CSS Past Paper 2016 Mercantile Law Descriptive

CSS | Past Paper | Group 6 | 2016 | Part 2 | Descriptive

Below is the solution to PART-II (COMPULSORY) of the CSS Past Paper 2016 Mercantile Law Descriptive (Part 2).

Question 2

Define Endorsement. Explain its kinds.

Introduction

Endorsement is a very important concept in negotiable instruments law, like in case of cheques, bills of exchange, and promissory notes. It allows the instrument to be transferred from one person to another in a legal way. It also gives the right to receive the money written on it.

Definition of Endorsement

According to Section 15 of the Negotiable Instruments Act,

“When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, he is said to indorse the same.”

So in simple words, endorsement means signing the back of a negotiable instrument to transfer its ownership to another person.

Main Purpose of Endorsement

To transfer the ownership of the instrument.
To collect payment from the bank.
To give authority to someone else to receive the payment.

Kinds of Endorsement

There are different types of endorsements based on how the instrument is transferred and what rights are given. Some of the main types are explained below:

1. Blank Endorsement (General Endorsement)

In this type, only the signature of the endorser is done, without mentioning the name of the person to whom it is endorsed. It becomes payable to bearer and can be transferred by delivery alone.

Example:
Ali signs the back of a cheque without writing anyone’s name. Now anyone holding the cheque can claim the amount.

2. Full Endorsement (Special Endorsement)

Here, the endorser writes the name of the person to whom the instrument is being transferred along with his signature. It is safer than blank endorsement.

Example:
Ali writes “Pay to Ahmad” and signs it. Now only Ahmad can cash or transfer it.

3. Restrictive Endorsement

This kind of endorsement limits the further negotiation of the instrument. It may also authorize the endorsee to just collect the payment, not to transfer.

Example:
“Pay to Ahmad only” or “Pay to Ahmad for collection.”

4. Conditional Endorsement

In this type, the endorser puts a condition with his signature. The right to receive payment arises only after fulfilling the condition.

Example:
“Pay to Ahmad after he passes CSS exam.” – This is a conditional endorsement.

5. Sans Recourse Endorsement

Here, the endorser writes “Sans Recourse” which means he will not be responsible if the instrument is not paid or dishonoured. He is removing his liability.

Example:
“Pay to Ahmad or order, Sans Recourse” – signed by Ali.

6. Facultative Endorsement

In this type, the endorser waives some rights, usually the notice of dishonor. It is rarely used.

Example:
“Notice of dishonor waived” – signed by endorser.

Conclusion

Endorsement is a way to legally transfer negotiable instruments and give others the right to receive payment. It is very useful in business and banking. Different types of endorsement give different rights and responsibilities, so one should always choose the right kind depending on the purpose. Understanding these kinds helps in avoiding fraud and confusion in commercial transactions.

Question 3

What do you understand by partnership? Elaborate the points of difference between partnership and company.

Introduction

In business, many people work together to earn profit. When two or more people agree to run a business and share profit and loss, it is called a partnership. It is a common and easy way of doing business.

Definition of Partnership

According to Section 4 of the Partnership Act, 1932,

“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

So basically, a partnership is when two or more persons do business together and share profit. The partners can manage business themselves or one of them can manage on behalf of others.

Essential Elements of Partnership

Agreement between persons (written or oral)
Sharing of profits and losses
Mutual agency – every partner is both agent and principal
Business must be lawful
Minimum 2 and maximum 20 partners (10 for banking)

Definition of Company

A company is a different type of business which is created by law. It is a separate legal entity, which means it is treated like a person in the eyes of law.

According to Companies Ordinance 1984,

“Company means a company formed and registered under this Ordinance or an existing company.”

It is managed by directors and shareholders. It has more legal formalities but more benefits too.

Differences Between Partnership and Company

Basis	Partnership	Company
1. Legal Status	Not a separate legal entity	Separate legal entity
2. Registration	Optional under Partnership Act	Mandatory under Companies Ordinance
3. Number of Members	Minimum 2, maximum 20 (10 for banking)	Private company: 2 to 50 Public company: Minimum 7
4. Liability	Unlimited liability of partners	Limited liability of shareholders
5. Management	All or any of the partners manage the firm	Managed by Board of Directors
6. Transfer of Interest	Cannot be transferred without consent of all partners	Shares are freely transferable (in public company)
7. Life/Continuity	Ends if a partner dies, retires or becomes insolvent	Company continues regardless of members
8. Auditing	Not compulsory (unless required by law)	Auditing is compulsory
9. Raising Capital	Limited to partners’ resources	Can raise capital by issuing shares, debentures etc.
10. Legal Formalities	Very few legal requirements	Many legal formalities required

Conclusion

Both partnership and company are useful forms of business, but they are very different. Partnership is simple and easy to start, but it has more risk due to unlimited liability. Company is more secure and long-lasting but needs more rules and paperwork. People choose between them based on their needs, size of business, and available capital.

Question 4

Define Contract. Explain the contracts which need not to be performed.

Introduction

A contract is a basic part of business and daily life. It is a legal agreement between two or more people that creates rights and duties. It can be oral or written, but it must follow the law.

Definition of Contract

According to Section 2(h) of the Contract Act, 1872,

“A contract is an agreement enforceable by law.”

So, it means when two or more parties make a promise to do or not do something, and the law will support that promise, it becomes a contract.

Essential Elements of a Valid Contract

Offer and Acceptance
Free Consent
Lawful Consideration
Lawful Object
Capacity of Parties
Not declared void
Possibility of performance
Legal Formalities (if required)

Contracts Which Need Not to Be Performed

Some contracts, even though valid in the beginning, do not need to be performed later due to special reasons. These are explained in Sections 62 to 67 of the Contract Act, 1872.

1. Novation (Section 62)

When the old contract is replaced by a new one, the original contract doesn’t have to be performed.

Example:
A owes B Rs. 10,000. They agree that C will now pay it to B. The old contract ends.

2. Rescission (Section 62)

When both parties agree to cancel the contract, there is no need to perform it.

Example:
A agrees to sell his car to B, but later both decide not to go ahead. The contract is rescinded.

3. Alteration (Section 62)

If terms of the contract are changed with mutual consent, the original contract ends.

Example:
A was to deliver 100 chairs to B. They later agree to 50 chairs only. The old contract ends.

4. Remission (Section 63)

If the promisee allows the promisor to perform less than what was agreed, or waives the performance, then full performance is not required.

Example:
A has to pay B Rs. 5,000. B agrees to accept Rs. 3,000 in full. A is not required to pay the full amount.

5. Waiver

When the promisee gives up his right to performance, then the contract need not be performed.

6. Void Contract (Section 65)

If a contract becomes void later, then the parties are not bound to perform it, but must return what they received.

Example:
A agrees to sell land to B. Later the government bans sale of that land. Contract becomes void.

7. Impossibility of Performance (Section 56)

If something happens that makes the contract impossible to perform, it becomes void and need not be performed.

Example:
A agrees to sing in a concert, but dies before the date. Contract ends.

8. Illegal Contracts

If the object or consideration becomes illegal later, then performance is not required.

Example:
A contracts to sell imported goods, but the government bans import. Contract ends.

Conclusion

While contracts are made to be performed, sometimes due to changes in situation or agreement between parties, they don’t need to be performed. The law accepts these conditions and allows parties to end or change the contract legally. This protects both parties from unfair results when performance becomes impossible or useless.

Question 5

What do you understand by implied authority of a partner as an agent of the firm? Are there any acts which he cannot do under his implied authority?

Introduction

In a partnership, each partner is not just an owner but also an agent of the firm. This means that whatever one partner does in the normal course of business, it affects all partners and the firm. This power is called implied authority.

Meaning of Implied Authority

Implied authority means the power given to a partner by law (not by written agreement) to act on behalf of the firm in the normal course of its business. It is automatic and doesn’t need special permission from other partners every time.

Definition (Section 18 of Partnership Act, 1932)

“A partner is the agent of the firm for the purposes of the business of the firm.”

So, a partner can do all acts necessary for running the business, and the firm will be bound by those acts, even if not all partners know about them.

Examples of Acts Under Implied Authority (Section 19(1))

The partner can do following acts under implied authority:

Buy or sell goods on behalf of the firm.
Receive payments and issue receipts.
Borrow money in the name of the firm (if it’s usual in that type of business).
Hire employees or agents.
Make contracts for the business.
Settle accounts or disputes related to the firm.
Give goods on credit (if it is normal for the business type).

Limits: Acts a Partner Cannot Do Under Implied Authority (Section 19(2))

There are some acts that a partner cannot do unless he has express authority or permission from the other partners. These acts are outside the normal course of business.

Submit a dispute to arbitration
Open a bank account in his own name for firm’s money
Compromise or give up a claim of the firm
Withdraw a legal case filed by the firm
Admit any liability in a lawsuit
Transfer firm’s property
Enter into partnership with others on behalf of the firm

These acts are considered risky or unusual, so they need full approval of the partners.

Why These Limits Exist?

To protect the firm from bad decisions by one partner
Because some acts can cause big financial or legal problems
Not all acts are “normal course of business” – so permission is required

Case Example

If a partner in a grocery store firm sells groceries or accepts payments, it’s within implied authority.
But if the same partner sells the shop building without asking others, it’s beyond implied authority and not binding on the firm.

Conclusion

Implied authority helps partners to run the business smoothly without asking for permission every time. But law also puts limits on it, so that one partner doesn’t misuse power. Partners must understand what they can and can’t do under this authority to avoid legal troubles.

Question 6

Discuss the composition and functions of Competition Commission of Pakistan under the Competition Commission Act, 2010.

Introduction

To make sure there is fair competition in the market and to stop monopoly or unfair practices, the Government of Pakistan made a law called the Competition Act, 2010. Under this law, a body called the Competition Commission of Pakistan (CCP) was created. The CCP protects businesses and consumers from unfair trade practices.

What is the Competition Commission of Pakistan (CCP)?

The Competition Commission of Pakistan is an independent and quasi-judicial body. Its job is to stop anti-competitive behavior like price fixing, monopoly, and misleading advertisements. It keeps the market free and fair.

Composition of CCP

The composition of CCP is explained in Section 14 of the Competition Act, 2010. The government appoints qualified members to the commission.

Chairman:
Head of the commission. Must be a person with experience in law, business, finance, or economics.
Members:
- Minimum of two, maximum of six members.
- Appointed by the Federal Government.
- One member can act as Vice Chairman.
Term:
- Each member is appointed for three years.
- Can be re-appointed once.
Qualifications:
Members must have expertise in economics, law, finance, commerce, or industry.
Meetings and Quorum:
The Commission must meet regularly, and decisions are made by majority vote.

Functions of CCP (As per Section 28 of the Act)

The CCP performs many functions to control unfair business practices.

1. Prevent Abuse of Dominant Position (Section 3)

If any company tries to control the market or stop others from competing (like monopoly), the CCP stops it.

2. Stop Anti-Competitive Agreements (Section 4)

If two or more businesses make secret deals to fix prices or limit production, CCP can take action.

3. Control Deceptive Marketing (Section 10)

If a company gives false or misleading advertisements or claims, CCP can fine them.

4. Regulate Mergers and Acquisitions (Section 11)

CCP checks big mergers to make sure they don’t create monopoly or reduce competition.

5. Advocacy and Awareness

CCP also educates businesses and the public about fair competition rules.

6. Conduct Investigations and Raids

CCP has power to enter offices, collect records, and do investigations if there is a complaint.

7. Impose Penalties

If someone breaks the law, CCP can fine up to Rs. 75 million or even more in some cases.

8. Promote Free Market Economy

CCP ensures that the market works properly and consumers get better choices and prices.

Powers of the CCP

Can summon people and documents.
Can hold hearings like a court.
Can give orders, impose fines, and pass directions.
Can work with other international competition agencies.

Conclusion

The Competition Commission of Pakistan plays a very important role in keeping Pakistan’s economy strong and fair. It stops powerful companies from abusing their position and helps small businesses to grow. It also protects the rights of consumers. Through its powers and functions under the Competition Act 2010, CCP promotes a healthy and competitive business environment.

Question 7

“None can transfer a better title like than he himself has”. Are there any exceptions to this rule?

Introduction

The general rule in the Sale of Goods Act, 1930 is:

“No one can give what he doesn’t have.”

This means, if a person is not the owner of goods, he cannot give someone else ownership of it. This is known as the “Nemo dat quod non habet” rule in law, which means “no one can transfer a better title than he himself has.”

Example of the Rule

If a thief sells a stolen motorcycle to a buyer, even if the buyer is innocent, the real owner can take it back. The buyer will not become the owner because the thief had no title to pass.

Purpose of This Rule

To protect the rights of the true owner
To stop illegal sales or fraud
To keep ownership safe

Exceptions to the Rule

But in some special cases, a non-owner can transfer a good title to the buyer. These are exceptions mentioned under the Sale of Goods Act and other related laws.

1. Sale by a Mercantile Agent (Section 27)

If a mercantile agent (like a salesman or broker) sells goods in the ordinary course of business, the buyer gets a good title, even if the agent had no authority – if the buyer acts in good faith.

Example:
A car dealer (agent) sells a car without permission but in a usual way. Buyer will get good title.

2. Sale by Co-owner (Section 28)

If one co-owner is in possession of goods with permission and sells them, the buyer in good faith gets a valid title.

Example:
Two brothers own a shop. One sells an item. Buyer gets good title.

3. Sale under Estoppel (Section 27)

If the true owner behaves in a way that makes the buyer believe someone has authority to sell, the owner cannot deny the sale later.

Example:
Owner lets his friend show a car as his own. Friend sells it. Owner cannot take it back.

4. Sale by Person in Possession After Sale (Section 30(1))

If a person sells goods again after selling them once, and the second buyer buys in good faith, he gets good title.

5. Sale by Buyer in Possession (Section 30(2))

If the original buyer gets possession before paying fully, and he sells the goods to someone else who buys in good faith, the new buyer gets good title.

6. Sale by Unpaid Seller (Section 54(3))

If an unpaid seller exercises his right of resale, the new buyer gets good title.

7. Sale by Court Order

If a court orders the sale of goods (like in case of bankruptcy), the buyer gets good title even if the seller is not the real owner.

8. Sale in Market Overt (English Law)

Under old English law, if goods were sold in open market in good faith, the buyer got good title. This is not part of Pakistani law, but useful in concept.

Conclusion

The rule that no one can give better title than he owns is important to protect owners, but there are many exceptions to balance fairness for innocent buyers. These exceptions are there to support good faith transactions and smooth business operations. The law tries to protect both real owners and honest buyers in different situations.

Question 8

Explain the terms and conditions of Transfers under the Electronic Fund Transfer Act 2007. What disclosures are required under such transfer?

Introduction

With the rise of digital banking, people now send and receive money using Electronic Fund Transfers (EFTs). To control and protect these transactions, Pakistan passed the Electronic Fund Transfer Act, 2007. This law ensures safe, smooth, and fair electronic money transfers.

Definition of Electronic Fund Transfer (EFT)

An EFT means any transfer of money that is started through electronic means like ATM, mobile app, internet banking, or debit cards, without using physical cash or paper documents.

Main Purpose of EFT Act 2007

To protect users of electronic banking
To regulate banks and service providers
To prevent fraud or errors in transfers
To ensure clear communication and fair service

Terms and Conditions of Electronic Transfers

According to the EFT Act 2007, there are some important rules that both the financial institutions and customers must follow:

1. Authorization of Transfer

No transfer can be made without permission from the account holder.
This can be given by PIN, password, digital signature, or any approved method.

2. Record of Transaction

The bank or institution must keep a full record of the transaction (amount, date, time, etc.).
This helps in case of any complaint or dispute.

3. Time of Execution

The transfer must be done within the time agreed between bank and customer.
Delays can result in liability on the bank.

4. Reversal of Wrong Transfers

If money is sent by mistake or fraud, the user can ask for reversal.
The bank must investigate and reverse the transaction if proven.

5. Security Measures

Banks must use secure systems to protect against hacking or data theft.
Users must also protect their PINs and passwords.

6. Liability for Unauthorized Transfers

If someone makes a fake or illegal transfer, and the bank fails to stop it, the bank may be responsible.
But if the customer was careless, he may have to bear the loss.

7. Error Resolution

If a customer reports an error, the bank must respond quickly and fix it within a set time (usually 10 working days).
A detailed complaint system must be in place.

Disclosures Required Under EFT Act

To keep everything transparent, the bank or service provider must clearly inform the user about all important things. These include:

1. Terms and Conditions

Complete terms must be given before the service starts, like fees, timings, rules, and responsibilities.

2. Fees and Charges

Any service charges, transfer fees, or other costs must be told in advance.
Hidden charges are not allowed.

3. Rights and Liabilities

The bank must inform the user about their rights (like to reverse a wrong transfer) and liabilities (like what happens if the user shares their password).

4. Error and Dispute Resolution Process

The customer must be told how to report errors, how complaints will be handled, and in what time.

5. Limits of Transaction

Daily, weekly, or monthly limits must be clearly told to the user.
Also, any restrictions on sending or receiving money.

6. Confirmation of Transaction

After every transfer, the user should receive a receipt or confirmation (SMS, email, etc.) with all transaction details.

Conclusion

The Electronic Fund Transfer Act, 2007 is an important law that builds trust in digital banking. It gives clear rules to banks and rights to users. By following this law, customers can enjoy safe and fast money transfers, and banks can avoid legal problems. Full disclosure and customer protection are the heart of this law.

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