CSS Past Paper 2019 Mercantile Law Descriptive (Part 2)
CSS | Past Paper | Group 6 | 2019 | Part 2 | Descriptive
Below is the solution to PART-II (COMPULSORY) of the CSS Past Paper 2019 Mercantile Law Descriptive (Part 2).
Question 2
Explain the term consideration and state the exceptions to the rule: “No consideration, no contract”?
Introduction
In contract law, the term consideration is very important. It means something of value that both parties agree to exchange in a contract. It can be money, goods, services, or even a promise to do or not do something. In simple words, no one gives something for nothing in return.
Definition of Consideration
According to Section 2(d) of the Contract Act 1872:
“When at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or abstains from doing something, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise”.
So, it is basically what the parties give each other under the contract.
Importance of Consideration
- It is necessary for a valid contract.
- It shows that both parties are giving something.
- Without it, an agreement cannot be enforced by law (with few exceptions).
Rule: “No Consideration, No Contract”
This is a basic rule in contract law. It means that if there is no consideration, then the contract is not valid. The law doesn’t support one-sided promises. Both parties must get some benefit or suffer some loss.
Exceptions to the Rule
There are some situations where a contract is valid even without consideration. These exceptions are given in the Contract Act and developed by courts. Some of them are:
- Natural Love and Affection
If a written and registered agreement is made out of love and affection between close relatives, it is enforceable without consideration.
Example: A father promises to give property to his son out of love and signs a registered document. - Compensation for Voluntary Services
If someone does something for another person voluntarily, and later that person promises to pay for it, it is a valid contract even without consideration.
Example: A saves B’s house from fire, and B later promises to give him Rs. 5,000. This is enforceable. - Promise to Pay a Time-Barred Debt
If a person agrees in writing to pay a debt which is already time-barred (expired by limitation law), this promise is valid even without fresh consideration. - Completed Gift
A gift that has already been given is valid even though there was no consideration. The law doesn’t cancel gifts just because the giver didn’t get anything in return. - Agency
According to Section 185 of the Contract Act, no consideration is needed to appoint an agent. - Charity Cases
If a person promises to donate to a charitable cause and the promisee has done something based on that promise (like starting a project), the donor can be bound by law to pay.
Conclusion
So, consideration is like the backbone of a contract. It ensures fairness by making sure both parties give something. But law also knows that in some cases, contracts without consideration should still be valid, like in love between family members or services done without asking. That’s why the law gives some fair exceptions to the rule “No consideration, no contract”.
Question 3
What do you understand by the rule “caveat emptor”? Are there any exceptions to this rule? Does this rule apply in Pakistan today?
Introduction
The rule “Caveat Emptor” is a Latin phrase. It means “let the buyer beware”. This rule is very important in the Sale of Goods Act, 1930. It puts the responsibility on the buyer to check the quality and condition of goods before buying them.
Meaning of Caveat Emptor
Under this rule, if a buyer buys something and later finds out it was defective or not useful, he cannot blame the seller. The law says it’s the buyer’s job to be careful. The seller is not responsible unless he made a false statement or hid something on purpose.
Legal Position
Section 16 of the Sale of Goods Act 1930 explains this rule. It says that there is no implied condition or warranty about the quality or fitness of goods unless certain situations apply.
Example of Caveat Emptor
If A buys a fan from B without asking anything about it, and later the fan doesn’t work properly, A cannot return it. He should have checked it before buying.
Exceptions to the Rule
Even though this rule exists, there are many exceptions where the buyer is protected. These are:
- Fitness for Purpose
If the buyer tells the seller the exact purpose for buying the goods and depends on the seller’s skill or knowledge, then the seller must give suitable goods.
Example: A asks B for a paint that works on metal. B gives him wood paint. B is responsible. - Merchantable Quality
If goods are bought by description from a seller who deals in those goods, then goods must be of average quality.
Example: Buying a phone that doesn’t turn on at all is not of merchantable quality. - Usage of Trade
Sometimes, in certain trades, it is normal to give some warranty or guarantee. In such cases, buyer is protected even if he didn’t ask. - Consent by Fraud or Misrepresentation
If seller lies about the goods or hides facts, the buyer can return the goods. - Sale by Sample
If goods are sold by showing a sample, then the bulk of the goods must match the sample in quality. - Sale by Description
If goods are sold by only giving a description (like online or catalog), then actual goods must match the description.
Applicability in Pakistan
Yes, this rule still applies in Pakistan. Our contract and sales laws are based on British law, and this rule is still a part of Sale of Goods Act 1930. But due to consumer protection laws and modern business ethics, courts also look at seller’s responsibilities more strictly now.
Also, new laws like Consumer Protection Acts in provinces (like Punjab Consumer Protection Act) give more rights to buyers. So, buyers today are more protected than before, but the basic rule of caveat emptor still exists unless exceptions apply.
Conclusion
The rule Caveat Emptor teaches buyers to be alert and careful while buying. But to make things fair, the law has created many exceptions where the buyer can take action if he was misled or if the seller didn’t do his duty. In Pakistan, the rule is still valid, but modern laws now balance the rights of both buyer and seller.
Question 4
What do you mean by implied authority of partner? What are the limitations on authority of partner?
Introduction
In a partnership business, all partners help in running the firm. Not every decision is made together every time. So, law gives partners some powers to act on behalf of each other. This is called implied authority. But there are also some limits to this authority.
Definition of Implied Authority
Implied authority means the power which a partner has to make decisions or do acts which are normally done in the usual course of business of the firm. This authority is not written, but it is understood to exist.
According to Section 19(1) of the Partnership Act 1932, every partner is an agent of the firm and of the other partners for the purpose of the business.
Examples of Implied Authority
If the firm is dealing in electronics, a partner can:
- Buy or sell TVs or other electronics
- Make contracts with suppliers
- Hire workers for shop
These things are part of daily business, so other partners are also bound by them.
Acts Done Under Implied Authority
Some common acts which a partner can do under implied authority:
- Borrowing money for firm
- Settling accounts with customers
- Giving receipts
- Making payments on behalf of firm
- Hiring employees
- Selling goods or purchasing materials for business
Limitations on Authority of a Partner
A partner’s power is not unlimited. Section 19(2) of the Partnership Act gives some acts which are outside implied authority. If a partner does these without permission, the firm is not bound.
Some main limitations are:
- Cannot submit a dispute to arbitration
Partner can’t take business disputes to arbitration without others’ consent. - Cannot open a bank account in his own name
He must use the firm’s name, not personal. - Cannot compromise or give up any claim
He can’t forgive debt or settle less amount without approval. - Cannot withdraw a legal suit filed by firm
He cannot drop a lawsuit filed by the firm without the consent of all other partners. - Cannot acquire or transfer immovable property
Buying/selling land or building needs approval from other partners. - Cannot admit liability in a suit
He cannot say in court that firm is guilty without permission. - No authority in unusual acts
Any act which is not part of regular business needs consent.
How to Restrict Implied Authority?
- Partners can agree in writing (partnership deed) to limit the powers of each other.
- If third parties are informed, the firm is not bound by acts beyond authority.
Conclusion
So, implied authority helps in running business smoothly. Partners don’t need to ask each other for every small thing. But law also puts some limits, so no partner misuses the power. These rules keep the balance between trust and control in partnership.
Question 5
Why does the State Bank of Pakistan Act, 1956 maintain that only State Bank can lawfully issue bearer notes and bills of exchange payable on demand? What does this tell you about the nature of the paper currency that we use?
Introduction
The State Bank of Pakistan (SBP) is the central bank of the country. According to the State Bank of Pakistan Act, 1956, only SBP has the power to issue bearer notes and bills of exchange payable on demand. This is done to keep control over the currency and make sure the economy stays stable.
What is a Bearer Note?
Bearer note means a currency note that is payable to whoever holds it. It does not have the name of the owner. It can easily be transferred by hand. Our normal currency notes are bearer notes.
What is a Bill of Exchange Payable on Demand?
It is a written document where one party promises to pay money to another on demand. If it is payable at sight or on demand, then it means the money must be paid immediately when asked.
Why Only State Bank Can Issue These?
According to Section 25 and 26 of the State Bank of Pakistan Act, the SBP has the sole right to issue currency in Pakistan. This is done for many important reasons:
- Control Over Money Supply
Only one authority should issue money to avoid confusion and over-circulation. - Prevent Fake Currency
If everyone starts issuing notes, there will be a lot of fake or duplicate notes. That can damage the economy. - Public Trust
People trust currency only when it is backed by the government or central bank. - Uniform Currency System
If multiple institutions issue notes, it will cause chaos. A single currency system keeps things smooth. - Legal Tender
The notes issued by SBP are legal tender, which means people are forced by law to accept them in payments. - Stable Economy
SBP can control inflation and deflation by controlling how much currency is in the market.
What This Tells Us About Nature of Our Currency?
- Paper Currency is Fiat Money
Our currency is not backed by gold or silver. It is only valuable because SBP and the government say it is. This is called fiat money. - Currency is Regulated and Controlled
It’s not like a normal good. Its supply and value is fully managed by SBP. - Not Every Written Promise is Valid
Only SBP can issue notes or documents that are payable on demand. If a private person issues it, it’s illegal. - Currency is a Symbol of Sovereignty
Only the central authority of a country can print and issue currency. It shows that currency is a national asset, not private.
Example
If a private bank or company issues a paper that says “Pay the bearer Rs. 100 on demand”, that paper is not legal currency. Only the SBP has the right to issue such bearer notes. Otherwise, it would be treated as fake currency or unauthorized bill.
Conclusion
The power to issue bearer notes and demand bills is only with the State Bank of Pakistan because it ensures control, trust, and economic stability. The currency we use today is fiat money, which means it has value only because the government supports it. This makes the SBP a very powerful and important institution for the country’s financial system.
Question 6
What do you understand by fixed and floating charges with reference to company law? Draw a distinction between the two types.
Introduction
In company law, when a company takes a loan, it often gives security to the lender. This security is called a charge. There are two main types of charges: Fixed charge and Floating charge. These charges help the creditor to recover their money if the company fails to pay.
What is a Fixed Charge?
A fixed charge is a legal right given over a specific asset of the company. The asset is identified and doesn’t change. The company cannot sell or transfer that asset without the lender’s permission.
Examples
- Land
- Buildings
- Machinery
Key Points
- Attached to a specific asset
- Cannot be sold freely
- Stronger form of security
What is a Floating Charge?
A floating charge is a charge over a group of changing assets. These assets are not fixed and can change in normal business activities. The company can still use, sell, or replace these assets until the charge becomes crystallized.
Examples
- Stock
- Raw materials
- Debtors (accounts receivable)
Key Points
- Not fixed on any specific asset
- Company can deal with assets in regular business
- Becomes fixed when company shuts down, goes into liquidation or defaults
Crystallization of Floating Charge
When a floating charge turns into a fixed charge, it is called crystallization. This usually happens when:
- Company is closed
- Company defaults in payment
- A receiver is appointed
After that, the company cannot touch those assets without lender’s approval.
Difference Between Fixed and Floating Charges
| Basis | Fixed Charge | Floating Charge |
| Assets Covered | Specific and identifiable assets | General assets that keep changing |
| Control | Company cannot use/sell without permission | Company can use/sell in normal business |
| Attachment Time | Attached at the time of creation | Attaches when it crystallizes |
| Risk to Lender | Low risk | Higher risk |
| Registration | Needs registration with SECP | Also needs registration |
| Example | Land, building | Inventory, cash, receivables |
Legal Position in Pakistan
In Pakistan, the Companies Act 2017 requires companies to register both fixed and floating charges with the Securities and Exchange Commission of Pakistan (SECP). If not registered, the charge may not be valid against other creditors.
Conclusion
Fixed and floating charges are both useful tools for companies and lenders. Fixed charge gives more security to the lender, while floating charge gives more flexibility to the company. Understanding the difference is very important in company law, especially when it comes to loans and repayments.
Question 7
What changes have been brought about in the rules of the memorandum of association of a company by the new law of 2017?
Introduction
The Companies Act, 2017 replaced the old Companies Ordinance, 1984 in Pakistan. It brought many new changes to make company law more modern, business-friendly, and simple. One of the main changes was in the Memorandum of Association (MOA), which is a very important document for forming a company.
What is Memorandum of Association?
The MOA is like the constitution of the company. It tells the name, objectives, location, type, and capital of the company. It also shows the relationship between the company and the outside world. A company cannot go beyond the limits of its MOA.
Major Changes in MOA by Companies Act 2017
- Simplified Object Clause:
- In old law, companies had to write many detailed objects in MOA.
- Now in 2017 Act, general object can be written.
- This gives companies more freedom to do different types of business.
- Removal of Ultra Vires Doctrine (Partially):
- Before, if company did anything outside the object clause, it was considered invalid (ultra vires).
- Now, companies have wider powers and can do anything unless specifically restricted in MOA.
- Single-Member Companies (SMCs):
- The 2017 Act improved rules for single-member companies, so now one person can easily form a private limited company.
- MOA format for SMCs is also now simpler.
- Company Types Clarified:
- Now MOA must clearly mention whether the company is private, public, non-profit, or SMC.
- Clear formats are provided by SECP.
- Online Incorporation and E-Submission:
- Now MOA can be filed electronically using SECP’s online system.
- Saves time and paperwork.
- Better Protection for Shareholders and Creditors:
- The MOA must clearly mention share capital and member liability.
- This protects people who deal with the company.
- Change in MOA Made Easier:
- The new law made it easier to amend or update the MOA.
- Before, process was slow and complicated.
- Foreign Companies:
- Foreign companies registered in Pakistan must now also follow updated MOA rules under the 2017 Act.
Why These Changes Are Important?
- They make it easier to start and run a business.
- Bring Pakistani company law closer to international standards.
- Give more flexibility to companies.
- Reduce legal risks and confusion.
- Encourage investment and entrepreneurship.
Conclusion
The Companies Act 2017 has modernized the rules of the Memorandum of Association. It removed unnecessary restrictions and gave companies more freedom to grow. These changes are good for both new and existing businesses in Pakistan and help make the corporate sector more active and investor-friendly.
Question 8
What is the meaning of “services for consideration” in the consumer law and does it include the services of a doctor or a lawyer?
Introduction
Consumer laws in Pakistan protect buyers of goods and services. One key term in these laws is “services for consideration”. This means services provided in return for payment. It’s important to understand what kind of services are included under this, especially when we talk about doctors and lawyers.
Meaning of “Services for Consideration”
- “Service” means any kind of work or duty done by someone (person or company) for another in return for some benefit.
- “Consideration” means the money or payment given in return.
- So, when someone pays for a service (like mobile repair, tuition, or salon), that is called a service for consideration.
Under Consumer Protection Acts (like Punjab Consumer Protection Act 2005), services for consideration are protected. If the service is faulty, the consumer can take legal action.
Examples of Services for Consideration
- Internet services
- Mechanics and car repair
- Mobile phone services
- Coaching classes
- Hotel and restaurant services
- Banking services
- Hospitals (in some cases)
Are Doctors and Lawyers Included?
This part is a bit tricky because there are different views on it. Let’s explain both sides:
1. Services of a Doctor
Included (In Some Cases):
- If a private hospital or clinic charges fees, and a patient receives poor treatment, they can be sued under consumer law.
- Many court decisions in Pakistan and India have allowed this.
- Because it is a paid service, it becomes a “service for consideration”.
Not Included (Sometimes):
- If a doctor is working in a government hospital and gives free treatment, then it is not a service for consideration.
- Free services are not protected under consumer laws.
2. Services of a Lawyer
Included (Controversial):
- Some people say lawyers give professional advice for payment, so it should be covered.
- If the lawyer does fraud, the client may file a complaint.
Not Always Included:
- In some cases, courts have said that lawyer-client relation is based on trust, not just a business service.
- It’s harder to prove deficiency of service because legal outcomes are uncertain.
Judgments and Laws (Brief)
- In India, the famous case Indian Medical Association v. V.P. Shantha (1995) said that doctors come under consumer law.
- In Pakistan, there is still debate, but many private medical services have been held responsible under consumer courts.
Conclusion
“Services for consideration” means services that are paid for, and consumer law protects such services. The services of doctors and lawyers can be included, especially when given for a fee. But it depends on the case type and how the service was performed. Courts usually protect consumers when there is clear negligence or fraud in paid services.
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