The Hindu Business Line : Law, management mix

Some barrels were filled in the presence of the buyer, but before the remaining could be filled a fire broke out and the entire quantity was destroyed. State the liabilities of the buyer and seller.

The problem relates to the passing of property when goods are not in a deliverable state. Section 21 provides that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods to bring them in a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

The problem is based on the Rugg vs Minett case, wherein it was held that the buyer was to bear the loss of oil which was filled in barrels and the seller was to bear the loss of the remaining.

Company formation

THE steps involved in the formation of a public limited company are as follows: i) ascertaining the availability of name; ii) preparation of memorandum of association and articles of association; iii) vetting of the memorandum and articles, printing, stamping and signing; iv) power of attorney; v) other forms to be filed with the RoC; vi) statutory declaration; vii) payment of registration fee and filing fee; and viii) certificate of incorporation.

Distinguish between

NON-GRATUITOUS bailment and bailment for reward: Gratuitous bailment is that in which neither the bailor nor the bailee gets a remuneration. It is a bailment without any charge or reward to anybody. The gratuitous bailor has a duty to disclose faults which are known to him at the time of bailment and which are material for use or which are likely to expose the bailee to extraordinary risks.

Bailment for reward is a bailment in which either a bailor or a bailee is entitled to some remuneration. The duty of the bailor is to see that goods delivered by them are reasonably safe. The bailor is liable for all damages which are caused due to the faults in goods bailed irrespective of whether those were known to him or not. Further, if the goods are dangerous in nature, it is the duty of the bailor to disclose them.

`Payment in due course' and `holder in due course' of a bill of exchange: Payment in due course discharges a negotiable instrument and all the parties were primarily liable to pay the amount due on the instrument. Section 10 defines payment in due course as "payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned."

i) The payment should be in accordance with the apparent tenor of the instrument — this means according to what appears on the face of the instrument to be intention of the parties. It is, therefore, necessary that the payment should be made at or after maturity and not before.

ii) The person to whom the payment is made should be in possession of the instrument. Payment should be made to a person who is in a position to give valid discharge. It should be made to the `holder' or some other person authorised to receive payment on his behalf.

iii) The payment should be made in good faith without negligence — the person making the payment should not make the payment in suspicious circumstances, that is, without making inquiry. The payment should be made in circumstances which do not afford a reasonable ground for believing that the person to whom it is made is not entitled to receive the amount.

Holder in due course means "any person who for consideration became the possessor of a promissory note, bill of exchange or cheque (if payable to bearer), or endorsee thereof before the amount mentioned in it became payable, and without having sufficient course to believe that any defect existed in the title of the person from whom he derived his title (Section 9).

Thus, a person must satisfy the following conditions to be a holder in due course: i) he must be the holder of the instrument; ii) should have obtained the instrument for value or considerations; iii) must have obtained the negotiable instrument before maturity; iv) the instrument should be complete and regular on the face of it; and v) the holder should take the instrument in good faith.

`Traditional control devices' and `non-traditional control devices': Effective control calls for personal observation on the part of managers. Traditional control devices are those which have been used over the years as control techniques. They are mainly budgetary controls, standard costing, financial ratio analysis, internal audit, and so on.

Non-traditional devices are of comparatively recent origin. These include performance budgeting, zero-base budgeting (for general administrative cost, special programmes or clearly identifiable projects), programme planning and budgetary system, responsibility account, critical path method (CPM), Programs Evaluations Review Technique (PERT), selective quality centres, and so on. Traditional devices focus on non-scientific methods, whereas the non-traditional ones are based on scientific methods and are more accurate.

`Organisation development' and `management development': Organisation development is the most significant, innovative and integrated process of achieving operational efficiency and effectiveness in organisations. It is a response to change, a complex educational strategy intended to change beliefs, attitudes, values and structure of organisations so that they can better adopt to new technologies, markets and challenges and change itself. Management development, on the other hand, is concerned with upgrading the managers' skills and abilities — such as conceptual, administrative, behavioural and analytical.

Promissory note

X PROMISES, by way of a promissory note, to pay Y, his partner, Rs 1,00,000 in the event of the latter's retirement from the partnership firm. Is promissory note valid in this case?

A promissory note must contain an unconditional promise to pay. In case an instrument contains a conditional promise to pay, it is not valid and will also not become valid even after the happening of the condition. In the given problem, the promise of X is conditional and cannot be construed as a valid promissory note. Moreover, the retirement of Y from the partnership firm is not a certain event.

Theory time

THE Motivation-Hygiene theory of Herzberg is closely related to the Need Hierarchy theory of Prof. A. H. Maslow. The extrinsic factors, like Maslow's low level physiological and safety needs, must be dealt first to prevent dissatisfaction from causing difficulties. The content factors of motivation (Hygiene theory) roughly approximate the higher level needs under Maslow's need hierarchy system. The hierarchy is not the answer for all motivational problems.

A person does not move up the hierarchy in an orderly or predictable manner once the physiological needs are satisfied. Insofar as Herzberg's theory is concerned, a given factor may be a source of satisfaction for one person and dissatisfaction for another. Thus, individual variations underlying motivational aspect of human behaviour are not given due cognisance by the theory.

Committee misuse

COMMITTEES are described as a group of unfits engaged by the unwilling to do the unnecessary. They are also referred to as an organised means of passing the buck. Misuse of committees arises because of: i) indecisiveness due to interminable debates and lack of preparation before meetings, ii) compromising attitude of the members, especially by the lower level members who may be reluctant to challenge a popular and senior member in the committee; iii) divided responsibility which promotes slackness, inefficiency and evasion of responsibility for results; iv) dominance by a few rather than meaningful contribution by all the members.

Committees can be a useful agency of management if the following principles are observed:

i) committee objective should be clearly specified. The role to be played by each member within the established limits should be clarified;

ii) committee members must be carefully selected. Personal knowledge and experience, skills in communication, inter-personal relations, and so on, must be taken into consideration;

iii) the clear-cut and well-thought-out agenda provides a structure for discussion and enables the committee to proceed in a logical fashion;

iv) the committee chairman should be able to resolve differences of opinion, personal clashes and bring the members to a common point of view; and

v) an effective procedure should include review of the facts by the chairman, analysis of the problem, suggested solutions, group decisions or recommendations. Members must come prepared and participate in a meaningful way. To ensure adequate follow-up, the minutes of the meetings should be prepared and distributed to members within a reasonable period.

Planning process

A PLAN is a predetermined course of action. It is a trap laid down to capture the future. It is the process of thinking before doing. Planning necessarily involves digging out a number of alternative courses of action for the achievement of the objectives.

Once the alternative courses of action are determined, they must be evaluated. Usually they are evaluated against factors such as cost, risk, benefits, organisational facilities, and so on.

(Concluded)

(Suggested answers for the December 2001 ICSI (Foundation) paper on business laws and management.)

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