Mb0051-Legal Aspects of Business (Rev)

Legal Aspects of Business Answer sheet to(MB0051) Assignment Set-1

Q.1. Explain the characteristics of law and briefly describe the sources of Indian Law.

Ans. Law means any rule of conduct, standard or pattern, to which actions are

required to conform. The Characteristics of law are as under.

1. Law is a body of rules. These rules prescribe the conduct, standard or

pattern to which actions of the persons in the state are required to conform.

However, all rules of conduct do not become law in the strict sense. We

resort to various kinds of rules to guide our lives. For example, our conduct

may be guided by a rule such as “do not be arrogant” or “do not be

disrespectful to elders or women”. These are ethical or moral rules by which

our daily lives are guided. If we do not follow them, we may lose our friends

and their respect, but no legal action can be taken against us.

2. Law is for the guidance or conduct of persons – both human and

artificial. The law is not made just for the sake of making it. The rules

embodied in the law are made, so as to ensure that actions of the persons

in the society conform to some predetermined standard or pattern. This is

necessary so as to ensure continuance of the society. No doubt, if citizens

are ‘self-enlightened’ or ‘self-controlled’, disputes may be minimized, but will

not be eliminated. Rules are, therefore, drawn up to ensure that members of

the society may live and work together in an orderly manner. Therefore, if

the rules embodied in the law are broken, compulsion is used to enforce

obedience, and certain consequences ensue.

3. Law is imposed. Law is imposed on the members to bring about an

order in the group, enabling it to continue and prosper. It is not something

which may or may not be obeyed at the sweet will of the members of

society. If you cannot impose a rule it is better not to have it. Thus, law is

made obligatory on the members of the society.

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4. Law is enforced by the executive. Obviously, unless a law is enforced it

ceases to be a law and those persons subject to it will regard it as dead. For

example, if A steals B’s bicycle, he may be prosecuted by a court and may

be punished. Also, the court may order the restitution of the bicycle to its

rightful owner i.e., B. If the government passes many laws but does not

attempt to enforce them, the citizens lose their respect for government and

law, and society is greatly weakened. The force used is known as sanction

which the state administers to secure obedience to its laws.

5. The state. A state is a territorial division, with people therein subject to a

uniform system of law administered by some authority of the state. Thus,

law presupposes a state.

6. Content of law. The law is a living thing and changes throughout the

course of history. Law responds to public opinion and changes accordingly.

Law can never be static. Therefore, amendments are made in different laws

from time to time. For example, the Monopolistic and Restrictive Trade

Practices Act, 1969, has been subjected to many amendments since its

inception in 1969.

7. Two basic ideas involved in law. The two basic ideas involved in any

law are: (i) to maintain some form of social order in a group and (ii) to

compel members of the group to be within that order. These basic ideas

underlie formulation of any rules for the members of a group. A group is

created because first, there is a social instinct in the people to live together

and secondly, it helps them in self-preservation. Rules are made by the

members of the group, so that the group doesn’t whither away.

8. Law is made to serve some purpose which may be social, economic

or political. Some examples of ‘law’ in the widest sense of the term. ‘Law’

in its widest sense may include: (i) Moral rules or etiquettes, the

non-observance of which may lead to public ridicule,

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(ii) Law of the Land the non-observance of which may lead to arrest,

imprisonment, fines, etc., (iii) Rules of international law, the

non-observance of which may lead to social boycott, trade-sanctions, cold

war, hot war, proxy war, etc.

The main sources of Indian Law, may be divided into two broad

categories: (i) Primary sources and, (ii) Secondary sources.

(i) Primary sources of Indian law

The primary sources of Indian law are: (a) customs, (b) judicial precedents

(stare decisis), (c) statutes and (d) personal law.

(a) Customs: A custom have played an important role in making the law

and therefore is also known as customary law. ‘Customary Law’, in the

words of Keeton, may be defined as “those rules of human action,

established by usage and regarded as legally binding by those to whom the

rules are applicable, which are adopted by the courts and applied as

sources of law because they are generally followed by the political society

as a whole or by some part of it”. In simple words, “it is the uniformity of

conduct of all persons under like circumstances”. It is a generally observed

course of conduct by people on a particular matter. When a particular

course of conduct is followed again and again, it becomes a custom.

(b) Judicial precedents (stare decisis) :Judicial precedents are another

important source of law. It is based on the principle that a rule of law which

has been settled by a series of decisions generally should be binding on the

court and should be followed in similar cases. These rules of law are known

as judicial precedents. However, only such decisions which lay down some

new rules or principles are treated as judicial precedents. Thus, were there

is a settled rule of law, it is the duty of the judges to follow the same; they

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cannot substitute their opinions for the established rule of law. This is known

as the doctrine of ‘stare decisis’. The literal meaning of this phrase is “stand

by the decision”.

(c) Statute: The statutes or the statutory law or the legislation is the main

source of law. This law is created by legislation such as Parliament. In India,

the Constitution empowers the Parliament and state legislatures to

promulgate law for the guidance or conduct of persons to whom the statute

is, expressly or by implication, made applicable. It is sometimes called

‘enacted law’ as it is brought into existence by getting Acts passed by the

legislative body. It is called Statute Law because it is the writ of the state

and is in written form (jus scriptum).

(d) Personal law: Many times, a point of issue between the parties to a

dispute is not covered by any statute or custom. In such cases, the courts

are required to apply the personal law of the parties. Thus in certain

matters, we follow the personal laws of Hindus, Mohammedan and

Christians.

(ii) Secondary sources of Indian law

The secondary sources of Indian Law are English Law and Justice, Equity

and Good Conscience.

(a) English law : The chief sources of English Law are: (i) the Common

Law (ii) Equity, (iii) The law Merchant and (iv) The Statute Law.

1. Common law. This source consists of all those unwritten legal

doctrines embodying customs and traditions developed over centuries

by the English courts. Thus, the common law is found in the collected

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cases of the various courts of law and is sometimes known as ‘case

law’.

2. Equity. The literal meaning of the term ‘equity’ is ‘natural justice’. The

development of equity as a source of law occurred due to rigours and

hardships of the Common Law. Therefore, in its technical and narrower

sense, ‘equity’ means a body of legal doctrines and rules emanating

from the administrations of justice, developed to enlarge, supplement or

override a narrow rigid system of existing law of the land. However, like

the common law, the ‘equity’ is unwritten and is a supplement to

common law as a source of law.

3. Statute law. The Statute law consists of the law passed by the

Parliament and therefore, is ‘written’ law. The authority of parliament is

supreme but is subject to natural limitations and those laid down by the

Constitution. It can pass any law it pleases and can override its own

previous Acts and the decisions of the courts. Statute law, therefore, is

superior to and can override any rule of Common Law or equity.

4. The law merchant or lex mercatoria. It is another important source of

law and is based to a great extent on customs and usages prevalent

among merchants and traders of the middle ages. Its evolution like that

of equity can be traced to unsuitability of Common Law so far as the

commercial transactions were concerned. The Common Law was found

to be unsatisfactory in dealing with disputes between merchants. The

merchants, therefore, developed certain rules based upon customs and

usages to govern their mercantile transactions. These rules were known

as Lex Mercatoria or the Law Merchant.

Nowadays, English law is not very important source of Indian law. The

English law, in its application to India, has to conform to the peculiar

circumstances and conditions prevailing in this country. Even though the

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bulk of our law is based on and follows the English law, yet in its application

our courts have to be selective. It is only when the courts do not find a

provision on a particular problem in the primary sources of Indian Law that it

my look to subsidiary sources such as the English Law. For example, the

greater part of the Law Merchant has been codified in India. The Indian

Contract Act, 1872, the Indian Partnership Act, 1932, the Scale of Goods

Act 1930 and the Negotiable Instruments Act, 1882, are some of the very

important Acts relating to business transactions. Where, however, there is

some doubt as to the interpretation of any provisions of these Acts or where

certain branches of the Law Merchant have not been codified, the courts in

India look to English decisions on the point, for guidance.

(b) Justice, equity and good conscience: In India we do not have, no did

we ever had separate courts (as in England) administering ‘equity’. But the

equitable principles of law, i.e., justice, equity and good conscience, are the

guiding force behind most of the statutes in our country and the decisions of

the courts. Especially, where law is silent on any point or there is some

lacuna in a statute, the principles of equity come handy to the judges who

exercise their discretion often on equitable considerations. The frequent use

of terms such as ’good faith’, ‘public interest’, ‘public policy’, in statutes and

by the judges in their judgements is based on principles of equity.

Q.2 Suman is an agent. In an agency contract what will be Suman’s rights and duties? Explain.

Ans. In an agency contract, Suman’s rights and duties, as an agent will be as

under.

(A) Rights of Mr.Suman as an Agent:

1. Right to remuneration (Secs.219-220). Agent is entitled to his agreed

commission or remuneration and if there is no agreement, to a reasonable

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remuneration. But the remuneration does not become payable unless he

has carried out the object of agency, except where there is a contract to the

contrary. When the object of agency is deemed to have been carried out or

the act assigned to the agent is completed would depend on the terms of

the contract.

2. Right of retainer (Sec.217). Agent may retain, out of any sums received

on account of the principal in the business of the agency, all moneys due to

himself in respect of advances made or expenses properly incurred by him

in conducting such business and also such remuneration as may be

payable to him for acting as agent. This is known as agent’s right of retainer.

3. Right of lien (Sec.221). In the absence of any contract to the contrary,

agent is entitled to retain goods, papers and other property, whether

movable or immovable of the principal received by him, until the amount due

to himself for commission, disbursements and services in respect of the

same has been paid or accounted for to him. This lien of the agent is a

particular lien confined to all claims arising in respect of the particular goods

and property. By a special contract, however, agent may get a general lien

extending to all claims arising out of the agency. Since, the word ‘lien’

means retaining possession; it can be enjoyed by the agent only where the

goods or papers are in actual or constructive possession of the agent. The

right of lien will, therefore, be lost where he parts with the possession of

goods or papers. But if the possession is obtained from the agent by fraud

or unlawful means, his lien is not affected by the loss of possession.

4. Right of stoppage in transit. The agent can stop the goods while in

transit in two cases: (a) Where he has purchased goods on behalf of the

principal either with his own funds, or by incurring a personal liability for the

price, he stands towards the principal in the position of an unpaid seller.

Like an unpaid seller, he enjoys the right of stopping the goods in transit if in

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the meantime the principal has become insolvent. (b) Where agent holds

himself liable to his principal for the price of the goods sold,

5. Right of indemnification (Secs.222-224). The principal is bound to

indemnify agent against the consequences of all lawful acts done by the

agent in exercise of authority conferred on him.

(B) Duties of Mr.Suman as an Agent.

1. To conduct the business of agency according to the principal’s

directions (Sec.211). The duty of the agent must be literally complied with,

i.e., the agent is not supposed to deviate from the directions of the principal

even for the principal’s benefit. If he does so, any loss occasioned thereby

shall have to be borne by the agent, whereas any surplus must be

accounted for to the principal.

2. The agent should conduct the business with the skill and diligence

(Sec.212): that is generally possessed by persons engaged in similar

business, except where the principal knows that the agent is wanting in skill.

3. To render proper accounts (Sec.213). The agent has to render proper

accounts. If the agent fails to keep proper accounts of the principal’s

business, everything consistent with the proved facts will be presumed

against him. Rendering of accounts does not mean showing the accounts,

but maintaining proper accounts supported by vouchers.

4. To communicate with the principal in case of difficulty (Sec.214). It is

the duty of agent, in case of difficulty, to use all reasonable diligence, in

communicating with his principal and in seeking to obtain his instructions. In

case of emergency, however, the agent can do all that a reasonable man

would, under similar circumstances, do with regard to his own business. He

becomes agent by necessity.

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5. Not to make any secret profits. Agent should deliver to the principal all

moneys including secret commission received by him. He can, however,

deduct his lawful expenses and remuneration.

6. Not to deal on his own account. Agent should not deal on his own

account without first obtaining the consent of his principal. If he does so, the

principal can claim from the agent any benefit which he might have

obtained.

7. Not entitled to remuneration for misconduct (Sec.220). Agent who is

guilty of misconduct in the business of agency is not entitled to any

remuneration in respect of that part of the business which he has

misconducted.

8. Not to disclose confidential information supplied to him by the

principal.

9. To take all reasonable steps for the protection and preservation of

the interests entrusted to him when the principal dies or becomes of

unsound mind (Sec.209).

Q.3 a. What is a contract of Indemnity? Explain.

Ans. Secs.124 and 125 of Indian Contract Act provide for a contract of indemnity.

Sec.124 provides that a contract of indemnity is a contract whereby one

party promises to save the other from loss caused to him (the promisee) by

the conduct of the promisor himself or by the conduct of any other person. A

contract of insurance is a glaring example of such type of contracts. A

contract of indemnity may arise either by (i) an express promise or (ii)

operation of law, e.g., the duty of a principal to indemnify an agent from

consequences of all lawful acts done by him as an agent. The contract of

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indemnity, like any other contract, must have all the essentials of a valid

contract. These are two parties in a contraction of identity indemnifier and

indemnified. The indemnifier promises to make good the loss of the

indemnified (i.e., the promisee).

Example: A contracts to indemnify B against the consequences of any

proceeding which C may take against B in respect of a certain sum of Rs

200. This is a contract of indemnity.

Rights of the indemnified (i.e., the indemnity holder)

He is entitled to recover from the promisor: (i) All damages which he may be

compelled to pay in any suit in respect of any matter to which the promise to

indemnify applies; (ii) All costs of suit which he may have to pay to such

third party, provided in bringing or defending the suit (a) he acted under the

authority of the indemnifier or (b) if he did not act in contravention of orders

of the indemnifier and in such a way as a prudent man would act in his own

case; (iii) All sums which may have been paid under the terms of any

compromise of any such suit, if the compromise was not contrary to the

orders of the indemnifier and was one which it would have been prudent for

the promisee to make.

Rights of the indemnifier

The Act makes no mention of the rights of indemnifier. However, his rights,

in such cases, are similar to the rights of a surety under Sec.141, viz., he

becomes entitled to the benefit of all the securities which the creditor has

against the principal debtor whether he was aware of them or not.

Commencement of indemnifier’s liability

Indemnity requires that the party to be indemnified shall never be called

upon to pay. Indemnity is not necessarily given by repayment after payment.

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The indemnified may compel the indemnifier to place him in a position to

meet liability that may be cast upon him without waiting until the promisee

(indemnified) has actually discharged it.

Q.3 b. Mention the features of different kinds of guarantees.

Ans. There are different kinds of guarantees. The features of different guarantees are as under:

(a) Oral or written guarantee

A contract of guarantee may either be oral or in writing (Sec.126), though a

creditor should always prefer to put it in writing to avoid any dispute

regarding the terms, etc. In case of an oral agreement the existence of the

agreement itself is very difficult to prove.

(b) Specific and continuing guarantee

From the point of view of the scope of guarantee a contract of guarantee

may either by specific or continuing. A guarantee is a “specific guarantee”, if

it is intended to be applicable to a particular debt and thus comes to end on

its repayment. A specific guarantee once given is irrevocable.

Example: A guarantees the repayment of a loan of Rs. 10,000 to B by

C (a banker). The guarantee in this case is a specific guarantee.

A guarantee which extends to a series of transactions is called a “continuing

guarantee” (Sec.129)

Example: A guarantees payment to B, a tea-dealer, to the amount of Rs.

10,000 for any tea he may from time to time supply to C. B supplies C with

tea of the value above Rs. 10,000 and C pays B for it. Afterwards B supplies

C with tea to the value of Rs. 15,000. C fails to pay. The guarantee given by

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A was a continuing guarantee and he is accordingly liable to B to the extent

of Rs. 10,000.

A guarantee regarding the conduct of another person is a continuing

guarantee. Unlike a specific guarantee which is irrevocable, a continuing

guarantee can be revoked regarding further transactions (Sec.130).

However, continuing guarantee cannot be revoked regarding transactions

that have ready taken place.

The death of the surety operates, in the absence of any contract to the

contrary, as a revocation of a continuing guarantee, so far as regards future

transactions. (Sec.131).

(c) A guarantee may either be for the whole debt or a part of the debt

Difficult questions arise in case of guarantee for a limited amount because

there is an important distinction between a guarantee for only a part of the

whole debt and a guarantee for the whole debt subject to a limit.

For instance, where X owes Y Rs 50,000 and A has stood as surety for

Rs. 30,000, the question may arise whether A has guaranteed Rs. 30,000

out of Rs. 50,000 or whether he has guaranteed the full amount of

Rs. 50,000 subject to a limit of Rs. 30,000. This matter becomes important if

X is adjudged insolvent and Y wants to prove in X’s insolvency and also

enforce his remedy against A. If A stood surety only for a part of the debt

and if X’s estate can pay only 25 paisa dividend in the rupee, then Y can get

Rs. 30,000 the full amount of guarantee from A and Rs. 5,000 from X’s

estate, being ¼ of the balance, i.e., Rs. 50,000 – Rs. 30,000 = Rs. 20,000

which was not guaranteed. Since after paying Rs. 30,000 to Y, A can claim

from X’s estate, he will get Rs. 7,500 being ¼ of Rs. 30,000 paid by A to Y.

If on the other hand, A had stood surety for the whole debt of Rs 50,000

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subject to a limit of Rs. 30,000 then Y can recover from A Rs. 30,000 and

from X’s estate Rs. 12,500, i.e., ¼ of Rs. 50,000. A will not get any dividend

unless Y has been fully paid. This can happen only if X’s estate declares a

higher dividend.

Q.4. Divya, Vidya and Rajendra want to start a partnership firm dealing with designer jewelery. Explain to them the different elements in a partnership deed and other aspect of a partnership firm.

Ans. Divya, Vidya and Rajendra want to start a partnership firm dealing with

designer jewelery. There are different elements in a partnership deed and

other aspect of the partnership firm, which are discussed below.

1. Partnership is an association of two or more than two persons.

There must be at least two persons who should join together to constitute a

partnership, because one person cannot become a partner with himself.

These persons must be natural persons having legal capacity to contract.

Thus, a company (which is an artificial person) cannot be a partner.

Similarly, a partnership firm cannot be a partner of another partnership firm.

As regards maximum number of partners in a partnership firm, Sec.11 of the

Companies Act, 1956, puts the limit at 10 in case of banking business and

20 in case of any other business.

2. Partnership must be the result of an agreement between two or

more persons.

An agreement pre-supposes a minimum number of two persons. As

mentioned above, a partnership to arise, at least two persons must make an

agreement. Partnership is the result of an agreement between two or more

persons (who are known as partners after the partnership comes into

existence).

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3. The agreement must be to carry on some business. The term

‘business’ includes every trade, occupation or profession [Sec.2(b)]. Though

the word ‘business’ generally conveys the idea of numerous transactions, a

person may become a partner with another even in a particular adventure or

undertaking (Sec.8). Unless the person joins for the purpose of carrying on

a business, it will not amount to partnership.

4. The agreement must be to share profits of the business. The joint

carrying on of a business alone is not enough; there must be an agreement

to share profits arising from the business. Unless otherwise so agreed,

sharing of profits also involves sharing of losses. But whereas the sharing of

profits is an essential element of partnership, sharing of losses is not.

Other aspects of the partnership firm.

All the essential elements of a valid contract must be present in a

partnership as it is based on an agreement. Therefore, while constituting a

partnership. The following points must be kept in mind:

1. The Act provides that a minor may be admitted to be benefits of

partnership.

2. No consideration is required to create partnership. A partnership is an

extension of agency for which no consideration is necessary.

3. The partnership agreement may be express (i.e., oral or writing) or

implied and the latter may be inferred from the conduct or the course of

dealings of the parties or from the circumstances of the case. However, it is

always advisable to have the partnership agreement in writing.

4. An alien friend can enter into partnership, an alien enemy cannot.

5. A person of unsound mind is not competent to enter into a partnership.

6. A company, incorporated under the Companies Act, 1956 can enter into a

contract of partnership.

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Q.5 a. Explain the rights of unpaid seller.

Ans. The rights of an unpaid seller may broadly be classified under two heads,

namely: (i) Rights under the Secs.73-74 of the Indian Contract Act, 1872,

i.e., to recover damages for breach of contract. (ii) Rights under the Sale of

Goods Act, 1930: (a) rights against the goods; (b) rights against the buyer

personally. The rights against the goods are as follows:

(a) Right of Lien on goods (Secs. 47-49)

The word lien means to retain possession of. An unpaid seller who is in

possession of goods is entitled to retain them in his possession until

payment or tender of the price in three situations, namely, (a) where the

goods have been sold without any stipulation as to credit; (b) where the

goods have been sold on credit, but the term of credit has expired; (c)

where the buyer becomes insolvent. Lien can be exercised only for non-

payment of the price and not for any other charges due against the buyer.

For Example, the seller cannot claim lien for godown charges for storing the

goods in exercise of his lien for the price.

(b) Right of stoppage in transit

This right of the unpaid seller consists in preventing the goods from being

delivered to the buyer and resuming and regaining their possession while in

transit, retaining them till the price is paid. The right of stoppage in transit is

earned only where the right of lien is lost and is available only where the

buyer has become insolvent (Sec.50).

(c) Right of resale (Sec.54)

The unpaid seller, who has retained the possession of the goods in exercise

of his right of lien or who has resumed possession from the carrier upon

insolvency of the buyer, can resell the goods, (i) if the goods are of a

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perishable nature, without any notice to the buyer and (ii) in other cases

after notice to buyer calling upon him to pay or tender the price within a

reasonable time and upon failure of the buyer to do so.

Q.5 b. What are the remedies available for breach of contract?

Ans. When someone breaches a contract, the other party is no longer obligated

to keep its end of the bargain. From there, that party may proceed in several

ways: (i) the other party may urge the breaching party to reconsider the

breach; (ii) if it is a contract with a merchant, the other party may get help

from consumers’ associations; (iii) the other party may bring the breaching

party to an agency for alternative dispute resolution; (iv) the other party may

sue for damages; or (v) the other party may sue for other remedies.

Rescission of the contract: When a breach of contract is committed by

one party, the other party may treat the contract as rescinded. In such a

case the aggrieved party is freed from all his obligations under the contract.

Damages (Sec.75): Another relief or remedy available to the promisee in

the event of a breach of promise by the promisor is to claim damages or

loss arising to him therefrom. Damages under Sec.75 are awarded

according to certain rules as laid down in Secs.73-74. Sec.73 contains three

important rules: (i) Compensation as general damages will be awarded only

for those losses that directly and naturally result from the breach of the

contract. (ii) Compensation for losses indirectly caused by breach may be

paid as special damages if the party in breach had knowledge that such

losses would also follow from such act of breach. (iii) The aggrieved party is

required to take reasonable steps to keep his losses to the minimum.

What is the most common remedy for breach of contracts: The usual

remedy for breach of contracts is suit for damages. The main kind of

damages awarded in a contract suit are ordinary damages. This is the

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amount of money it would take to put the aggrieved party in as good a

position as if there had not been a breach of contract. The idea is to

compensate the aggrieved party for the loss he has suffered as a result of

the breach of the contract.

Q.6 a. Discuss the essentials of a valid contract.

Ans. A contract is an agreement, enforceable by law, made between at least two

parties by which rights are acquired by one and obligations are created on

the part of another. If the party, which had agreed to do something, fails to

do that, then the other party has a remedy.

Essentials of a contract

Sec.10 provides that all agreements are contracts, if they are made by free

consent of parties, competent to contract, for a lawful consideration, and

with a lawful object, and are not expressly declared by law to be void. To

constitute a contract, there must be an agreement between two or more

than two parties. No one can enter into a contract with himself. An

agreement is composed of two elements – offer or proposal by one party

and acceptance thereof by the other party.

Q.6 b. What is consideration? Give some examples.

Ans. Consideration is one of the essential elements, which supports to a valid

contract.

In simple terms consideration is what a promisor demands as the price for

his promise. The term consideration is used in the sense of quid pro que,

i.e., “something in return”. This something or consideration need not be in

terms of money. This “something” may even be some benefit, right, interest

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or profit accruing to one party, or some forbearance, detriment, loss or

responsibility given, suffered or undertaken by the other party. Also a

promise by one party may be consideration for the promise of other party.

“No consideration, no contract” (Secs.10 and 25)

A promise without consideration cannot create a legal obligation. A person

who makes a promise to do or abstain from doing something usually does

so as a return of equivalent of some loss, damage, or inconvenience that

may have or may have been occasioned to the other party in respect of the

promise.

For example:

If A signs a contract to buy a car from B for Rs.1,50,000, A's consideration

is the Rs.1,50,000, and B's consideration is the car.

Additionally, if A signs a contract with B such that A will paint B's house for

Rs.20,000, A's consideration is the service of painting B's house, and B's

consideration is Rs.20,000 paid to A.

Further, if A signs a contract with B such that A will not repaint his own

house in any other color than white, and B will pay A Rs.20,000 per year to

keep this deal up, there is also consideration. Although A did not promise to

affirmatively do anything, A did promise not to do something that he was

allowed to do, and so A did pass consideration. A's consideration to B is the

forbearance in painting his own house in a color other than white, and B's

consideration to A is Rs.20,000 per year.

Conversely, if A signs a contract to buy a car from B for Rs.0(nil), B's

consideration is still the car, but A is giving no consideration, and so there is

no valid contract. However, if B still gives the title to the car to A, then B

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cannot take the car back, since, while it may not be a valid contract, it is a

valid gift.

There are a number of common issues as to whether consideration exists in

a contract.

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Mb0051-Legal Aspects of Business (Rev)

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Transcript of Mb0051-Legal Aspects of Business (Rev)