SUBJECT CODE & NAME

MB 0051
LEGAL ASPECTS OF BUSINESS
Name-Nikhil Gogia
Roll no- 1411000968

Question 1 Narrate the exceptions to the rule No consideration no contract

How is a contract discharged ?
Answer Exceptions to the Rule, No Consideration, No Contract

Consideration being one of the essential elements of a valid contract the general rule is
that an agreement made without consideration is void. But there are a few exceptions to
the rule,where an agreement without consideration will be perfectly valid and binding. These
exceptions are as follows:
1. Agreement made on account of natural love and affection [Sec. 25 (1)]: An agreement
made without consideration is enforceable. If it is
(i) Expressed in writing
(ii) Registered under the law for the time being in force for the registration of documents
(iii) Is made on account of natural love and affection
(iv) Between parties standing in a near relation to each other.
Thus there are four essential requirements which must be complied with to enforce an
agreement made without consideration, as per Section 25 (1).
Let us now study some some illustrations in this behalf
(a) A promises, for no consideration, to give to B Rs 1,000. This is a void agreement
(b) A for natural love and affection, promises to give his son B, Rs 1,000. A puts his promise to
B into writing and registers it This is a contract.
(c) A registered agreement, whereby an elder brother, on account of natural love and
affection, promised to a the debts of his younger brother, was held to be valid and
binding an the younger brother cause the elder brother in the event of his not carrying
out the agreement (Venkatasamy vs Rangasami)

It should, however, be noted that mere existence of a near relation between the parties
does not necessarily import natural love and affection. Thus where a Hindu husband,
after referring to quarrels and disagreement between him and his wife, executed a

registered document in favour of his wife, agreeing to pay for separate residence and
maintenance, it was held that the agreement was void for want of consideration
because it was not merely out of natural love, and affection. (Rajlakhi Devi vs
Bhootnath)
2.

Agreement to compensate for past voluntary service (Sec.25 (2)].

A promise made without consideration is also valid, if it is a promise to compensate, wholly
or in part, a person who has already voluntarily done something for the promisor, or
donesomething which the promisor was legally compelled to do.

Illustrations
(a) A finds Bs purse and gives it to him. B promises to give A Rs 50. This is a contract.
(b) A supports Bs infant son. B promises to pay As expenses in so doing. This is a contract.
(Note that B was legally bound to support his infant son).
(c) A rescued B from drowning in the river, and B, appreciating the service that had been
rendered, promises to pay Rs 1,000 to A. There is a contract between A and B.
In order to attract this exception, the following points should be noted:
(i) The service should have been rendered voluntarily for the promisor. If it is not voluntary
but rendered at the desire of the promisor, then it is covered under past consideration [as
per Sec. 2(d) and not under this exception].
(ii) The promisor must be in existence at the time the service was, rendered. Thus where
services were rendered by a promoter for a company not then in existence, a subsequent
promise by the company to pay for them could not be brought within the exception.
(Ahmedabad Jubilee Spinning Co. vs Chhotalal).
(iii) The promise must be to compensate a person who has himself done something for the
promisor and not to a person who has done nothing for the promisor. Thus, where B
treated A during his illness but refused to accept payment from A; they being friends; and A
in gratitude promises to pay Rs 1,000 to Bs son D, the agreement between A and D is void
for want. of consideration as it is not covered under the exception.
(iv) The intention of the promisor ought to be to compensate the promisee. A promise given
for any motive other than the desire to compensate the promisee would not fall within the
exception. (Abdulla Khan vs Parshottam)
(v) The promisor to whom the service has been rendered needed competence to contract
at the time the service was rendered. Thus a promise- made after attaining majority to pay
for goods supplied voluntarily to the promisor during his minority has been held valid and
the promisee could enforce it ,(Karam Chand vs Basant Kaur).
The court in that case ob-served that they failed to see how an agreement made by a
person of full age to compensate wholly or in part a promisee, who had already
voluntarilydone something for the promisor, even at a time when the promisor was a
minor, did not fall within the purview of Sec. 25(2) of the Contract Act. The reasoning of the
court is, that at the time the thing was done the minor was unable to contract, and
therefore the person who did. it for the minor must in law be taken to have done it
voluntarily. In their opinion the provisions of Sec. 25(2) applied equally to a contract by a

major, as well as by a minor, to pay for past services. In this connection it is important to
note that this exception does not cover a promise by a person on attaining majority to
repay the money borrowed during his minority because such a promise cannot be said to
be a promise to compensate a person who has already voluntarily (without any promise of
compensation) donesomething for the promisor. Advancing money as a loan necessarily
implies a promise to compensate (i.e., a promise to repay the loan) on the part of the
borrower, Thus a promise made by a minor after attaining majority to repay money
advanced during his minority has been held invalid and beyond the purview of Section
25(2) of the Contract Act (Indran Ramaswami vs Anthappa).
(vi) The service rendered must also be legal. Thus past cohabitation will not make a promise
to pay for it enforceable under this exception (Sabava vs Yamanappa).
3.

Agreement to pay a time-barred debt (Sec. 25 (3)]. Where there is an agreement, made
in writing and signed by the debtor or by his authorised agent, to pay wholly or in part a
debt barred by the law of limitation, the agreement is valid even though It is not supported
by any consideration. A time barred debt cannot be recovered and therefore a promise to
repay such a debt is without consideration, hence the importance of the presentexception.

But before the exception can apply, it is necessary that:

(i) The debt must be such of which the creditor might have enforced payment but for the law
for the limitation of suits.
(ii) The promisor himself must be liable for the debt. So a promissory note executed by a
widow in her personal capacity in payment of time- barred debt of her husband cannot be
brought within the exception (Pestonji vs Maherbai28);
(iii) There must be an express promise to pay a time barred debt as distinguished from a mere
acknowledgement of a liability in respect of a debt. Thus. a debtors letter to his creditor, I
owe you Rs. 1,000 on account of my time-barred promissory note is not a contract. There
must be a distinct promise to pay; and
(iv) The promise must be in writing and signed by the debtor or his agent. An oral. promise to
pay a time-barred debt is unenforceable.

The logic behind this exception is that by lapse of time the debt is not destroyed but only
the remedy is lost. The remedy is revived by a new promise under the exception.
Illustration. A owes B Rs 1,000, but the debt is barred by the Limitation Act. A signs a
written promise to pay B Rs 500 on account of the debt. This is Ii contract (Appended to
Sec. 25).
4. Completed gift. A gift (which is not an agreement) does not require consideration in order
to be valid As between the donor and the done any lift actually made will be valid I and
binding even though without consideration [Explanation 1, to Section 25]. In order to
attract this exception there need not be natural love and affection or nearness of
relationship between the donor and done. The gift must, however, be complete.

5. Contract of agency. Section 185 of the Contract Act lays down that no consideration is
necessary to create an agency.
6. Remission by the promisee, of performance of the promise (Sec. 63). For
compromising a due debt, i.e., agreeing to accept less than what is due, no consideration is
necessary. In other words, a creditor can agree to give up a part of his claim and. there
need be no consideration for such an agreement. Similarly, an agreement to extend timefor
performances of a contract need not be supported by consideration (Sec.63).
7.

Contribution to charities. A promise to contribute to charity, though gratuitous, would

be enforceable, if on the faith of the promised subscription, the promisee takes definite
steps in furtherance of the object and undertakes a liability, to the extent of liability incurred,
not exceeding the promised amount of subscription. In Kedar Nath vs Ghorie
Mohammad, the defendant had agreed to subscribe Rs 100 towards the construction of a
Town Hall at Howrah. The plaintiff (secretary of the Town Hall) on the faith of the promise
entrusted the work to a contractor and undertook liability to pay him. The defendant was
held liable. But where the promisee had done nothing on the faith on the promise, a
promised subscription is not legally recoverable. Accordingly, in Abdul Aziz vs Masum Ali,
the defendant promised to subscribe Rs 500 to a fund started for building, a Mosque but
steps had been take to carry out the repairs. The defendant was held not liable and the
suit was dismissed.
Discharge of contract
1. 1. Discharge of Contract
2. 2. What is Discharge of Contract ? As per the INDIAN CONTRACT ACT 1872
Discharge of contract means the termination of a contractual relationship
between parties. A contract is said to be discharged when it ceases to
operate , i.e. when the rights & obligation created by it come to an end.
3. 3. For Example e.g. Two parties A & B Make a contract to build a fly-over in a
City. A is the municipal authority of the city & B is a construction company.
Due to some reasons the contract get discharged. Then the both parties are
free from the obligations of contract, i.e. the rights & obligations of the
parties come to an end.
4. 4. How a Contract can get Discharged ? 1. By Performance 2. By Agreement
or by Consent. 3. By Impossibility of performance. 4. By Promisee failing to
offer facilities for performance. 5. By Death A Contract may be discharged in
any of the following way.
5. 5. How a Contract can get Discharged ? 6. By Refusing tender of
performance. 7. By Unauthorised material alteration of contract. 8. Discharge
by lapse of time. 9. By Operation of Law. 10. By Breach of Contract.
6. 6. 1.Discharge of Contract By Performance According to Sec.37 of Indian
Contract Act 1872 If both parties to the contract have performed what
they have agreed to do, the contract is discharged. Performance of
obligation by parties to the contract puts an end to the contract.

7. 7. e.g. in our previous example A & B had a contract to build a fly-over. B

build the fly- over in the prescribed manner and A provides the consideration
to B. Here both parties performed their obligations & rights , what they
promised to do in the contract. Thus the contract is come to an end by the
performance.
8. 8. According to sec. 62-64 of Indian Contract Act 1872 A Contract can be
terminated or discharged by mutual express or implied agreement between
the parties in any of the following ways - 2. By Agreement or by Consent.
9. 9. A) By Novation B) By Accord and Satisfaction C) By Remission and Waiver
D). By Rescission.

Question 2 Narrate the rights and liabilities of a surety in a contract of

guarantee.

Question 3 When and how is a partnership and firm get dissolved ?

Answer

The dissolution of a firm means discontinuance of its activities. When the

working of a firm is stopped and the assets are realised to pay various
liabilities it amounts to dissolution of the firm. The dissolution of a firm should
not be confused with the dissolution of partnership. When a partner agrees to
continue the firm under the same name, even after the retirement or death of
a partner, it amounts to dissolution of partnership and not of firm.

The remaining partners may purchase the share of the outgoing or deceased
partner and continue the business under the same name; it involves only the
dissolution of partnership. The dissolution of firm includes the dissolution of
partnership too. The partners have a contractual relationship among
themselves. When this relationship is terminated it is an end of the firm.
A firm may be dissolved under the following circumstances:
(a) Dissolution by Agreement (Section 40):
A partnership firm can be dissolved by an agreement among all the partners.
Section 40 of Indian Partnership Act, 1932 allows the dissolution of a
partnership firm if all the partners agree to dissolve it. Partnership concern is
created by agreement and similarly it can be dissolved by agreement. This
type of dissolution is known as voluntary dissolution.
(b) Dissolution by Notice (Section 43):
If a partnership is at will, it can be dissolved by any partner giving a notice to
other partners. The notice for dissolution must be in writing. The dissolution
will be effective from the date of the notice, in case no date is mentioned in
the notice, and then it will be dissolved from the date of receipt of notice. A
notice once given cannot be withdrawn without the consent of all the partners.
(c) Compulsory Dissolution (Section 41):
A firm may be compulsorily dissolved under the following situations:
(i) Insolvency of Partners:
When all the partners of a firm are declared insolvent or all but one partner
are insolvent, then the firm is compulsorily dissolved.
(ii) Illegal Business:

The activities of the firm may become illegal under the changed
circumstances. If government enforces prohibition policy, then all the firms
dealing in liquor will have to close down their business because it will be an
unlawful activity under the new law. Similarly, a firm may be trading with the
businessmen of another country. The trading will be lawful under present
conditions.
After some time a war erupts between the two countries, it will become a
trading with an alien enemy and further trading with the same parties will be
illegal. Under new circumstances the firm will have to be dissolved. In case a
firm carries on more than one type of business, then illegality of one work will
not amount to dissolution of the firm. The firm can continue with the activities
which are lawful.
(d) Contingent Dissolution (Section 42):
In case there is no agreement among partners regarding certain
contingencies, partnership firm will be dissolved on the happening of
any of the situations:
(i) Death of a Partner:
A partnership firm is dissolved on the death of any of the partner.
(ii) Expiry of the Term:
A partnership firm may be for a fixed period. On the expiry of that period, the
firm will be dissolved.
(iii) Completion of Work:
A partnership concern may be formed to carry out a specified work. On the
completion of that work the firm will be automatically dissolved. If a firm is

formed to construct a road, then the moment the road is completed the firm
will be dissolved.
(iv) Resignation by a Partner:
If a partner does not want to continue in the firm, his resignation from the
concern will dissolve the partnership.
(e) Dissolution through Court (Section 44):
A partner can apply to the court for dissolution of the firm on any of
these grounds:
(i)

Insanity of a Partner:

If a partner goes insane, the partnership firm can be dissolved on the petition
of other partners. The firm is not automatically dissolved on the insanity of a
partner. The court will act only on the petition of a partner who himself is not
insane.
(ii)

Misconduct by the Partner:

When a partner is guilty of misconduct, the other partners can move the court
for dissolution of the firm. The misconduct of a partner brings bad name to the
firm and it adversely affects the reputation of the concern. The misconduct can
be in business or otherwise. If a partner is jailed for committing a theft, it will
also affect the good name of the firm though it has nothing to do with the
business.
(iii) Incapacity of a Partner:
If a partner other than the suing partner becomes incapable of performing his
duties, then partnership can be dissolved.
(iv) Breach of Agreement:

When a partner wilfully commits breach of agreement relating to business, it

becomes a ground for getting the firm dissolved. Under such a situation it
becomes difficult to carry on the business smoothly.

(v) Transfer of Share:

If a partner sells his share to a third party or transfers his share to another
person permanently, other partners can move the court for dissolving the firm.
(vi) Regular Losses:
When the firm cannot be carried on profitably, then the firm can be dissolved.
Though there may be losses in every type of business but if the firm is
incurring losses continuously and it is not possible to run it profitably, then the
court can order the dissolution of the firm.
(vii) Disputes among Partners:
Partnership firm is based on mutual faith. If partners do not trust each other,
then it will not be possible to run the business. When the partners quarrel with

each other, then the very basis of partnership is lost and it will be better to
dissolve it.

Question 5 Section 16 of the Companies Act, 2013 provides the rules for alteration of
Memorandum of Association. Explain the rules.