QUESTION BANK & ANSWER KEY

BUSINESS LAW
Unit - 1
Section – A
1. Define contract
A contract may be define as a written or spoken agreement, especially one
concerning employment, sales, or tenancy that is intended to be enforceable
by law.

2. What is meant by quasi contract?

It means an obligation of one party to another imposed by law
independently of an agreement between the parties.

3. Give the meaning of an agreement.

A negotiated and usually legally enforceable understanding between two or
more legally competent parties.

Section – B
1. What are the essential elements of a valid contract?
An agreement must have the following essential elements to become a valid
contract:
¨ Offer and acceptance.
In a contract there must be at least two parties one of them making the offer
and the other accepting it. There must thus be an offer by one party and its
acceptance by the other. The offer when accepted becomes agreement.
¨ Intention to create legal obligation.
Parties to a contract must intend to constitute legal relationship. It arises
when the parties know that if any one of them fails to fulfill his part of the
promise, he would be liable for the failure of the contract.
¨ Free consent of parties.
Under Sec. 13, “Two or more parties are said to consent, when they agree
upon the same thing in the same sense.”
¨ Lawful object.
According to Sec. 23, the following considerations and objects are not
lawful:-
(i) If it is forbidden by law
(ii) If it is against the provisions of any other law
(iii) If it is fraudulent
(iv) If it damages somebody’s person or property or
(v) If it is in the opinion of court, immoral or against the public policy.
Thus, any agreement, if it is illegal, immoral, or against the public policy,
cannot become a valid contract.
¨ Lawful consideration.
Consideration is known as ‘something in return’. It is also essential for the
validity of a contract. A promise to do something or to give something
without anything in return would not be enforceable at law and, therefore,
would not be valid.

2. Different between contract & agreement.

Agreement Contract
Definition
An arrangement (usually informal) between two or more parties that is not
enforceable by law.
A formal arrangement between two or more party that, by its terms and
elements, is enforceable by law.
Validity based on
Mutual acceptance by both
(or all) parties involved.
Mutual acceptance by both
(or all) parties involved.
Consideration required No Yes
Legal effect
An agreement that lacks
any of the required
elements of a contract has
no legal effect.
A contract is legally
binding and its terms may
be enforceable in a court of
law.
Section – C
1. What are the sources of Indian mercantile or commercial law?
¨ English Mercantile Law.
¨ Statute Law.
¨ Judicial Decisions.
¨ Customs and Usage
English Mercantile Law: The English law is the most important source of Indian
mercantile law. Many rules of English law have been incorporated into Indian
law
through statutes and judicial decisions.
Statute Law: Statute law is one, which is laid down in the Acts of Parliament.
Hence, it acts as the most superior and powerful source of law. It overrides any
rule of common law or Equity.
Judicial Decisions: Judicial decisions are also called as case laws. They referred
to as precedents and are binding on all Courts having jurisdiction lower to that
of the Court, which gave the judgments.
Customs and Usage: Customs and usage plays an important role in regulating
business transactions. A well-recognized custom or usage can even override
the statute law. Most of the business customs and usage have been already
codified and given legal sanctions in India. Some of them have been ratified by
the decisions of the competent Courts of law.

3. Describe the classification of contracts.

Contracts can be classified into five broad divisions namely
_ The method of formation of a contract
_ The time of performance of contract
_ The parties of the contract
_ The method of formalities of the contract
_ The method of legality of the contract
1. The method of formation of a contract
Under the method of formation of a contract may be three kinds
Ø Express contract
Ø Implied contract
Ø Quasi contract
Express contract: Express contract is one which expressed in words spoken or
written. When such a contract is formal, there is no difficulty in understanding
the rights and obligations of the parties.
Implied contract: The condition of an implied contract is to be understood form
the acts, the contract of the parties or the course of dealing between them.
Quasi contract: There are certain dealings which are not contracts strictly,
though the parties act as if there is a contract. The contract Act specifies the
various situations which come within what is called quasi contract.
2. The time of performance of contract
Under the method of the time of performance of contract may be two kinds
Ø Executed Contract
Ø Executory Contract
Executed Contract: There are contracts where the parties perform their
obligations immediately, as soon as the contract is formed.
Executory Contract: In this contract the obligations of the parties are to be
performed at a later time.
3. The parties of the contract
Under the method of the parties of the contract may be two kinds
Ø Bilateral Contract
Ø Unilateral Contract
Bilateral Contract: There must be at last two parties to the contract. Therefore
all contracts are bilateral or multilateral.
Unilateral Contract: In certain contracts one party has to fulfill his obligations
where as the other party has already performed his obligations. Such a
contract is
called unilateral contract.
4. The method of formalities of the contract
Under the method of the method of formalities of the contract may be two
kinds
Ø Formal contract
Ø Informal contract
Formal contract: A formal contract is a contract which is formatted by satisfied
all the essentials formalities of a contract.
Informal contract: An informal contract is a contract which is failed to satisfy all
or any of the essentials formalities of a contract.
.The method of legality of the contract
Under the method of the method of legality of the contract may be five kinds
Valid Contract
Void Agreement
Void able Contract
Unenforceable Agreement
Illegal Agreement
Valid Contract: An agreement which satisfied all the essential of a contract and
which is enforceable through the court is called valid contract.
Void Agreement: An agreement which is failed to satisfied all or any of the
essential element of a contract and which is not enforceable by the court is
called
void agreement. An agreement not enforceable by law is said to be void. A
void
agreement has no legal fact. It confers no right on any person and created no
obligation.
Example: An agreement made by a minor.
Void able Contract: An agreement which is enforceable by law at the open of
one or more parties of the contract but not at the open of the other or others
is a void able contract. A voidable contract is one which can be avoided and
satisfied by
some of the parties to it. Until it is avoided, it is a good contract.
Unenforceable Agreement: An Unenforceable Agreement is one which cannot
be enforcing in a court for its technical and formal defect.
Example: (1) An agreement required by law to register but not resisted. (2) An
agreement with not satisfied stamped.
Example: An agreement to compiled madder.

Section – B
1. What are the rules as to acceptance?
• It must be absolute and unqualified, i.e., it must conform with the
offer.
• It must be communicated to the offer.
• It must be according to the mode prescribed or usual and reasonable
mode.
• It must be given within a reasonable period of time.
• It cannot precede an offer.
• It must show an intention on the part of the acceptor to fulfill terms of
the
promise.
• It must be given by the party or parties to whom the offer is made.
• It cannot be implied from silence.
Unit – IV
Section - A
1. What is meant by performance of contract?
Performance of contract' means fulfillment of the obligations by the parties.
The parties who make the contract must fulfill their obligations according to
the
terms laid down in the contract. Performance of contract is one of the
methods to
discharge a contract.
2. Define discharge of contract.
The termination of a contractual obligation on court orders (via an order of
discharge) or mutual agreement (see Accord And Satisfaction), or caused by
breach of contract, frustration of contract, performance of contract.
Section – B
1. What are the rules of law relating to time and place of performance of a
contract?
• Performance within a reasonable time (Sec. 46)
Sec. 46 states that “Whereby the contract, a promisor is to perform his
promise without application by the promisee and no time for performance is
specified, the engagement must be performed within a reasonable time.”
• Specified time and place for performance (Sec. 47)
When a promise is to be performed on a certain day, the promisor may
undertake to perform it without application by the promisee. Under Sec 47,
it has been provided that “In such a case the promisor may perform the
promise at any time during the usual hours of business on such day and at
the place at which the promise ought to be performed.”
• Performance on a certain day (Sec. 48)
When a promise is to be performed on a certain day, the promisor may
undertake to perform it after the application by the promisee to that effect. In
such a case, it is the duty of the promisee to apply for performance at a
proper place and within usual hours of business.
• Promise when no place is fixed and without application (Sec. 49)
When a promise is to be performed without application by the
promisee, and no place is fixed for the performance of it, it is the duty of the
promisor to apply to the promisee to appoint a reasonable place for the
performance of the promise and to perform it at such place.
• Performance as prescribed by the promisee (Sec. 50)
As per Section 50, “The performance of any promisee may be made in
any manner or at any time, which the promisee prescribes.”
2. Describe the kinds of quasi contract.
• Claim for necessaries supplied to person incapable of contracting (Sec 68):
If a person is incapable of entering into a contract, or anyone whom he
is legally bound to support is provided by another person with necessaries
suited to his condition in life, the supplier is entitled to recover the price
from the property of such incapable persons.
• Payment by an interested person (Sec 69)
A person who is interested in the payment of money which another is
bound by law to pay, and who therefore pays it is entitled to be reimbursed
by the other.
• Obligation to pay for non-gratuitous act (Sec 70)
Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so gratuitously and such other persons
enjoys the benefit thereof, the latter is bound to make compensation to the
former in expect of or to restore the thing so done or delivered.
• Responsibility of finder of goods (Sec 71)
Under Section 71 of the Act, a person who finds goods belonging to another
and takes them into his custody is subject to the same responsibility as a
bailee.
• Liability for money paid or things delivered by mistake or under coercion
(Sec 72)
At fast Section 72 of the Indian Contract Act, 1872 provides that a person to
whom money has been paid or anything delivered by mistake or under
coercion must repay or return it.
Section – C
1. Describe the discharge of contract.
A Contract is deemed to be discharged, that is, concluded and no longer
binding, in the following circumstances:
_ Discharge by performance.
_ Discharge of Contract by Substituted Agreement.
_ Discharge by lapse of time.
_ Discharge by operation of law.
_ Discharge by Impossibility of Performance.
_ Discharge by Accord and Satisfaction.
_ Discharge by breach.
Discharge by performance
Where both the parties have either carried out or tendered (attempted) to
carry out their obligations under the contract, is referred to as discharge of the
contract by performance. Because performance by one party constitutes the
occurrence of a constructive condition, the other party’s duty to perform is
also
triggered, and the person who has performed has the right to receive the other
party’s performance. The overwhelming majority of contracts are discharged in
this way.
Discharge of Contract by Substituted Agreement
A contract emanates from an agreement between the parties. It thus follows
that,
the contract must also be discharged by agreement. Therefore, what is
required,
inevitably, is mutuality. Discharge by substituted agreement arises when a
contract
is abandoned, or the terms within it are altered, and both the parties are in
conformity over it.
Discharge by agreement may arise in the following ways.
Novation: The term novation implies the substitution of a new contract for the
original one. This arrangement may be either with the same parties or with
different parties. For a novation to be valid and effective, the consent of all the
parties, including the new one(s), if any, is essential. Moreover, the subsequent
or second agreement must be one capable of enforcement in law, the
consideration for
which is the exchange of promises not to enforce the original contract.
Rescission
This refers to cancellation of all or some of the material terms of the
contract. If the contracting parties mutually decide to do so, the respective
contractual obligations of the parties stand terminated.
Alteration
This refers to a change in one or more of the terms of a contract with the
consent of
all the contracting parties. Alteration results in a new contract but parties to it
remain the same. Here the assumption is that both the parties are to gain a
fresh but
different benefit from the new agreement. Remission This means the
acceptance
(by the promisee) of a lesser sum than what was contracted for, or a lesser
fulfillment of the promise made. As per Section 63, ‘every promisee may (a)
remit
or dispense with it, wholly or in part, or (b) extend the time of performance, or
(c)
accept any other satisfaction instead of performance’.
Waiver
The term waiver implies abandonment or relinquishment of a right. Where a
party
deliberately abandons its rights under the contract, the other party is released
of its
obligations, otherwise binding upon it.
Discharge by lapse of time
A contract stands discharged if not enforced within a specified period called
the ‘period of limitation‘. The Limitation Act, 1963 prescribes the period of
limitation for various contracts. For instance, period of limitation for exercising
right to recover an immovable property is twelve years, and right to recover a
debt
is three years. Contractual rights become time barred after the expiry of this
limitation period. Accordingly, if a debt is not recovered within three years of
its payment becoming due, the debt ceases to be payable and is discharged by
lapse of time.
Discharge by Impossibility of Performance
Sometimes after a contract has been established, something might occur,
though not at the fault of either party, which can render the contract
impossible to perform, or illegal, or radically different from that originally
undertaken.
The performance of a contractual obligation may become subsequently
impossible on a number of grounds. They include the following.
• Objective impossibility of performance
• Commercial impracticability
• Frustration of purpose
• Temporary impossibility
• Discharge of operation of law
Discharge by Accord and Satisfaction
To discharge a contract by accord and satisfaction; the parties must agree to
accept performance that is different from the performance originally
promised. It
may be studied under the following sub-heads.
Accord
An accord is an executory contract to perform an act that will satisfy an
existing duty. An accord suspends, but does not discharge, the original
contract.
Satisfaction
Satisfaction is the performance of the accord, which discharges the original
contractual obligation.
If the obligor refuses to perform, the obligee can sue on the original obligation
or
seek a decree for specific performance on the accord.
Discharge of contract by breach
Breach occurs where one party to a contract fails to perform its contractual
obligations, or the performance is defective. A breach of contract does not per
se bring a contract to an end. The breach may give to the aggrieved party the
right to terminate the contract but it is for the non-breaching side to decide
whether or not to exercise that option. The aggrieved party has a right of
election; that is to say, it can choose either to affirm the contract or to
terminate it. However, once that decision has been taken, it is, in principle,
irrevocable. A Breach may be anticipatory or actual.