MBA 401 Business Law Questions and Answers
1. Write down the essential elements of a Valid Contract.
Ans :
Meaning of Contract: A contract is a voluntary, deliberate, legally-binding agreement between two or more competent parties, which defines the legal obligation and authorities of the parties.
According to Pollack: “Every agreement and promise enforceable by law is a contract”.
According to Sir William Anson: “A legally binding agreement between two or more persons is one by which rights are acquired by one or more to act or forbearance on the part of others”.
Elements of a Valid Contract: Presence of Two or More Parties: The first essential element of a valid contract is the presence of at least two parties to make a contract, one party making the offer and the other party accepting it (offerer and offeree).
Agreement: To form a contract, there must be an agreement between two parties. To form an agreement, there must be a proposal offered by one party and its acceptance by the other.
Intention to create legal relationship: When the two parties enter into an agreement, their intention must be to create legal relationship between them. If there is no such intention on the part of the parties, there is no contract between them. For a valid contract, both the parties to a contract must bear in their mind that they will have some legal rights against each other and if any of them does not fulfill their obligation arising under the contract, then the court will make them fulfill their obligation.
Contractual capacity: According to Section 10, an agreement becomes a contract if entered into between the parties who are competent to contract. According to Section 11, every person is competent to contract, who is not minor, not of unsound mind and not disqualified by any law which he is subject to.
Free and genuine consent : It is essential for the creation of every contract that there must be a free and genuine consent of the parties to the agreement. The consent of the parties is said to be free when they are of the same mind on all the material terms of the contract. This is absent if the agreement is induced by coercion, undue influence, etc.
Lawful consideration : It means ‘something in return’. The agreement is legally enforceable only when supported by consideration i.e. when both the parties give something and get something in return. Without consideration, a contract becomes void.
Lawful object : The object of the agreement must be lawful. In other words, it must not be illegal, immoral, or opposed to public policies. If an agreement suffers from any legal law, it would not be enforceable by law. Certainty : Certainty is an essential element of a contract. The agreement must be certain and not vague or indefinite. If it is vague, it is not possible to ascertain its meaning.
Possibility of performance : The terms of agreement must also be such as are capable of performance. An agreement to perform an act impossible in itself cannot be enforced.
Agreement declared void : The agreement must not have been expressly declared void by any law enforced in the country.
Legal formation : A contract may be made by words, spoken or written. As regards legal effects, there is no difference between a contract in writing and a contract made by words of mouth.
2.What is Doctrine of Caveat Emptor?
Ans :
Caveat emptor is a Latin phrase that can be roughly translated in English to "let the buyer beware." While the phrase is sometimes used as a proverb in English, it is also sometimes used in legal contracts as a type of disclaimer. In many jurisdictions, it is the contract law principle that places the onus on the buyer to perform due diligence before making a purchase.The term is commonly used in real property transactions–as it relates to the sale of real estate property after the date of closing–but it also applies to the transactions of other types of goods, such as cars.
KEY TAKEAWAYS
- Caveat emptor is a Latin phrase that can be roughly translated in English to "let the buyer beware."
- While the phrase is sometimes used as a proverb in English, the principle of caveat emptor is also sometimes used in legal contracts as a type of disclaimer.
- A caveat emptor disclaimer is intended to resolve disputes that arise from information asymmetry, a situation in which the seller has more information than the buyer about the quality of a good or service.
Understanding Caveat Emptor
The inclusion of a caveat emptor disclaimer is intended to resolve disputes arising from information asymmetry, a situation in which the seller has more information than the buyer about the quality of a good or service.
For example, if Hasan wants to buy a car from Allison–under the caveat emptor principle–he is responsible for gathering the necessary information to make an informed purchase. In order to gather this information, Hassan may decide to ask Allison how many miles the car has on it, whether any major components need to be replaced, whether it's been serviced regularly, etc.
3. How does Public Ltd Company differ from Private Ltd Company?
Ans :
There are many types of companies, the most popular form are; private limited and public limited company. Both have its own advantages and disadvantages. Therefore, an entrepreneur will have to choose the type of company depending upon the funding plans.
According to the Companies Act, 2013, 'private company' means a company which, by its articles;
restricts the right to transfer its shares, if any;
limits the number of its members to fifty not including
In simple words, the private limited company is a joint stock company. However, it is governed under the ambit of the Indian Companies Act, 2013. It is formed by voluntary association of persons with a minimum paid up capital of 1 lakh rupees. While the maximum number of members is 200, it does not include the current employees or ex-employees who were members during their employment terms. Employees may continue to be the member after their termination of employment in the company. Transfer of shares is restricted. It prohibits the entry of public through subscription of shares and debentures. The term private limited is used at the end of its name.
According to the Companies Act, 2013, 'public company' means a company which is not a private company.
A public limited company is a joint stock company. It is governed under the provisions of the Indian Companies Act, 2013. While there is no limit on the number of members, it is formed by the association of persons voluntarily with a minimum paid up capital of 5 lakh rupees. Transferability of shares have no restriction. The company can invite public for subscription of shares and debentures. The term public limited is added to its name at the time of incorporation.
Key points of difference between a private limited and a public limited company are:
- A public limited company is a company listed on a recognized stock exchange and the stocks are traded publicly. On the other hand, a private limited company is neither listed on the stock exchange nor are they traded. It is privately held by its members only.
- The minimum number of members required to start a public company is seven. As against this, the private limited can be started with a minimum of two members.
- In case of a public company, it is compulsory to call a statutory general meeting of members. There is no such compulsion in case of a private company.
- The issue of prospectus or statement is mandatory in case of public company. However, this is not the case of a private company.
- The public company will require a certificate of commencement post incorporation to begin its operation. In contrast to this, a private company can start its business right after its incorporation.
- The transferability of shares is restricted completely in private limited company. While the shareholders of a public company can transfer their shares freely.
- Since there is a limited number of people and fewer restrictions, the scope of a private limited company is limited. In contrary, the scope of a public company is vast. This is because the owners of the company can raise capital from the general public and have to abide by may legal restrictions.
- There is a greater regulatory burden on a public limited company. This is because a great amount of information has to be made available to the public who are shareholders or prospective shareholders. A lot of money has to be invested in order to prepare reports and disclosures that match with the regulations provided by SEBI.
- A signed written resolution is received by holding general meetings of a private limited company.
- While it mandatory for public companies to appoint a company secretary, private companies may choose to do so only at their will.
Depending upon one's need a type of company is chosen to be registered. However, the principal reason for choosing a public company is to have the ability to offer shares to the public. One has to pay a price for this by complying with a greater number of restrictions and considerable loss of privacy.
4.Write a note on Memorandum of Association.
Ans :
The Memorandum of Association is considered as the constitution of a company. It provides the foundation to the structure or the building of the company. The memorandum of association is defined as a company’s charter. It defines the limitations of a company’s powers.
Particular parts of the memorandum can be altered by the company whenever and however required.
The memorandum of association enables shareholders, creditors and investors to know the permitting range of the company.
It regulates the company’s external affairs.
Importance of Memorandum
The memorandum of association comes with its own importance −
It defines the limitations of the company.
The whole structure of the company is built on the basis of the memorandum.
It defines the scope of activities of the company.
It sets out a company’s written goals.
Clauses of Memorandums
The memorandum of association contains the following clauses −
The Name Clause
A company (being a separate legal entity) must have a name.
The name of a company should be unique and should not resemble the name of any other company.
It should not contain words like king, queen, emperor or names of any government bodies.
A public company is required to have the suffix ‘Limited’ at the end of its name.
Private companies are required to have the suffix ‘Private Limited’ at the end of their names.
The name of the company must be painted outside every place where business of the company is to be carried out.
Registered Office Clause
Every company must have a registered office.
The location of the office can be intimated to the registrar within 30 days of incorporation.
With intimation to the registrar, a company can change its place in the same town.
However, for changing the place of the office in a different town in the same state, a special resolution must be passed.
To change the location of the office from one state to another, various reforms are needed to be performed on the memorandum.
Object Clause
It determines the rights, powers and sphere of the activities of a company.
It should be defined carefully as it is difficult for the clauses to be altered later on.
The company cannot incorporate any activity, which is not present in the object clause.
The subscribers to the memorandum choose the object clause.
Shareholders are protected by the object clause as it ensures that the funds raised for the undertaking will not be used by any other undertaking.
Liability Clause
It states that the liabilities of the shareholders are limited to the value of the shares owned by them.
The shareholders are liable to pay the unpaid balance of their shares.
The liabilities of the members may be limited by guarantee.
It also contains the amount that every member of the company undertakes to contribute to the assets of the company in the event of winding up.
Capital Clause
It states the total capital of the proposed company.
The total number of shares of each category should be present in the capital clause.
The exact nature of any special rights and privileges enjoyed by any shareholders must be mentioned in the capital clause.
Association clause
The names and signatures to the memorandum of association is contained in this clause.
At least 7 persons should sign the memorandum in case of public companies.
At least 2 persons should sign the memorandum in case of a private company.
5. Define law.
Ans :
“system of rights and obligations which the state might enforce”
6. Define a contract.
Ans :
Sir. William Anson defines ,” an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of
the other or others”
7. What is agreement?
Ans :
“ every promise or every set of promises, forming consideration for each other is an agreement”
8. What is void contract?
Ans :
“ an agreement not enforceable by law becomes void”
9. What is voidable contracts?
Ans :
“ an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others”
10. Define offer or proposal?
Ans :
When one person signifies to another his willingness to do or abstain from doing anything with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal.
11. What is consideration?
Ans :
It means “something in return”. While making a promise the party making the promise must get some benefit or gain.
12. What is consent?
Ans :
In other words there should be consensus ad idem. it means samething in the same mind.
13. What is wagering contracts?
Ans :
“ an agreement between two parties to that effect of a given uncertain events is determined one way and in the contrary event the latter shall pay to the former”
14. What is tender?
Ans :
Where the promisor is ready and willing to perform his promise and it is not accepted by the promise, it is called tender.
15. What is Novation?
Ans :
Novation is the way for the termination of a contract with the consent of the parties concerned. The consent is given subsequent to the formation of a new contract.
16. What is Rescision?
Ans :
It means cancellation of all or some of the terms of the contract. Terms of the contract may be cancelled by the mutual consent of all the parties to a contract or by any one of the parties or by an aggrieved party.
17. What is meant by damages?
Ans :
Damages are monetary compensation allowed to the aggrieved party by the court forthe loss or damage suffered by him.
18. What are the kinds of damages?
Ans :
1.Ordinary damages or general damages
2.Special damages
3.Vindictive damages
4.Nominal damages
19. What is Quasi contracts?
Ans :
Certain contracts in which all the essentials for a valid contract will not be present. But even then, these contracts are enforceable by law on the grounds of equity and justice.
20. Explain the term “ Quantum Meruit”
Ans :
It means “ as much as he deserves” and “ as much as he earned”
21. Explain Vindictive damages?
Ans :
These damages are allowed not only with a view to compensate the injured person but also to punish the person who has breached the contract.
22. What are necessaries?
Ans :
“ goods suitable to the condition in life of such infant or other person, and to his actual requirement at the time of sale and delivery”
23. Define Acceptance?
Ans :
“ when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise”.
24. Who is a Minor?
Ans :
The person who are below the age of 18 are minors. If there is any guardian to the minor appointed by the court, he will be considered as a minor up to the age of 21.
25. State the difference between penalty and damages?
Ans :
Damage is the pre-determined andprobable loss which may arise from the breach. But a penalty is a pre-determined sum disproportionate to the loss which may result from the breach.
26. Who is an Agent?
Ans :
An agent is a person employed to do any act for another, or to represent the another in dealings with the third persons.
27. What are the different kinds of agent?
Ans :
Special agent, general agent, universal agent, mercantile agent and non mercantile agent.
28. Define the sub-agent?
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A sub-agent is a person employed by and acting under the control of the original agent in the business of agency.
29. Write a short note on C.I.F Contract?
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The letters C.I.F stand for “Cost, Insurance and Fright”. The main features of this contract is, the interest of both the parties are protected.
30.What is warranty?
Ans :
The subsidiary stipulation or conditions of the contract is warranty. In the case of breach of warranty the aggrieved party can only claim damages.
31.What is contract of sale?
Ans :
A contract of sale is an agreement whereby one person agrees to sell some goods to another for a price.
32.Define a bill of exchange?
Ans :
It is instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
33.Define cheque?
Ans :
A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
34.Define business law?
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The branch of law which deals with rights and obligations of business persons arising out of business transactions in respect of business property.
35.What is Rescision of contract?
Ans :
Rescission means cancellation of all or some of the terms of the contract by the mutual consent of all the parties to a contract or by any one of the parties or by an aggrieved party.
36. what do you mean by contract of indemnity?
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A contract by which one party promises to save the other from loss caused to him either by the conduct of the promisor or by the conduct of any other person
37. What do you mean by transfer of ownership?
Ans :
Transfer of ownership or transfer of property means transfer of property from seller to the buyer. It does not mean transfer of possession or delivery of the goods.
38. What is negotiable instrument?
Ans :
It means a written document transferable by delivery. It also defines,” a promissory note, bill of exchange or cheque payable either to order to be bearer”.
39.What is promissory note?
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An instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order a certain person, or the bearer of the instrument.
40.What is meant by legality of object?
According to sec 10, an agreement is a contract only if it is made for a lawful consideration and with a lawful object.
41.What is lien?
Ans :
A lien is a right of one person to retain property or goods which are in his possession, belonging to another person, until the promise or the liability is discharged.
42.Define pledge?
Ans :
The bailment of goods as security for the payment of a de by or performance of a promise.
43. What is contract of agency?
Ans :
Contract of agency is the legal relationship which exists between an agent and his principal, to bring the principal into legal relationship with third parties.
44. What is contingent contract?
Ans :
It also called contional contracts. The performance of the contract depends upon the happening or non-happening of some event in future. Contracts of insurance, indemnity and gurantee are popular instances of contingent contracts.
45. What is contract of gurantee?
Ans :
It is also known as contract of suretyship. A contract to perform the promise or discharge the liability of a person in case of his default.
46. Define bailment?
Ans :
The delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished be returned otherwise disposed of according to the directions of the person delivering them.
47. What is condition?
Ans :
A condition is a stipulation essential to the main purpose of the contract. It is vitalexistence of the contract.
48.Define sale?
Ans :
Where under a contract of sale the property or ownership in the goods is immediately transferred at the time of making the contract from the seller to the buyer, the contract is called a sale.
49.What is agreement to sell?
Ans :
Where under a contract of sale the transfer of property in the goods is to take place at a future time or subject to the fulfillment of certain conditions, the contract is called an agreement to sell.
50.Define the term goods?
Ans :
Every kind of movable property other than actionable claims and money and includes stocks and shares growing crops grass and things attached to or forming part of the land which age agreed to be severed before sale or under the contract of sale.
51.What are the types of goods?
Ans :
Existing goods, specific goods, ascertained goods, unascertained goods, future goods contingent goods.
52.Define the term delivery?
Ans :
Voluntary transfer of possession of goods from one person to another.
53. What do you understand by ‘Caveat Emptor’?
Ans :
It means “let the buyer be aware”. This is fundamental principal of the law of sale of goods. It means the buyer must take care of his own interests while purchasing goods.
54. Why should you know the law?
Ans :
“ignorance of law is no excuse”. So everyone should know the law.
55. Explain the sources of Indian merchantile law?
Ans :
1. English Mercantile law
- The law merchant
- Statute law or acts of parliament
- Common law
- Principles of equity
2. Statutes law
3. Customs and usages
4. Past judicial decisions
56. What are the essential requirements of contracts?
Ans :
1. Agreement
2. Consideration
3. Capacity
4. Free consent
5. Lawful object
6. Not declared void
7. Possibility of performance
8. Legal formalities
57. How a contract is discharged by the operation of law?
Ans :
By death
By merger
By unauthorized alteration
By insolvency
58. What does a claim on quantum merit arise?
Ans :
Can claim the cost for the work done. The claim on the basis of quantum merit arises
in the following grounds.
- Where the services are rendered by one person
- When a contract is subsequently declared or discovered as void
- Where one party refuses to perform the contract
- Where the work is partly done and divisible
- Where the work is completed but if it is not upto the mark
59. Distinct between contract of indemnity and guarantee?
Ans :
- Number of parties
- Number of contracts
- Purpose of contracts
- Parties interest
- Acting upon request
- Existence of risk or liability
- Nature of liabililty
- Rights of parties
- Legal formalities
60. What are the duties of balior?
Ans :
- To disclose faults in the goods bailed
- To bear extra ordinary expenses
- To indemnify bailee
- To receive back the goods
61. What is the essential element of contract of sale?
Ans :
- It may be express or implied
- It may be absolute or conditional
- It must have essential elements of valid contract
- It includes both sale and agreement to sale
62. Explain the exceptions to the doctrine of Caveat Emptor?
Ans :
- The law imposes certain implied conditions and warranties in a contract of sale
- When the buyer relies on the skill of the seller in supplying the goods
- If the goods are purchased by description
- If the consent of the buyer was obtained by any fraud
63. Explain the essential elements of promissory note?
Ans :
- Instrument in writing
- Undertaking to pay
- Unconditional promise
- Signed by maker
- Certain sum of money
- Promise to pay money only
- Certainty of parties
- Bank note or currency note
- Formalities like number, date, place, consideration etc.
64. Explain the characteristics of bill of exchange?
Ans :
- Instrument in writing
- An order to pay
- Unconditional order
- Signed by the maker
- Certainty of the parties
- Certain sum of money
- Formalities
65. Discuss the types of consideration?
Ans :
- Past consideration
- Present consideration
- Future consideration
66. Discuss the contract of persons of unsound mind?
Ans :
- Minor
- Drunkards and lunatics
67. Write about the law of assignments of contracts?
Ans :
- Assignment by the act of parties
- Assignment by the operation of law
68. What are the essential features of a contract of guarantee?
Ans :
- It may be oral written
- The principal debtor may be a minor
- The liability of the surety is not primary
- It need not be direct consideration between surety and the creditor
69. Explain the rights and duties of pawnee or pledge?
Ans :
- Right of retainer
- Right to recover extraordinary expenses
- Right on default of pawnor
DUTIES:
- To take a reasonable care of the goods pledged
- Should not make unauthorized use of goods pledged
- Should not mix the goods pledged with his down goods
70. What are differences between bailment and sale?
Ans :
- Sale : possession and ownership transferred
Bailment: only possession transferred
- Sale : it is concerned both moveable and immovable goods
Bailment : it is concerned with only movable goods
- Sale : it must have price
Bailment : it may be even gratuitous
71. Explain the capacity of parties?
Ans :
According to sec 10, an agreement becomes a contract if it is entered into between
the parties who are competent to contract. Incapacity makes a contract invalid and it is classified
into
- Incapacity from status
a) Foreign sovereigns and ambassadors
b) Alien enemy
c) Convicts and underr-trials
d) Insolvent
e) Profession
f) Companies
- Incapacity from mental deficiency
a) Minor
b) Drunkards and lunatics
72. Explain the rules regarding offer?
Ans :
- An offer must contain definite terms
- It must be intended to create or capable of creating legal relations
- It must be made in order to get the assent of the other
- It must be distinguished from quotation
- It may be made either by words or by conduct
- It may be made to any particular person or persons in general
73. What are the essentials of a valid acceptance?
Ans :
- It must be by the offeree or by his authorized agent
- It must be absolute and unqualified
- It must be communicated to the offerer
- It must be in the mode prescribed by the offerer
- It must be made within a reasonable time
- It cannot be given before the offer is made
- It must be to fulfill the promise
74. Explain the performance of contract?
Ans :
Time and place of performance:
- Where no time is fixed
- Where the time is fixed
- Where the application is required
- Where no place of performance is fixed
75. State the essential features of bailment?
Ans :
- Delivery of goods
- Delivery of goods must be for some purpose
- Contract
- Return of goods
- Movable goods
- Possession
76. Explain the various kinds of agents?
- Agency by express agreement
- Agency by implied agreement
- Agency by estoppels
- Agency by holding out
- Agency by necessity
- Agency of rectification
- Agency by operation of law
77.What are the essential elements of sales
Ans :
- Transfer of property
- It is an executed contract
- It creates rights in rem
- The goods must be specific and ascertained
- Right of re-sale
- Liability of sales tax
78. Explain the rights of unpaid seller?
Ans :
- Right against the goods
a) Right of lien
b) Right of stoppage of goods in transit
c) Right of resale
d) Right of withholding delivery
- Rights against the buyer personally
a) Suit for price
b) Suit for damages for non-acceptance
c) Suit for repudiation
d) Suit for interest
79. Explain various types of endorsement?
Ans :
- Blank endorsement
- Special endorsement
- Partial endorsement
- Restrictive endorsement
- Conditional endorsement
80. What are features of negotiable instruments?
Ans :
- Easy negotiability
- Title
- Recovery
- Transfer
- Contract
- Presumptions
81. Discuss the essential of a valid tender?
Ans :
- It must be unconditional
- It must be for the whole performance
- It must be made by a proper person
- It must be at the proper time and place
- It must be in the proper form
- It may be made to any one of the joint promises
- It must be to a proper person
82. Explain the rights of surety?
Ans :
- right of subrogation
- right to claim indemnity
- Right to demand for relief
- Right for securities
- Right to claim set-off
- Right of request to sue the debtor
- Right to contribution
- Right for benefit of securities
83. Explain express and implied conditions and warranties in a contract of sale?
Ans :
- Condition as to the title of goods
- Condition that the sale of goods shall correspond with description
- Condition that the sale of goods corresponds with the sample condition that the
goods will be suitable for a particular purpose
- Condition as to the merchantable quality of goods or fitness
- Implied warrenty as to quite possession
- Implied warranty as to free from charges and encumbrances
84. Define cheque. Explain its features:
Ans :
“ a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand”
FEATURES OF CHEQUE:
- It is always drawn on a specified banker
- It is always payable on money
85. Discuss the classification of contracts?
Ans :
- Classification on the basis of validity
a) Valid contracts
b) Void contracts
c) Voidable contracts
d) Illegal contracts
e) Unenforceable contracts
- On the basis of formation
a) Express contracts
b) Tacit or implied contracts
c) Quasi contracts
- On the basis of performance
a) Unilateral contracts
b) Bilateral contracts
c) Executed contracts
d) Executor contracts
86. What are the exceptions for sale by non-owners?
Ans :
- Sale by a mercantile agent
- Sale by joint owner
- Sale by a person possessing the goods under a voidable contract
- Sale under the implied authority of the owner or estoppels
- Sale by a seller who is in possession of goods after the sale
- Sale by unpaid vendor
87. What are the rules regarding the consideration?
Ans :
- Consideration must move at the desire of the promisor
- It must move from the promise
- It may be past present or future
- It need not be adequate
- It must be real, lawful, competent and not illusory
88. Explain the different types of quasi contracts?
Ans :
- Claim for necessaries supplied to a person incapable of entering into a contract
- Re-imbursement of person paying money due by another in payment of which he is
interested
- Obligation of person enjoying benefit of non-gratuitous act
- Obligation of the finder of lost goods
- Liability of a person to whom money is paid or thing delivered by mistake or under
coercion
- Quantum-meruit
89. What is the difference between sale and agreement to sell?
Ans :
- Nature of contract
- Transfer of ownership
- Loss
- Breach of contract
- Re-sale
- Insolvency of the seller
- Insolvency of the buyer
90. What are the different types of crossing?
Ans :
- General crossing
- Special crossing
- Restrictive crossing
- Not negotiable crossing
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