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LEGAL ASPECTS OF BUSINESS – 4 CREDITS SUBJECT CODE – MB0051 BOOK ID – B0764 ASSIGNMENT SET – 1
Question 1: Distinguish between fraud and misrepresentation. Answer: Distinction between fraud and misrepresentation: Sometimes the terms fraud and misrepresentation are used interchangeably by readers however they are actually different. There is not a much difference between the two but a little one as misrepresentation does not directly mean fraud. Below is a table on the salient points to distinguish the terms: Fraud Misrepresentation The word fraud comes from the Misrepresentation is a type of lying or Middle English word “fraude” taken falsehood in which a person says or from the Old French and derived from does something that would lead another the Latin “fraus”. The word fraud person to believe something that is not means a deliberate form of deception “in accordance with the facts”. that is practiced to secure some sort of unlawful and unfair gain. Implies on intention to deceive, hence It is an innocent wrong without any it is intentional or willful wrong. intention to deceive. The person making the statement believes it to be true. A civil wrong which entitles a party to It gives only the right to rescind the claim damages in addition to the right contract and there can be no suit for of innocent to rescind the contract. damages. In fraud, the person making the In situations

representation does not himself believe misrepresentation the person making in the truth of the statement he is the statement may believe that what he making. n cases of fraud, the person is saying is true. This is due to the fact
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making the statement is a complete liar that the person making the statement is and is making the statement to deceive simply repeating what another person others to enter into a contract has asserted to be true Deceit, trickery, sharp practice, or A misrepresentation or concealment breach of confidence, perpetrated for with reference to some fact material to profit or to gain some unfair or a dishonest advantage. transaction that is made with knowledge of its falsity or in reckless disregard of its truth or falsity and with the intent to deceive another and that is reasonably relied on by the other who Fraud always has malicious intent. is injured thereby. Misrepresentation may not have

malicious intent to deceive if it happens negligently through a misstatement Types of fraud are: Fraud is fraud until you get into a legal issue. Then there are differences but there is only one type of fraud in realty. and/or omission of a material fact(s). Types of misrepresentation are:  Fraudulent misrepresentation  Negligent misrepresentation  Innocent misrepresentation

Question 2: What are the remedies for breach of contract? Answer: Businesses both individual and corporate enter into business relationships with either individuals or businesses to enable them to carry on their day-to-day commercial transactions. Most of these relationships result in “contracts” that have legal consequences. Most contracts do not have to be in writing to be enforceable.

Definition of a Contract:

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A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of mutual promises (in legal terminology, “consideration”). The promises made by the parties define the rights and obligations of the parties. For every contract there must be an agreement. An agreement is defined as every promise and every set of promises forming the consideration for each other and a promise is an accepted proposal. Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party doesn’t (“breaches the contract”), the non-breaching party is entitled to receive relief through the courts. Generally, the non-breaching party’s remedy for breach of contract is monetary damages that will put the non-breaching party in the position it would have enjoyed if the contract had been performed. Under special circumstances, a court will order the breaching party to perform its contractual obligations. Because contracts are enforceable, parties who enter into contracts can rely on contracts in structuring their business relationships. Essentials of a Contract: The Indian Contract Act -1872 defines “contract” as an agreement enforceable by law. The essentials of a (valid) contract are:  intention to create legal relations;  offer and acceptance;  consideration;  capacity to enter into a contract  free consent of the parties  lawful object of the agreement Remedy Clauses: These clauses state what rights the non-breaching party has if the other party breaches the contract. In contracts for the sale of goods, remedy clauses are usually designed to limit the seller’s liability for damages. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. The non-performance of the duty undertaken
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by a party in a contract amounts to breach of contract for which it can be made liable. Remedies for breach of contract: The legal remedies for breach of contract are:
a) b) c)

Damages Specific performance of the contract; and Injunction.

When a contract has been breached, the party who suffers by such breach is entitled to receive, from the party who has breached the contract, compensation for any loss or damage caused to him thereby, being loss or damages which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach. A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract. Liquidated damages and penal stipulations: If a sum is named in the contract as the amount to be paid in case of breach of contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage of loss is proved to have been caused thereby, to receive, from the party who has broken the contract, reasonable compensation, not exceeding the amount so named or the penalty stipulated for. A stipulation for increased interest from the date of default may be regarded as a stipulation by “way of penalty”. The court is empowered to reduce it to an amount which is reasonable in the circumstances. Specific performance: In certain special cases (dealt with in the Specific Relief Act, 1963), the court may direct against the party in default “specific performance” of the contract, that is to say, the party may be directed to perform the very obligation
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which he has undertaken, by the contract. This remedy is discretionary and granted in exceptional cases. Specific performance means actual execution of the contract as agreed between the parties. Specific Performance of any contract may, in the discretion of the court be enforced in the following situations

When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or

 When the act agreed to be done is such that monetary compensation for its non-performance would not afford adequate relief.  Instances where compensation would be deemed adequate relief are:  Agreement as a consequence of a breach by a landlord for repair of the rented premises;  Contract for the sale of any goods, for instance machinery or goods. Exceptions: A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced. Another situation when a contract cannot be specifically enforced is where “the contract is in its nature determinable”. A contract is said to be determinable, when a party to the contract can put it to an end. A contract the performance of which involves the performance of a continuous duty, which the Court cannot supervise, cannot be specifically enforced. Persons who cannot obtain Specific Performance:

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The specific performance of a contract cannot be obtained in favor of a person who could not be entitled to recover compensation for the breach of contract. Specific performance of a contract cannot be enforced in favor of a person who has become incapable of performing the contract that on his part remains to be performed, or who violates any essential term of the contract that on his part remains to be performed, or who acts fraudulently despite the contract, or who willfully acts at variance with, or in subversion, of the relation intended to be established by the contract. I hope this gives you a relevant overview into the key aspect of business contracts and if one takes adequate care when drafting contracts; needless to say relationships will be better and probably more profitable.

Question 3: Distinguish between indemnity and guarantee. Answer: Introduction: Guarantees and indemnities are both long established forms of what the law terms surety ship. There are important legal distinctions between them. Append below some salient points pertaining to the difference/distinction between Indemnity and Guarantee: Distinction between Indemnity and Guarantee: Indemnity Guarantee Section 124 of the Indian Contract Act Section 126 of the Indian Contract Act 1872 defines a "contract of indemnity" 1872 defines a contract of guarantee is as a contract by which one party a contract to perform the promise or promises to save the other from loss discharge the liability of a third person caused to him by the conduct of the in case of his default”. The person who Promisor himself, or by the conduct of gives the guarantee is called the
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any other person.

“surety”; the person in respect of

e.g. = 'x' contracts to indemnify 'y' whose default the guarantee is given is against the consequences of any legal called the “principal debtor”, and the proceedings which may take against B person to whom the guarantee is given in respect of a certain sum of Rs.200/=. is called the “creditor”. A guarantee may be either oral or written. e.g., 'P' lends Rs. 5000/= to 'Q' and 'R' promises to 'P' that if 'Q' does not pay the money back then 'R' will do so. Indemnity comprise only two parties- There are three parties namely the the indemnifier and the indemnity surety, holder. Liability of the indemnifier is primary principal debtor and the creditor The liability of the surety is secondary. The surety is liable only if the principal debtor makes a default. The primary liability being that of the principal debtor. The indemnifier need not necessarily The surety give guarantee only at the act at the request of the indemnified. request of the principal debtor The possibility of any loss happening is There is an existing debt or duty, the the only contingency against which the performance of which is guarantee by indemnifier undertakes to indemnify. the surety An indemnity is for reimbursement of a A guarantee is for security of the loss creditor. In a contract of indemnity the liability In case of contract of guarantee the of the indemnifier is primary and arises liability of surety is secondary and when the contingent event occurs. arises when the principal debtor defaults. The indemnifier after performing his Whereas in a contract of guarantee, the part of the promise has no rights surety steps into the shoes of the against the third party and he can sue creditor on discharge of his liability, the third party only if there is an and may sue the principal debtor. assignment in his favor. In a contract of indemnity, indemnifier promises without the Contract of Guarantee is for security of the a debt or performance of promise
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request of debtor.

Question 4: What is the distinction between cheque and bill of exchange? Answer: Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money takes place every day. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments. In this lesson let us learn about these documents. Distinction between Cheque and bill of exchange Cheque It is drawn on a banker Bill of Exchange It may be drawn on any party or

individual. It has three parties - the drawer, the There are three parties - the drawer, the drawee, and payee. drawee, and the payee.

The drawer can also draw a bill in his Broadly speaking, cheques are of four own name thereby he himself becomes types. the payee. Here the words in the bill a) Open cheque, and would be Pay to us or order. In a bill b) Crossed cheque. where a time period is mentioned, just c) Bearer cheque like the above specimen, is called a d) Order cheque Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill. t is seldom drawn in sets Foreign bills are drawn in sets It does not require acceptance by the It must be accepted by the drawee
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drawee.

before he can be made liable to pay the

bill. Days of grace are not allowed to a Three days of grace are always allowed banker No stamp duty is payable on checks to the drawee. Stamp duty has to be paid on bill of

exchange. It is usually drawn on the printed It may be drawn in any paper and need format not necessarily be printed.

Question 5: Distinguish between companies limited by shares and companies limited by guarantee. Answer: The Companies Act, 1956 defines the word “company as a company formed and registered under the Act or an existing company formed and registered under any of the previous company laws (Sec.3)”. This definition does not bring out the meaning and nature of the company into a clear perspective. Also Sec.12 permits the formation of different types of companies. These may be:  Companies limited by shares  Companies limited by guarantee and  Unlimited companies. The vast majority of companies in India are with limited liability by shares. Distinction between Cheque and bill of exchange Companies limited by shares Companies limited by guarantee A company limited by guarantee is Limited by shares is defined by: a normally incorporated for non-profit company that has shareholders, and making functions. The company has no that the financial obligation of the share capital. A company limited by shareholders to creditors of the guarantee has members rather than company is restricted to the capital shareholders. The members of the invested in the first place (i.e. the company guarantee/undertake to specified value of the shares and any
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contribute a predetermined sum to the premium paid off in exchange for the
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liabilities of the company which issue of the shares by the company). becomes due in the event of the Shareholder's individual’s assets are company being wound up. thereby secured in the case of the company's insolvency, but revenues The Memorandum normally includes a invested in the company will be non-profit distribution clause and these unrecoverable. companies are usually formed by Limited companies could be either clubs, professional, trade or research private or public. A private Ltd. associations. (limited company disclosure) involves are less demanding, but for this reason its shares might NOT be provided to the general public (and consequently can't be listed on a national stock market exchange). This is the wellknown distinctive characteristic between a private limited company and a public limited company. The absolute majority of trading corporations are private companies limited by shares. Companies limited by shares are more Companies limited by guarantee are popular less popular than companies limited by shares. Companies limited by shares are profit Companies limited by guarantee are making companies. non-profit making

In case of companies limited by shares, Companies limited by guarantee have there are shareholders. members, and not share holders Companies limited by shares can There is no share capital in case of engage in legal trades and have general companies limited by guarantee and it clauses. also has self-imposed restrictions

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Question 6: What is the definition of cyber-crime? Answer: Introduction: Crime and criminality have been associated with man since his fall. Crime remains elusive and ever strives to hide itself in the face of development. Different nations have adopted different strategies to contend with crime depending on their nature and extent. One thing is certain, it is that a nation with high incidence of crime cannot grow or develop. That is so because crime is the direct opposite of development. It leaves a negative social and economic consequence. Cybercrime: Cybercrime is defined as crimes committed on the internet using the computer as either a tool or a targeted victim. It is very difficult to classify crimes in general into distinct groups as many crimes evolve on a daily basis. Even in the real world, crimes like rape, murder or theft need not necessarily be separate. However, all cybercrimes involve both the computer and the person behind it as victims; it just depends on which of the two is the main target. Hence, the computer will be looked at as either a target or tool for simplicity’s sake. For example, hacking involves attacking the computer’s information and other resources. It is important to take note that overlapping occurs in many cases and it is impossible to have a perfect classification system.  Computer as a tool: When the individual is the main target of Cybercrime, the computer can be considered as the tool rather than the target. These crimes generally involve less technical expertise as the damage done manifests itself in the real world. Human weaknesses are generally exploited. The damage dealt is largely psychological and intangible, making legal action against the variants more difficult. These are the crimes which have existed for centuries in the offline. Scams, theft, and the likes have existed even before the development in hightech equipment. The same criminal has simply been given a tool which
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increases his potential pool of victims and makes him all the harder to trace and apprehend.  Computer as a target: These crimes are committed by a selected group of criminals. Unlike crimes using he computer as a tool, these crimes requires the technical knowledge of the perpetrators. These crimes are relatively new, having been in existence for only as long as computers have - which explains how unprepared society and the world in general is towards combating these crimes. There are numerous crimes of this nature committed daily on the internet. But it is worth knowing that Africans and indeed Nigerians are yet to develop their technical knowledge to accommodate and perpetrate this kind of crime. The internet in India is growing rapidly. It has given rise to new opportunities in every field we can think of – be it entertainment, business, sports or education. There are two sides to a coin. Internet also has its own disadvantages. One of the major disadvantages is Cybercrime – illegal activity committed on the internet. The internet, along with its advantages, has also exposed us to security risks that come with connecting to a large network. Computers today are being misused for illegal activities like e-mail espionage, credit card fraud, spams, and software piracy and so on, which invade our privacy and offend our senses. Criminal activities in the cyberspace are on the rise. Here we publish an article by Nandini Ramprasad in series for the benefit of our netizens. Cybercrimes can be basically divided into 3 major categories: 1) Cybercrimes against persons 2) Cybercrimes against property. 3) Cybercrimes against government. Cybercrimes committed against persons include various crimes like transmission of child-pornography, harassment of any one with the use of a computer such as e-mail. The trafficking, distribution, posting, and dissemination of obscene material including pornography and indecent exposure, constitutes one
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of the most important Cybercrimes known today. The potential harm of such a crime to humanity can hardly be amplified. This is one Cybercrime which threatens to undermine the growth of the younger generation as also leave irreparable scars and injury on the younger generation, if not controlled. In the United States alone, the virus made its way through 1.2 million computers in one-fifth of the country's largest businesses. David Smith pleaded guilty on Dec. 9, 1999 to state and federal charges associated with his creation of the Melissa virus. There are numerous examples of such computer viruses few of them being "Melissa" and "love bug". A Mumbai-based upstart engineering company lost a say and much money in the business when the rival company, an industry major, stole the technical database from their computers with the help of a corporate cyber spy. Unauthorized access: Using one's own programming abilities as also various programs with malicious intent to gain unauthorized access to a computer or network are very serious crimes. Similarly, the creation and dissemination of harmful computer programs which do irreparable damage to computer systems is another kind of Cybercrime. Software piracy is also another distinct kind of Cybercrime which is perpetuated by many people online who distribute illegal and unauthorized pirated copies of software. Professionals who involve in these cybercrimes are called crackers and it is found that many of such professionals are still in their teens. A report written near the start of the Information Age warned that America's computers were at risk from crackers. It said that computers that "control (our) power delivery, communications, aviation and financial services (and) store vital information, from medical re-cords to business plans, to criminal records", were vulnerable from many sources, including deliberate attack.

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