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MB0051 SEM-3 Legal Aspects of Business

MB0051 SEM-3 Legal Aspects of Business

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Published by: dineshkumarjoshi on Dec 13, 2010
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Q.1 What do you mean by free consent? Under what circumstances consent is consideredas free? Explain.Ans.: Free consent:
One of the essential of a valid contract is free consent. Sec. 13 of the act defense consent hastwo or more persons are said to consent where they agree upon think in the same sense.There should be consents at the ad idem or identity of minds.The validity of consent depends not only on consents parties but their consents must also be free.According to section 14, consent is said to be free when it is not caused by1)Coercion has defined under sec.15 or 2)Undue influence as defined under sec. 16 o3)Fraud has defined under sec. 17 or 4)Mis-representation or defined under sec. 18 or 5)Mistake subject to the probations of sec. 21& 22.
1) Coercion:
Sec. 15 “coercion is the committing or threatening to commit any act forbidden by the Indianpenal code or the unlawful detaining or threatening to detain any property, to the prejudice of anyperson whatever, with the intention of causing any person to enter into an agreement. “ It isimmaterial weather the Indian penal code is or is not in force in the place where the coercion isemployedUnder English Law, coercion must be applied to one’s person only whereas under Indian Law itcan be one’s person or property.So also under English Law, the subject of it must be the contracting party himself or his wife,parent, child or other near relative. Under Indian Law, the act or threat may be against anyperson. It is to be noted that he act need not be committed in India itself. Unlawful detaining or threatening to detain any property it also coercion.While threat to sue does not amount to coercion threat to file a false suit amounts to coercionsince Indian Penal Code forbids such an act.
2) Undue influence:
In the words of Holland,” Undue influence refers to “the unconscious use of power over another person, such power being obtained by virtue of a present or previously existing dominatingcontrol arising out of relationship between the parties.”
According sec. 16(1) “ A contract is said to be induced by undue influence where the relationsubsisting between the parties are such that one of the parties is in a position to dominate the willof the other and uses that position to obtain an unfair advantage over the other.”A person is deemed to be in a position to dominate the will of other.(a)Where he holds a real or apparent authority over the other or where he stands in afiduciary relation to the other; or (b)Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress:(c)Where a person, who is in a position to dominate the will of another, enters into acontract with him and the transaction appears to be unconscionable. The burden of proving that such contract was not by undue influence shall lie upon the person in aposition to dominate the will of the other.Both coercion and undue influence are closely related. What contributes coercion or undueinfluence depends upon the facts of each case.Sec. 16(i) provides that two elements must be present. The first one is that the relationssubsisting between the parties to a contract are such that one of them is in a position to dominatethe will of the other.Secondly, he uses that position to obtain unfair advantage over the other. In other words, unlikecoercion undue influence must come from a party to the contract and not a stranger to it. Wherethe parties are not in equal footing or there is trust and confidence between the parties, one partymay be able to dominate the will of the other and use the position to obtain an unfair advantage.However, where there is no relationship shown to exit from which undue influence is presumed,that influence must be proved.
3) Fraud:
A false statement made knowingly or without belief in its truth or recklessly careless whether it betrue or false is called fraud.Sec. 17 of the act instead of defining fraud gives various acts which amount to fraud.Sec. 17: Fraud means and includes any of the following acts committed by a party to a contract or with his connivance or by his agent to induce him to enter into contract:1)The suggestion that a fact is true when it is not true by one who does not believe it to betrue. A false statement intentionally made is fraud. An absence of honest belief in thetruth of the statement made is essential to constitute fraud. The false statement must bemade intentionally.2)The active concealment of a fact by a person who has knowledge or belief of the fact.Mere non-disclosure is not fraud where there is no duty to disclose.3)A promise made without any intention of performing it.4)Any other act fitted to deceive. The fertility of man’s invention in devising new schemes of fraud is so great that it would be difficult to confine fraud within the limits of anyexhaustive definition.5)Any such act or omission as the law specially declares to be fraudulent.
4) Misrepresentation:
Before entering into a contract, the parties will may certain statements inducing the contract.Such statements are called representation. A representation is a statement of fact made by oneparty to the other at the time of entering into contract with an intention of inducing the other partyto enter into the contract. If the representation is false or misleading, it is known asmisrepresentation. A misrepresentation may be innocent or intentional. An intentionalmisrepresentation is called fraud and is covered under section 17 sec. 18 deals with an innocentmisrepresentation.
5) Mistake:
Usually, mistake refers to misunderstanding or wrong thinking or wrong belief. But legally, itsmeaning is restricted and is to mean “operative mistake”. Courts recognize only such mistakes,which invalidate the contract. Mistake may be mistake of fact or mistake of law.
Sec. 20”Where both parties to an agreement are under a mistake as to a matter of fact essentialto the agreement, the agreement is void”.Sec.21” A contract is not voidable because it was caused by a mistake as to any law in force inIndia: but a mistake as to a law not in force in India has the same effect as a mistake of fact”.Bilateral mistake: Sec.20 deals with bilateral mistake. Bilateral mistake is one where there is noreal correspondence of offer and acceptance. The parties are not really in consensus-ad-item.Therefore there is no agreement at all.A bilateral mistake may be regarding the subject matter or the possibility of performing thecontract.
Q.2 Define negotiable instrument. What are its features and characteristics? Which are thedifferent types of negotiable instruments? If Mr. A is the holder of a negotiable instrument,under what situationsi.Will he be the Holder in due course?ii.He has the right to discharge?iii.He can make endorsements?Ans.:
Meaning of Negotiable Instruments
To understand the meaning of negotiable instruments let us take a few examples of day-to-daybusiness transactions.Suppose Pitamber, a book publisher has sold books to Prashant for Rs 10,000/- on three monthscredit. To be sure that Prashant will pay the money after three months, Pitamber may write anOrder addressed to Prashant that he is to pay after three months, for value of goods received byhim, Rs.10, 000/- to Pitamber or anyone holding the order and presenting it before him (Prashant)for payment. This written document has to be signed by Prashant to show his acceptance of theorder. Now, Pitamber can hold the document with him for three months and on the due date cancollect the money from Prashant. He can also use it for meeting different business transactions.For instance, after a month, if required, he can borrow money from Sunil for a period of twomonths and pass on this document to Sunil. He has to write on the back of the document aninstruction to Prashant to pay money to Sunil, and sign it. Now Sunil becomes the owner of thisdocument and he can claim money from Prashant on the due date. Sunil, if required, can further pass on the document to Amit after instructing and signing on the back of the document. Thispassing on process may continue further till the final payment is made.In the above example, Prashant who has bought books worth Rs. 10,000/- can also give anundertaking stating that after three month he will pay the amount to Pitamber. Now Pitamber canretain that document with himself till the end of three months or pass it on to others for meetingcertain business obligation (like with Sunil, as discussed above) before the expiry of that threemonths time period.You must have heard about a cheque. What is it? It is a document issued to a bank that entitlesthe person whose name it bears to claim the amount mentioned in the cheque. If he wants, hecan transfer it in favour of another person. For example, if Akash issues a cheque worth Rs.5,000/- In favour of Bidhan, then Bidhan can claim Rs. 5,000/- from the bank, or he can transfer it toChander to meet any business obligation, like paying back a loan that he might have taken fromChander. Once he does it, Chander gets a right to Rs. 5,000/- and he can transfer it to Dayanand,if required. Such transfers may continue till the payment is finally made to somebody.In the above examples, we find that there is certain documents used for payment in businesstransactions and are transferred freely from one person to another. Such documents are calledNegotiable Instruments. Thus, we can say negotiable instrument is a transferable document,where negotiable means transferable and instrument means document. To elaborate it further, aninstrument, as mentioned here, is a document used as a means for making some payment and itis negotiable i.e., its ownership can be easily transferred.

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