MIDTERM ASSIGNMENT

COURSE CODE: BUS-502

COURSE TITLE: BUSINESS LAW & ETHICS
SECTION-01

Submitted By: Submitted To:

Hania Sultana Sonia Mallick
ID:201600017 Senior Lecturer, Eastern
Department: MBA University

Submission Date: 28.08.2020

 Answer to the que no 1(a)

Answer: ‘All contracts are agreements, but all agreements are not contracts’
Discussion: A contract is a legally binding agreement or relationship that exists between two or
more parties to do or abstain from performing certain acts. A contract can also be defined as a
legally binding exchange of promises between two or more parties that the law will enforce. For
a contract to be formed an offer made must backed acceptance of which there must be
consideration. Both parties involved must intend to create legal relation on a lawful matter which
must be entered into freely and should be possible to perform. An agreement is a form of cross
reference between different parties, which may be written, oral and lies upon the honor of the
parties for its fulfillment rather than being in any way enforceable.
All contracts are agreement because there must be mutual understanding between two parties for
a contract to be formed. All parties should agree and adhere to the terms and conditions of an
offer. The following cases illustrate ways in which all contracts are agreements; In the case of
invitation to treat, where an invitation to treat is merely an invitation to make an offer. When a
firm’s offer is accepted it results into a contract provided other elements of contracts are
accepted. Considering person, A buying a radio on hire purchase from person B who deals with
electronics and its appliances. Both parties must come to an agreement on payment of monthly
installment within specified period of time. Such an agreement results to specialty contract which
a contract under seal. All contracts are agreement until avoided for example, avoidable contract
where one of the parties can withdraw from it if s/he wishes.
This occurs due to minor agreement and misrepresentation or undue influence. Considering a
case where person A make contract with person B but during the contract period B realizes that
he was engaged to perform an agreement under undue influence. Definition of contract:
According to section 2(h) of the Indian Contract Act: “An agreement enforceable by law is a
contract.
” A contract therefore, is an agreement the object of which is to create a legal obligation i. e. , a
duty enforceable by law.
From the above definition, we find that a contract essentially consists of two elements: (1) An
agreement and (2) Legal obligation i. e. , a duty enforceable by law. We shall now examine these
elements detail.
Agreement. As per section 2 (e): “Every promise and every set of promises, forming the
consideration for each other, is an agreement.” Thus, it is clear from this definition that a
‘promise’ is an agreement. What is a ‘promise’? The answer to this question is contained in
section 2 (b) which defines the term.” 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.” An agreement, therefore, comes into existence only when one party makes a proposal
or offer to the other party and that other party signifies his assent.
 (i. e., gives his acceptance) thereto. In short, an agreement is the sum total of ‘offer’ and
‘acceptance’. On analyzing the above definition, the following characteristics of an agreement
become evident:
1. At least two persons. There must be two or more persons to make an agreement because one
person cannot inter into an agreement with himself.
2. Consensus-ad-idem. Both the parties to an agreement must agree about the subject matter of
the agreement in the same sense and at the same time. 2. Legal obligation.
As stated above, an agreement to become a contract must give rise to a legal obligation i. . , a
duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is
not a contract. Thus, an agreement is a wider term than a contract.
“All contracts are agreements but all agreements are not contracts,” Agreements of moral,
religious or social nature e. g. , a promise to lunch together at a friend’s house or to take a walk
together are not contracts because they are not likely to create a duty enforceable by law for the
simple reason that the parties never intended that they should be attended by legal consequences.

Answer to the que no 1(b)

Answer: Difference between void and Voidable contracts with example are given below:
Parameter of comparison Void Contract Voidable contract
Terminology Void contract is Void contract is considered to
unenforceable having no legal be valid which cease only
consequences when an enforceable event
makes the contract void.
Validity Never Valid Valid until ceased
Contracts prerequisite Not satisfactory Satisfactory at the beginning.
Circumstance brings to a non-
satisfactory closure.
Void ab-initio Void since the start Gets void later on
Consequences No legal consequences Legal consequences
Restoration Not allowed Allowed when a contract is
noted to be void
 Answer to the que no 2(a)

Answer: “Ignorance of law is no excuse”

Discussion: The legal principle of ignorantia juris non excusat (ignorance of the law excuses not) or
ignorantia legis neminem excusat (ignorance of law excuses no one) is derived from Roman law. Essentially, it
means that if someone breaks the law, he or she is still liable even if they had no knowledge of the law being
broken.

Thomas Jefferson said, “Ignorance of the law is no excuse in any country. If it were, the laws would lose their
effect, because it can always be pretended.”
Today, there are literally tens of thousands of laws on the books, both federally and on a state level. Is it
reasonable to assume that everyone knows every law?

According to Tiffany N. Basciano, associate director of the International Law and Organizations Program at
Johns Hopkins School of Advanced International Studies in Washington, DC, it is reasonable to assume that
people are familiar with generally recognized wrongs, such as violence and dishonesty, as well as community
standards based on their lived experience.

“Is it reasonable to expect people to know every law on the books? No. But generally knowledge of the law is
not required,” Basciano says.

The government has a duty to appropriately disseminate new laws to the public and making them publicly
accessible.

“Knowledge of all properly disseminated laws can be attributed to everyone,” she says. “If knowledge of the
law were required, criminal and civil defendants alike would routinely plead ignorance of the law as a defense,
which would undermine the concept and administration of justice.”

Basciano also points out that in criminal law, a person cannot be charged for any conduct that was not
prohibited at the time of the act. In other words, a law cannot be passed retroactively criminalizing an act.

“This idea reflects the legal principle of nullum crimen sine lege (no crime without law),” Basciano says.
“There is also a doctrine called the rule of lenity, which provides that courts should interpret ambiguous
criminal laws in favor of the defendant.”

Answer to the que no 2(b)

Answer:
The essential elements of a valid contract: Here we discuss about 8 essential elements of a
valid contract. These are given below,
1. Offer & Acceptance
2. Intention to Create Legal Relationship
 3. Capacity to Contract
4. Genuine & Free Consent
5. Lawful Object
6. Lawful Consideration
7. Certainty and Possibility of Performance
8. Legal Formalities
Now we discuss detail about these elements,
1. Offer & Acceptance: Basically, a contract unfolds when an offer by one party is accepted by
the other party. The accepted offer should be without any qualification and be definite. An offer
needs to be clear, definite, complete and final. It should be communicated to the offeree. A
proposal when accepted becomes a promise or agreement. The offer and acceptance must be
‘consensus ad idem’ which means that both the parties must agree on the same thing in the same
sense i.e. identity of wills or uniformity of minds.
2. Intention to Create Legal Relationship: The intention of the parties to a contract must be to
create a legal relationship between them. Agreements of social nature, as they do not
contemplate legal relationship, are not contracts. For instance, if a father fails to give his
daughter the promised pocket money, the daughter cannot sue the father, because it was purely a
domestic arrangement. Thus, it is clear that all agreements, which do not result in legal relations,
are not contracts.
3. Capacity to Contract: If an agreement is entered between parties who are competent enough
to contract, then the agreement becomes a contract.
4. Genuine & Free Consent: Free consent is another essential element of a valid contract. An
agreement must have been made by free consent of the parties. The contract would be void in
case of mutual mistakes. When consent is obtained by unfair means, the contract would be
voidable.
5. Lawful Object: Objectives of an agreement should be lawful. It must not be illegal or
immoral or opposed to public policy. It is lawful unless it is forbidden by law. When the object
of a contract is not lawful, the contract is void.
6. Lawful Consideration: Something in return is Consideration. In every contract, agreement
must be supported by consideration. It must be lawful and real.
7. Certainty and Possibility of Performance: The agreements, in which the meaning is uncertain
or if the agreement is not capable of being made certain, it is deemed void. T&C of the contract
should always be certain and cannot be vague. Any contract that are uncertain are considered
void. The terms of the agreement must also be capable of performance and should not enforce
impossible act.
8. Legal Formalities: Legal formalities if any required for particular agreement such as
registration, writing, they must be followed. Writing is essential in order to affect a sale, lease,
mortgage, gift of immovable property etc. Registration is required in such cases and legal
formalities in the relevant legislation should be strictly followed.

Answer To The Que no 3(a)

Answer:
Consideration: Consideration is the benefit that each party receives, or expects to receive, when
entering into a contract. Consideration is often monetary, but it can be a promise to perform a
specific act, or a promise to refrain from doing something. In order for a contract or agreement to
be legally binding, every party to the contract must receive some type of consideration. In other
words, a contract is a two-way street, so each party must receive something of value from the
other party or parties. Illegal or immoral acts are not legally considered to serve as consideration.
Example: Brittney agrees to sell her car to Bill for $1,000. Bill’s payment serves as
consideration for Brittney’s promise to sell the car to him. Brittney’s consideration is her
promise to sell him the car.

Answer to the Que no 3(b)

Answer: The necessity of consideration for the validity of a contract:
When forming a contract, consideration is needed in order to make the agreement a formal, valid
contract. This is one of the three main requirements besides mutual assent and a valid offer and
acceptance. Consideration basically refers to the exchange of items or services of value. For
instance, for a contract for a sale of goods such as apples, the party receiving the apples needs to
exchange something of value for the apples. This usually comes in the form of monetary
payment. The consideration can also be other products or even services. The point is that the
parties must exchange something of value.
In order for a contract to be considered valid and enforceable by the courts, three elements of
consideration must be met. If one or more of these elements are missing, the contract lacks the
necessary requirements, it could potentially be deemed invalid by the court. The required
elements of consideration include:
1. The contract must include a bargain for the terms of the exchange. This means there must
be something that is worth bargaining over to both the parties.
2. There must be a mutual exchange between the parties. In simple terms, all parties
involved must benefit from the contract.
3. The exchange in the contract must be something of value.
In addition to the elements of consideration, a contract must contain certain other elements to be
enforceable. While these requirements vary by state, generally these requirements include:
 An intent by both parties to enter into the agreement
 The subject matter must be legal
 One party must make an offer
 The other party must accept an offer

Consideration is needed so that both parties incur some sort of burden or obligation in the
agreement. Without consideration, the exchange would likely be classified as a gift. Gifts are
treated differently than contract agreements, legally speaking.
If there is no consideration offered in a contract, courts will likely call the contract unenforceable
in a court of law. This generally means that one neither party can sue the other if there is a
dispute over contract terms. This is because a contract generally is not valid from the beginning
if there is no consideration exchanged. Thus, it’s important for both parties to be aware of
consideration in a contract, especially at the beginning during contract drafting.
In other cases, if there has been an exchange of services, the courts may alternatively treat the
exchange as if it were a gift.

Answer To The Que no 3(c)

Answer: ‘Consideration need not be adequate but it must have some value in the eye of law’

Explanation: There are five elements to a contract; these are offer, acceptance, consideration,
intention to create legal relations and capacity. A person or persons making an offer to another
person or persons is the first step is creating a contract.
Consideration
Consideration is required in contracts to achieve two functions; the first is evidentiary function,
which avoids frauds that might otherwise take place if oral promises were generally enforceable.
The second is a deliberative function, because people make casual agreements in a casual way in
everyday life consideration prevents these promises from being enforced legally. This ensures
people are not excessively defensive in day-to-day life and that the courts are not overwhelmed
with insubstantial litigation. Sir Frances Pollock defines consideration as “an act of forbearance
of the one party, or the promise thereof, is the price for which the promise of the other is bought,
and the promise thus given for value is enforceable.” The doctrine of considerations is not a
principle of law in itself instead it is an expression of a number of sub-principles. These sub-
principles are as follows:
· Consideration may be executed or executor but not past.
· Consideration must move from the promise but not necessarily to the promisor.
· Consideration must be sufficient though not necessarily adequate.
Executory and executed consideration is the way in which the plaintiff purchases the offer or
promise of the defendant. Executory consideration is the exchange of a promise by the defendant
in return for a promise by the plaintiff. In plain language, the agreement is to take place in the
future, for example if A promises to purchase B’s laptop on credit with delivery to take place
next week. In the example both A’s and B’s consideration is to be carried out in the future so it is
executory. In contrast executed consideration occurs when only one of the parties has executed
their promise under the contract but the remaining party has not completed their promise so their
promise remains executory as it still remains to be carried out in the future.
Adequacy
Adequacy and sufficiency in ordinary language have one and the same meaning however in legal
terms adequacy refers to circumstances where the price a person has paid for something is
disproportionate to the value of what the person receives in return. For example, if A pays B £3
for a house then it can be said that the price A paid for the house is undoubtedly not adequate
consideration. However, it is the view of the courts that it is a person's own business what value
they wish to sell their goods and services, hence, if the if a contract contains inadequate
consideration this will not affect the validity of the contract
Adequacy of Consideration need not be adequate, but must have some value, however slight. It is
up to the parties to fix their own prices. For example, where X voluntarily agreed to sell his
motor car worth Rs. 30,000, for Rs. 10,000 to Y, it becomes a valid contract despite the
inadequacy of the consideration. Explanation 2 to Section 25 of the Contract Act also clearly
provides that an agreement to which the consent of the promisor is freely given, is not void
merely because the consideration is inadequate; but the inadequacy of consideration may be
taken into account by the court in determining the question whether the consent of the promisor
was freely given. In the above example, if X wants to avoid the contract on the ground that his
consent was not free, the court, while deciding the case, will take into account the inadequacy of
consideration.

To conclude it is of fundamental importance that consideration is necessary in the formation of

contracts to ensure that only serious agreements are considered to be contracts and people only
enter into them intentionally. Secondly, it is impractical for the courts to place a value on goods
and services so consideration need not be adequate and it should be up to the parties in a contract
to decide what value they wish to place on goods or services. Finally, the courts must only allow
agreements that contain consideration that has an economic value to be a contract. As it has
shown in cases mentioned above, such as Zetetic v The Russian Orthodox Christ the Saviour
Cathedral, those agreements where consideration contains no economic value it is impossible to
put a value on the promise made and thus becomes almost impossible to regulate under
legislation.