UNIT I - COMMERCIAL LAW

Part- A
2 Mark Questions
1) What are the essential elements of a valid contract?
a) Offer and Acceptance; b) Intention to create legal relationship; c) Lawful consideration;
d) Capacities of parties-competency; e) Free and genuine consent; f) Lawful Object;
g) Agreement not declared void; h) Certainty and possibility of performance;

2) When the offer and acceptance is complete?

For an offer, to be complete, it must be communicated to the person to whom it is made. An offer is to be made to the offeree by the offeror or by
his duly authorized agent and there can be no acceptance of it, without such communication.
Similarly, the acceptance must be communicated to the offeror in some perceptible form by the acceptor. Acceptance must be a matter of fact with
external manifestation. The acceptance must be communicated before the offer lapses and before it is withdrawn. Both communications should
take place within a reasonable time.

3) Distinguish between an offer and an invitation to offer.

An offer is a proposal by one party to another to enter into a legally binding agreement with him. A person is said to have made a proposal, when
he signifies to another his willingness to do something with a view to obtaining the assent of that other.
Whereas, the display of goods, marked with prices on them, quotations, catalogues, Advertisements in newspaper to sell an article, circulars sent
to potential customers, the goods sold in a self service system and tenders are called as invitation to offer.
In an offer, the person who offers becomes a Promisor. In the invitation to offer, the person who invites the offer wanted the other person to be a
Promisor and he wanted himself to be an acceptor and promisee.

4) What do you mean by cross offer?

When two parties make identical offers to each other, without knowing or in ignorance of each others offer, the offers are called as cross offers.
In such a case court shall consider that there is no concluded contract.

5) Define contingent contract and quasi contract.

Section 31 defines, Contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not
happen.
For example: An insurance company agrees to pay a person Rs.1, 00,000 if that persons car is stolen/ lost. This is a contingent contract.

A quasi-contract has been defined as a situation in which law imposes upon one person
on grounds of natural justice, an obligation similar to that which arises from a true
contract although no contract, express or implied has in fact been entered into by them.

6) Define Consensus ad idem.

This means the parties to the agreement must have agreed about the subject-matter of the agreement in the same sense and at the same time. If
there is no consensus ad idem there can be no contract.
7)

Who must perform a contract?

a) Promisor himself; b) Agent; c) Legal Representative; d) Third persons- when promisee accepts;
e) Joint promisors;

8)

What do you mean by assignment of a contract?

To assign means to transfer. Assignment of a contract means transfer the contractual rights, obligations and liabilities under the contract to a third
part with or without the concurrence of the other party to the contract.

Contractual obligations involving personal skill or ability can not be assigned. The promisee can not be compelled by the promisor or by a third
party for assignment. The rule is based on sense and convenience. By operation of law the contract may be assigned. In the event of death or
insolvency also the contracts can be assigned.
9)

Define Quasi contracts.

A quasi-contract has been defined as a situation in which law imposes upon one person
on grounds of natural justice, an obligation similar to that which arises from a true
contract although no contract, express or implied has in fact been entered into by them.

10)

List out the implied conditions in a contract of sale.

a) Condition as to title; b) Sale by description; c) condition as to quality or fitness;
d) Condition as to merchantability; e) Condition implied by custom; f) Sale by sample;
f) Condition as to wholesomeness;

11)

List out the implied warranties in a contract of sale.

a) Warranty of quiet possession;
b) Warranty of freedom from encumbrances;
c) Warranty as to quality or fitness by usage of trade;
d) Warranty to disclose dangerous nature of goods;

12)
a)
b)
c)

Distinguish between condition and warranty. ( Asked for two times)

Difference as to value: - A condition is a stipulation which is essential to the main purpose of the contract. A warranty is a stipulation which is
collateral to the main purpose of the contract
Difference as to breach: If there is a breach of the condition, the aggrieved party can treat the contract as repudiated. But the breach of a
warranty can lead only to a claim and the aggrieved party can not repudiate/ cancel the contract.
Difference as to treatment: A breach of a condition may be treated as a breach of warranty. This can happen only when the aggrieved party is
contented with damages only. But breach of a warranty can not be treated as a breach of a condition.

A condition is a stipulation which is essential to the main purpose of the contract. It goes to the root of the contract. It is so essential to the
performance of the contract, its non-fulfillment leads to the failure of the performance of the contract. If there is a breach of the condition, the
aggrieved party can treat the contract as repudiated.
A warranty is a stipulation which is collateral to the main purpose of the contract. It is not as vital as condition. The breach of a warranty can lead
only to a claim and the aggrieved party can not repudiate/ cancel the contract.

13)

Distinguish between warranty and guarantee.

A warranty is a stipulation which is collateral to the main purpose of the contract. It is not as vital as condition. The breach of a warranty can lead
only to a claim and the aggrieved party can not repudiate/ cancel the contract. Warranty is connected with stipulations related to the performance
of contracts.
Guarantee is connected with the protection and of risk management in dealing with borrowing and lending or in identifying the responsible
persons in case of default of promises.
A guarantee is a contract to perform the promise or discharge of liability of a third party in case of his default. A guarantee may be either oral or
written. It may be expressed or implied and may even be inferred from the course of conduct of the parties concerned. The person who gives the
guarantee is called as surety and person for whom it is given is called as principal debtor and the person to whom it is given is called as creditor.
14)

Who is an unpaid seller? What are his rights?

A seller of goods is an unpaid seller when
I)
the whole of the price has not been paid or tendered.
A bill of exchange or other negotiable instrument has been received as
conditional payment and the condition on which it was received has not been
fulfilled by reason of the dishonor of the instrument or otherwise.

ii)

Rights of an unpaid seller:

a) Right of lien; b) Right of stoppage in transit; c) Re-Sale; d) Withhold the delivery;
e) Suit for price; f) Suit for damages; g) Repudiation of the contract of sale; h) Suit for interest;
15)

Define the term Goods.

Goods means every kind of movable 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 (for example trees) or under the contract of sale. Trade
marks, copy rights, patent rights, good will, electricity, water, gas are all goods.

16)

What is the right of a finder of lost goods?

a) Right of lien; b) Right to sue for reward; c) Right of sale;

17)

Define agency? Who is called as an agent?

Agency is a concept in which a person called Principal appoints another person to deal with third parties on behalf of him.
An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is
done or who is so represented is called the principal.

18)

What is the test for determining the existence of agency?

If a person claims to be an agent, can bind the principal and make him answerable to a third person by bringing him into legal relations, we can be
sure that the agency exists.
The existence of a privity of contract between a principal and his agent is known by the legal binding of the principal for the acts of his agent.

19)

What are the characteristics of del credere agent?

Del credere agent occupies the position of both a guarantor and an agent for his principal. A del credere agent is one who, in consideration for
an extra commission, guarantees his principal that the person with whom he enters into contract on behalf of the principal, shall perform their
obligations.

20)

What is a Negotiable Instrument? / Define:

A negotiable instrument means a promising note, bill of exchange or cheque payable

either to order or to bearer.
A negotiable instrument is a document which entitles a person to a sum of money and
which is transferrable from one person to another by mere delivery or by indorsement and
delivery.
21)

Who is a holder in due course? (asked for 2/3 times)

A person who takes a negotiable instrument, 1) bona fide; 2) for a value, is known as a holder in due course. He gets a good title even though the
title of the transferor may be defective.
Extra Questions in Unit 1:

1)

What is Law?
Law is those principles applied by the state in the administration of justice.

2)

Write short note on business law?

Business law refers to those rules and regulation which govern the formation and
execution of business deals made by various people in the society.
3)

What do you understand by mercantile law?

Mercantile law is that branch of civil law dealing with rights and obligations of
mercantile persons arising out of mercantile transactions in respect of mercantile
property.
4)

Define commercial law?

Commercial law can be defined as, the rights and obligations of commercial
persons who deals with commercial transactions in respect of commercial property.
5)

What is meant by valid contract?

A contract is an agreement, enforceable by law, made between at least two parties
by which rights are acquired by one and obligations are created on the part of another.
6)

What are void Agreements?

It is an agreement which is not enforceable by law.
i)
An agreement made without consideration is void.
ii)
An agreement, the consideration of which is unlawful is void.
iii)
An agreement in restraint of marriage of any person, other than a minor
is void, etc.
7)
Define contract?
A contract is an agreement enforceable at law, made between two or more
persons, by which rights are acquired by one or more, to act on the part of the other.
8)

List out the formation of a contract?

The following are the essential parts of formation of a contract.
a)
Offer and acceptance

b)
c)
d)
e)

Consideration
Competency to contract
Free consent
Lawful object

9)

State the meaning of performance of contracts?

Performance of contract means the carrying out of obligations under it. The
parties to contract must either perform or offer to perform their respective promises
unless such performance is dispensed with or excused under the provisions of the Indian
Contract Act, or some law
10)

What do you understand by Breach of contract?

The term breach means violation or contravention with regard to
fulfillment of the terms and conditions incorporated in an agreement. A contract is said to
have been discharged by breach when the parties to the agreement fail to discharge their
respective obligations or when parties act contrary or in contravention to the terms and
conditions contained in the contract.
11)

What are the remedies for breach of contract?

1)
Rescission of the contract
2)
Suit for damages
3)
Suit upon Quantum merit.
4)
Suit for specific performance of the contract.
5)
Suit for Injunction.

13)

What is contract of sale?

Section 4 defines a contract of sales as a contract whereby the seller
transfer or agrees to transfer the property in goods to the buyer for a price.
14)

Discuss about transfer of title?

The main purpose of a contract of sales is the transfer of ownership of the
goods from a seller to a buyer. When the ownership of the goods is transferred to the
buyer, he becomes the owner of the goods and the seller ceases to be the owner of such
goods.
15)

What are the condition and warranty in sales contract?

A condition is a term which is essential to the main purpose of the contract and
hence is the foundation of the contract.
A warranty is a term which is collateral to the main purpose of the contract and
hence is only a subsidiary promise.
16)

Define performance of sales contracts?

It is the duty of the seller to deliver the goods and of the buyer to accept and pay
for them, in accordance with the terms of sales contracts.

19)

Define Negotiation?
Section 14 of the Negotiable Instrument Act lays down that when a
promissory note, till of exchange or cheque is transferred to any person, so as to
constitute that person the holder there of, the instrument is said to be negotiated.
20)

Write any five liabilities of the parties to a Negotiable Instrument?

1)
Liability of Drawer
2)
Liability of Acceptor or maker
3)
Liability of Drawee of a cheque
4)
Liability of Endorser
5)
Liability of prior parties to a Holder in Due Course.
21) Who is a holder in due course?
Holder in due course means any person who for consideration and in
good faith become the processor of a promissory note, bill of exchange or cheque if
payable to bearer, or the payee or indorsee thereof, if payable, to order before the amount
mentioned in it become payable.
22)

What are the obligations of a Banker to a customer?

1)
Obligation to Honour cheques
2)
Obligation to maintain secrecy of Account
3)
Obligation to keep proper Records of Transactions.
4)
Obligation to Abide by customers Instructions.

23)

Define agency?
An agent is a person employed to do any act for another or to represent
another in dealings with third persons. The person for whom such act is done or who is so
represented is called the principal.
24)

What are the different kinds of agents?

1)
Auctioneer
2)
Banker
3)
Broker
4)
Factor
5)
Del credere agent
6)
Commission agent
7)
Indentor
8)
Insurance agent

25)

State the Agents authority and liability of principal?

The competency or capacity of an agent to bind his principal by his acts is
known as agents authority. An agent enjoys.
a)
Actual or real authority
b)
Ostensible or apparent authority, and
c)
Agents authority in emergency.
26)

How will you terminate the Agency?

I)
By act of parties
ii)
By operation of Law.