LEGAL ASPECTS OF BUSINESS

2 mark questions and answers

1) What are the essential elements of a valid contract?

a) Offer and Acceptance; b) Intention to create legal relationship; c) Lawful
consideration;
d) Capacities of parties-competency; e) Free and genuine consent; f) Lawful Object;
g) Agreement not declared void; h) Certainty and possibility of performance;

2) When the offer and acceptance is complete?

For an offer, to be complete, it must be communicated to the person to whom it is made. An
offer is to be made to the offeree by the offeror or by his duly authorized agent and there can be
no acceptance of it, without such communication.
Similarly, the acceptance must be communicated to the offeror in some perceptible form by the
acceptor. Acceptance must be a matter of fact with external manifestation. The acceptance must
be communicated before the offer lapses and before it is withdrawn. Both communications
should take place within a reasonable time.

3) Distinguish between an offer and an invitation to offer.

An offer is a proposal by one party to another to enter into a legally binding agreement with him.
A person is said to have made a proposal, when he signifies to another his willingness to do
something with a view to obtaining the assent of that other.

Whereas, the display of goods, marked with prices on them, quotations, catalogues,
Advertisements in newspaper to sell an article, circulars sent to potential customers, the goods
sold in a self service system and tenders are called as “invitation to offer”.

In an offer, the person who offers becomes a Promisor. In the invitation to offer, the person who
invites the offer wanted the other person to be a Promisor and he wanted himself to be an
acceptor and promisee.

4) What do you mean by cross offer?

When two parties make identical offers to each other, without knowing or in ignorance of each
other’s offer, the offers are called as cross offers. In such a case court shall consider that there is
no concluded contract.

5) Define contingent contract and quasi contract.

Section 31 defines, Contingent contract is a contract to do or not to do something, if some event
collateral to such contract does or does not happen.
For example: An insurance company agrees to pay a person Rs.1, 00,000 if that person’s car is
stolen/ lost. This is a contingent contract.
A quasi-contract has been defined as “a situation in which law imposes upon one person on
grounds of natural justice, an obligation similar to that which arises from a true contract although
no contract, express or implied has in fact been entered into by them.
6) Define “Consensus ad idem”.
This means the parties to the agreement must have agreed about the subject-matter of the
agreement in the same sense and at the same time. If there is no consensus ad idem there can be
no contract.

7) Who must perform a contract?

a) Promisor himself; b) Agent; c) Legal Representative; d) Third persons- when promisee
accepts;
e) Joint promisors;

8) What do you mean by assignment of a contract?

To assign means to transfer. Assignment of a contract means transfer the contractual rights,
obligations and liabilities under the contract to a third part with or without the concurrence of the
other party to the contract.
Contractual obligations involving personal skill or ability can not be assigned. The promisee can
not be compelled by the promisor or by a third party for assignment. The rule is based on sense
and convenience. By operation of law the contract may be assigned. In the event of death or
insolvency also the contracts can be assigned.

9) Define ‘Quasi contracts’.

A quasi-contract has been defined as “a situation in which law imposes upon one person on
grounds of natural justice, an obligation similar to that which arises from a true contract although
no contract, express or implied has in fact been entered into by them.

10) List out the implied conditions in a contract of sale.

a) Condition as to title; b) Sale by description; c) condition as to quality or fitness;
d) Condition as to merchantability; e) Condition implied by custom; f) Sale by sample;
f) Condition as to wholesomeness;

11) List out the implied warranties in a contract of sale.

a) Warranty of quiet possession;
b) Warranty of freedom from encumbrances;
c) Warranty as to quality or fitness by usage of trade;
d) Warranty to disclose dangerous nature of goods;
12) Distinguish between condition and warranty. ( Asked for two times)
a) Difference as to value: - A condition is a stipulation which is essential to the main purpose
of the contract. A warranty is a stipulation which is collateral to the main purpose of the contract
b) Difference as to breach: If there is a breach of the condition, the aggrieved party can treat
the contract as repudiated. But the breach of a warranty can lead only to a claim and the
aggrieved party can not repudiate/ cancel the contract.
c) Difference as to treatment: A breach of a condition may be treated as a breach of warranty.
This can happen only when the aggrieved party is contented with damages only. But breach of a
warranty can not be treated as a breach of a condition.
A condition is a stipulation which is essential to the main purpose of the contract. It goes to the
root of the contract. It is so essential to the performance of the contract, its non-fulfillment leads
to the failure of the performance of the contract. If there is a breach of the condition, the
aggrieved party can treat the contract as repudiated.

A warranty is a stipulation which is collateral to the main purpose of the contract. It is not as
vital as condition. The breach of a warranty can lead only to a claim and the aggrieved party can
not repudiate/ cancel the contract.

13) Distinguish between warranty and guarantee.

A warranty is a stipulation which is collateral to the main purpose of the contract. It is not as
vital as condition. The breach of a warranty can lead only to a claim and the aggrieved party can
not repudiate/ cancel the contract. Warranty is connected with stipulations related to the
performance of contracts.

Guarantee is connected with the protection and of risk management in dealing with borrowing
and lending or in identifying the responsible persons in case of default of promises.

A guarantee is a contract to perform the promise or discharge of liability of a third party in case
of his default. A guarantee may be either oral or written. It may be expressed or implied and may
even be inferred from the course of conduct of the parties concerned. The person who gives the
guarantee is called as surety and person for whom it is given is called as principal debtor and the
person to whom it is given is called as creditor.

14) Who is an unpaid seller? What are his rights?

A seller of goods is an unpaid seller when
I) the whole of the price has not been paid or tendered.
ii) A bill of exchange or other negotiable instrument has been received as
conditional payment and the condition on which it was received has not been fulfilled by
reason of the dishonor of the instrument or otherwise.
Rights of an unpaid seller:
a) Right of lien; b) Right of stoppage in transit; c) Re-Sale; d) Withhold the delivery;
e) Suit for price; f) Suit for damages; g) Repudiation of the contract of sale; h) Suit for interest;

15) Define the term ‘Goods’.

Goods means every kind of movable property other than actionable claims and money; and
includes stocks and shares, growing crops, grass and things attached to or forming part of the
land which are agreed to be severed before sale (for example trees) or under the contract of sale.
Trade marks, copy rights, patent rights, good will, electricity, water, gas are all goods.

16) What is the right of a finder of lost goods?

a) Right of lien; b) Right to sue for reward; c) Right of sale;
17) Define agency? Who is called as an agent?
Agency is a concept in which a person called “Principal” appoints another person to deal with
third parties on behalf of him.
An ‘agent’ is a person employed to do any act for another or to represent another in dealings with
third persons. The person for whom such act is done or who is so represented is called the
“principal”.

18) What is the test for determining the existence of agency?

If a person claims to be an agent, can bind the principal and make him answerable to a third
person by bringing him into legal relations, we can be sure that the agency exists.
The existence of a privity of contract between a principal and his agent is known by the legal
binding of the principal for the acts of his agent.

19) What are the characteristics of ‘del credere’ agent?

‘Del credere’ agent occupies the position of both a guarantor and an agent for his principal. A del
credere agent is one who, in consideration for an extra commission, guarantees his principal that
the person with whom he enters into contract on behalf of the principal, shall perform their
obligations.

20) What is a Negotiable Instrument? / Define:

A ‘negotiable instrument’ means a promising note, bill of exchange or cheque payable either to
order or to bearer.
A negotiable instrument is a document which entitles a person to a sum of money and which is
transferrable from one person to another by mere delivery or by indorsement and delivery.

21) Who is a “holder in due course”? (asked for 2/3 times)

A person who takes a negotiable instrument, 1) bona fide; 2) for a value, is known as a holder in
due course. He gets a good title even though the title of the transferor may be defective.

22) What is Law?

Law is those principles applied by the state in the administration of justice.

23) Write short note on business law?

Business law refers to those rules and regulation which govern the formation and
execution of business deals made by various people in the society.

24) What do you understand by mercantile law?

Mercantile law is that branch of civil law dealing with rights and obligations of
mercantile persons arising out of mercantile transactions in respect of mercantile property.

25) Define commercial law?

Commercial law can be defined as, “the rights and obligations of commercial persons
who deals with commercial transactions in respect of commercial property”.

26) What is meant by valid contract?

A contract is an agreement, enforceable by law, made between at least two parties by
which rights are acquired by one and obligations are created on the part of another.
27) What are void Agreements?
It is an agreement which is not enforceable by law.
i) An agreement made without consideration is void.
ii) An agreement, the consideration of which is unlawful is void.
iii) An agreement in restraint of marriage of any person, other than a minor
is void, etc.
28) Define contract?
A contract is an agreement enforceable at law, made between two or more persons, by
which rights are acquired by one or more, to act on the part of the other.

29) List out the formation of a contract?

The following are the essential parts of formation of a contract.
a) Offer and acceptance
b) Consideration
c) Competency to contract
d) Free consent
e) Lawful object

30) State the meaning of performance of contracts?

‘Performance’ of contract means the carrying out of obligations under it. The parties to
contract must either perform or offer to perform their respective promises unless such
performance is dispensed with or excused under the provisions of the Indian Contract Act, or
some law

31) What do you understand by Breach of contract?

The term breach means violation or contravention with regard to fulfillment of the
terms and conditions incorporated in an agreement. A contract is said to have been discharged by
breach when the parties to the agreement fail to discharge their respective obligations or when
parties act contrary or in contravention to the terms and conditions contained in the contract.

32) What are the remedies for breach of contract?

1) Rescission of the contract
2) Suit for damages
3) Suit upon Quantum merit.
4) Suit for specific performance of the contract.
5) Suit for Injunction.
33) What is contract of sale?
Section 4 defines a contract of sales as “a contract whereby the seller transfer or
agrees to transfer the property in goods to the buyer for a price”.

34) Discuss about transfer of title?

The main purpose of a contract of sales is the transfer of ownership of the goods
from a seller to a buyer. When the ownership of the goods is transferred to the buyer, he becomes
the owner of the goods and the seller ceases to be the owner of such goods.
35) What are the condition and warranty in sales contract?
A condition is a term which is essential to the main purpose of the contract and hence is
the foundation of the contract.
A warranty is a term which is collateral to the main purpose of the contract and hence is
only a subsidiary promise.

36) Define performance of sales contracts?

It is the duty of the seller to deliver the goods and of the buyer to accept and pay for
them, in accordance with the terms of sales contracts.

37) Define Negotiation?

Section 14 of the Negotiable Instrument Act lays down that “when a promissory
note, till of exchange or cheque is transferred to any person, so as to constitute that person the
holder there of, the instrument is said to be negotiated”.

38) Write any five liabilities of the parties to a Negotiable Instrument?

1) Liability of Drawer
2) Liability of Acceptor or maker
3) Liability of Drawee of a cheque
4) Liability of Endorser
5) Liability of prior parties to a Holder in Due Course.
39) Who is a “holder in due course”?
‘Holder in due course’ means any person who for consideration and in good faith
become the processor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or indorsee thereof, if payable, to order before the amount mentioned in it become
payable.

40) What are the obligations of a Banker to a customer?

1) Obligation to Honour cheques
2) Obligation to maintain secrecy of Account
3) Obligation to keep proper Records of Transactions.
4) Obligation to Abide by customer’s Instructions.

41) Define agency?

An ‘agent’ is a person employed to do any act for another or to represent another
in dealings with third persons. The person for whom such act is done or who is so represented is
called the “principal”.

42) What are the different kinds of agents?

1) Auctioneer
2) Banker
3) Broker
4) Factor
5) Del credere agent
6) Commission agent
 7) Indentor
8) Insurance agent

43) State the Agent’s authority and liability of principal?

The competency or capacity of an agent to bind his principal by his acts is known
as ‘agent’s authority’. An agent enjoys.
a) Actual or real authority
b) Ostensible or apparent authority, and
c) Agent’s authority in emergency.

44) How will you terminate the Agency?

I) By act of parties
ii) By operation of Law.