MB0051 Set 1 -Fair

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MB0051 – Legal Aspects of Business - 4 Credits

Assignment Set- 1

Q.1 Distinguish between fraud and misrepresentation?

Answer:

Distinction between fraud and misrepresentation:

Sometimes the terms fraud and misrepresentation are used inter-changeably by readers however they are actually

different. There is not a much difference between the two but a little one as misrepresentation does not directly

mean fraud. Below is a table on the salient points to distinguish the terms:

Fraud Misrepresentation

The word fraud comes from the Middle English word

“fraude” taken from the Old French and derived from

the Latin “fraus”. The word fraud means a deliberate

form of deception that is practiced to secure some sortof unlawful and unfair gain.

Misrepresentation is a type of lying or falsehood in

which a person says or does something that would lead

another person to believe something that is not “in

accordance with the facts”.

Implies on intention to deceive, hence it is intentional or

willful wrong.

It is an innocent wrong without any intention to deceive.

The person making the statement believes it to be true.

A civil wrong which entitles a party to claim damages

in addition to the right to rescind the contract.

It gives only the right to rescind the contract and there

can be no suit for damages.

In fraud, the person making the representation does not

himself believe in the truth of the statement he is

making. n cases of fraud, the person making the

statement is a complete liar and is making the statement

to deceive others to enter into a contract

In situations of innocent misrepresentation the person

making the statement may believe that what he is saying

is true. This is due to the fact that the person making the

statement is simply repeating what another person has

asserted to be true

Deceit, trickery, sharp practice, or breach of confidence,

perpetrated for profit or to gain some unfair or dishonest

advantage.

A misrepresentation or concealment with reference to

some fact material to a transaction that is made with

knowledge of its falsity or in reckless disregard of its

truth or falsity and with the intent to deceive another

and that is reasonably relied on by the other who is

injured thereby.

Q.2 What are the remedies for breach of contract.

Answer:

Businesses both individual and corporate enter into business relationships with either individuals or businesses to

enable them to carry on their day-to-day commercial transactions. Most of these relationships result in contracts”

that have legal consequences. Most contracts do not have to be in writing to be enforceable.

Definition of a Contract:

A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of

mutual promises (in legal terminology, “consideration”). The promises made by the parties define the rights and

obligations of the parties. For every contract there must be an agreement. An agreement is defined as every

promise and every set of promises forming the consideration for each other and a promise is an accepted

proposal. Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party

doesn’t (“breaches the contract”), the non-breaching party is entitled to receive relief through the courts.

Generally, the non-breaching party’s remedy for breach of contract is monetary damages that will put the non- breaching party in the position it would have enjoyed if the contract had been performed. Under special

circumstances, a court will order the breaching party to perform its contractual obligations. Because contracts are

enforceable, parties who enter into contracts can rely on contracts in structuring their business relationships.

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Essentials of a Contract:

The Indian Contract Act -1872 defines “contract” as an agreement enforceable by law. The essentials of a (valid)

contract are:

intention to create legal relations;

offer and acceptance;

consideration;

capacity to enter into a contract

free consent of the parties

lawful object of the agreement

Remedy Clauses:

These clauses state what rights the non-breaching party has if the other party breaches the contract. In contracts

for the sale of goods, remedy clauses are usually designed to limit the seller’s liability for damages. In a contract

the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the

obligation. The non-performance of the duty undertaken by a party in a contract amounts to breach of contract for

which it can be made liable.

Remedies for breach of contract:

The legal remedies for breach of contract are:

a) Damages b) Specific performance of the contract; and

c) Injunction.

When a contract has been breached, the party who suffers by such breach is entitled to receive, from the party

who has breached the contract, compensation for any loss or damage caused to him thereby, being loss or

damages which naturally arose in the usual course of things from such breach or which the parties knew, when

they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any

remote and indirect loss of damage sustained by reason of the breach.

A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained

through non-fulfillment of the contract. Liquidated damages and penal stipulations: If a sum is named in the

contract as the amount to be paid in case of breach of contract, or if the contract contains any other stipulation by

way of penalty, the party complaining of the breach is entitled, whether or not actual damage of loss is proved to

have been caused thereby, to receive, from the party who has broken the contract, reasonable compensation, notexceeding the amount so named or the penalty stipulated for. A stipulation for increased interest from the date of

default may be regarded as a stipulation by “way of penalty”. The court is empowered to reduce it to an

amount which is reasonable in the circumstances.

Specific performance:

In certain special cases (dealt with in the Specific Relief Act, 1963), the court may direct against the party in

default “specific performance” of the contract, that is to say, the party may be directed to perform the very

obligation which he has undertaken, by the contract. This remedy is discretionary and granted in exceptional

cases. Specific performance means actual execution of the contract as agreed between the parties. Specific

Performance of any contract may, in the discretion of the court be enforced in the following situations

When there exists no standard for ascertaining the actual damage caused by the non-performance of the act

agreed to be done; or

When the act agreed to be done is such that monetary compensation for its non-performance would not afford

adequate relief.

Instances where compensation would be deemed adequate relief are:

Agreement as a consequence of a breach by a landlord for repair of the rented premises;

Contract for the sale of any goods, for instance machinery or goods.

Exceptions:

A contract which runs into such minute or numerous details or which is so dependent on the personal

qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific

performance of its material terms, cannot be specifically enforced. Another situation when a contract cannot bespecifically enforced is where “the contract is in its nature determinable”. A contract is said to be determinable,

when a party to the contract can put it to an end. A contract the performance of which involves the performance

of a continuous duty, which the Court cannot supervise, cannot be specifically enforced.

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Persons who cannot obtain Specific Performance:

The specific performance of a contract cannot be obtained in favor of a person who could not be entitled to

recover compensation for the breach of contract. Specific performance of a contract cannot be enforced in favor

of a person who has become incapable of performing the contract that on his part remains to be performed, or

who violates any essential term of the contract that on his part remains to be performed, or who acts fraudulently

despite the contract, or who willfully acts at variance with, or in subversion, of the relation intended to be

established by the contract. I hope this gives you a relevant overview into the key aspect of business contracts

and if one takes adequate care when drafting contracts; needless to say relationships will be better and probablymore profitable.

Q.3 Distinguish between indemnity and guarantee.

Answer: Introduction:

Guarantees and indemnities are both long established forms of what the law terms surety ship. There are

important legal distinctions between them. Append below some salient points pertaining to the

difference/distinction between Indemnity and Guarantee:

Distinction between Indemnity and Guarantee:

Indemnity Guarantee

Section 124 of the Indian Contract Act 1872 defines a"contract of indemnity" as a contract by which one

party promises to save the other from loss caused to

him by the conduct of the Promisor himself, or by the

conduct of any other person.

e.g. = 'x' contracts to indemnify 'y' against the

consequences of any legal proceedings which may take

against B in respect of a certain sum of Rs.200/=.

Section 126 of the Indian Contract Act 1872 defines acontract of guarantee is a contract to perform the

promise or discharge the liability of a third person in

case of his default”. The person who gives the

guarantee is called the “surety”; the person in respect of

whose default the guarantee is given is called the

“principal debtor”, and the person to whom the

guarantee is given is called the “creditor”. A guarantee

may be either oral or written.

e.g., 'P' lends Rs. 5000/= to 'Q' and 'R' promises to 'P'

that if 'Q' does not pay the money back then 'R' will do

so.

Indemnity comprise only two parties- the indemnifier

and the indemnity holder

There are three parties namely the surety, principal

debtor and the creditor

Liability of the indemnifier is primary The liability of the surety is secondary. The surety is

liable only if the principal debtor makes a default. The

primary liability being that of the principal debtor.

The indemnifier need not necessarily act at the request

of the indemnified.

The surety give guarantee only at the request of the

principal debtor

The possibility of any loss happening is the only

contingency against which the indemnifier undertakes

to indemnify.

There is an existing debt or duty, the performance of

which is guarantee by the surety

An indemnity is for reimbursement of a loss A guarantee is for security of the creditor.

Q.4 What is the distinction between cheque and bill of exchange.

Answer:

Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as

well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern

business, large number of transactions involving huge sums of money takes place every day. It is quite

inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these

documents are called negotiable instruments. In this lesson let us learn about these documents.

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Distinction between Cheque and bill of exchange

Cheque exchange

It is drawn on a banker It may be drawn on any party or individual.

It has three parties - the drawer, the drawee, and payee.

The drawer can also draw a bill in his own name

thereby he himself becomes the payee. Here the

words in the bill would be Pay to us or order . In a bill

where a time period is mentioned, just like the abovespecimen, is called a Time Bill . But a bill may be made

payable on demand also. This is called a Demand Bill .

There are three parties – the drawer, the drawee, and

the payee.

Broadly speaking, cheques are of four types.

a) Open cheque, and

b) Crossed cheque.c) Bearer cheque

d) Order cheque

t is seldom drawn in sets Foreign bills are drawn in sets

It does not require acceptance by the drawee It must be accepted by the drawee before he can be

made liable to pay the bill.

Days of grace are not allowed to a banker Three days of grace are always allowed to the drawee

No stamp duty is payable on checks Stamp duty has to be paid on bill of exchange.

It is usually drawn on the printed format It may be drawn in any paper and need not necessarily

be printed.

Q.5 Distinguish between companies limited by shares and companies limited by guarantee.

Answer:

The Companies Act, 1956 defines the word “company as a company formed and registered under the Act or an

existing company formed and registered under any of the previous company laws (Sec.3)”. This definition does

not bring out the meaning and nature of the company into a clear perspective. Also Sec.12 permits the formation

of different types of companies. These may be:

Companies limited by shares

Companies limited by guarantee and

Unlimited companies.

The vast majority of companies in India are with limited liability by shares.

Distinction betweenCompanies limited by shares Companies limited by guarantee

A company limited by guarantee is normally

incorporated for nonprofit making functions. The

company has no share capital. A company limited by

guarantee has members rather than shareholders. The

members of the company guarantee/undertake to

contribute a predetermined sum to the liabilities of the

company which becomes due in the event of the

company being wound up. The Memorandum normally

includes a non-profit distribution clause and these

companies are usually formed by clubs, professional,

trade or research associations.

Limited by shares is defined by: a company that has

shareholders, and that the financial obligation of the

shareholders to creditors of the company is restricted to

the capital invested in the first place (i.e. the specified

value of the shares and any premium paid off in

exchange for the issue of the shares by the company).

Shareholder's individual’s assets are thereby secured in

the case of the company's insolvency, but revenues

invested in the company will be unrecoverable. Limited

companies could be either private or public. A private

Ltd. (limited company disclosure) involves are lessdemanding, but for this reason its shares might NOT be

provided to the general public (and consequently can't

be listed on a national stock market exchange). This is

the well-known distinctive characteristic between a

private limited company and a public limited company.

The absolute majority of trading corporations are

private companies limited by shares.

Companies limited by shares are more popular Companies limited by guarantee are less popular than

companies limited by shares.

Companies limited by shares are profit making

companies.

Companies limited by guarantee are non-profit making

In case of companies limited by shares, there are

shareholders.

Companies limited by guarantee have members, and

not share holders

Companies limited by shares can engage in legal trades

and have general clauses.

There is no share capital in case of companies limited

by guarantee and it also has self-imposed restrictions

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Q.6 What is the definition of cyber crime.

Answer:

Introduction:

Crime and criminality have been associated with man since his fall. Crime remains elusive and ever strives to

hide itself in the face of development. Different nations have adopted different strategies to contend with crime

depending on their nature and extent. One thing is certain, it is that a nation with high incidence of crime cannot

grow or develop. That is so because crime is the direct opposite of development. It leaves a negative social andeconomic consequence.

Cybercrime:

Cybercrime is defined as crimes committed on the internet using the computer as either a tool or a targeted

victim. It is very difficult to classify crimes in general into distinct groups as many crimes evolve on a daily

basis. Even in the real world, crimes like rape, murder or theft need not necessarily be separate. However, all

cybercrimes involve both the computer and the person behind it as victims; it just depends on which of the two is

the main target. Hence, the computer will be looked at as either a target or tool for simplicity’s sake. For

example, hacking involves attacking the computer’s information and

other resources. It is important to take note that overlapping occurs in many cases and it is impossible to have a

perfect classification system.

Computer as a tool:

When the individual is the main target of Cybercrime, the computer can be considered as the tool rather than the

target. These crimes generally involve less technical expertise as the damage done manifests itself in the real

world. Human weaknesses are generally exploited. The damage dealt is largely psych logical and intangible,

making legal action against the variants more difficult. These are the crimes which have existed for centuries in

the offline. Scams, theft, and the likes have existed even before the development in high-tech equipment. The

same criminal has simply been given a tool which increases his potential pool of victims and makes him all the

harder to trace and apprehend.

Computer as a target:

These crimes are committed by a selected group of criminals. Unlike crimes using he computer as a tool, these

crimes requires the technical knowledge of the perpetrators. These crimes are relatively new, having been inexistence for only as long as computers have - which explains how unprepared society and the world in general is

towards combating these crimes. There are numerous crimes of this nature committed daily on the internet. But it

is worth knowing that Africans and indeed Nigerians are yet to develop their technical knowledge to

accommodate and perpetrate this kind of crime.

The internet in India is growing rapidly. It has given rise to new opportunities in every field we can think of – be

it entertainment, business, sports or education. There are two sides to a coin. Internet also has its own

disadvantages. One of the major disadvantages is Cybercrime – illegal activity committed on the internet. The

internet, along with its advantages, has also exposed us to security risks that come with connecting to a large

network. Computers today are being misused for illegal activities like e-mail espionage, credit car fraud, spams,

and software piracy and so on, which invade our privacy and offend our senses. Criminal activities in the

cyberspace are on the rise. Here we publish an article by Nandini Ramprasad in series for the benefit of our netizens.

Cybercrimes can be basically divided into 3 major categories:

1) Cybercrimes against persons

2) Cybercrimes against property.

3) Cybercrimes against government.

Cybercrimes committed against persons include various crimes like transmission of child-pornography,

harassment of any one with the use of a computer such as e-mail. The trafficking, distribution, posting, and

dissemination of obscene material including pornography and indecent exposure, constitutes one of the most

important Cybercrimes known today. The potential harm of such a crime to humanity can hardly be amplified.

This is one Cybercrime which threatens to undermine the growth of the younger generation as also leaveirreparable scars and injury on the younger generation, if not controlled. In the United States alone, the virus

made its way through 1.2 million computers in one-fifth of the country's largest businesses. David Smith pleaded

guilty on Dec. 9, 1999 to state and federal charges associated with his creation of the Melissa virus. There are

numerous examples of such computer viruses few of them being "Melissa" and "love bug". A Mumbai-based

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upstart engineering company lost a say and much money in the business when the rival company, an industry

major, stole the technical database from their computers with the help of a corporate cyber spy.

Unauthorized access:

Using one's own programming abilities as also various programs with malicious intent to gain unauthorized

access to a computer or network are very serious crimes. Similarly, the creation and dissemination of harmful

computer programs which do irreparable damage to computer systems is another kind of Cybercrime. Software

piracy is also another distinct kind of Cybercrime which is perpetuated by many people online who distributeillegal and unauthorized pirated copies of software. Professionals who involve in these cybercrimes are called

crackers and it is found that many of such professionals are still in their teens. A report written near the start of

the Information Age warned that America's computers were at risk from crackers. It said that computers that

"control (our) power delivery, communications, aviation and financial services (and) store vital information, from

medical re-cords to business plans, to criminal records", were vulnerable from many sources, including deliberate

attacks.

MB0051 Set 1 -Fair

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