Business Law

Assignment

Submitted to: Prof. JP Singh

Submitted by: Raman Kant Roll No. 13119 Sec- C

INTERNATIONAL SCHOOL OF BUSINESS & MEDIA, PUNE

QUES1- Define contract? Explain various elements of a valid contract. SOL: A contract is an agreement between competent parties, with free consent, upon a legal consideration and with a lawful object, to do or to abstain from doing something which gives rise to legal obligations of the parties. When parties intend to enter legal agreements, and meet certain criteria in the process of defining the nature of such agreements, contracts are formed. A contract is a process of negotiation of private rights and obligations between parties to a contract. These agreements may be written or verbal, or may be completed through actions of the parties involved. Individuals form contracts when they undertake common consumer transactions, whether as buyers or sellers or renters. The purpose of the law of contracts is to protect the reasonable expectations of the parties involved in an agreement, through application of contract law, and to provide an avenue for dispute settlement according to the rule of law. Under common law, only parties to a contract are entitled to contractual rights. DEFINITION: Section 2(h) of the Act defines the term contract as an agreement enforceable by law. Section 2(e) defines agreement as every promise and every set of promises, forming the consideration for each other. Section 2(b) defines promise in these words: when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted, becomes a promise. ESSENTIALS OF A VALID CONTRACT: Plurality of parties:The first and foremost requirement to form a contract is two or more persons. A person cannot make a contract with himself.

Agreement i.e., proposal and acceptance:Agreement is the foundation of a contract. An agreement comes into existence by acceptance of an offer. Therefore, for making of an agreement, one party should make an offer to another party and the other should accept it. Intention to create legal relations:For an agreement to be a contract, it must be able to create legal relations. Agreements which do not create legal relations are not legally enforceable. Contractual Capacity:Valid agreement can be made only by legally competent persons. The law presumes that every person is competent to enter into contract if he fulfills the following conditions: He is a major. He is of sound mind.

He is not disqualified from contracting by any law of the land to which he is a subject. Free Consent:A simple consent is not enough for making a contract that too if it is free. Consent is said to be free when it is not caused by undue influence, fraud or misrepresentation or mistake. [Sec.14] Consideration:Every agreement to be enforceable by law must be supported by consideration. An agreement without consideration is void. Consideration means something which the promisor receives from the promisee in return for his promise. Possibility of performance:An agreement to be valid contract must also be possible to be performed. The terms of the agreement must also be capable of performance physically as well as legally.

Compliance of legal formalities:Generally no legal formalities are required to be complied with for making a valid contract. A contract may be written or oral. But Section 10 of the Act states that a contract should be made in writing or in the presence of witnesses or be registered, if required by any law. QUES2- Define condition and warranty? SOL: CONDITION: It is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract itself. In addition, he may maintain an action for damages for loss suffered, if any, on the footing that the whole contract is broken and the seller is guilty of nondelivery. For exampleP,goes to R, a horse dealer, and says, I want a horse which can run at a speed of 30 km/ hour. The horse dealer points out a particular horse and says this will suit you. P buys the horse. Later on P finds that the horse can run only at a speed of 20km/hr there is a breach of condition, P can repudiate the contract, return the horse to R and get back the price. WARRANTY: A warranty is a stipulation collateral to the purpose of the contract, the breach of which gives the aggrieved party a right to sue for damages only, and not to avoid the contract. For exampleAssume that a farmer, intending to plant no- till soybeans, approaches a seller to buy herbicide. Assume further that the buyer requests a particular herbicide mix but the seller suggests a less expensive mix. If the chemicals fail to kill crabgrass and the farmer has a low yield of soybeans, the farmer could sue the seller for breach of the warranty of fitness for a particular purpose because the seller knew what the farmer required.

QUES3- Define implied condition and implied warranty? SOL: IMPLIED CONDITIONS: Implied conditions are those which law incorporates into the contract unless the parties stipulate to the contrary. 1) Condition as to title. 2) Condition in a sale by description. 3) Condition in a sale by sample. 4) Condition in a sale by sample as well as by description. 5) Condition as to fitness or quality. 6) Condition as to merchantability. 7) Condition as to wholesomeness. IMPLIED WARRANTY: Implied warranties are those warranties that are given in contract by the seller but they are not written into the contract but are legally taken to be present in the contract. 1) Warranty of quiet possession. 2) Warranty of freedom from encumbrances. 3) Warranty of disclosing the dangerous nature of goods to the ignorant buyer.

QUES4-What are the characteristics of the company? Explain articles of association and memorandum of association. A company is an artificial person created by law. It means a group of persons associated together for the attainment of a common end, social or economic. Section 3(1)(i) of the Companies Act, 1956 defines a company as: a company formed and registered under this Act or an existing Company. Existing Company means a company formed and registered under any of the earlier Company Laws. CHARACTERISTICS OF A COMPANY: Separate legal entityA company in law is regarded as an entity separate from its members. It has an independent corporate existence. Any of its member can enter into contracts with it in the same manner as any other individual can and he cannot be held liable for the acts of the company even if he holds virtually the entire share capital. The companys money and property belongs to it and not to the shareholders (although the shareholders own the company). Limited liabilityA company may be a company limited by shares or a company limited by guarantee. In a company limited by shares, the liability of members is limited to the unpaid value of the shares. Perpetual successionBeing an artificial person a company never dies, nor does its life depend on the life of its members. Members may come and go but the company can go on forever. It continues to exist even if all its members are dead. The existence of company can be terminated only by law. It means that a companys existence persists irrespective of the change in the composition of its membership.

Common seal Since a company has no physical existence, it must act through its agents and all such contracts entered into by its agents must be under a seal of the company. The common seal acts as the official signature of the company. Transferability of sharesThe capital of a company is divided into parts called shares. These shares are, subject to certain conditions, freely transferable, so that no shareholder is permanently wedded to the company. When the joint stock companies were established the great object was that the shares should be capable of being easily transferred. MEMORANDUM OF ASSOCIATION: It defines the objects of the company for which it is established. It defines the scope of its activity and also states that anything beyond it is unauthorized and illegal. The memorandum shall be one of the forms given in Tables B, C, D and E in schedule 1 of the Act. The Memorandum of Association must be printed,divided into paragraphs, numbered consecutively, and signed by each subscriber (seven or more in case of a public company),who must add his name, address and description in the presence of atleaset one witness who is to attest the signature. CLAUSES OF MOA: Name Clause: The Company is a legal entity. Therefore, it must have its name to establish its identity. The name of the company should not be similar to the existing company, undesirable, or which will mislead the public. E.g. Indian National flag, name or pictorial representation of Mahatma Gandhi or Prime Minister of India, etc. Its use has been, therefore, prohibited by the Government under the Emblems and Names (Prevention of Improper Use) Act, 1950. The

company can change its name by passing a special resolution and obtaining the approval of the Central Government.

Registered Office Clause: Every company must have a registered office from the day it starts its business or within 30 days of getting the Certificate of Incorporation, whichever is earlier. Memorandum of Association must state the name of the State in which the registered office of the company is situated. This clause is important as it mentions the residence for the purpose of the communication with the company. It determines the jurisdiction of the company and also mentions the place where all the records of company are maintained. Registered Office Clause: Where the company wants to change its registered office from one state to another then it can do so by passing a special resolution as well as by confirmation of Company Law Board. Such confirmation will be given provided debenture holders and creditors are satisfied and such alteration is fair. Object Clause: It is the most important clause in the Memorandum of Association. It defines and limits the scope and sphere of the operation of the company and affords protection of its funds. It states the main objects as well as incidental objects of the company. The transaction which does not fall within the scope of the main objects of the company will not be valid and binding on the company simply because it is not beneficial for the company. As regards to the alteration of object clause a special resolution must be passed and the confirmation by the Company Law Board must also be obtained. The alteration is done to obtain a main purpose by new means or to enlarge the area of its operation, or to restrict the objects or sell or dispose of or amalgamate the undertaking.

Liability Clause: The liability clause states that the member or the shareholder will be liable to pay only the unpaid value of shares held by him. If it is a company limited by guarantee, Memorandum of Association must further state that each member undertakes to contribute to the assets of the company at the time of the winding up while he is a member. Ordinarily this clause cannot be altered except that the liability of the directors may be made unlimited under certain circumstances. Capital Clause: Amount of share capital with which the company is to be registered and its division into shares of a fixed amount must be stated in the Memorandum of Association of a company limited by shares. The capital with which the company is registered is called Registered or Authorized or Nominal Capital. This clause can be varied or capital can be reduced (by special procedure) or the rights of the shareholders can be varied. Subscription/Association Clause: This clause gives idea about the people who have created the company. Maximum seven members in a public company and two members in a private company shall subscribe to the Memorandum of the company. A declaration is to be given. Such declaration is to be signed by a member in presence of a witness. Moreover the details as regards to name, address, age and business of the promoters are also recorded under this clause. Each subscriber has to take atleast 1 share. ARTICLES OF ASSOCIATION: The articles of association are subordinate to the memorandum of association of the company. The articles contain the internal regulations of the company. The provisions of the articles must not be inconsistent with or repugnant to any of the provisions of the memorandum of the Act. AOA can be altered at any time according to the wishes of the member.

CONTENTS OF ARTICLES OF ASSOCIATION: Articles usually contain provisions relating to the following matters: Share capital, rights of shareholders, variation of these rights, and payment of commissions, share certificates. Lien on shares Calls on shares Transfer of shares Transmission of shares Forfeiture of shares Conversion of shares into stock Alteration of Capital General meetings and proceedings thereat Voting rights of members, voting poll and proxies

Directors, their appointment, remuneration, qualification, powers and proceedings of Boards of Directors Accounts, audit and borrowing powers Winding up

ALTERATION OF ARTICLES OF ASSOCIATION: Alteration in AOA can be done by passing the Special Resolution. File the copy of the Special Resolution has to send to the Registrar within 30 days of passing the special resolution. Attach the resolution with every copy of AOA. It should be for benefit of the company. It should not increase the liability of the members and result into breach of contract.