

Classification
Conditions can be classified into two broad categories:
a)      Express conditions 
b)      Implied conditions
Express Conditions
Conditions that are agreed to by the parties, are commonly referred to as express conditions. Express conditions are usually denoted by language such as "if", "on condition that", "provided that", "I the even that", and "subject to" to make an event a condition.
Implied Conditions
If an agreement does not make an event a condition then the court may supply a term that does so. Such conditions will be referred to as "implied" conditions, since a court uses the process of implication to determine whether to supply a term that makes an event a condition and what term to supply.
Some of the important Implied conditions are:
1. Condition as to title – In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that –
a)      In the case of a sale, he has a right to sell the goods and
b)      In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
2. Sale by description – Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description (Section 15). If you contract to sell peas, you cannot oblige a party to take beans.
3. Sale by sample – In a case of a contract for sale by sample, there is an implied condition –
a)      That the bulk shall correspond with the sample in quality
b)      That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
c)       That the goods shall be free from any defect, rendering them unmerchantable.
4. Sale by description as well as sample – Section 15 further provides that if the sale is by sample as well as by description, the goods must correspond both with the sample and with the description.
5. Condition as to quality or fitness – Normally, in a contract of sale there is no implied condition as to quality or fitness of goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for the purpose for which he is buying them. However, in the following instances, the condition as to quality or fitness applied –
a)      Where the buyer, expressly or by implication makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgement of the seller whose business it is to supply goods of that description, there is an implied condition that the goods are reasonable fit for that purpose. [Section 16(1)]. For e.g. an order was placed for some Lorries to be used “for heavy traffic in a hilly area”. The Lorries supplied were unfit and broke down. Held, there is a breach of condition as to fitness.
b)      An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade. [Section 16(3)]
6. Condition as to merchantability – Where goods are bought by description from a seller who deals in goods of that description, here is an implied condition that the goods are of merchantable quality. This means that the goods should be such as are commercially saleable under the description by which they are known in the market at their full value.
7. Condition as to wholesomeness – In the case of eatable and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome. For e.g. C bought a bun containing a stone which broke one of C’s teeth. Held, he could recover damages.
8. Condition implied by custom – An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade in the locality concerned.

BRF 2008 (Solved)


Bailment
Bailment is a kind of activity in which the property of one person temporarily goes into the possession of another. The ownership of the property remains with the giver, while only the possession goes to another. Several situations in day to day life such as giving a vehicle for repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples of bailment. Section 148 of Indian Contract Act 1872, defines bailment as follows – 
Section 148 -  A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee.

Duties/Responsibilities of a Bailee
1.       Duty to take reasonable care(151): The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.
2.       Duty not to make unauthorized use (Section 154): Section 154 says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. 
3.       Duty not to mix (Section 155-157): The bailee should maintain the separate identity of the bailor's goods. He should not mix his goods with bailor's good without bailor's consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.  
4.       Duty to return (Section 160): Section 160 - It is the duty of the bailee to return or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.
If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee's risk and he will be responsible for any loss or damage to the goods arising howsoever.
5.       Duty to return increase (Section 163): As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.
6.       Duty not to set up jus tertii (Section 166): As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods back to the bailor or as per the directions of the bailor, he is not responsible to the owner in respect of such delivery.  Thus, once the bailee takes the goods from the bailor, he agrees that the goods belong to the bailor and he must return them only to the bailor. He cannot deny redelivery to the bailor on the ground that the bailor is not the owner.

Rights of a Bailee
1.       Right to necessary expenses (Section 158): As per Section 158 says that where by conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful expenses according to this section.
2.       Right to compensation (Section 164): As per section 164, the bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailor had no right to bail the goods and if still bails them, he will be responsible for any loss that the bailee may incur because of this. 
3.       Right of Lien (Section 170-171): In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services. 
4.       Right to Sue (Section 180-181): Section 180 enables a bailee to sue any person who has wrongfully deprived him of the use or possession of the goods bailed or has done them any injury. The bailee's rights and remedies against the wrong doer are same as those of the owner. An action may be brought either by the bailor or the bailee.