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MB0035 Legal Aspects of Business 01

MB0035 Legal Aspects of Business 01

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ASSIGNMENTSMB0035LEGAL ASPECTS OF BUSINESS(3 credits)Set IMarks 60Each question carries 10 marks1. What are the essentials for a Valid Contract? Describe them in details.2. What are the rules regarding the acceptance of a proposal? Describe themin details.3. What is the difference between fraud and misinterpretation? What do youunderstand by mistake?4. What are the different ways in which a contract can be discharged? Describe these ways in details.5. What do you understand by Discharge of Instrument? What are the different ways in which one or more parties to a negotiable instrument are discharged?6. What do you understand by Arbitration? What are the objectives of the Arbitration Act? What are the essentials for Arbitration Agreement?1. What are the essentials for a Valid Contract? Describe them in details.Ans:Essentials of a Valid Contract:All contracts are agreements but all agreements need not be contracts. The agreements that create legal obligations only are contracts. The validity of an enforceable agreement depends upon whether the agreement satisfies the essential requirements laid down in the Act. Section 10 lays down that ‘all the agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful object and are not hereby expressly declared to be void’.The following are the essentials:a) Agreement: An agreement which is preliminary to every contract is the outcomeof offer and acceptance. An offer to do or not to do a particular act is made by one party and is accepted by the other to whom the offer is made. Then we saythat there is a meeting of the minds of the parties. Such a position is known asconsensus ad idem.b) Free consent: The parties should agree upon the same thing in the same senseand their consent should be free from all sorts of pressure. In other words it should not be caused by coercion, undue influence, misrepresentation, fraud or mistake.c) Contractual capacity: The parties entering into an agreement must have legalcompetence. In other words, they must have attained the age of majority, shouldbe of sound mind and should not be disqualified under the law of the land. A contract entered into between the parties having no legal capacity is nullity in the eyes of law.d) Lawful consideration: There must be consideration supporting every contract.Consideration means something in return for something. It is the price for the promise. An agreement not supported by consideration becomes a ‘nudum pactum’ i.e., naked agreement. The consideration should be lawful and adequate. However, thereare certain exceptions to this rule.
 
e) Lawful object: The object or purpose of an agreement must be lawful. It should not be forbidden by law, should not be fraudulent, should not cause injury tothe person or property of another, should not be immoral or against public policy.f) Not expressly declared void: The statute should not declare an agreement void. The Act itself has declared certain types of agreements as void. E.g., agreements in restraint of marriage, trade, legal proceedings. In such cases, the aggrieved party can’t seek any relief from the court of law.g) Possibility of performance: The agreement should be capable of being performed. e.g., Mr. A agrees with Mr. B to discover treasure by magic. Mr. B can’t seek redressed of the grievance if Mr. A fails toper form the promise.h) Certainty of terms: The terms of the agreement should be certain.E.g., Mr. A.agrees to sell 100 tons of oil. The agreement is vague as it does not mention the types of oil agreed to be sold.i) Intention to create legal obligation: Though Sec. 10 is silent about this, under English law this happens to be an important ingredient. Therefore, Indian courts also recognize this ingredient. An agreement creating social obligation can’tbe enforced.j) Legal formalities: Indian Contract Act deals with a simple contract supportedby consideration. Agreements made in India may be oral or written. However, Sec. 10 states that where the statute states that the contract should be in writingand should be witnessed or should be registered, the same must be observed. Otherwise, the agreement can’t been forced e.g., Under Indian Companies Act, the Memorandum of Association and Articles of Association must be registered.2. What are the rules regarding the acceptance of a proposal? Describe them in details.Ans:Rules Regarding Acceptance:a) An offer can be accepted only by the person to whom it is made:The offeree only has to accept the offer. In case it is accepted by any other person no agreement is formed. However, in case authority is given to another person to accept the offer on behalf of the person to whom it is made, it is a validacceptance.b) Acceptance should be unconditional and absolute: Sec. 7 (I) states that the acceptance should be absolute and unconditional. The acceptor should accept the offer in Toto. If it is qualified or conditional, it ceases to be valid. In fact,a qualified or conditional acceptance is nothing but accouter-offer.c) Acceptance should be communicated: The party accepting the offer must communicate his acceptance to the offeror. Acceptance is not a mental resolve but someexternal manifestation. The acceptance can be communicated in writing or word ofmouth or also by conduct. An agreement does not result from a mere state of mind. As regards unilateral contracts (e.g., offer of reward) it is impossible to the offeree to communicate his acceptance otherwise than by performing the contract. In the case of bilateral contracts acceptance must be communicated. The offeror can’t force a contract on offeree by fixing the mode of refusal. Further, acceptance should be communicated only to the offeror and not to somebody else.d) Acceptance should be according to the prescribed form: Unless specified in the offer the acceptance must be in some usual and reasonable manner. The proposerhas the right to prescribe the manner of acceptance. He may require it to be oral or in writing or to be communicated to him by phone or telephone etc. He canalso waive his right or may ask the offeree to express acceptance by some gesture. Once he prescribes the mode of communication later he can’t say that it was insufficient.If the offeree does not signify his assent to the offer or according to the modeprescribed it becomes ‘deviated acceptance’ and strictly speaking it is no acceptan
 
ce at all. However, such a rigid rule is not followed in India. In the case of deviated acceptance the proposes may insist for the acceptance in the prescribedmanner. He then has to do this within a reasonable time after communication of acceptance to him. Otherwise it will be presumed that the proposes has accepted the deviated acceptance. Sec. 7 of the Act does not tell that deviated acceptanceis no acceptance.e) Acceptance must be provoked by offer: The acceptor must be aware of the offer. Even if he fulfills the conditions mentioned in the offer, if he is ignorant of the offer itself, he can’t give a valid acceptance. [Lalmann Shukla V, Gouridutt].f) Acceptance must be given before the offer lapses or is revoked:Where a time limit has been fixed the acceptor has to accept the offer within such time. Where no time limit is prescribed the acceptance has to be within the reasonable time. An offer once dead can’t be accepted unless there is a fresh offer.g) Provisional acceptance is no acceptance: A provisional acceptance does not make a binding agreement unless final approval is given. The offer may be withdrawn before giving final approval. However, whether an agreement is provisional orfinal depends upon the intention of the parties.3. What is the difference between fraud and misinterpretation? What do you understand by mistake?Ans:Distinction between fraud and misrepresentation:1. In misrepresentation the person making the false statement honestly believes it to be true. In fraud, the false statement is made by person who knows that it is false or he does not care to know whether it istrue or false.2. There is no intention to deceive the other party when there is misrepresentation of fact. The very purpose of fraud is to deceive the other party to the contract.3. Misrepresentation renders the contract avoidable at the option of the party whose consent was obtained by misrepresentation. In the case of fraud the contract is void able. It also gives rise to an independent action in tort for damages.4. Misrepresentation is not an offence under Indian Penal Code and hence notpunishable. Fraud, in certain cases is a punishable offence under Indian PenalCode.5. Generally, silence is not fraud except where there is a duty to speak orthe relation between parties is fiduciary. Under no circumstances can silence beconsidered as misrepresentation.6. The party complaining of misrepresentation can’t avoid the contract if he had the means to discover the truth with ordinary diligence. Butin the case of fraud, the party making a false statement cannot say that the other party had themeans to discover the truth with ordinary diligence.Mistake:Usually, mistake refers to mis-understanding or wrong thinking or wrong belief.But legally, its meaning is restricted and is to mean “operative mistake”. Courts recognize only such mistakes which invalidate the contract. Mistake may be mistakeof fact (either unilateral or bilateral) or mistake of law (either Indian law or foreign law). Sec. 20 “Where both parties to an agreement are under a mistake asto a matter of fact essential to the agreement, the agreement is void.”Sec. 21 “A contract is not void able because it was caused by a mistake as to anylaw in force in India; 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 no real correspondence of offer and acceptance. The parties arenot really in consensus-ad-idem. Therefore there is no agreement at all.A bilateral mistake may be regarding the subject matter or the possibility of performing the contract. Mistake as to the subject matter: This mistake arises when the parties to the contract assume at the time of making the contract that a c

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