ASSIGNMENTS

MB0035
LEGAL ASPECTS OF BUSINESS
(3 credits)
Set I
Marks 60
Q1. What are the essentials for a Valid Contract? Describe them in details.
Ans:
All contracts are agreements but all agreements need not be contracts. The
agreements that create legalobligations only are contracts. The validity of an
enforceable agreement depends upon whether theagreement satisfies the essential
requirements laid down in the Act. Section 10 lays down that ‘all theagreements
are contracts if they are made by the free consent of the parties competent to
contract for alawful object and are not hereby expressly declared to be void’.
The following are the essentials:
a) Agreement : An agreement which is preliminary to every contract is the
outcome of offer and
acceptance. An offer to do or not to do a particular act is made by one party and is
accepted by the otherto whom the offer is made. Then we say that there is a
meeting of the minds of the parties. Such aposition is known as consensus ad idem.
b) Free consent : The parties should agree upon the same thing in the same sense
and their consent
should be free from all sorts of pressure. In other words it should not be caused by
coercion, undue
influence, misrepresentation, fraud or mistake.
c) Contractual capacity: The parties entering into an agreement must have legal
competence. In other
words, they must have attained the age of majority, should be of sound mind and
should not bedisqualified under the law of the land. A contract entered into
between the parties having no legalcapacity is nullity in the eyes of law.
d) Lawful consideration: There must be consideration supporting every contract.
Consideration means
something in return for something. It is the price for the promise. An agreement
not supported by
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consideration becomes a ‘nudum pactum’ i.e., naked agreement. The consideration

should be lawful and
adequate. However, there are certain exceptions to this rule.
e) Lawful object : The object or purpose of an agreement must be lawful. It should
not be forbidden by
law, should not be fraudulent, should not cause injury to the person or property of
another, should not be
immoral or against public policy.
f) Not expressly declared void: The statute should not declare an agreement void.
The Act itself has
declared certain types of agreements as void.
E.g., agreements in restraint of marriage, trade, legal proceedings. In such cases,
the aggrieved party can’t
seek any relief from the court of law.
g) Possibility of performance: The agreement should be capable of being
performed. e.g., Mr. A agrees
with Mr. B to discover treasure by magic. Mr. B can’t seek redressal of the
grievance if Mr. A fails to
perform the promise.
h) Certainty of terms: The terms of the agreement should be certain. E.g., Mr. A.
agrees to sell 100 tons
of oil. The agreement is vague as it does not mention the types of oil agreed to be
sold.
i) Intention to create legal obligation: Though Sec. 10 is silent about this, under
English law this
happens to be an important ingredient. Therefore, Indian courts also recognise this
ingredient. An
agreement creating social obligation can’t be enforced.
j)Legal formalities: Indian Contract Act deals with a simple contract supported by
consideration.Agreements made in India may be oral or written. However, Sec. 10
states that where the statute statesthat the contract should be in writing and should
be witnessed or should be registered, the same must beobserved. Otherwise, the
agreement can’t be enforced e.g., Under Indian Companies Act, theMemorandum
of Association and Articles of Association must be registered.
Q2. What are the rules regarding the acceptance of a proposal? Describe them in
details.
Ans:
According to law “When the person to whom the proposal is made signifies his
willingness thereto theproposal is said to be accepted. A proposal, when accepted,
becomes a promise.” By accepting the offer,the acceptor expresses his willingness
to be bound by the terms and conditions of the offer. Regarding anoffer and its
acceptance, Anson has given an analogy of a lighted match stick. “Acceptance is to
an offerwhat a lighted match is to a train of gunpowder. It produces something
which can’t be recalled orundone.” An acceptance turns the offer into a binding
obligation.
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Rules Regarding Acceptance:
a) An offer can be accepted only by the person to whom it is made: The offeree
only has to accept the
offer. In case it is accepted by any other person no agreement is formed. However,
in case authority isgiven to another person to accept the offer on behalf of the
person to whom it is made, it is a valid acceptance.
b) Acceptance should be unconditional and absolute:Sec. 7 (I) states that the
acceptance should be
absolute and unconditional. The acceptor should accept the offer in toto. If it is
qualified or conditional, it
ceases to be valid. In fact, a qualified or conditional acceptance is nothing but a
counter-offer.
c) Acceptance should be communicated: The party accepting the offer must
communicate his
acceptance to the offeror. Acceptance is not a mental resolve but some external
manifestation. Theacceptance can be communicated in writing or word of mouth or
also by conduct. An agreement does notresult from a mere state of mind. As
regards unilateral contracts (e.g., offer of reward) it is impossible tothe offeree to
communicate his acceptance otherwise than by performing the contract. In the case
ofbilateral contracts acceptance must be communicated. The offeror can’t force a
contract on offeree byfixing the mode of refusal. Further, acceptance should be
communicated only to the offeror and not to somebody else.
d) Acceptance should be according to the prescribed form: Unless specified in the
offer the
acceptance must be in some usual and reasonable manner. The proposer has the
right to prescribe themanner of acceptance. He may require it to be oral or in
writing or to be communicated to him by phoneor telephone etc. He can also waive
his right or may ask the offeree to express acceptance by somegesture. Once he
prescribes the mode of communication later he can’t say that it was insufficient. If
theofferee does not signify his assent to the offeror according to the mode
prescribed it becomes ‘deviatedacceptance’ and strictly speaking it is no
acceptance at all. However, such a regid rule is not followed inIndia. In the case of
deviated acceptance the proposer may insist for the acceptance in the
prescribedmanner. He then has to do this within a reasonable time after
communication of acceptance to him.Otherwise it will be presumed that the
proposer has accepted the deviated acceptance. Sec. 7 of the Actdoes not tell that
deviated acceptance is no acceptance.
e) Acceptance must be provoked by offer: The acceptor must be aware of the offer.
Even if he fulfills
the conditions mentioned in the offer, if he is ignorant of the offer itself, he can’t
give a valid acceptance.
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[Lalmann Shukla V, Gouridutt]. f) Acceptance must be given before the offer

lapses or is revoked: Wherea time limit has been fixed the acceptor has to accept
the offer within such time. Where no time limit isprescribed the acceptance has to
be within the reasonable time. An offer once dead can’t be acceptedunless there is
a fresh offer.
g) Provisional acceptance is no acceptance: A provisional acceptance does not
make a binding
agreement unless final approval is given. The offer may be withdrawn before
giving final approval.However, whether an agreement is provisional or final
depends upon the intention of the parties. Contractby post: No problem arises
where there is instantaneous communication of offer and acceptance which
ispossible when the parties are face to face. But how to determine the point of time
when the contract iscomplete if the parties are at distance by each other ? As
regards the point of time when the contract iscomplete, there is fundamental
difference between English Law and Indian Law. Under English Law, theproposer
is legally bound by the acceptance effected through postal medium when the letter
is prepared,addressed, stamped and mailed eventhough it is delayed or lost in
transit.
Indian Law (Sec. 4) lays down that ‘the communication of an acceptance is
complete as against theproposer when it is put in a course of transmission to him so
as to be out of the power of the acceptor; asagainst the acceptor when it comes to
the knowledge of the proposer ’. The distinction between EnglishLaw and Indian
Law lies with regard to the position of the acceptor. While under English Law,
theacceptor is bound by acceptance the moment the letter is mailed properly, under
Indian Law thecommunication of acceptance is complete as against, the acceptor
only when it comes to the knowledge of the proposer.
Termination of offer: Following are the circumstances under which an offer is
terminated.
(a) Lapse : An offer lapses because of passage of time, death or insanity of the
proposer. In case time
limit for acceptance is prescribed by the offeror, offer lapses if not accepted within
that time. In theabsence of any stipulation of time, it has to be accepted within a
reasonable time depending upon thecircumstances of each case. A proposal is
revoked by the death or insanity of the proposer, if the fact ofhis death or insanity
comes to the knowledge of the acceptor before acceptance. An acceptance is
noteffective if it is communicated to the legal representatives of the proposer. But
in case the offeree isignorant of the offeror’s death, it can be accepted.
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(b) Failure to fulfill a condition procedent: Sec. 6 (3) provides that an offer is

terminated by the failure
of the acceptor to fulfil a condition precedent to acceptance. e.g., A offers to sell
his car to B for Rs.1,00,000 on the condition that B has to show his driving licence
to A. B has to comply with this conditionif he has to accept the offer.
(c) Rejection: By rejecting the offer offeror can terminate an offer. This rejection
may be express or
implied. A counter offer has the same effect as rejection.
(d) Destruction of the subject matter or illegality : If the thing offered is destroyed
or can’t be bought
and sold due to operation of law, the offer itself lapses.
(e) Revocation: The withdrawal of an offer by the offeror is known as revocation.
Till the acceptance of
the offer, the offeror can revoke it. Sec. 5 provides that a proposal may be revoked
by the proposer at anytime before the communication of its acceptance is complete.
Communication of acceptance as againstthe proposer is complete where it is put in
the course of transmission to him so as to be out of the reach ofthe acceptor. In
England, an acceptance can’t be revoked.
Q3: What is the difference between fraud and misinterpretation? What do you
understand by mistake?
Ans:
Distinction between fraud and misrepresentation:
1) In misrepresentation the person making the false statement honestly believes it
to be true. In fraud, thefalse statement is made by person who knows that it is false
or he does not care to know whether it is true or false.
2) There is no intention to deceive the other party when there is misrepresentation
of fact. The very
purpose of fraud is to deceive the other party to the contract.
3) Misrepresentation renders the contract voidable at the option of the party whose
consent was obtainedby misrepresentation. In the case of fraud the contract is
voidable. It also gives rise to an independentaction in tort for damages.
4) Misrepresentation is not an offence under Indian Penal Code and hence not
punishable. Fraud, in
certain cases is a punishable offence under Indian Penal Code.
5) Generally, silence is not fraud except where there is a duty to speak or the
relation between parties is
fiduciary. Under no circumstances can silence be considered as misrepresentation.
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6) The party complaining of misrepresentation cann’t avoid the contract if he had

the means to discoverthe truth with ordinary deligance. But in the case of fraud, the
party making a false statement cannot saythat the other party had the means to
discover the truth with ordinary deligance.
5. Mistake:
Usually, mistake refers to mis-understanding or wrong thinking or wrong belief.
But legally, its meaningis restricted and is to mean “operative mistake”. Courts
recognise only such mistakes which invalidate thecontract. Mistake may be
mistake of fact (either unilateral or bilateral) or mistake of law (either Indianlaw or
foreign law). Sec. 20 “Where both parties to an agreement are under a mistake as
to a matter offact essential to the agreement, the agreement is void.” Sec. 21 “A
contract is not voidable because it wascaused by a mistake as to any law in force in
India; but a mistake as to a law not inforce in India has thesame effect as a mistake
of fact.” Bilateral mistake: Sec. 20 deals with bilateral mistake. Bilateral mistakeis
one where there is no real correspondence of offer and acceptance. The parties are
not really inconsensus-ad-idem. Therefore there is no agreement at all.
A bilateral mistake may be regarding the subject matter or the possibility of
performing the contract.Mistake as to the subject matter: This mistake arises when
the parties to the contract assume at the timeof making the contract, that a certain
state of things exists, but in reality it does not exist. Such a mistake may relate to –
(i) existance of the subject matter: Two parties may enter into the contract on the
assumption that thesubject matter exists at the time contract. But actually it may
have ceased to exist or has never existed atall. Then the contract becomes void.
(ii) Identity of the subject matter: A mutual mistakes as to the identity of subject
matter renders the
contract void.
(iii) A mistake as to the quality of the subject matter will not render the agreement
void owing to theapplication of the principle of ‘caveat emptor’ unless there is
misrepresentation or guarantee by the seller.(iv) Price of the subject matter: An
explanation to Sec. 20 provides that “an erraneous opinion as to thevalue of the
thing which forms the subject matter of the agreement is not to be deemed a
mistake as to amatter of fact.” A mistaken notion about the value of a thing bought
or sold may be unilateral or bilateral.If it is unilateral, the buyer or seller has to
presume that he has made a bad bargain. Where the mistake ismutual and the
parties enter into the contract with false assumption and mistake as to the value of
thesubject matter is the basis of their agreement, there can’t be an enforceable
contract between them.
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(v) Title of the subject matter: If a person agrees to purchase property which is
unknown to himself andthe seller is his own already, the contract may be void. A
mistake as to the title does not invalidate acontract since Sec. 14 of the Sale of
Goods Act imposes an implied condition as to the title of the seller.Where there is
no such warrantee or the buyer purchases his own property the agreement will be
void-ab- initio.
vi) A false and fundamental assumption: A false and fundamental assumption
going to the root of thecontract would render the contract invalid. Mistake as to the
possibility of performance: There may notbe any possibility of the performance of
the contract. This impossibility of performance may be physicalor legal
impossibility. However, impossibility of performance cannot be included under the
head bilateralmistake as there is Sec. 56 which lays down a positive rule of law
regarding responsibility. Unilateralmistakes: Mistake of one of the parties to a
contract as to a matter of fact is known as unilateral mistake.Sec. 22 provides that a
contract is not voidable merely because it was caused by unilateral mistake.
A person is bound by an agreement to which he has expressed a clear assent unless
the unilateral mistakeis caused by misrepresentation or fraud. However, where
consent to an agreement is given by a party to itunder mistake which prevents the
formation of a contract, the unilateral mistake multifies the consent andthe contract
becomes void. The following are such exceptional cases:
(a) Mistake as to identity: It is a rule of law that if a person intends to contract with
A, B cannot givehimself any right under it. An offer can be accepted only by the
person to whom it is offered. If it isaccepted by some one else, there arises a
unilateral mistake rendering the contract void. Mistake as toidentity is of two
types: (i) where the parties are dating with each other from a distance (ii) where
they areface to face with each other.
b) Mistake as to the character of a written document: If a person signs a document
under the mistakenimpression that he is signing a document of a different nature
altogether he may escape liability in thedocument signed by him, provided he can
prove that the nature of the document is different from what itis supposed to be.
One party to a contract may not disclose to the other the nature of the document
andinduce the other to sign the same. The other party may sign it presuming it to
be a document of differentnature. In such a case, the contract becomes wholly void
for want of concent. Mistake of law: A mistakeof law may be of law of land or of
foreign law. Mistake as to the law of the land doesnot render thecontract voidable
as ‘ignorance of law is no excuse’.
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Q4.What are the different ways in which a contract can be discharged? Describe
these ways in
details.
Ans:
When the rights and obligations arising out of a contract are extinguished, the
contract is said to
be discharged or terminated. A contract may be discharged in any of the following
ways:
1. By performance – actual or attempted.
2. By mutual consent or agreement.
3. By subsequent or supervening impossibility or illegality.
4. By lapse of time.
5. By operation of law.
6. By breach of contract.
1. Discharge by performance:
When a contract is duly performed by both the parties, the contract is discharged or
terminated by
due performance. But if one party only performs his promise, he alone is
discharged. Such a party
gets a right of action against the other party who is guilty of breach. Performance
may be:
(1) Actual performance; or (2) Attempted performance or Tender.
1. Actual performance: When each party to a contract fulfills his obligation arising
under thecontract within the time and in the manner prescribed, it amounts to
actual performance of thecontract and the contract comes to an end.
2. Attempted performance or tender: When the promisor offers to perform his
obligation underthe contract, but is unable to do so because the promisee does not
accept the performance, it iscalled “attempted performance” or “tender”. Thus
“tender” is not actual performance but is onlyan “offer to perform” the obligation
under the contract. A valid tender of performance isequivalent to performance.
Essentials of a valid tender. A valid tender or offer of performancemust fulfil the
following conditions:
1) It must be unconditional. A conditional tender is not a tender.
2) It must be made at proper time and place. A tender before or after the due date
or at a place
other than agreed upon is not a valid tender.
3) It must be of the whole obligation contracted for and not only of the part.
4) If the tender relates to delivery of goods, it must give a reasonable opportunity
to the promiseefor inspection of goods so that he may be sure that the goods
tendered are of contract description.5) It must be made by a person who is in a
position and is willing to perform the promise. Atender by a minor or idiot is not a
valid tender.
6) It must be made to the proper person i.e., the promisee or his duly authorised
agent. Tender
made to a stranger is invalid.
7) If there are several joint promisees, an offer to any one of them is a valid tender.
8) In case of tender of money, exact amount should be tendered in the legal tender
money.Tendering a smaller or larger amount is an invalid tender. Similarly, a
tender by a cheque isinvalid as it is not legal tender but if the creditor accepts the
cheque, he cannot afterwards raise an objection.
Effect of refusal to accept a valid tender (Sec. 38): The effect of refusal to accept a
properly made“offer of performance” is that the contract is deemed to have been
performed by the promisor i.e.,tenderer and the promisee can be sued for breach of
contract. A valid tender, thus, diacharges the
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contract. Exception: Tender of money, however, does not discharge the contract.
The money willhave to be paid even after the refusal of tender of course without
interest from the date of refusal.In case of a suit, cost of defence can also be
recovered from the plaintiff, if tender of money is proved.
2. Discharge by Mutual Consent or Agreement
Since a contract is created by means of an agreement, it may also be discharged by
anotheragreement between the same parties. Sections 62 and 63 provide for the
following methods ofdischarging a contract by mutual agreement:
1. Novation: “Novation occurs when a new contract is substituted for an existing
contract, eitherbetween the same parties or between different parties, the
consideration mutually being thedischarge of the old contract.” When the parties to
a contract agree for “novation,” the originalcontract is discharged and need not be
performed. The following points are also worth-notng inconnection with novation:
a) Novation cannot be compulsory, it can only be with the mutual consent of all the
parties.
b) The new contract must be valid and enforceable. If it suffers from any legal flaw
on account of
which it becomes unenforceable, then the original contract revives.
2. Alteration: Alteration of a contract means change in one or more of the material
terms of acontract. If a material alteration in a written contract is done by mutual
consent, the originalcontract is discharged by alteration and the new contract in its
altered form takes its place. Amaterial alteration made in a written contract by one
party without the consent of the other, will,make the whole contract void and no
person can maintain an action upon it.
3. Rescission: A contract may be discharged, before the date of performance, by
agreementbetween the parties to the effect that it shall no longer bind them. Such
an agreement amounts to“rescission” or cancellation of the contract, the
consideration for mutual promises being theabandonment by the respective parties
of their rights under the contract. An agreement ofrescission releases the parties
from their obligations arising out of the contract. There may also bean implied
rescission of a contract e.g., where there is non-performance of a contract by both
theparties for a long period, without complaint, it amounts to an implied rescission.
4. Remission: Remission may be defined “As the acceptance of a lesser sum than
what wascontracted for or a lesser fulfilment of the promise made.” Section 63 lays
down that a promiseemay give up wholly or in part, the performance of the
promise made to him and a promise to doso is binding even though there is no
consideration for it. An agreement to extend the time for theperformance of a
promise also does not require consideration to support it on the ground that it isa
partial remission of performance.
5. Waiver: Waiver means the deliberate abandonment or giving up of a right which
a party isentitled to under a contract, whereupon the other party to the contract is
released from his obligation.
3. Discharge by subsequent or supervening impossibility or illegality: Impossibility
at the time ofcontract: There is no question of discharge of a contract which is
entered into to performsomething that is obviously impossible, e.g., an agreement
to discover treasure by magic, because,in such a case there is no contract to
terminate, it being an agreement void ab- initio by virtue ofSection 56, Para 1,
which provides: “An agreement to do an act impossible in itself is
void.”Subsequent impossibility: Section 56, Para 2, declares: “A contract to do an
act which, after the

contract is made, becomes impossible, or, by reason of some event which the
promisor could not
prevent, unlawful, becomes void when the act becomes impossible or unlawful.”
The following conditions must be fulfilled:
1) that the act should have become impossible;
2) that impossibility should be by reason of some event which the promisor could
not prevent;
and
3) that the possibility should not be self-induced by the promisor or due to his
negligence. Thus,under Section 56 (Para 2), where an extent which could not
reasonably have been in thecontemplation of the parties when the contract was
made, renders performance impossible orunlawful, the contract becomes void and
stands dischraged. This is known as frustration of thecontract brought about by
supervening impossibility. It is also known as the doctrine ofsupervening
impossibility. The rationale behind the doctrine is that if the performance of
acontract becomes impossible by reason of supervening impossibility or illegality
of the act agreedto be done, it is logical to absolve the parties from further
performance of it as they never didpromise to perform an impossibility. The
doctrine of supervening impossibility as enunciated inSection 56 (Para 2), is wider
than the “doctrine of frustration” known to the English law. Thedoctrine of
frustration is an aspect or part of the law of discharge of contract by reason
ofsupervening impossibility or illegality of the act agreed to be done. In the case of
subsequentimpossibility or illegality, the dissolution of the contract occurs
automatically. It does not dependon the choice of the parties. Cases where the
doctrine of supervening impossibility applies: Acontract will be discharged on the
ground of supervening impossibility in the following cases:
1. Destruction of subject-matter: When the subject-matter of a contract, subsequent
to itsformation, is destroyed, without the fault of the promisor or promisee, the
contract is discharged.It is so only when specific property or goods are destroyed
which cannot be regained.
2. Failure of ultimate purpose: Where the ultimate purpose for which the contract
was entered intofails, the contract is discharged, although there is no destruction of
any property affected by thecontract and the performance of the contract remains
possible.
3. Death or personal incapacity of promisor: Where the performance of a contract
depends uponthe personal skill or qualification or the existence of a given person,
the contract is discharged onthe illness or incapacity or the death of that person.
4. Change of law: A subsequent change in law may render the contract illegal and
in such casesthe contract is deemed discharged. The law may actually forbid the
doing of some act undertakenin the contract, or it may take from the control of the
promisor something in respect of which hehas contracted to act or not to act in a
certain way. Cases not covered by superveningimpossibility: “He that agrees to do
an act must do it or pay damages for not doing it” is thegeneral rule of the law of
contract. Thus, unless the performance becomes absolutely impossible(as
discussed above), a person is bound to perform any obligation which he has
undertaken, andcannot claim to be excused by the mere fact that performance has
subsequently becomeunexpectedly burdensome, more difficult or expensive. Some
of the cases where impossibility ofperformance is not an excuse are as follows:
1. Difficulty of performance: Increased or unexpected difficulty and expense do
not, as a rule,
excuse from performance.
2. Commercial impossibility: When in a transaction profits dwindle to a very low
level or actualloss becomes certain, it is said that the performance of the contract
has become commerciallyimpossible. Commercial impossibility also does not
discharge a contract.
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3. Impossibility due to the default of a third person. The doctrine of supervening
impossibilitydoes not cover cases where the contract could not be performed
because of the impossibilitycreated by the failure of a third person on whose work
the promisor relied.
4. Strikes and lock-outs: A strike by the workmen or a lock-out by the employer
does not excuseperformance because the former is manageable and the latter is
self-induced. Where theimpossibility is not absolute or where it is due to the
default of the promisor himself, Section56would not apply. As such these events
also do not discharge a contract.
5. Failure of one of the objects: When a contract is entered into for several objects,
the failure of
one of them does not discharge the contract.
4. Discharge by lapse of time: The Limitation Act lays down that in case of breach
of a contractlegal action should be taken within a specified period, called the
period of limitation. Otherwisethe promisee is debarred from instituting a suit in a
court of law and the contract standsdischarged. Thus in certain circumstances lapse
of time may also discharge a contract. Where“time is of essence in a contract” if
the contract is not performed at the fixed time, the contractcomes to an end, and the
party not at fault need not perform his obligation and may sue the other party for
damages.
5. Discharge by operation of law:
A contract terminates by operation of law in the following cases:
a) Death: Where the contract is of a personal nature, the dealth of the promisor
discharges thecontract. In other contracts the rights and liabilities of the deceased
person pass on to the legalrepresentatives of the dead man.
b) Insolvency: A contract is discharged by the insolvency of one of the parties to it
when aninsolvency court passes an “order of discharge” exonerating the insolvent
from liabilities on debtsincurred prior to his adjudication.
c) Merger: Where an inferior right contract merges into a superior right contract,
the former
stands discharged automatically.
d) Unauthorised material alteration: A material alteration made in a written
document or contract
by one party without the consent of the other, will make the whole contract void.
6. Discharge by breach of contract: Breach of contract by a party thereto is also a
method ofdischarge of a contract, because “breach” also brings to an end the
obligations created by acontract on the part of each of the parties. Of course the
aggrieved party i.e., the party not at faultcan sue for damages for breach of contract
as per law; but the contract as such stands terminated.Breach of contract may be of
two kinds: (1) Anticipatory breach; and (2)
Actual breach.
1. Anticipatory breach: An anticipatory breach of contract is a breach of contract
occurring beforethe time fixed for performance has arrived. It may take place in
two ways: (a) Expressly by wordsspoken or written. Here a party to the contract
communicates to the other party, before the duedate of performance, his intention
not to perform it. (b) Impliedly by the conduct of one of theparties. Here a party by
his own voluntary act disables himself from performing the contract.When a party
to a contract has refused to perform or disabled himself from performing,
hispromise in its entirity, the promisee may put an end to the contract, unless he
has signed, bywords or conduct his acquiscence in its continuance.
2. Actual breach: Actual breach may also discharge a contract. It occurs when a
party fails to
perform his obligations upon the date fixed for performance by the contract. Actual
breach
entitles the party not in default to elect to treat the contract as discharged and to sue
the party at
fault for damages for breach of contract.
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Q5 : What do you understand by Discharge of Instrument? What are the different
ways in which one or
more parties to a negotiable instrument are discharged?
Ans:
The term ‘discharge’ in relation to negotiable instruments has two connotations,
viz., (1) discharge of
instrument, and (2) discharge of one or more parties from liability on the
instrument.
A negotiable instrument is said to be discharged when it becomes completely
useless, i.e., no action onthat will lie, and it cannot be negotiated further. After a
negotiable instrument is discharged the rightsagainst all the parties thereto comes
to an end, and no party, even a holder in due course, can claim theamount of the
instrument from any thereto.
Discharge of the party primarily and ultimately liable on the instrument
results in the discharge of the instrument itself. For example, in the following cases
and instrument is
deemed to be discharged:
1. When the party primarily liable on the instrument (i.e., the maker of the note,
acceptor of the bill ordrawee bank) makes the payment in due course to the holder
at or after maturity. A payment by a partywho is secondarily liable does not
discharge the instrument because in that case the payer holds it toenforce it against
prior indorser and the principal debtor.
2. When a bill of exchange which has been negotiated is, at or after maturity, held
by the acceptor in his
own right, the instrument is discharged.
3. When the party primarily liable becomes insolvent, the instrument is discharged
and the holder cannotmake any other prior party liable thereon. Similarly, an
instrument stands discharged when the primaryparty liable is discharged by
material alteration in the instrument or by lapse of time making the debt timebarred
under the Limitations Act.
4. When the holder cancels the instrument with an intention to release the party
primarily liable thereonfrom the liability, the instrument is discharged and ceases
to be negotiable. Discharge of One or MoreParties A party is said to be discharged
from his liability when his liability on the instrument comes to anend. When only
some of the parties to a negotiable instrument are discharged, the instrument
continues to

be negotiable and the undischarged parties remain liable on it.

One or more parties to a negotiable instrument are are discharged from liability in
the following ways:
1. By cancellation: When the holder of a negotiable instrument deliberately cancels
the name of any of
the party liable on the instrument with an intent to discharge him from liability
thereon, such party and allindorsers subsequent to him, who have a right of action
against the party whose name is so cancelled, aredischarged from liability. If the
name of an indorser has been cancelled then all the indorsers subsequentto him will
be discharged but those prior him will remain liable. Where the cancellation is
done under amistake or without the authority of the holder if will not discharge any
party.
2. By release: If the holder of a negotiable instrument releases any party to the
instrument by any method
other than cancellation of names (i.e., by a separate agreement of waiver, release or
remission), the partyso released and all parties subsequent to him, who have a right
of action against the party so released, aredischarged from liability.
3. By payment: When the party primarily liable on the instrument makes the
payment in due course to
the holder at or after maturity, all the parties to the instrument stand discharged.
4. By allowing drawee more than 48 hours to accept: If the holder of a bill of
exchange allows the
drawee more than forty-eight hours, to consider whether he will accept the same,
all previous parties not
consenting to such allowance are thereby discharged from liability to such holder.
5. By taking qualified acceptance: If the holder of a bill agrees to a qualified
acceptance all prior parties
whose consent is not obtained to such an acceptance are discharged from liability.
6. By not giving notice of dishonuour: Any party to a negotiable instrument (other
than the party
primarily liable) to whom notice of dishonour is not sent by the holder is
discharged from liability as
against the holder, unless the circumstances are such that no notice of dishonour is
required to be sent.
7. By non-presentment for acceptance of a bill: When a bill of exchange is payable
certain period after
sight, its holder must present it for acceptance to the drawee within a reasonable
time after it is drawn. Ifhe makes a default in making such presentment the drawer
and all indorsers who were liable towardssuch a holder are discharged from their
liability towards him.
8. By delay in presenting cheque: It is the duty of the holder of a cheque to present
it for payment
within reasonable time of its issue. If he fails to do and in the meanwhile the bank
fails.
`
Q6 : What do you understand by Arbitration? What are the objectives of the
Arbitration Act? What are
the essentials for Arbitration Agreement?
Ans:
Arbitration- (The Arbitrator decides)
Arbitration is a dispute resolution process where the opposing parties select or
appoint an individualcalled an Arbitrator. Upon appointment, the Arbitrator will
arrange the process to hear and consider theevidence, review arguments and
afterwards will publish an award in which the items of dispute aredecided. In some
cases the Arbitrator can conduct the arbitration on documents evidence only.
Whenpublished the Arbitrator's decisions are final and binding on the parties. It is
rare for an arbitration to beappealed to the courts. Arbitration may comprise a sole
Arbitrator, or may be a panel of Arbitrators.
Costs of the arbitration are disposed of in the Arbitrator's award, unless the parties
have some agreementto the contrary. Arbitration is a settlement of dispute by the
decision of one or more persons calledarbitrators. It is an arrangement for
investigation and settlement of a dispute between opposing parties byone or more
unofficial persons chosen by the parties. In arbitration some dispute is referred by
the partiesfor settlement to a tribunal of their own choosing. The dispute is not
submitted for decision to theordinary courts but a domestic tribunal. It is thus a
method of settling the disputes in a quasi-judicialmanner. The essence of
arbitration is that the arbitrator decides the case and his award is in the nature ofa
judgement. Arbitration is a speedy and inexpensive method of settling the disputes
between the parties.In lines with the international trend, the Government of India
has also enacted the Arbitration andConciliation Act, 1996 and repealed the three
earlier enactments namely, the Arbitration (Protocol andConvention) Act, 1937;
the Arbitration Act, 1940; and the Foreign Award (Recognition and Enforcement)
Act, 1961.
Objectives of the Act :The main objectives of the Act are as under:
i) To comprehensively cover international commercial arbitration and conciliation
as also domestic
arbitration and conciliation. ii) To make provision for an arbitral procedure which
is fair, efficient and
capable of meeting the needs of the specific arbitration.
iii) To provide that the arbitral tribunal gives reasons for its arbitral award.
iv) To ensure that the arbitral tribunal remains with in the limit of jurisdiction.
v) To minimize the supervisory role of courts in the arbitral process.
`
vi) To permit an arbitral tribunal to use mediation, conciliation or other procedures
during the arbitral
proceedings to encourage settlement of disputes.
vii) To provide that every final arbitral award is enforced in the same manner as if
it were a decree of the
court.
viii) To provide that a settlement agreement reached by the parties as a result of
conciliation proceedingswill have the same status and effect as an arbitral award on
agreed terms on the substance of the disputerendered by an arbitral tribunal.
ix) To provide that, for purposes of enforcement of foreign awards, every arbitral
award made in thecountry to which one of the two international Conventions
relating to foreign arbitral awards to whichIndia is a party applies, will be treated
as a foreign award.
Arbitration Agreement: The foundation of arbitration is the arbitration agreement
between the parties to
submit to arbitration all or certain disputes which have arisen or which may arise
between them. Thus,the provision of arbitration can be made at the time of entering
the contract itself, so that if any disputearises in future, the dispute can be referred
to arbitrator as per the agreement. It is also possible to refer adispute to arbitration
after the dispute has arisen. Arbitration agreement may be in the form of
anarbitration clause in a contract or in the form of a separate agreement.
The agreement must be in writing and must be signed by both parties. The
arbitration agreement can be
by exchange of letters, document, telex, telegram etc [section 7].
Court must refer the matter to arbitration in some cases: If a party approaches court
despite the arbitrationagreement, the other party can raise objection. However,
such objection must be raised before submittinghis first statement on the substance
of dispute. Such objection must be accompanied by the originalarbitration
agreement or its certified copy. On such application the judicial authority shall
refer the partiesto arbitration. Since the word used is “shall”, it is mandatory for
judicial authority to refer the matter toarbitration [Section 8]. However, once first
statement to court is already made by the opposite party, thematter has to continue
in the court. Once an application is made by other party for referring the matter
toarbitration, the arbitrator can continue with arbitration and even make an arbitral
award.
Essentials of Arbitration Agreement
1. It must be in writing [Section 7(3)]: Like the old law, the new law also requires
the arbitration
agreement to be in writing. It also provides in section 7(4) that an exchange of
letters, telex, telegrams, or

`other means of telecommunications can also provide a record of such an

agreement. Further, it is alsoprovided that an exchange of claim and defence in
which the existence of an arbitration agreement isalleged by one party and not
denied by the other, will also amount to be an arbitration agreement.
It is not necessary that such written agreement should be signed by the parties. All
that is necessary is thatthe parties should accept the terms of an agreement reduced
in writing. The naming of the arbitrator inthe arbitration agreement is not
necessary. No particular form or formal document is necessary.
2. It must have all the essential elements of a valid contract: An arbitration
agreement stands on the
same footing as any other agreement. Every person capable of entering into a
contract may be a party toan arbitration agreement. The terms of the agreement
must be definite and certain; if the terms are vagueit is bad for indefiniteness.
3. The agreement must be to refer a dispute, present or future, between the parties
to arbitration:
If there is no dispute, there can be no right to demand arbitration. A dispute means
an assertion of a rightby one party and repudiation thereof by another. A point as to
which there is no dispute cannot bereferred to arbitration. The dispute may relate to
an act of commission or omission, for example, withholding a certificate to which
a person is entitled or refusal to register a transfer of shares.
Under the present law, certain disputes such as matrimonial disputes, criminal
prosecution, questionsrelating to guardianship, questions about validity of a will
etc. or treated as not suitable for arbitration.Section 2(3) of the new Act maintains
this position. Subject to this qualification Section 7(1) of the newAct makes it
permissible to enter into an arbitration agreement “in respect of a defined legal
relationshipwhether contractual or not”.
4. An arbitration agreement may be in the form of an arbitration clause in a
contract or in the
form of a separate agreement [Section 7(2)].
`
9. Licensed Companies or Associations not for profit: The Companies Act permits
the registration
under a licence granted by the Central Government of an association not for profit
with limited liability.However, such a company can not use the word ‘Ltd.’ or the
words ‘Pvt. Ltd.’ with its name. This type ofassociation or company is formed for
the promotion of charity, science, commerce, sports, art or cultureetc. Naturally,
such associations are not of a commercial nature and do not aim at earning profits.
Q6: What do you understand by Cyber Crime? Explain the importance of the IT
Act 2000.
Ans:
Cyber crime refers to all the activities done with criminal intent in cyberspace or
using the medium ofInternet. These could be either the criminal activities in the
conventional sense or activities, newlyevolved with the growth of the new
medium. Any activity, which basically offends human sensibilities,can be included
in the ambit of Cyber crimes.
Because of the anonymous nature of Internet, it is possible to engage in a variety of
criminal activitieswith impunity, and people with intelligence, have been grossly
misusing this aspect of the Internet tocommit criminal activities in cyberspace. The
field of cyber crime is just emerging and new forms ofcriminal activities in
cyberspace are coming to the forefront each day. For example, child pornography
onInternet constitutes one serious cyber crime. Similarly, online pedophiles, using
Internet to induce minorchildren into sex, are as much cyber crimes as any others.
Categories of cyber crimes:
Cyber crimes can be basically divided in to three major categories:
1. Cyber crimes against persons;
2. Cyber crimes against property; and
3. Cyber crimes against government.
1. Cyber crimes against persons: Cyber crimes committed against persons include
various crimes liketransmission of child-pornography, harassment of any one with
the use of a computer and cyber stalking.The trafficking, distribution, posting, and
dissemination of obscene material including pornography,indecent exposure, and
child pornography constitute the most important cyber crimes known today.These
threaten to undermine the growth of the younger generation and also leave
irreparable scars on theminds of the younger generation, if not controlled.
Similarly, cyber harassment is a distinct cyber crime. Various kinds of harassments
can and do occur in
cyberspace, or through the use of cyberspace. Harassment can be sexual, racial,
religious, or of any other
`

nature. Cyber harassment as a crime also brings us to another related area of

violation of privacy ofcitizens. Violation of privacy of online citizens is a cyber
crime of a grave nature. Cyber stalking: TheInternet is a wonderful place to work,
play and study. The net is merely a mirror of the real world, andthat means it also
contains electronic versions of real life problems. Stalking and harassment
areproblems that many persons especially women, are familiar within real life.
These problems also occuron the Internet, in the form of “cyber stalking” or
“online harassment”.
2. Cyber crimes against property: The second category of Cyber crimes is Cyber
crimes against all forms
of property.
unauthorized computer trespassing through These crimes include cyberspace,
computer vandalism, and
transmission of harmful programs and unauthorized possession of computerized
information.
3. Cyber crimes against Government: The third category of Cyber crimes is Cyber
crimes againstGovernment. Cyber Terrorism is one distinct kind of crime in this
category. The growth of Internet hasshown that the medium of cyberspace is being
used by individuals and groups to threaten internationalgovernments as also to
terrorize the citizens of a country.
This crime manifests itself into Cyber Terrorism when an individual “cracks” into
a government ormilitary maintained website, for the purpose of perpetuating terror.
Since Cyber crime is a newlyemerging field, a great deal of development has to
take place in terms of putting into place the relevantlegal mechanism for
controlling and preventing cyber crime. The courts in United States of America
havealready begun taking cognizance of various kinds of fraud and cyber crimes
being perpetrated incyberspace. However, much work has to be done in this field.
Just as the human mind is ingeniousenough to devise new ways for perpetrating
crime, similarly, human ingenuity needs to be canalized intodeveloping effective
legal and regulatory mechanisms to control and prevent cyber crimes.
A criminal mind can assume very powerful manifestations if it is used on a
network, given the
reachability and size of the network.
Explain the importance of the IT Act 2000
•
Enables Legal recognition to Electronic Transaction / Record
•
Facilitates Electronic Communication by means of reliable electronic
`
•
record
•
Provides for acceptance of contract expressed by electronic means
•
Facilitates Electronic Commerce and Electronic Data interchange.
•
Facilitates Electronic Governance.
•
Facilitates electronic filing of documents.
•
Enables retention of documents in electronic form.
•
Where the law requires the signature, digital signature satisfies the
•
requirement.
•
Ensures uniformity of rules, regulations and standards regarding the
•
authentication and integrity of electronic records or documents.
•
Facilitates Publication of Official Gazette in the electronic form.
•
Enables interception of any message transmitted in the electronic or
•
encrypted form.
•
Prevents Computer Crime, forged electronic records, international
•
alteration of electronic records fraud, forgery or falsification in Electronic
•
Commerce and electronic transaction.
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