MBA-SEM III MB0035 ± Legal Aspects of Business - 4 Credits

(Book ID: B0764) Assignment Set- 1 (60 Marks) Question1: µAll contracts are agreements but all agreements are not contracts.¶ Discuss Answer 1: Contract: Sec. 2 (h) µAn agreement enforceable by law is a contract¶. To make a contract, there must be (I) an agreement and (ii) the agreement should be enforceable by law. Agreement: Agreement is defined as µevery promise and every set of promises forming consideration for each other µ. A promise is defined as ³an accepted proposal.´ Thus, every agreement in its ultimate analysis is made of a proposal from one side and its acceptance by the other. To become a contract an agreement must be enforceable by law. Sec. 10 of the Act lays down the condition of enforceability. An agreement becomes enforceable only when it is coupled with obligation. An obligation is the legal bond, which binds the parties to a contract. The obligations springing from agreements should be legal obligations and not moral, social or religious obligations. 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 µall 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 outcome of 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 say that there is a meeting of the minds of the parties. Such a position is known as consensus ad idem. b) Free consent: The parties should agree upon the same thing in the same sense and 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.

B can¶t seek redressal of the grievance if Mr. The consideration should be lawful and adequate. g) Possibility of performance: The agreement should be capable of being performed. j) Legal formalities: Indian Contract Act deals with a simple contract supported by consideration. Mr.g.. A fails to perform the promise.. agrees to sell 100 tons of oil. the agreement can¶t be enforced e. d) Lawful consideration: There must be consideration supporting every contract... In other words.c) Contractual capacity: The parties entering into an agreement must have legal competence. should not be immoral or against public policy. Mr. the aggrieved party can¶t seek any relief from the court of law. the same must be observed. However. In such cases. Agreements made in India may be oral or written. A. trade. should be of sound mind and should not be disqualified under the law of the land. Indian courts also recognize this ingredient. . legal proceedings. Consideration means something in return for something. h) Certainty of terms: The terms of the agreement should be certain. The Act itself has declared certain types of agreements as void.. However. Therefore. Sec. E. Otherwise. 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. e) Lawful object: The object or purpose of an agreement must be lawful. under English law this happens to be an important ingredient. should not be fraudulent. the Memorandum of Association and Articles of Association must be registered. there are certain exceptions to this rule. Under Indian Companies Act. E.e. Mr. An agreement creating social obligation can¶t be enforced. B to discover treasure by magic. naked agreement.g. should not cause injury to the person or property of another. they must have attained the age of majority. 10 is silent about this. 10 states that where the statute states that the contract should be in writing and should be witnessed or should be registered. agreements in restraint of marriage. e.g. It is the price for the promise. A contract entered into between the parties having no legal capacity is nullity in the eyes of law.g. An agreement not supported by consideration becomes a µnudum pactum¶ i. f) Not expressly declared void: The statute should not declare an agreement void. A agrees with Mr. It should not be forbidden by law.

the jury are their servants and law is their guardian. 1. II of the Act is silent as regards the legal effects of an agreement entered into by or with a minor. Where. 1875 the age of 18 years is a major. the age of majority is 21 years. preserves either their rights or estates.¶ This principle has been followed in India. the judges are their counsellors. Hence.¶ Discuss this statement. the tort is independent of contract the mere fact that a contract is also involved will not absolve the minor from liability. Dharmo Das Ghosh case it was held that a minor¶s agreement is void-ab-initio. excuses their shortcomings and negligences and assists them in their pleadings. µYou cann¶t convert a contract into a tort to enable you to sue an infant. Hence. No liability in contract or tort arising out of contract: A minor is.´ This section declares following persons to be incompetent: (1) Minors (2) persons of unsound mind and (3) persons disqualified by law to which they are subject. law seeks to protect their interests from being exploited by unscrupulous persons. According to Indian Majority Act. Answer 2: Legal disability of the parties would render the agreement entered into between them unenforceable in a court of law. in law. there could be no change in the character or status of the parties. . However.Question 2: µNot all persons have the capacity to enter into a contract. the law should not cause unnecessary hardship to those who deal with minors. 2. In fact. There is no estoppel against him. even a desirable person may enter into an agreement. Sec. however. In Mohari Bibi Vs. if a guardian is appointed by the court or if the minor or his property is under the supervision of a court of wards. But by declaring certain classes of persons having no contractual capacity. In pursuing the above objective. Minors: A minor is a person who has not attained the age of majority. No estoppel against minor: A minor who has made an agreement by misrepresentation of his age may disclose his real age. Principles governing minor¶s contracts: The law protects minor¶s persons. incapable of giving consent. Effects of minor¶s agreement: A minor¶s agreement is void-ab-initio. the effects of a minor¶s agreements are worked out independently of any contract. Law does not infringe his freedom of making an agreement with anybody he likes. Where there is no contract. Definition: Section II lays down that ³Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. A minor who misrepresents his age to obtain a contract cann¶t be sued for deceit. there should be no contractual obligation on either side.

But what is µnecessary¶ is not defined by the Act. a contract which was void originally can¶t be made valid by subsequent ratification. . the liability for supply of necessaries attaches only to the estate of a minor and he does not incur any personal liability. The supplier has to prove not only that the goods supplied were suitable to the conditions in life of the minor but that he was not sufficiently supplied with the goods of that class. a fresh contract should be made on attaining majority. The consideration which passed under the earlier contract can¶t be implied into the contract into which the minor enters on attaining majority. Things necessary are those without which an individual cann¶t reasonably exist such as food. Therefore. 6. Suppose the minor has sold the goods he can¶t be made to repay the value of the goods because that would amount to enforcing a void contract. raiment. he can be compelled to restore it but only so long as the same is traceable in his possession. lodging etc. 5. Ratification: On attaining majority. the class has to be ascertained and then whether a thing is a necessity or not has to be determined. Ratification relates back to the date of making of the contract. But the court will not compel any restitution by a minor even when he is a plaintiff. Sec. 4. We have to depend upon judicial decisions. Therefore. Thus..´ The liability is only for necessaries. Liability for necessaries (Sec. 68): Persons incompetent to contract are made liable for necessaries supplied to them. A new contract requires a fresh consideration. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. Beneficial contracts: The law that a minor¶s agreement is absolutely void has been confined to the cases where a minor is charged with obligations and the other party seeks to enforce them. However. If it is necessary. A minor can be a beneficiary e.g. A minor is capable of purchasing immovable property and he may sue to recover the possession of the property purchased by tendering the purchase money. a person can¶t ratify an agreement made by him when he was a minor. an endorsee. where the other party was aware of the infancy so that he was not deceived or where the other party was unscrupulous in his dealings with the minor. To render an infant¶s estate liable for necessaries. A promissory note executed in favour of a minor is valid and can be enforced in a court. Doctrine of restitution: If a minor obtains property or goods by misrepresentating his age. What may be necessary for one class may be luxury for another. 68 reads ³If a person incapable of entering into a contract or any one whom he is legally bound to support is supplied by another person with necessaries suited to his conditions in life. two conditions must be satisfied: (1) The contract must be for goods reasonably necessary for his support in his state of life and (2) he must not have already a sufficient supply of these necessaries. This is known as the equitable doctrine of restitution. On the other hand a minor is allowed to enforce a contract which is of some benefit to him and under which he is required to bear no obligations. when a minor invites the aid of the court for the cancellation of his contract the court may grant relief subject to the condition that he shall restore all benefits obtained by him under the contract or make suitable compensation to the other party. a payee. or a promisee under a contract.3.

Anticipatory breach: An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. his promise in its entirity. When a party to a contract has refused to perform or disabled himself from performing. Answer 3: Discharge by breach of contract: Breach of contract by a party thereto is also a method of discharge of a contract. but the contract as such stands terminated. because ³breach´ also brings to an end the obligations created by a contract on the part of each of the parties. and (2) Actual breach. Suit for an injunction. Breach of contract may be of two kinds: (1) Anticipatory breach. Suit for damages. 5. Actual breach entitles the party not in default to elect to treat the contract as discharged and to sue the party at fault for damages for breach of contract. Rescission of the contract. As regards the last two remedies stated above. by words or conduct his acquiescence in its continuance. Suit upon quantum merit. 2. unless he has signed. It occurs when a party fails to perform his obligations upon the date fixed for performance by the contract. his intention not to perform it.. 2.e. before the due date of performance. the injured party becomes entitled to any one or more of the following remedies against the guilty party: 1. Remedies for Breach of Contract Whenever there is breach of a contract. (b) Impliedly by the conduct of one of the parties. . the promisee may put an end to the contract. Here a party by his own voluntary act disables himself from performing the contract. 4. the law is regulated by the Specific Relief Act. the party not at fault can sue for damages for breach of contract as per law. 3. Suit for specific performance of the contract. 1. Actual breach: Actual breach may also discharge a contract. It may take place in two ways: (a) Expressly by words spoken or written. Of course the aggrieved party i. 1963.Question 3: Discuss how a contract can be discharged by breach. Here a party to the contract communicates to the other party.

4. 3. the original contract by which the principal debtor undertakes to repay the money to the creditor may be about to come into existence. This is not a valid contract of guarantee because the primary liability between X and Y is a time barred debt which is not enforceable by law.10. On 2nd Jan. Hence in a contract of guarantee. Example: X took a loan of Rs. though it may be an indemnity. 2002. From: A contract of guarantee is just like any other contract which may be either oral or in writing. 2. The legal detriment incurred by the promisee at the promisor¶s request is sufficient to constitute the element of consideration.000 from Y on 1st Jan. Hence. 2.000 due from X. Z cannot become surety without the consent of Y. 1.Question 4: Discuss the essentials of a contract of guarantee. If the obligation is undertaken without any request of the debtor.10. Example: X sells and delivers goods to Y. Tripartite agreement: Every contract of guarantee involves three agreements between (i) the creditor and principal debtor. the primary liability is with the principal debtor. the contract is one of indemnity. The promise to pay must be conditional: In other words. Z gave the guarantee to Y for the payment of Rs. Z agrees to do so. X afterwards requests Z to pay in default of Y. The intention of the parties is also important whether one making oneself primarily or collaterally liable. (ii) the surety and the creditor. Consent of the parties: There must be consent of all the three parties. Existing liability: It is not necessary that the principal contract must be in existence at the time the contract of guarantee is made. . Secondary Liability: The test which applied to determine whether the contract is one of guarantee or indemnity is whether the obligation has been undertaken at the debtor¶s request in which case the contract is one of guarantee. Answer 4: Essential of Contract of Guarantee: 1. and (iii) the surety and the principal debtor. Consideration: Something done for the benefit of the principal debtor is considered as consideration for the guarantee to make the contract valid. Here. the liability of the surety should arise only when the principal debtor makes a default. 1999 and paid nothing on account of interest and principal. the promise to be primarily and independently liable is not a guarantee.

.e.. otherwise the contract of guarantee may become void or voidable.3. Kinds of Guarantee A contract of guarantee may be either µretrospective¶ e. under certain circumstances. A person of unsound mind or an undischarged insolvent cannot give a valid guarantee. surety and creditor must be a person competent to contract. When the guarantee is given for a single or particular debt. This agreement is concealed from A.e.e. and A in consequence calls upon him to furnish security for his duty accounting. a surety is liable though the principal debtor is not i. the original contract is void as is the case of a contract with a minor in which the surety is liable not only as surety but also as principal debtor. for an existing debt or µprospective¶ i. 4. such excess to be applied on liquidation of an old debt. Guarantee are further divided into ¶specific¶ also known as simple or single guarantee and µcontinuing¶. B and C have privately agreed that we should pay Rs. Generally a contract of guarantee is not the contract of utmost good faith i.g. B fails to account for some of his receipts. A guarantee which extends to a series of transactions is called a continuing guarantee. However. B afterwards makes a default. it is called a ¶specific guarantee¶ and it comes to an end when the debt guaranteed has been paid. (Sec.500 per ton beyond the market price. The guarantee is invalid. Example: I: A engages B as clerk to collect money from him. Consent: There must be free consent.. Example: II: A guarantees to C payment for iron to be supplied by him to B to the amount of 2000 tons. but it is sometimes a first cousin to it. Mere non-disclosure will not effect the contract of surety unless there is an intentional concealment. C gives his guarantee for B¶s duty accounting. Competency: The principal debtor. 129 of the Indian Contract Act). for a future debt. A does not acquaint C with B¶s previous conduct. uberrimae fidei. A is not liable as a surety.

But the indorsee can sue other prior parties. In other words. In the case of a conditional indorsement the liability of the indorser would arise only upon the happening of the event specified. e.¶ Kinds of Indorsements: Indorsements may be of the following kinds: 1. 2. otherwise than as such maker. an indorsement consists of the signature of the holder usually made on the back of the negotiable instrument with the object of transferring the instrument. even though the specified event did not happen. 5. The person making the indorsement is called an µindorser¶ and the person to whom the instrument is indorsed is called an µindorsee. a specified person. Conditional indorsement: If the indorser of a negotiable instrument. a partial indorsement which transfers the right to receive only a part payment of the amount due on the instrument is invalid. Partial indorsement: Section 56 provides that a negotiable instrument cannot be indorsed for a part of the amount appearing to be due on the instrument.g. 3. he is said to indorse the same. although such event may never happen. by express words in the indorsement. by express words. Answer 5: Section 15 defines indorsement as follows: ³When the maker or holder of a negotiable instrument signs the same. further indorsements are signed on a slip of paper attached to the instrument. on the back or face thereof or on a slip of paper annexed thereto. Such a slip is called µallonge¶ and becomes part of the instrument. or so signs for the same purpose a stamped paper intended to be completed as negotiable instrument. the maker. if the instrument is not duly met at maturity.. the indorsement is said to be in blank. . Indorsement in full or special indorsement: If the indorser. prohibits the indorsee from further negotiating the instrument or restricts the indorsee to deal with the instrument as directed by the indorser is called µrestrictive¶ indorsement. in addition to his signature. or to the order of. 4. makes his liability.Question 5: How can negotiable instruments be endorsed? Discuss in detail. Restrictive indorsement: An indorsement which. for the purpose of negotiation. dependent on the happening of a specified event. If no space is left on the back of the instrument for the purpose of indorsement. and is called the indorser. Blank or general indorsement: If the indorser signs his name only and does not specify the name of the indorsee. The indorsee under a restrictive indorsement gets all the rights of an indorser except the right of further negotiation.. The effect of a blank indorsement is to convert the order instrument into bearer instrument which may be transferred merely by delivery. the indorsement is said to be in full. such indorsement is called a µconditional¶ indorsement. also adds a direction to pay the amount mentioned in the instrument to. acceptor etc.´ Thus.

Question 6: Why do you think an agreement to take a person to moon for a holiday cannot be a contract? Answer 6: The essentials of valid contract states that´ the terms of agreement should be capable of being performed & must be certain. . We all know that moon missions are multi-billion projects & all are funded by Government.´ Taking a person to moon for a holiday cannot be a valid contract because neither the activity is being capable of being performed in near future nor it is certain that someone making such kind of promise will be able to fulfill. The government laws have also not yet authorized any agency or person to make such contracts so any agency or person promising a holiday on moon is unlawful which is also an essential term of valid Contract. so someone making such a promise would only be a fraud.

Sign up to vote on this title
UsefulNot useful