You are on page 1of 17

Business Law Rag No.


Q 1). Define a contract and explain in detail the essential elements of a valid

Ans. A contract is a legal agreement. It is an exchange of promises between

two or more persons, resulting in an obligation to do or refrain from doing a
particular act; which obligation is recognized and enforced by law. In creating a
legal obligation, contract gives a right to one person and costs a corresponding
duty on another person.
Contract is defined by section 2(h) of the Indian Contract Act, 1872 as “An
agreement enforceable by law”.
The definition resolves itself into two distinct parts; first there must be an
agreement, secondly such an agreement must be enforceable at law. To be
enforceable at law, an agreement has to fulfill certain conditions. These
conditions are called Essentials of valid contract:

(1) Offer and Acceptance resulting in consensus-ad-idem:

To constitute a contract, there must be an offer and an acceptance
of that offer. The offer and acceptance should relate to the same thing
and in the same sense. In other words, there must be consensus-ad-

(2) Intention to create legal relationship:

It is essential that parties to a contract must intend to create legal
relationship. An agreement of a purely social or domestic nature is not a

(3) Free and genuine consent:

The consent of the parties to the agreement must be free and
genuine. Free consent is absent if the contract is included by coercion,
undue influence, fraud, misrepresentation or mistake . Where agreement
has resulted because of mutual mistake of the parties, it shall be void, but
in other cases,(i.e. case of coercion, undue influence, misrepresentation or
fraud) it will be voidable, i.e. it may be declared void at the option of the
aggrieved party.

(4) Parties to be competent to contract:

The parties to a contract should be competent to enter into a
contract. According to section II of the Indian Contract Act 1872, every
person is competent to contract if he
(i) is of the age of majority.
(ii) is of sound mind and
(iii) is not disqualified from contracting by any law to which he is subject.
Thus there may be flaw in the capacity of the parties to contract.
The flaw in capacity may be due to minority, lunacy, idiocy, drunkenness
or status. if a party to the contract, suffers from any of these flaws, the
contract is unforceable except in certain exceptional circumstances.

(5) Lawful consideration:

Page 1 of 17
Business Law Rag No. 200311402

The agreement must be supported by consideration on both the

sides. Each party to the agreement must give or promise something and
receive something or a promise in return. Consideration is a price for
which the promise of the other is sought. However, this price need not
be in terms of money. In case the promise is not supported by
consideration, the promise will be nudun-pactum (a bare promise) and
shall not be enforceable at law. Moreover the consideration must be real
and lawful.

(6) Lawful Object:

The object of the agreement must be lawful and not the one which
the law disapproves. In other words, the object of the contract mustn’t

(i) Illegal or unlawful

(ii) Immoral or
(iii) Opposed to public policy.

The object must also not be forbidden by law. It must also not be of
such nature that if permitted, it will defeat the provisions of Law or impute
injury to the person or property of another.

(7) Agreement not declared void:

For a contract to be enforceable at law, it is necessary that apart
from possessing all the essential elements discussed above, it must not
have been expressly declared void by any law in force in the country.
Agreements in restraint of marriage, trade, legal proceedings or wagering
agreements are specifically declared void under Sections 26, 27, 28 and
30 respectively of the Contract Act.

(8) Certainty of meaning:

The meaning of the agreement must be certain or capable of being
made certain. Otherwise the agreement will not be enforceable of law.

(9) Possibility of performance:

The terms of the agreement should be capable of performance. An
agreement to do an act impossible in itself cannot be imposed.

(10) Necessary legal formalities:

A contract as such may be in oral or in writing. But if a particular
type of contract is required by law to comply with certain legal formalities, it must
comply with the necessary legal formalities as to writing, registration and
attestation if necessary. If these legal formalities are not carried out, the contract
is not enforceable at law.

Page 2 of 17
Business Law Rag No. 200311402

Q 3). What do you mean by Discharge of contract? What are the various ways
in which a contract may be discharged?

Ans.. Discharge of contract means termination of the contractual relationship

between the parties. When the rights and duties created by a contract,
come to an end, the contract is said to be discharged or terminated.
A contract may be discharged or terminated in any of the following

Discharge by performance (S.37)

Discharge or termination of a contract takes place, when the parties
to a contract fulfill there respective obligations, arising out of the contract,
within the time and in the manner as prescribed. This is the most normal
and natural mode of termination or discharge of contract.

Discharge by Agreement (Consent) (Ss. 62-64)

As a contract springs from the consent or mutual agreement of all
parties to it, it can be terminated as well by the mutual agreement or
consent of all parties to it. In other words by the valid consent of all the
parties concerned, a contract can be cancelled or its terms and conditions
altered, or new agreement substituted for it. In all such cases, the old
contract stands discharged or terminated. The consent may be expressed
or implied.

Discharge by impossibility of Performance: (Ss. 56 & 65)

When in a contract, a person has promised to do something, which,
at the time of forming the contract, is impossible to perform, the contract
i.e. Void-ab-Initio. The fact of impossibility may be known to all parties to
the contract, or it may be known only to the promissory.

Discharge by Operation of Law: (Ss. 37-38 and 41)

A contract may be discharged by the operation of Law in the
following cases:
(i) Performance excused under law (S. 37)
(ii) By death (S. 37)
(iii) By Insolvency (S. 37)
Page 3 of 17
Business Law Rag No. 200311402

(iv) By refusing tender (S. 38)

(v) By promise failing to afford facilities for Performance (S. 67)
(vi) By promise accepting performance from a third party (S. 41)
(vii) By unauthorized alteration of written agreement.

Discharge by breach of Contract: (S. 39)

When a party to a contract has not performed or disabled himself
from performing his promise in its entirely, the promise may put an end to
the contract, unless he has signified (by words or conduct) his
acquiescence in its continuance (S. 39). Breach of contract may take place
either by:
(i) Actual breach and
(ii) By Anticipatory breach.

Q. 4) Classify and explain different types of Agents?

Ans.4) Agents on the basis of point of view adopted can be classified into
various ways. From authority view point, they can be classified as a special
Agents, General Agents and Universal Agents. They are also classified as
mercantile or commercial agents and non mercantile or non-commercial agents.
Auctioneers, Brokers, Factors , Commission agents are the types or class of
Mercantile or Commercial agent while Attorneys, Solicitors, Wife etc. are
examples of different kinds of Agents.

a) Special Agent:
A special agent is also known as particular or specific Agent. He
may be appointed to do a specific work or represent his principal in specific
transaction only. A special Agency lasts for a particular period of time or
for a specific type of job or work. As soon as the period lapses or the task
or job for which he is appointed is finished, the agency stands terminated.

b) General Agent:
Such an Agent has to perform all the acts in the interest of his
principal and he has got a general authority to do everything in the course
of his agency. Thus a General Agent is one who has the authority to do all
acts connected with the business or trade of his principal.
A shop or Branch office Manager are examples of a General Agent.

c) Universal Agent:
A Universal Agent has an unlimited power to act on behalf of his
principal. He is the one whose authority is unlimited and who can do any
act on behalf of his principal if such an act is legal and not prohibited by the
law of land. A Universal agent is more of a substitute for his principal to all
those transactions where the principal cannot be there. Broadly speaking,
a Universal agent is more of a General Agent with extensive powers.

Page 4 of 17
Business Law Rag No. 200311402

d) Co-Agents:
When two or more persons are appointed as agents jointly and
severally or jointly or severally, they are known as Co-agents. When there
is no mention made about the exercise of their authority, it is joint. But
when their authority is several, any one of the Co-agents can act without
the concurrence of the other.

e) Sub-Agents:
A person employed and acting under the control of the original
agent in the business of agency is defined as a Sub-Agent (Sec. 191).
This means, a sub-agent is responsible for his acts to the agent and not to
the principal except in case of fraud and willful wrong (Sec. 192). Thus, the
principal can hold his agent responsible for the acts of Sub-Agents.

f) Substitute Agents:
Sections 194 and 195 deal with substituted agents. Section 194
discloses the nature of a substituted agent and accordingly, when an agent
holding an express or implied authority to name another person to act for
and on behalf of his principal, in his business, such agent is known as
Substituted agent.

g) Broker:
A broker is a special type of Mercantile agent who acts as a
middleman between the buyer and the seller. He brings about a
contractual relationship between the buyer and the seller for the sale or
purchase of goods, properties, shares, securities etc. No sooner the
transaction is completed his authority ends.

h) Auctioneer:
An Auctioneer is a Mercantile agent who is appointed to sell goods
on behalf of the principal i.e. the seller. For carrying out the function, the
Auctioneer gets remuneration in the form of a commission. He conducts
the auction on behalf of the seller as he is an agent of the seller.

Page 5 of 17
Business Law Rag No. 200311402

Q 5) Explain the rights, duties and responsibilities of an agent to his principal.

Ans. Rights:

1) Rights to do all lawful things:

An Agent has every right to perform those Acts which are
necessary for discharging the duties entrusted to him by his principal
(Section 188).

2) Right in emergency:
In an emergency, an agent has an authority to do any such act/s
which are essential for the purpose of protecting his principal from loss as
would be done by a person of ordinary prudence, under similar
circumstances.(Section 189)

3) Right to renounce property:

According to the provisions of Section 201, an agent gets the right
to renounce his agency by giving a reasonable notice to his principal.

4) Right to receive remuneration (when due):

An agent is entitled to receive the remuneration as agreed between
the principal and himself when he has carried out the objective of agency

a) There is any contract to the contrary or

Page 6 of 17
Business Law Rag No. 200311402

b) He is guilty of any misconduct in the agency business (Section 219).

5) Right to be compensated on premature revocation:

An agent has the right to receive compensation from his principal if
as per section 205 if there is an express or implied conduct that the agency
should be continued for any period of time, and the principal revokes the
agency without sufficient cause.


1) To conduct business or transaction as per directions of the

An agents primary duty is to conduct the business of his principal
according to the principal’s instructions or directions. If the agent does not
act according to his principal’s directions, and as a result if any loss arises,
it’s the agent’s liability for the same and he has to make good the loss to
his principal. (Section 211)

2) On termination of Agency by his principal’s death or insanity:

When an agency is terminated by his principal dying or becoming of
unsound mind, it is the duty of the agent to take, on behalf of the
representatives of the late principal, all reasonable steps for protection and
preservation of interest entrusted to him (Section 209).

3) Duty to render proper Accounts to Principal:

An agent is bound to render proper Accounts to his principal on
demand. (Section 213) An agent has to always maintain his accounts,
property etc. separately from that of the principal. He also is bound to give
an explanation of Accounts to the principal when he is called upon to do so.

4) Not to delegate his authority:

Provisions of Section 190 state that an agent should not delegate
his authority or employ another person to perform acts which he has
expressly or impliedly undertaken to perform personally, unless by the
contract of Agency, a sub agent must be employed.
5) Not to earn or make Secret profit from Agency business:
Provisions of Section 216 imply that, an agent shall not make or
earn any secret profits from his agency business beyond the agreed
remuneration or commission as the case may be. An agent occupies a
fiduciary position which requires utmost good faith in the conduct of the
business. He must not earn any profits secretly and if he earns any secret
profit, it is the duty of the agent to account for it to the principal.

Page 7 of 17
Business Law Rag No. 200311402

Q 6) Explain the mutual rights and liabilities of partners in a partnership firm:

Ans.6) Section 11 of the Indian Partnership Act confers the following rights upon
all partners.
1) Right to take part in the business (S.12(a)):
Section 12(a) lays down that subject to the conduct of the
partnership, every partner has a right to take part in the conduct of the
business of the firm. This is based on the general principle that partnership
business is common business of all partners.

2) Rights to share equally in the profits (S. 13(b)):

Under section 13(b), in the absence of a contract to the contrary,
the partners are entitled to share equally in the profits earned by the firm.
In the same way, they are bound to contribute equally in the losses
sustained by the firm

3) Right to claim interest on capital (s 13(c)):

Under section 13(c), where the deed of partnership provides that a
partner is entitled to clam interest on capital, subscribed by him, at a
certain rate, such interest subject to contract between partners shall be
payable out of profits if any earned by the firm.
Page 8 of 17
Business Law Rag No. 200311402

4) Right to be consulted in all matters(S.12 (c)):

Subject to contract between the partners, every partner has an
inherent right to be consulted in all matters relating to the business of the

5) Right to access to books of the firm (S.12(d)):

Section 12(d) lays down that subject to contract between the
partners, every partner or his agent has a right to have an access to and to
inspect and copy of any of the books of the firm.

6) Right to claim interest on advances (S. 13(d)):

Section 13(d) lays down that, subject to contract between the
partners, where a partner has made any payment or advance beyond the
amount of capital he has agreed t subscribe, for the purpose of the
business, he is entitled to claim interest thereon @ 6% p.a.

7) Right to be indemnified (S.13(e)):

Section 13(e) lays down that, subject to contract between the
partners, the firm shall indemnify a partner in respect of payments made
and liabilities incurred by him:-
a) In the ordinary proper conduct of business &
b) In doing such act, in an emergency for the purpose of protecting the firm
from loss, as would be done by persons of ordinary prudence in his own
case under similar circumstances.

8) Right to act in an emergency (Ss. 21 and 13(e)):

Section 21 authorises a partner, in an emergency to do all such
acts for the purpose of protecting the firm from loss as would be done by a
person of ordinary prudence, in his own case, acting under similar
circumstances, and such acts bind the firm. As a result of any such Act, if
a partner incurs any liability, or makes any payment, one has a right to be
indemnified under Section 13(e).

9) Right to prevent introduction of a new partner (S.31):

Under section 31, every partner has a right to prevent the
introduction of a new partner unless he gives his consent to that or unless
the deed of partnership provides for such introduction.

LIABILITIES: (Section 25)

1) Liability of partners for acts of the firm (Section 25):

Section 25 lays down that, “Every partner is liable, with all the other
partners and also severally for all acts of the firm done while he is a
The significance of joint and several liability is that for every act, of
the firm, a partner can be sued individually as well as jointly with other

Page 9 of 17
Business Law Rag No. 200311402

2) Liability of firm for wrongful acts of a partner (S. 26):

Section 26 lays down that, “Where by the wrongful act or omission
of a partner, acting in the ordinary course of the business firm, or with the
authority of his partners, any loss or injury is caused to a third party or any
penalty is incurred, the firm is liable therefore to the same extent as the
Thus the firm is liable for the wrongful acts of a partner including
fraud committed by a partner, in the ordinary course of business of the firm.

Q 8) Distinguish between sale and an agreement to sell and explain fully the
essentials of contract of sale of goods.

Ans. A contract. of sale of Goods is a contract whereby the seller transfers or

agrees to transfer the property in goods to the buyer for a price. There
maybe a contract of sale between one part owner and another
(section.4(1)). A contract of sale may be absolute or conditional
(Section.4(2)). Here property means the general property in goods and not
merely special property (Section.2)

Sale and an Agreement to sell:

When under a contract of sale, the property in goods is transferred
from the seller to the buyer, the contract is called a sale. But where the
transfer of the property in the goods is to take place at a future date, of
Page 10 of 17
Business Law Rag No. 200311402

subject to some condition to be fulfilled, the contract is called an agreement

to sell. (sec. 4(3)) An agreement to sell becomes a sale when the time
elapses or the conditions are fulfilled subject to which the property in the
goods is to be transferred. (sec.4(4)) Thus where the transfer of any
property (movable) in goods is to take place at a future time or subject to
certain conditions to be fulfilled thereafter, it is nothing but an Agreement to
sell the goods or property.

Essentials of a contract of sale:

(A) Existence of 2 Parties:

First of all for a contract of sale to take place, there must be at least
two parties i.e. one a buyer and two the seller. A buyer is a person who
buys or agrees to buy (sec.2(1)) and the seller is a person who sells or
agrees to sell (sec.(13)). However there are certain exceptions to this rule.
A person may buy his own goods in certain case eq: Auction sale (sec.64

(B)Existence of property or Goods as subject matter of contract:

The subject matter of the contract of sale must be some movable
property or goods. Transactions involving purchase and sale of immovable
properties are out of the ambit of the Sale of Goods Act.
As per sec.2(7), of the sale of Goods Act 1930,goods means every
kind of movable property other than actionable claims and money and
includes stocks and shores, growing crops and things attached to or
forming a part of the land which are agreed to be severed before the sale
on under the contract of sale.

(C)Transfer of Property.
There must be a transfer of general property i.e. ownership and not
special property. In the goods from the seller to the buyer. Suppose X
owns certain types of goods, he has the general property of goods. If he
pledges the goods with Y, Y has special property in the goods when he
cannot sell.

(D)Monetary consideration–Price:
There must be money which must be the consideration for the
contract of sale. This is because if goods are exchanged for goods, its
barter and if goods are given without any considerations it amounts to a
gift. If goods are exchanged partly for goods and partly for money, that will
be a contract of sale.

(E) Essential elements of a valid contract:

In order to constitute a valid contract of sale of goods, all the
essential elements necessary to constitute a valid contract must be
present. (as prescribed under section 10 of the contract Act). There must
be consensus ad idem, parties must be competent to contract, Lawful
object, consideration etc.

Page 11 of 17
Business Law Rag No. 200311402

Q.9) Define the term, ‘Negotiable instrument’ and explain its types and various
parties of the types of Negotiable.

Ans.9) According to section. 13 of the Negotiable Instruments Act 1881, ‘A

Negotiable instrument means, a ‘promissory note’, “Bill of Exchange or
cheque” or ‘cheque’ payable either to order or to bearer. Thus the
Page 12 of 17
Business Law Rag No. 200311402

Negotiable instruments act expressly recognises only three instruments viz:

A promissory note, A Bill of Exchange and a cheque as Negotiable
Instruments. However, it does not exclude any other instruments to be
included in this list provided such instruments satisfy certain
characteristics. They are:
a) The Instrument should be freely transferable either by delivery or by
endorsement and delivery.
b) The person, who gets or obtains in good faith and for value, gets it free
from all defects, and is entitled to recover the money of the instrument
in his own name.

Parties to a Negotiable Instrument:

There are various types of Negotiable Instruments. The parties to
some important Negotiable Instruments are stated below:

Parties to a promissory Note:

a) Maker:
A person who promises to pay a certain sum stated in the
promissory Note is the Maker.
b) Payee:
Payee is the person to whom the amount of promissory note is
made payable.
c) Holder:
The person to whom the promissory note is endorsed of the payee
can be the holder.
d) Endorser and Endorsee:
When the holder of the promissory note endorser the promissory
note to somebody else, he becomes the endorser and the person to whom
it is endorsed becomes the endorsee.

Parties to a Cheque:
a) Drawer:
A drawer is a person who draws a cheque on his bank. A drawer is
usually an Account holder of the bank.
b) Drawee:
The drawee is always the bank on whom a drawer draws a cheque.
c) The Payee:
The payee is the person to whom the amount is made payable.
The payee can be any person or organization.
d) Holder:
The holder of cheque may be either the payee or any other person
to whom the cheque is endorsed.
e) Endorser and Endorsee:
When the holder of the cheque endorses the cheque to somebody
else, he is called the endorser and the endorsee is the person to whom the
cheque is endorsed.

Parties to a Bill of Exchange:

Page 13 of 17
Business Law Rag No. 200311402

a) Drawer:
A drawer of a Bill of exchange is a person who makes it.
b) Drawee:
A drawee is a person on whom the Bill of Exchange is drawn.
c) Acceptor:
A person who accepts the bills is an acceptor. After the drawee has
put his signature on the bill to show his acceptance, he is called acceptor.
d) Payee:
A payee is a person to whom the bill is made payable. A drawer or
any other person can be the payee. In short the payee is the beneficiary.
e) Endorser and Endorsee:
When a holder endorses or transfers the instrument to anybody
else, he becomes the endorser and the person to whom it is endorsed
becomes the endorsee.
f) Holder:
A person who is legally entitled the possession of a Bill of Exchange
in his own name and is entitled to receive the amount of the bill is called
the holder. He is either the original payee or the endorsee. If the bill is
payable to the bearer, he is the holder.
g) Drawee in case of need:
Drawee in case of need is a person to whom resort can be had in
case of need. If on presentation, the bill is dishonored either by non-
payment or non-acceptance, by the original drawee, the holder of the bill
has to present the same to the drawee in case of need.

h) Acceptor for honor:

It is permitted that any person may become a party to the bill on his
own as an acceptor. When the original drawee refuses to accept the bill or
refuses to furnish better security when demanded by the notary, a person
who accepts the bill in order to safeguard the honor of the drawer or any
endorser is called acceptor for honor.

Page 14 of 17
Business Law Rag No. 200311402

Q.10) Objects of consumer protection Act & Explanations to terms under

consumer protection Act 1986.

Ans.10) Following are the objects of enacting the consumer protection Act 1986:
a) To protect the interests of the consumers
b) To protect the interests of consumers by masking provisions for
establishing necessary consumer councils and other authorities.
c) To seek speedy and simple redressal to consumer disputes through
setting up quasi-judicial machinery at District, State and Central

a) Consumer (Section 2(1)(d)):

A consumer is any person who:
i) Buys any goods for a consideration which has been paid or promised
to pay or partly paid and partly promised to pay, or under any system
of deferred payment. A consumer also includes any user of such
goods other than the person who buys goods for consideration paid
or promised to pay or under any other system of deferred payment
when such use is made with the approval of such person but does
not include a person who obtains such goods for re-sale or for any
commercial purposes or.
ii) Hires or avails of any services for a consideration which has been
paid or promised to pay or partly paid and partly promised to pay
under any other system of deferred payment and he also includes
any beneficiary of such services other than the person who hires or
avails of the services for consideration paid or promised to pay or
partly paid and partly promises to pay or under any other system of
deferred payment, when such services are availed of with the
approval of the first mentioned person.
b) Dispute [Section 2(1)(e)]:
A consumer dispute is very important from the view point of
consumer protection Act. If there is any dispute between the consumer
or the manufacturer or trader as the case may be, the consumer gets the
right to seek remedy or filing the complaint under the Act. According to
section 2(1)(e), consumer dispute means a dispute where the person
against whom a complaint has been made and he denies or disputes the
allegations contained in such complaint.

c) Deficiency [Section 2(1)(g)]:

Deficiency means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of performance which is
required to be maintained by or under any law for the time being in force
or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service.

d) Restrictive trade Practice [Section 2(1)(nn)]:

Restrictive trade practice means any trade practice which requires a
consumer to buy, hire or avail any goods or as the case may be, services

Page 15 of 17
Business Law Rag No. 200311402

as a condition precedent for buying, hiring or availing of other goods or


e) Unfair trade Practice [Section 2(1)(r)]:

Unfair trade Practice means a Trade Practice which for the purpose
of promoting the sale, use or supply of any goods or for the provision of
any service, adopts any unfair method or any unfair or deceptive practice.

Q.11) How is a company formed under the Companies Act 1956? What are the
documents to be filed with the registrar of Companies?

Ans.11).To form a company, the promoters are required to complete a number of

legal formalities through preparation of various documents such as
Memorandum of Association, Articles of Association, various forms etc.

1) Preparation of Legal Documents:

The promoters of a company are required to prepare various legal
documents such as Memorandum of Association, Articles of Association
etc. for formation of a company and carrying on its business. The
Memorandum & Articles of the proposed company are also required to be
stamp by payment of the appropriate stamp duty.

2) Registration and Incorporation of a company:

Section 11(2) of the companies Act, 1956 declares that no
company, association or partnership consisting of more than twenty
persons (ten in case of banking business) shall be formed for the purpose
of carrying on any business unless it is registered as a company under the
Companies act or any other Indian law. If the company is not registered,
it becomes an illegal Association. Hence its promoters are required to
take the required preliminary steps for registration and Incorporation of the
company with the registrar of companies.

3) Commencement of business:
The next step in the life of a company is to acquire legal capacity to
commence its business, for which it is formed. A company (not being a
private company) acquires legal capacity to commence its business only
when a certificate for commencement of business is issued by the
Registrar of Companies.

Documents to be filed with the registrar of Companies

In the process of the registration / incorporation of the company

the following documents are required to be filed with the
Registrar of the Companies:

a) An application in Form No. 1A as per the Companies (Central

Government’s) General Rules & Forms, 1956.

Page 16 of 17
Business Law Rag No. 200311402

b) Memorandum and Articles of the Company duly signed by

the promoters (Atleast two in case of private company and
atleast seven in case of public company) and subscribed by
one of the promoters.
c) Consent of the person to act as a director in Form No. 29
d) Particulars of Directors, manager or company secretary in
Form No. 32
e) Notice of the situation of the registered office in Form No.
f) Declaration in Form No. 1
g) Original copy of the Registrar’s letter intimating about the
availability of name.
h) Registration anf filing fee for the above.

Page 17 of 17