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In this Post we have Provided Dibrugarh University BCom 1st Sem Hons Business Law Solved Question Paper 2022 , Which Very helpful in your Exam preparation. In this Solution we have Covered each and every Questions asked in Examination.
Dibrugarh University BCom 1st Sem
Business Laws Solved Question Paper 2022
COMMERCE (Core)
Paper: C-102 (Business Laws)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks of the following: 1x5=5
(1) An illegal agreement is a void agreement.(valid/void)
(2) Bill of exchange must be accepted by the drawee.(drawer/drawee/payee)
Note: A bill of exchange is generally drawn by the creditor upon his debtor. It has to be accepted by the drawee (debtor) or someone on his behalf. It is just a draft till its acceptance is made.
(3) Registration is compulsory for an L.L.P.(optional/compulsory)
(4) Unpaid seller can sue the buyer for damages for non-acceptance.(delivery/acceptance)
(5) Acceptance can be done only by the person to whom the offer was made.(offer/sale)
(b) Write True or False of the following: 1x3=3
(1) A minor is competent to become a partner in a partnership firm.
Ans:- False.
Explanation:A minor is not competent to become a partner in a partnership firm. Minors are generally considered legally incompetent to enter into binding contracts, including partnership agreements. However, they can be admitted to the benefits of an already existing partnership.
(2) A contract of sale is an executed contract.
Ans:- False.
Explanation:A contract of sale is not an executed contract. It is an executory contract, meaning that the obligations and performance of the contract are yet to be completed. In a contract of sale, the transfer of ownership and delivery of goods occurs in the future, making it an executory contract until those actions are fulfilled.
(3) Contract of bailment can become a voidable contract at the option of bailee.
Ans:- False.
Explanation: A contract of bailment cannot become a voidable contract at the option of the bailee. Voidable contracts are those that can be avoided or cancelled by one party if certain conditions or circumstances exist. However, in the case of a contract of bailment, the bailee does not have the option to make the contract voidable. It is the bailor who has the right to terminate the bailment contract under specific circumstances, such as breach of terms or misuse of the bailed property.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
2. Write short notes on any four of the following: 4x4=16
(a) Free consent:
Free consent is a fundamental principle in contract law, which states that for a contract to be valid, the parties involved must give their consent to the terms and conditions of the contract without any undue influence, coercion, fraud, misrepresentation, or mistake. Free consent ensures that the parties enter into the contract voluntarily and with a clear understanding of its terms. If consent is not freely given, the contract may be voidable or void.
(b) Quasi contract:
A quasi contract, also known as a contract implied in law, is not an actual contract but a legal fiction created by the courts to prevent unjust enrichment. It is a remedy available when one party benefits from another's actions or services without a formal agreement or contract. The court may impose a quasi contract to ensure fairness by requiring the party who received the benefit to compensate the other party as if a contract existed between them.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
(c) Unpaid seller:
An unpaid seller refers to a seller who has not received the full payment for the goods or services provided to the buyer. In such cases, the seller retains certain rights, including the right to withhold delivery of the goods, sue the buyer for the price of the goods, claim damages for non-acceptance or non-payment, and even resell the goods to recover the outstanding amount. The rights of an unpaid seller are governed by the Sale of Goods Act or relevant contract laws.
(d) Gratuitous bailment:
Gratuitous bailment refers to a bailment arrangement where one party (the bailor) voluntarily transfers possession of their personal property to another party (the bailee) without any monetary consideration or benefit in return. The bailee is entrusted with the property for a specific purpose, such as safekeeping or temporary use, and must exercise reasonable care to protect and return the property to the bailor. Gratuitous bailment is based on trust and goodwill rather than a contractual relationship.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
(e) Limited Liability Partnership (LLP):
A Limited Liability Partnership is a legal business structure that combines the benefits of a partnership and a corporation. In an LLP, the partners have limited liability for the debts and obligations of the partnership. This means that each partner is not personally liable for the partnership's debts beyond their own investment or contribution. LLPs provide flexibility in management and taxation while offering limited liability protection to the partners.
(f) Parties to a bill of exchange:
A bill of exchange involves three main parties:
1. Drawer: The drawer is the person who creates the bill of exchange and orders the payment. They are usually the seller or creditor who is entitled to receive payment.
2. Drawee: The drawee is the person or entity upon whom the bill of exchange is drawn. It is the party obligated to make the payment. The drawee is typically the buyer or debtor.
3. Payee: The payee is the person to whom the payment is to be made. It is the party named in the bill of exchange who will receive the funds. The payee is often the same as the drawer or a third party designated by the drawer.These parties collectively play important roles in the negotiation, acceptance, and payment process of a bill of exchange, which is a widely used financial instrument for commercial transactions. [Dibrugarh University BCom Business Law Solved Question Paper 2022]
3. (a) Define the term ‘contract’. Explain the essentials of a valid contract. 11
Ans:- Definition of a Contract: A contract is a legally binding agreement between two or more parties that creates mutual obligations enforceable by law. It is an agreement that establishes the rights and duties of the parties involved, and once validly formed, it becomes legally binding and enforceable.
Essentials of a Valid Contract:
For a contract to be valid and legally enforceable, it must contain certain essential elements. These essentials are as follows:
1. Offer and Acceptance: There must be a clear offer made by one party (the offeror) and a corresponding acceptance by the other party (the offeree). The offer and acceptance must be unequivocal and in line with the terms of the contract.
2. Intention to Create Legal Relations: The parties involved must intend to create legal relations, indicating that they have a serious intention to be bound by the terms of the contract. Agreements of a social or domestic nature generally do not have this intention.
3. Lawful Consideration: Consideration refers to something of value that is exchanged between the parties, such as money, goods, services, or a promise to do or refrain from doing something. There must be a lawful consideration for the contract to be valid.
4. Capacity of the Parties: The parties entering into the contract must have the legal capacity to do so. This means they must be of sound mind and of legal age. Certain individuals, such as minors or persons with mental incapacity, may lack the capacity to enter into contracts.
5. Free Consent: The consent of the parties must be given freely, without any undue influence, coercion, fraud, misrepresentation, or mistake. Consent should be obtained without any vitiating factors that could invalidate the contract.
6. Lawful Object: The object or purpose of the contract must be lawful. Contracts that involve illegal activities or violate public policy are considered void and unenforceable.
7. Certainty: The terms of the contract must be clear, certain, and capable of being enforced. The agreement should not be vague, ambiguous, or uncertain.
8. Legal Formalities: Depending on the nature of the contract, certain contracts may require specific legal formalities, such as being in writing, registered, or witnessed, to be valid and enforceable.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
Or
(b) Discuss the various modes of discharge of a contract.
Ans:- Discharge of a contract refers to the termination or release of the parties' obligations under the contract, bringing the contract to an end. There are several modes of discharge of a contract:
1. Performance: A contract is discharged by performance when both parties fulfill their respective obligations as specified in the contract. It can be complete performance, where all obligations are fulfilled, or substantial performance, where there may be minor deviations or omissions that do not significantly affect the contract's purpose.
2. Agreement: The parties may mutually agree to discharge the contract by mutual consent. They can enter into a new agreement that supersedes the original contract or agree to terminate it through a process like rescission or novation.
3. Breach: If one party fails to fulfill their obligations under the contract without a valid excuse, it constitutes a breach of contract. The innocent party may choose to discharge the contract and claim damages or seek specific performance.
4. Frustration: Frustration occurs when an unforeseen event occurs after the formation of the contract, making it impossible to fulfill the contract's obligations. In such cases, the contract is discharged, and the parties are relieved from their obligations. However, frustration must be due to circumstances beyond the control of the parties.
5. Operation of Law: Certain events or legal provisions may result in the automatic discharge of a contract. These include bankruptcy, illegality, impossibility, death or incapacity of a party, or the expiration of a fixed term or condition stated in the contract.
6. Lapse of Time: If a contract specifies a specific duration or time frame, it may be discharged upon the expiry of that period.
7. Rescission: Rescission is the cancellation or annulment of a contract due to a material misrepresentation, fraud, mistake, duress, or undue influence. It allows the parties to return to their pre-contractual positions.
8. Accord and Satisfaction: Accord and satisfaction occur when parties agree to accept something different from what was originally agreed upon to settle their contractual obligations. The new agreement (accord) and the subsequent performance (satisfaction) discharge the original contract.
4. (a) Define contract of guarantee. Discuss the essentials of a contract of guarantee. 3+8=11
Ans:- A contract of guarantee, also known as a surety contract, is a legally binding agreement in which a person, called the guarantor, agrees to be responsible for the performance of a contractual obligation of another person, known as the principal debtor, in case the principal debtor fails to fulfill that obligation. In simpler terms, it is a promise made by one party to be accountable for the debt or obligation of another party if that party fails to fulfill it.
The essentials of a contract of guarantee are as follows:
1. Agreement: Like any contract, a contract of guarantee requires a valid agreement between the parties involved. The guarantor and the creditor (to whom the guarantee is provided) must come to a mutual understanding and express their consent to the terms and conditions of the guarantee.
2. Consideration: A contract of guarantee, like any other contract, must be supported by consideration. The guarantor undertakes the responsibility of guaranteeing the debt or obligation of the principal debtor in exchange for some benefit, either monetary or non-monetary, received from the principal debtor or the creditor.
3. Intention to create legal relations: The parties must have an intention to enter into a legally binding agreement. The guarantee should not be a mere expression of goodwill or friendship, but rather a legally enforceable promise.
4. Writing and formalities: In some jurisdictions, a contract of guarantee must be in writing and may require certain formalities, such as being executed as a deed or being witnessed. The purpose of such formalities is to ensure the authenticity and enforceability of the guarantee.
5. Validity of the principal obligation: The principal obligation for which the guarantee is being provided must be valid and legally enforceable. If the principal obligation is illegal or void, the contract of guarantee will also be considered void.
6. Communication of the guarantee: The guarantor's promise must be communicated to the creditor. It is essential for the creditor to accept the guarantee and rely on it. Without such communication, the guarantee may not be effective.
7. Co-extensiveness: The liability of the guarantor is generally co-extensive with that of the principal debtor. This means that the guarantor is responsible for the full extent of the principal debtor's debt or obligation, unless otherwise specified in the guarantee agreement.
8. Revocability: Unless otherwise agreed, a contract of guarantee can be revoked by the guarantor at any time before the actual liability arises. However, once the guarantor's liability is triggered by the default of the principal debtor, the guarantee cannot be revoked.
These essentials help ensure the validity and enforceability of a contract of guarantee and provide a framework for the rights and obligations of the parties involved.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
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(b) Discuss the rights and duties of a bailee in a bailment. 11
Ans:- In a bailment, the bailee refers to the person who receives possession of goods or personal property from another party, known as the bailor, under an agreement or contract. The bailee assumes certain rights and duties in relation to the bailed property. Let's discuss the rights and duties of a bailee in a bailment:
Rights of a Bailee:
1. Right of possession: The bailee has the right to possess the bailed property during the period of the bailment. This means that the bailee has exclusive control and possession over the property, subject to any terms or restrictions agreed upon with the bailor.
2. Right to use: Unless otherwise specified, the bailee has the right to use the bailed property for the purpose for which it was bailed. The extent of this right depends on the nature of the bailment and the terms of the agreement.
3. Right of lien: The bailee has a right of lien over the bailed property. This means that the bailee can retain possession of the property until any outstanding debts or charges related to the property or the bailment are paid by the bailor. The right of lien provides a security interest to the bailee for the fulfillment of his or her claims against the bailor.
4. Right to claim compensation: If the bailment agreement includes compensation or remuneration for the bailee's services, the bailee has the right to claim such compensation from the bailor. The amount of compensation and the terms of payment should be specified in the agreement.
Duties of a Bailee:
1. Duty of care: The bailee has a duty to exercise reasonable care in preserving and protecting the bailed property. The bailee should take all necessary precautions to prevent damage, loss, or destruction of the property. The standard of care required may vary depending on the nature of the property and the terms of the bailment.
2. Duty to use the property for the agreed purpose: The bailee is obliged to use the bailed property only for the purpose specified in the bailment agreement. Any unauthorized use or deviation from the agreed purpose may lead to a breach of duty.
3. Duty to return the property: At the end of the bailment period or upon the fulfillment of the bailment purpose, the bailee has a duty to return the bailed property to the bailor in the same condition as it was received, subject to ordinary wear and tear. The bailee should return the property promptly and at the agreed place or to the bailor's instructions. [Dibrugarh University BCom Business Law Solved Question Paper 2022]
4. Duty to compensate for loss or damage: If the bailed property is lost, damaged, or destroyed due to the bailee's negligence or breach of duty, the bailee is liable to compensate the bailor for the loss or damage suffered. However, the bailee may not be liable if the loss or damage occurred without any fault on the bailee's part.
5. Duty to account: The bailee has a duty to keep an accurate account of the bailed property, including any changes or alterations made to it during the bailment period. The bailee should be able to provide a detailed record of the condition, use, and any incidents involving the bailed property.
These rights and duties help define the responsibilities of a bailee in a bailment and establish a framework for the proper handling and return of the bailed property.
5. (a) Define contract of sale. Distinguish between a sale and an agreement to sell. 3+8=11
Ans:- A contract of sale is a legal agreement between two parties, the seller and the buyer, in which the seller transfers or agrees to transfer ownership of goods or property to the buyer in exchange for a certain price. It is one of the most common types of contracts in commercial transactions.
In a contract of sale, the seller's primary obligation is to deliver the goods or property to the buyer, while the buyer's primary obligation is to pay the agreed price. The contract of sale establishes the terms and conditions governing the sale, including the description of the goods, the price, the payment terms, delivery terms, warranties, and any other relevant terms agreed upon by the parties.
Distinguishing between a sale and an agreement to sell:
1. Transfer of Ownership: In a sale, the ownership of the goods is immediately transferred from the seller to the buyer at the time of the contract. The buyer becomes the legal owner of the goods, and the seller loses ownership rights. On the other hand, in an agreement to sell, the ownership is not transferred immediately but is agreed to be transferred at a future date or upon the occurrence of certain conditions specified in the contract. Until the ownership is transferred, the seller retains ownership rights.
2. Risk and Reward: In a sale, the risk and reward associated with the goods are transferred to the buyer along with the ownership. The buyer bears the risk of any loss or damage to the goods. In contrast, in an agreement to sell, the risk and reward remain with the seller until the ownership is transferred. If the goods are lost or damaged before the transfer of ownership, the seller bears the risk.
3. Breach of Contract: In a sale, if either party fails to fulfill their obligations under the contract, it is considered a breach of contract. The non-breaching party can sue for specific performance or claim damages for the breach. In an agreement to sell, if the buyer fails to fulfill their obligations, it is treated as a breach of contract, but the seller has two options: (i) sue for damages, or (ii) treat the agreement as void and refuse to transfer ownership.
4. Legal Consequences: In a sale, the transfer of ownership creates a completed sale transaction, and the rights and obligations of the parties are determined accordingly. In an agreement to sell, until the ownership is transferred, the agreement remains executory, and the rights and obligations are based on the terms of the agreement. The seller still has an obligation to transfer ownership, and the buyer has an obligation to pay the price.
Or
(b) Enumerate the remedies for breach of contract of sale. 11
Ans:- When a contract of sale is breached by either party failing to fulfill their contractual obligations, the non-breaching party has several remedies available to seek compensation or enforce the terms of the contract. The remedies for breach of contract of sale include:
1. Damages: Damages are the most common remedy for breach of contract. The non-breaching party may claim monetary compensation for any financial loss suffered as a result of the breach. The damages aim to put the non-breaching party in the position they would have been in if the contract had been performed as agreed. The types of damages that can be claimed include:
a. Compensatory Damages: These are designed to compensate for the actual loss or harm suffered by the non-breaching party. The damages awarded may cover the difference between the contract price and the market price of the goods, any additional costs incurred, or any loss of profit directly resulting from the breach.
b. Consequential Damages: Also known as special damages, these are awarded for losses that are not directly caused by the breach but are reasonably foreseeable as a result of the breach. For example, if a delayed delivery of goods causes the buyer to lose a lucrative business opportunity, the buyer may claim consequential damages.
c. Incidental Damages: These are the expenses incurred by the non-breaching party to minimize the losses resulting from the breach. It includes costs such as storage, transportation, and other reasonable expenses.
2. Specific Performance: In some cases, the non-breaching party may seek a court order requiring the breaching party to fulfill their contractual obligations and perform the contract as originally agreed. Specific performance is often sought when the subject matter of the contract is unique or when monetary damages would not be an adequate remedy. However, specific performance is not granted in every case and is subject to the discretion of the court.
3. Rescission and Restitution: Rescission refers to the cancellation or termination of the contract due to the breach. When the contract is rescinded, both parties are released from their obligations under the contract. Restitution involves restoring the parties to their pre-contractual position by returning any consideration or benefits received under the contract.
4. Rejection or Revocation: If the breach is material and fundamental, the non-breaching party may have the right to reject the goods and terminate the contract. The buyer can reject the goods if they do not conform to the contract specifications, while the seller can revoke the contract if the buyer fails to pay the agreed price.
5. Action for Price: If the seller has delivered the goods but the buyer fails to pay the price, the seller may bring an action for the price of the goods.
6. Damages for Anticipatory Breach: If one party clearly indicates their intention not to perform the contract before the actual performance is due, it is called an anticipatory breach. The non-breaching party can treat this as a breach and claim damages.
The availability and extent of these remedies may vary depending on the applicable laws and the specific terms of the contract. It is advisable to consult with legal professionals to understand the specific remedies available in a particular jurisdiction.
6. (a) Define the term ‘partnership’. Discuss in brief the rights and duties of partners. 3+8=11
Ans:- Partnership refers to a form of business organization in which two or more individuals, known as partners, agree to carry on a business together with the aim of making a profit. It is governed by the Partnership Act or relevant laws in a particular jurisdiction. The partners pool their resources, skills, and expertise to operate the business and share the profits and losses according to the terms of their partnership agreement.
The rights and duties of partners in a partnership are as follows:
Rights of Partners:
1. Right to participate in management: Each partner has the right to participate in the management and decision-making of the partnership business. This includes having a say in strategic decisions, operational matters, and policy-making processes. However, the extent of participation may vary depending on the terms agreed upon in the partnership agreement.
2. Right to share profits and losses: Partners have the right to share the profits and losses of the partnership business as per the agreed ratio. The ratio may be based on the contribution of capital, skills, or any other terms specified in the partnership agreement. The right to a share in the profits is a fundamental aspect of the partnership relationship.
3. Right to inspect and access partnership books: Partners have the right to inspect and access the partnership's books, records, and financial statements. This ensures transparency and allows partners to monitor the financial position and performance of the partnership.
4. Right to be consulted: Partners have the right to be consulted and informed about important matters affecting the partnership business. This includes matters such as entering into contracts, incurring significant debts, making investments, and entering into new ventures. Partners should be kept informed and their opinions and suggestions should be considered in the decision-making process.
5. Right to compete: Unless otherwise specified in the partnership agreement, partners have the right to engage in similar businesses or activities outside of the partnership. However, they should not act in a manner that harms or competes with the partnership business or diverts its opportunities.
Duties of Partners:
1. Duty of utmost good faith: Partners owe each other a duty of utmost good faith, also known as a fiduciary duty. They should act honestly, with loyalty, and in the best interests of the partnership. They should not engage in any activities that would harm or disadvantage the partnership or other partners.
2. Duty to contribute: Each partner has a duty to contribute to the partnership's capital as specified in the partnership agreement. This contribution can be in the form of money, property, skills, or labor. The duty to contribute is essential for the proper functioning and financial stability of the partnership.
3. Duty of care and skill: Partners have a duty to exercise reasonable care, skill, and diligence in managing and operating the partnership business. They should make informed decisions, undertake their responsibilities diligently, and act in a manner that a reasonable person with similar skills and experience would.
4. Duty to account: Partners have a duty to provide a true and accurate account of all partnership transactions and financial matters. This includes maintaining proper books and records, preparing financial statements, and disclosing all relevant information to the other partners.
5. Duty of loyalty: Partners have a duty of loyalty to the partnership, which requires them to act in the partnership's best interests and not to engage in any activities that would result in a conflict of interest. They should not compete with the partnership, disclose confidential information, or engage in self-dealing without the consent of the other partners.
6. Duty to indemnify: Partners have a duty to indemnify the partnership for any losses or liabilities incurred on behalf of the partnership. This duty ensures that partners take responsibility for the consequences of their actions and protect the partnership's financial interests.
These rights and duties help establish the framework for the partnership relationship, ensuring fairness, accountability, and the collective pursuit of the partnership's objectives. It is essential for partners to have a clear understanding of their rights and duties to maintain a harmonious and successful partnership.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
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(b) Explain the different modes of dissolution of a partnership firm. 11
Ans:- A partnership firm may be dissolved due to various reasons, such as the expiration of the partnership term, the completion of the partnership's objectives, or the occurrence of certain events or circumstances. The different modes of dissolution of a partnership firm are as follows:
1. Dissolution by Agreement: The partners may mutually agree to dissolve the partnership by entering into a dissolution agreement. This can occur when the partnership term expires or when the partners decide to terminate the partnership for any other reason. The dissolution agreement should specify the terms and procedures for winding up the partnership's affairs, distributing assets, and settling liabilities.
2. Dissolution by Notice: If the partnership is at will, meaning there is no fixed term specified in the partnership agreement, any partner may give notice to the other partners expressing their intention to dissolve the partnership. The partnership will be dissolved upon the expiry of the notice period as stipulated in the partnership agreement or, if not specified, upon the reasonable time required for winding up the affairs of the partnership.
3. Dissolution by Court Order: The court may order the dissolution of a partnership firm in certain situations, including:
a. Insolvency or Bankruptcy: If a partner becomes insolvent or bankrupt, the court may order the dissolution of the partnership.
b. Permanent Incapacity: If a partner becomes permanently incapacitated, making it impossible to carry on the partnership business, the court may order dissolution.
c. Misconduct: If a partner engages in wrongful or illegal activities that are detrimental to the partnership, the court may dissolve the partnership.
d. Unsoundness of Mind: If a partner becomes of unsound mind, rendering them incapable of performing their duties as a partner, the court may order dissolution.
e. Continuous Breach: If a partner persistently breaches the partnership agreement or engages in conduct that makes it impracticable to carry on the partnership business, the court may dissolve the partnership.
4. Dissolution by Operation of Law: The partnership may be dissolved by operation of law under certain circumstances, including:
a. Death of a Partner: The death of a partner generally leads to the automatic dissolution of the partnership, unless the partnership agreement specifies otherwise.
b. Bankruptcy of a Partner: If a partner is declared bankrupt, it may result in the automatic dissolution of the partnership, depending on the laws of the jurisdiction.
c. Illegality: If the partnership becomes illegal due to changes in law or the partnership's activities, it will be dissolved by operation of law.
Upon the dissolution of a partnership, the firm enters into the winding-up phase, during which the partners settle the partnership's affairs, liquidate assets, pay off liabilities, and distribute the remaining assets among the partners in accordance with the partnership agreement or applicable laws. It is important to consult legal professionals and follow the relevant legal procedures during the dissolution process.
7. (a) Define negotiable instruments. Explain the different types of negotiable instruments with example. 3+9=12
Ans:- Negotiable instruments are written documents that represent a promise or order to pay a specified amount of money and can be transferred from one party to another. These instruments are legally recognized as a form of payment and are governed by specific laws and regulations. The key characteristics of negotiable instruments are their transferability and enforceability.
Different types of negotiable instruments:
1. Promissory Note: A promissory note is a written promise made by one party, known as the maker, to pay a specific sum of money to another party, known as the payee, on demand or at a specific future date. It involves two parties, the maker and the payee. An example of a promissory note is a personal loan agreement where the borrower (maker) promises to repay the lender (payee) a certain amount of money with interest.
2. Bill of Exchange: A bill of exchange is an unconditional written order made by one party, known as the drawer, to another party, known as the drawee, to pay a specified amount of money to a third party, known as the payee. It involves three parties: the drawer, the drawee, and the payee. An example of a bill of exchange is a post-dated check issued by a person (drawer) to a supplier (payee) and presented to a bank (drawee) for payment on the specified future date.
3. Cheque: A cheque is a type of bill of exchange drawn on a bank, instructing the bank to pay a specific amount of money to the payee or the bearer of the cheque. It involves three parties: the drawer (the person issuing the cheque), the drawee (the bank), and the payee (the person receiving the payment). Cheques are commonly used for various purposes, such as making payments, settling debts, or transferring funds. For example, a person writes a cheque to their landlord for the monthly rent payment.
4. Certificate of Deposit: A certificate of deposit (CD) is a negotiable instrument issued by a bank or financial institution, representing a deposit made by an individual or entity for a specified period of time at a fixed interest rate. It acts as evidence of the deposit and the agreement between the depositor and the bank. The certificate of deposit can be bought, sold, or transferred. Upon maturity, the depositor can redeem the certificate and receive the principal amount along with the accrued interest.
These types of negotiable instruments serve as a means of payment, provide flexibility in financial transactions, and can be transferred to third parties, making them valuable instruments in commercial activities. They carry legal enforceability, allowing parties to rely on them for the transfer of value and as evidence of debt or obligation.[Dibrugarh University BCom Business Law Solved Question Paper 2022]
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(b) Write notes on the following: 6x2=12
(1) Holder in Due Course:
A holder in due course refers to a person who receives a negotiable instrument, such as a promissory note or a cheque, in good faith, for value, and without notice of any defects or claims against it. The concept of a holder in due course is important because it provides certain legal protections and rights to the holder, even if there are issues or disputes related to the instrument.
To be considered a holder in due course, the following conditions must be met:
a. Good Faith: The holder must acquire the instrument honestly and without any fraudulent intent. They should not have any knowledge of any defect, forgery, or illegality associated with the instrument.
b. Value: The holder must give a valuable consideration in exchange for the instrument. This means they must provide something of economic value, such as money, goods, or services, to obtain the instrument.
c. Without Notice: The holder must acquire the instrument without having notice of any defect, claim, or prior rights of others. They should not have any reason to suspect that the instrument is invalid, forged, or subject to any conflicting claims.
Legal rights and protections for a holder in due course include:
i. Holder's Rights: A holder in due course acquires the instrument free from any defects or defenses that the previous parties to the instrument may have had. This means they can enforce payment of the instrument and sue the parties involved in its creation, such as the maker or drawer.
ii. Superior Rights: A holder in due course has superior rights over other parties who may have competing claims or interests in the instrument. They are protected against claims from prior holders who may have lost their rights due to fraud, illegality, or other reasons.
iii. Shelter Rule: The holder in due course can transfer their rights to subsequent holders, who will also enjoy the same legal protections and rights, even if the subsequent holder does not meet all the requirements to be a holder in due course.
(2) Dishonour of Cheque: Dishonour of a cheque occurs when the bank, upon presentation of the cheque for payment, refuses to honor the payment due to various reasons. It indicates that the cheque is not accepted as a valid form of payment by the drawee bank. Dishonour of a cheque can happen due to several factors, including:
a. Insufficient Funds: The most common reason for dishonour is when the drawer's account does not have sufficient funds to cover the amount stated on the cheque. In such cases, the bank will not honor the payment.
b. Irregular Signature: If the signature on the cheque does not match the specimen signature provided by the account holder, the bank may dishonor the cheque.
c. Stale or Expired Cheque: A cheque presented for payment after a specified period, typically six months or a year, depending on the jurisdiction, is considered stale or expired and may be dishonored.
d. Post-dated Cheque: If a post-dated cheque is presented for payment before the specified future date, the bank may dishonor it.
e. Crossed or Account Payee Only Cheque: If the cheque is crossed or marked as "account payee only," it cannot be cashed by the holder and must be deposited into the payee's bank account. If someone tries to cash it, the bank may dishonor the cheque.
Consequences of dishonouring a cheque:
i. Non-payment: The payee of the dishonored cheque does not receive the intended payment, which can result in financial inconvenience and complications.
ii. Legal Recourse: The payee has the right to take legal action against the drawer of the dishonored cheque to recover the amount owed. This may involve filing a complaint with the appropriate legal authorities and initiating legal proceedings.
iii. Damage to Reputation: Dishonour of a cheque can harm the reputation of the drawer, as it indicates financial instability or irresponsibility.
It's important to note that the specific legal consequences and remedies for dishonour of a cheque can vary depending on the jurisdiction and applicable laws.
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