Name: Pratik Poonja

Roll No: 63
Subject: Legal Aspects of Business And Taxation

Index 
Sr. No.  Topic name 
1  Law of contract cases 
2  Compony law cases 
3  The negotiable instrument
act 
4  Difference between bills of
exchange, promissory note
and cheque 
 Assignment 1
LAW OF CONTRACT CASES 
  
1. A trains his parrot to recite an offer and then sends his parrot to B. The
bird repeats the recitation. Is this a valid offer ?  
Ans: A parrot is not a person in the eye of law therefore it cannot be an agent to
propose or to offer anything. Hence the offer is not valid because it is not made by
a person either directly or through any agent. 
 
2. Over a cup of coffee at a restaurant, A invites B to a dinner at his house on
a Sunday. B hires a taxi and reaches A’s house at the appointed time, but A
fails to perform his promise. Can B recover any damages from A? 
Ans: No, B cannot recover any damages from A since there is no sum of money
involved or there is no consideration. When there is no mention of consideration
and there is no contract no damages can be claimed as compensation. 
 
3. P sees a rare book displayed in a shop. It is labelled ‘First Edition Rs. 15’. P
enters the shop and puts Rs. 15 on the counter and asks for the book. The
bookseller refuses to sell saying that the actual price of the book was Rs. 50
and that it had been marked as Rs. 15 by mistake. Is the bookseller bound to
sell the book for Rs.15?  
Ans: No, the bookseller is not obliged to sell the book to P for Rs.15 by putting the
money on the counter. P has only made an offer for sale which has to be accepted
by the book seller to make it a valid contract. Acceptance is necessary for a
contract to be valid. 
 
4. The defendant on 6th June offered to sell an estate to the plaintiff for Rs.
10,000. On 12th June, in reply, the plaintiff made an offer of Rs. 9,000 which
was refused by the defendant on 16th June. Finally on 20th June the plaintiff
wrote to the defendant that he was now prepared to pay Rs. 10,000. The
defendant refused to sell the estate. The plaintiff filed a suit against the
defendant for breach of contract. How would you decide? State your reasons.  
Ans: When the offer for Rs.9000 was made the defendant refused the offer and
when finally, the plaintiff made an offer to finally pay Rs.10000, the defendant did
not accept the offer. So, in any contract acceptance is necessary, so there is no
acceptance of contract and hence the suit is fill by Plaintiff is not valid.  
5. A manager of the Railway Company received a draft agreement relating to
supply of coal. He wrote the word ‘approved’ on it, kept it in a drawer, and
then forgot about it. Is there a contract between the company and suppliers of
coal who had submitted that draft agreement?  
Ans: There is no valid contract because there is no communication of the
acceptance. 
 
6. A’s nephew was missing. He sent his clerk B to find the boy. In the
meantime, A advertised a reward of Rs. 500 to anyone who brought back the
missing boy. B brought the boy and claimed the reward. Discuss the liability
of A.  
Ans: In the above agreement B was not aware about the proposal made by A, and
it is necessary to have knowledge about the proposal to convert the proposal into
enforceable agreement and in the present case B was not aware of the act. Hence,
this contract is invalid. 
  
7. X promised Y, his nephew, a reward of Rs. 1,000 if he refrained from
drinking for two years. Y does so. Is he entitled to the reward?  
Ans: This is a case of “consideration for the promise” and hence Y is entitled to
the reward. Promises made for consideration are enforceable by the law.
 ASSIGNMENT NO. 2

Compony law cases 

 
1.A husband and wife, who were the only two members of a private limited
company, are shot dead by dacoits. Does the company also die with them?    
Ans: No, the company does not cease to exist as all the members are dead because
the companies enjoy certain rights by the virtue of law. They are a separate legal
entity with perpetual succession.   
    
2.A company was promoted to carry on the business of crop-spraying from
the air. X, one of its promoters held the bulk of its shares and was
its Managing Director. Subsequently, the company entered into a service
agreement with him and engaged him, as its chief pilot also. While piloting
one of the aircraft of    the company, in the course of the latter’s business, he
was killed in an air crash. His wife has claimed compensation under the
provisions of the Workmen’s Compensation Act. The claim is being resisted
by the solicitor of the company who contends that X and the company were
the same people and a person cannot employ himself, no compensation is
payable. Decide.    
Ans: X is a different person from the company and the company is a separate legal
person. Also, he has entered into a service agreement with the company so there is
a valid contract between them. According to the contract, X is an employee of the
company when he was killed in the crash. As X died in course of his employment
his wife was entitled to compensation.   
    
3.A was employed as an accountant with P, a sole trader, under an agreement
of service for ten years. Before the expiry of the agreement, P’s business was
purchased by a company and all his assets and liabilities were transferred to
it. All employees of P reported for duty at the company but A did not.  The
company charged A with being unlawfully absent from work in contravention
of his service agreement. State whether in your opinion there is any default on
the part of A.    
Ans: No, there is no fault of A as he was employed by P to work with him when P
was the sole trader so A is not liable to work for the company.   
    
4.M holds all the shares (except one) in a timber concern and is also its
substantial creditor. He gets company’s timber insured in his own
name. Unfortunately, the timber is destroyed by fire and M claims the
reimbursement of loss from the insurance company. Is the insurance company
liable to M?    
Ans: No. the insurance company is not liable to M as the company is the separate
entity from M and timber is the asset of the company so it cannot be insured in M’s
name hence M cannot claim the reimbursement of loss from the insurance
company.    
   
    
5.H was appointed as a managing director of X Ltd., on the condition that he
shall not entice away the customers of the company during his stay is the
company of afterwards. He left the services of the company and formed a new
company, Y ltd. which enticed away X’s customers. What remedy is available
to X company, if any?    
Ans:No, there is no remedy available for the company available.   
 R 
6.A, B and five others are the only shareholders of the fully paid-up shares of
a public limited company. A’s shares are sold in a court auction and B
purchases them. Assuming that this fact is known to other shareholders, what
are the consequences if the company continues to carry on its business
thereafter?   
Ans: With 6 shareholders company can carry business only for 6 months. If they
want to continue business for more than 6 months then they need to
find a 7th member or the company may dissolve as for the formation of the public
company minimum of 7 members are needed.    
   
    
7.40% of the paid-up share capital of company A is held by the Central
Government and 11% by public institutions like the Life Insurance
Corporation of India and the Unit Trust of India. Is A a Government
Company?    
Ans: No. For a government company, the Central Government, or by any State
Government or Governments or partly by the Central Government and partly by
one or more State Governments needs to hold a minimum of 51% of the paid-up
share capital in the company. Life insurance corporation of India and the Unit Trust
of India are public companies but are not considered the same as government
ownership in this case.     
8.Six of the seven signatures to the Memorandum of Association of a company
were forged. The Memorandum was duly presented, registered, and a
certificate of incorporation was issued. The existence of the company was
subsequently attacked on the ground that the registration was void. Decide.    
Ans: If the signature ware forged then the registration of the company
becomes null and void even if the certificate of incorporation was issued. The
grounds of the company are false then the company becomes legally non-
existent.    
    
9.The Memorandum of Association of a company was presented to the
registrar of companies for registration and the registrar issued the Certificate
of incorporation. The company, after complying with all the prescribed legal
formalities, started a business according to the object clause, which was
clearly an illegal business. The company contends that the nature of the
business cannot be gone into as the Certificate of incorporation is conclusive.
Discuss.   
Ans: If the business carried on by the company is an illegal one, the company, its
directors, officers shall be liable for penalties as per law, and it is not a defense for
the company that such business is contained in the memorandum of association.   
    
  
  
  
10..X, Y, & Z carrying on a partnership business in cloth, formed a private
company and acquired all the shares in it. They sold certain premises to the
new company and thereby earned a huge profit. The profit so earned was
assessed to tax by the income-tax officer. X, Y, and Z objected to such
assessment contending that it was a mere transfer from self to self. Is there
objection valid?    
Ans: No. the objection is not valid as the X, Y, Z are carrying a private partnership
company. Profit earned by them is the company’s profit not the partners' profit and
the company’s profit can be assessed by the tax by the income-tax officer. The
partners cannot take any objection.  
 Assignment 3
NEGOTIABLE INSTRUMENT ACT 
 
  
1). A draw on B a bill payable three months after sight. It passes through
several hands before X becomes its holder. On the presentation to X, B refuses
to accept, Discuss the right of X on the bill.  
Answer - A draw's a Bill on B which is payable three months after sight. After
sight means the period will start only after the acceptance of the bill by the
drawer i.e. B. In this case acceptance is necessary for fixing its date of maturity
Non-acceptance by Drawee which is Mr. B amount to its dishonour. Therefore, B
shall not be liable as he has not accepted the bill. Mr. X can hold the endorser as
well as the drawer liable there on.   
  
2). A, the holder of a bill, endorses it ‘San Recourse' to B. B endorses it to C, C
to D to E & E endorses it again to A. Can A recover the amount of the bill
from B, C, D and E or any of them?  
Answer - The holder of a bill may endorse it in such a way that he does not incur
the liability of an endorser to the endorsee. He can do so by adding the word’s San
resource (without recourse) to the endorsement.  
  
3). A draws a cheque on his banker for Rs.50 carelessly leaving a blank space
before the words and figure fifty. The holder fills up as a cheque for Rs.550
and obtained payment. Is the banker entitled to get discharge for the entire
sum of Ts.550/-?   
Answer - In this case A carelessly draws a cheque on his banker for Rs.50 leaving a
blank space before the words and figure fifty. The holder fills up as a cheque for
Rs 550 and obtain payment. So, it is A who will be the complete loss and not the
banker.   
  
4). A Draws open B's cupboard and gets hold of B's cheque book. A then
gorges B's signature on a cheque and obtain money on it from B's banker. A
then disappears. Who should bear the loss, B or banker?  
Answer. In this case A breaks B's cupboard and get hold of B' cheque book and
then gorges B’s signature and obtains money from B's banker. The banker will not
bear the loss as the banker found the signature genuine and B didn’t inform bank
about the irregularities of the cheque book. So, it will be A who will bear the
loss.   
  
5). Are the following Promissory Notes?  
a. “I promise to pay B Rs.500 on D's death, provided D leaves
me enough to pay the sum.”  
b. “I acknowledge myself to be indebted to B in Rs.2,000 to be
paid on demand, for value received.”  
c. “I promise to pay B Rs.500 seven days after my marriage
with Sushma.”  
d. “I promise to pay B or order Rs. 500.”  
Ans :  Only b and d are promissory notes because it contains all the features of a
promissory note.  
  
6). A bill of exchange payee three months after date is alerted to be a bill of
exchange payable three months after sight by the holder, and then endorsed to
X. The drawer refused to make payment. Can X enforce its payments against
the drawer?  
Answer. Here, the bill of exchange three months after date is altered to be a bill of
exchange payable three months after sight and then it is endorsed to X now on the
date of maturity, he is not able to make the payment. So, X can recover money
from the drawer.  
  
7). X finds a lost bill of exchange on the roadside. He forges the endorsement
of the last endorse as indicated by the bill and transfers it to a Bonafede
purchaser for value. Is the transfer a holder in due course?  
Answer. Whenever a Bill is a lost or destroyed or accidentally kept from the person
entitled to hold it or is accidentally retained in a place other than where payable
protect may be made on a copy or written therefore holder in due course means any
person who for consideration becomes the possessor of a promissory note in good
faith here, the transferee is not a holder due course as here forgery was done.  
 Assignment 4
Difference Between promissory note, bills of exchange and cheque.  
 
Points   Promissory note    Bills of exchange    Cheque  
Definition   A promissory note, A bill of exchange is an A cheque is a
sometimes referred to instrument in writing  document that orders
as a   containing an is a bank to pay a
note payable, is a legal unconditional order, specific amount of
instrument, in which signed by the maker,   money from a
one party promise in  directing a certain person’s account to
which one party person to pay on the person in whose
promise in writing to demand or at a fixed or name the cheque has
pay a determinate sum determinable future been issued.  
of money to the other, time a certain sum of
either at a fixed or money only to, or to the
determinable future order of , a certain
time or on demand of person or to the bearer
the payee, under of the instrument .  
specific terms.  
No. of There are 2 parties.   There are 3 parties.   There are 3 parties.  
parties   

Drawn by    Maker    Creditors    Drawer   

Grace days    Allowed    Allowed    No grace days   

Liability    Liability of drawer is Liability of maker is Liability of drawer is
conditional and primary and absolute    conditional and
secondary upon non secondary upon non-
payment by drawee   payment by banker   
Stamp   A legal necessity    A legal necessity    Not required   

Section    Mentioned in section 4 Mentioned in section 5 Section 6 of the

of the negotiable of the negotiable negotiable Act ,
Instrument Act 1881   Instruments Act 1881    1881