WBCHSE HS Commercial Law and Preliminaries of Auditing flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Contract definition

Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law; the agreement must satisfy the essentials of section 10.

Counter-offer

A response that changes or adds terms to the original offer, rejecting it and creating a new offer; the original offer can no longer be accepted.

Consideration definition

Section 2(d): an act, abstinence or promise done at the desire of the promisor; it may be past, present or future and may move from a third party.

Void versus voidable contract

A void agreement is unenforceable from the start; a voidable contract is enforceable at the option of the aggrieved party, whose consent was not free.

Minor's agreement

An agreement by a person below 18 years is void ab initio per Mohori Bibee v. Dharmodas Ghose; it cannot be ratified on attaining majority.

Necessaries to a minor

Under section 68, a person supplying necessaries to a minor may recover the cost from the minor's estate, but not from the minor personally.

Sound mind test

Section 12: a person is of sound mind if at the time of contracting he can understand the contract and form a rational judgment about its effect on his interests.

Coercion under section 15

Committing or threatening an act forbidden by the Indian Penal Code, or unlawful detaching of property, to obtain consent; the contract is voidable.

Undue influence

Section 16: where one party dominates the will of another through trust or authority and obtains an unfair advantage, the burden shifts to the dominant party.

Fraud versus misrepresentation

Fraud is a false statement made knowingly or recklessly; misrepresentation is an innocent false statement. Both make the contract voidable.

Bilateral mistake

A mistake of both parties on a matter essential to the agreement, such as subject matter or identity, makes the agreement void under section 20.

Anticipatory breach

Section 39: where the promisor repudiates before the due date, the promisee may sue immediately or wait until the performance date.

Hadley v. Baxendale rule

Damages recoverable are those arising naturally from the breach and those within the contemplation of both parties at the time of contracting.

Supervening impossibility

Section 56: performance becomes impossible after the contract due to destruction of subject matter, change of law, war, or death in personal contracts.

Contract of guarantee

Section 126: a written promise to discharge the liability of a third party on his default, involving the surety, principal debtor and creditor.

Surety's co-extensive liability

Section 128: the surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise; the creditor may sue the surety directly.

Pledge definition

Section 172: a bailment of goods as security for payment of a debt or performance of a promise; the pawnee may sell after notice on default.

Agency definition

Section 182: a relationship where one person acts for another, creating a legal relationship between the principal and third parties; no consideration is needed.

Ratification in agency

Section 196: an unauthorised act of an agent may be ratified by the principal, which then binds the principal as if the act were authorised.

Agent's lien

Section 221: the agent may retain the principal's goods until his remuneration and lawful expenses are paid.

Condition versus warranty

A condition is essential to the main purpose and its breach allows repudiation; a warranty is collateral and its breach gives damages only.

Caveat emptor

Let the buyer beware: there is no implied condition as to quality unless the buyer relies on the seller's skill or buys by description from a dealer.

Sale versus agreement to sell

In a sale, property in goods passes immediately; in an agreement to sell, property passes in future or on a contingency.

Nemo dat quod non habet

Section 27: a person who is not the owner cannot transfer a better title than he has, subject to statutory exceptions such as sale by a mercantile agent.

Unpaid seller's lien

Section 47: where the seller retains possession, he may withhold delivery until the price is paid, provided the goods are not sold on credit.

Stoppage in transit

Section 50: an unpaid seller may resume possession of goods in transit when the buyer becomes insolvent, after giving notice to the carrier.

Holder in due course

Section 9: a holder who obtained the instrument for consideration, before maturity, in good faith and without notice of any defect in title.

Cheque definition

Section 6: a bill of exchange drawn on a banker and payable on demand; it includes a truncated cheque and an electronic cheque.

Noting and protest

Sections 99-104: a notary records the dishonour of a bill on the instrument, and protest is the formal certificate of dishonour.

Audit objective

The primary objective is to express an opinion on whether the financial statements give a true and fair view; detecting fraud and error is secondary.

Audit programme

A written list of audit procedures to be performed, with the time allotted, prepared after studying the client's business and internal control.

Audit sampling risk

The risk that the auditor's conclusion based on a sample differs from the conclusion reached by examining the whole population.