BUSINESS LAW ASSIGNMENT

MODULE LEADER: Prof. J.P.SINGH

SUBMITTED BY: ARPIT CHITRANSH (13032)

Q. Define Contract? Explain essential elements of a valid contract. Ans. A contract has been defined in Section 2(h) as an agreement enforceable by law. To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in Sections 10, 29 and 56. According to Section 10, all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly declared by the Act to be void, and, where necessary, satisfy the requirements of any law as to writing or attestation or registration. The essential elements of a valid contract may be summed up as follows: 1. Offer and acceptance: There must be a lawful offer and a lawful acceptance of the offer, thus resulting in an agreement. The adjective lawful implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto. 2. Intention to create legal relations: There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friends house is not an agreement intended to create legal relati ons and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. Illustrations: (a) M promises his wife N to get her a saree if she will sing a song. N sang the song but M did not bring the saree for her. N cannot bring an action in a Court to enforce the agreement as it lacked the intention to create legal relations. (b) The defendant was a civil servant stationed in Ceylon. He and his wife were enjoying leave in England. When the defendant was due to return to Ceylon, his wife could not accompany him because of her health. The defendant agreed to send her 30 a month as maintenance expenses during the time they were thus forced to live apart. She sued for breach of this agreement. Her action was dismissed on the ground that no legal relations had been contemplated and therefore there as no contract. (Balfour vs Balfour)

3. Lawful consideration: The third essential element of a valid contract is the presence of consideration. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called consideration. Subject to certain exceptions, gratuitous promises are not enforceable at law. The consideration may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are lawful. 4. Capacity of parties: The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. In order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject (Sec. 11). If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness, etc., the agreement is not enforceable at law. 5. Free consent: Free consent of all the parties to an agreement is another essential element of a valid contract. Consent means that the parties must have agreed upon the same thing in the same sen se (Sec. 13). There is absence of free consent if the agreement is induced by (ii) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i. e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the Act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (Sec. 20). 6. Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or property of another (Sec. 23).

If the object is unlawful for one or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law. 7. Writing and registration: According to the Indian Contract Act, a contract may be oral or in writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered (Sec. 25). Similarly, certain other Acts also require writing or and registration to make the agreement enforceable by law which must be observed. Thus, (i) an arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996; (ii) an agreement for a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced. 8. Certainty: Section 29 of the Contract Act provides that Agreements, the meaning of which is not certain or capable of being made certain, are void. In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced. Illustration: A agrees to sell B a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. 9. Possibility of performance: Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that An agreement to do an act impossible in itself is void. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration: A, agrees with B to discover treasure by magic. The agreement is not enforceable. 10. Not expressly declared void: The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements which have been expressly declared to be void.

Q. What are the characteristics of a company? Explain MOA and AOA. Ans. The distinctive features of the company form of organization are as follows: 1. Separate legal existence: A company has a distinct legal entity independent of its members. It can own property, make contracts and file suits in its own name. Shareholders are not the joint owners of the company's property. A shareholder cannot be held liable for the acts of the company. Similarly, members of the company are not its agents. There can be contracts between a company and its members. A creditor of the company is not a creditor of its members. 2. Perpetual succession: Perpetual succession means continued existence. A company is a creation of the law and only the law can bring an end to its existence. Its life does not depend on the life of its members. The death, insolvency or lunacy of members does not affect the life of a company. It continues to exits even if all its members die. Members may come and go but the company goes on until it is wound up. 3. Limited liability: As a company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member is limited to the nominal value of the shares bought by him or to the amount of guarantee given by him. For instance, if a member has 50 shares of Rs. 10 each, his liability is limited to Rs 500. Even if the assets of the company are insufficient to satisfy fully the claims of the creditors, no member can be called to pay anything more than what is due from him. However, if the members of the company so desire, they may form a company with unlimited liability. 4. Transferability of shares: The capital of a company is divided into parts. Each part is called a share. These shares are generally transferable. A shareholder is free to withdraw his membership from the company by transferring his shares. However, in actual practice some restrictions are placed on the transfer of shares. 5. Common seal: Being an artificial entity, a company cannot act and sign itself. Therefore, it acts through human beings. All the acts of the company are authorized by its common seal. The name of the

company is engraved on its common seal. The common seal is affixed on all important documents as a token of the Company's approval. The common seal is the official signature of the company. Any document which does not bear the common seal of the company is not binding on the company. 6. Separation of ownership and control: Members have no right to participate directly in the day-to-day management of a company. They elect their representatives, called directors, who manage the company's affairs on behalf of the members. Thus, the ownership of a company is distributed among the shareholders while management is vested in the board of directors. The management of a company is delegated and centralized. 7. Voluntary association: A joint stock company is a voluntary association of certain persons formed to carry out a particular purpose in common. Members of a company can join it and leave it at their own free will. 8. Artificial legal person: A company is an artificial person created by law. It exists only in contemplation of law. It is competent to enter into contracts and to own property in its own name. But it does not take birth like a natural person and it has no physical body of a natural human being. 9. Corporate finance: The share capital of a company is generally divided into a large number of shares of small value. These shares are purchased by a large number of people from different walks of life. 10. Statutory regulation and control: Government exercises control through company law over the management of joint stock companies. A company is required to comply with several legal formalities and to file several documents with the Registrar of Companies. MOA: Memorandum of association is one of the documents which has to filed with the registrar of companies at the time of incorporation of a company. Section 2(28)defines a memorandum to mean the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this act. The definition, however, either does not give us any idea as to what a memorandum of association really is nor does it point out the role which it plays in the affairs of the company.

The memorandum of association is an extremely important document in relation to the affairs of the company. It is a document which sets out the constitution of the company and is really the foundation on which the structure of the company is based. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. A company may pursue only such objects and exercise only such powers as are conferred expressly in the memorandum or by implication therefore i.e. such powers as are incidental to the attainment of the objects. A company cannot depart from the provisions contained in its memorandum, however, great the necessity may be. If it does, it defines its relation with the outside world and the scope of its activities. The purpose of the memorandum is to enable shareholders, creditors and those who deal with the company to know what the permitted range of the enterprise is. AOA: Articles of Association, also simply referred to as Articles, are necessary to be submitted during incorporation of a company with the registrar of companies. When Articles are taken in conjunction with MOA, they form what is called as the constitution of the company. Though there are differences in these articles as to their requirements in different countries, in general AOA is a document that provides following information about the company. The manner in which shares have been distributed along with voting rights attached with different classes of shares. Estimate of intellectual property rights. The list of directors with shares allotted to each. Schedule of the meetings of the board of directors along with the quorum required with percentage of votes with directors. Chairmans special voting rights and the manner in which he is elected. How profits are distributed through dividends. How the company can be dissolved. Secrecy of know-how and how it is managed. How shares can be transferred, and so on.

Q. Define Condition and Warranty. Explain Implied Conditions and Implied Warranties. Ans. Condition: It is defined in the following words, "A condition is stipulation essential breach to the main purpose of the contract, the breach of which give rise to a right to treat the contract as repudiated." So according the above definition it is clear that condition is very essential for the performance of a contract. The breach of condition will be regarded as the breach of the whole contract. Warranty: Sales act defines the warranty in the following words, "A warranty is a stipulation collateral to the main purpose of the contract the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated." The above definition shows that for the implementation of a contract warranty is not essential. For the breach of warranty only damages can be claimed. Implied Conditions:

Those conditions are not included in the contract but the law presumes their existence in the contract is called implied conditions. Following conditions are included by law in to a contract of sale of goods. 1. Right To Sell:This right is considered as implied conditions in every sale contract. It is presumed that he can sell the goods and he can enter in sale agreement. 2. Sale By Description:In this case implied condition is that goods shall the correspond with the description. A buyer can reject if the goods if these are not according the description. 3. Sale By Sample:In this case goods must be supplied according the sample agreed upon condition. The buyer may be able to compare the sample with the bulk. The goods should be free from any defect. The bulk should match with the quality of the sample. 4. Sale By Sample and Description:In this case goods supplied must correspond with sample and description both. So there is implied condition in it that if bulk does not match with one even then buyer may reject the goods 5. Condition of Merchantable Quality:Merchantable quality means that the goods must be sale able in the market as goods of that

description are sold. In case of any defect a seller must inform the buyer. It is implied condition.

6. Conditions As Quality To Fitness:Sometimes buyer informs the seller that he wants to purchase the goods for particular purpose. It is implied condition that goods shall serve the purpose of buyer. As the buyer relays on the sellers skill then seller should provide the goods according the description. 7. Wholesomeness Condition:It means conductive to health. When someone makes a sale of contract about the eatable goods this condition is applied. If someone supply the goods and it damages to health then supplier will be liable for damages. Example :- Sams Food Company supplied food on the marriage party of Mr. Vicky. After eating the food people were infected and died. The company was held liable in damages. IMPLIED WARRANTIES

1. Possession of Goods:It is an implied warranty on the part of the seller that buyer shall enjoy the quiet possession of goods sold to him without any disturbance. In case of any disturbance a buyer can claim the damages from the seller. 2. Dangerous Nature Must Be Disclosed :It is necessary that seller should disclose the dangerous nature of the good sold to the buyer. If he does not disclose then any type of loss suffered by the buyer will be compensated by the seller. Example :- Mr. Noor sold the camel to Mr. naveed which is very dangerous. But he did not told about the nature of the camel. The camel killed to Mr. Baqir son of Mr. Naveed due to the ignorance of the nature of camel Mr. Noor will be liable to compensate Mr. Naveed. 3. Burden on Property :Before selling the goods, it is necessary that these should be free from any charge or encumbrance from any third party.