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TTEST -2: BUSINESS LAWS

ANSWER KEY
1. (a) As per Section 4 of the Indian Contract Act, 1872, the communication of a acceptance is complete
as against the acceptor when it comes to tthe he knowledge of the proposer. This acceptance can be
revoked by the acceptor before the acceptance letter reaches the proposor. However once the letter
of acceptance reaches the proposor the acceptance cannot be revoked. Thus whichever he receives
first shall be valid. In case he receives both togethe
togetherr whichever he reads first shall be valid
In the above case Ramaswami proposed to sell his house to Ramanathan. Ramanathan sent his
acceptance by post. Later he sends a telegram revoking his acceptance.

i) If the telegram is received by Ramaswami before th

thee acceptance letter the revocation is valid.

ii) If both the letter of acceptance and the telegram of revocation reach together whichever
Ramaswami reads first shall be valid. If Ramaswami opens the telegram first (and this would be
normally so in case of a rational person) and reads it, the acceptance stands revoked. If he opens the
letter first and reads it, revocation of acceptance is not possible as the contract has already
alre been
concluded.

(b) As per the provisions of the Partnership Act, 1932 if a par

partner
tner of the firm presents another as a
partner to third party even though he is not a partner and such person does not deny it, then he is a
partner by estoppels or holding out. If the third party contracts with the firm believing that the
person represented ed is a partner then such partner by estoppels shall be liable for the contract and his
liability shall be severe.

In the above case X and Y are partners of the firm. X introduced A, manager, as a partner to Z and A
remained silent. Z sold 100 TV sets to tthe
he firm on credit and the firm did not pay. As A is a partner by
estoppel he shall also be laible for the contract and his liability shall be sever i.e., extend to the whole
contract.

Thus Z can recover the money

oney from X and A.

(c) As per the provisions off The Indian Contract Act, 1872 a person making an invitation to offer does
not make an offer rather invites the other party to make an offer. The object of invitation is to show
he is willing to deal with any person who on the basis of this invitation is ready to enter into a
contract. It was held in the case of Pharmaceutical Society of Great Britain V Cash Boot Chemist that
all self service shops are invitation to offer. The goods on display is not an offer rather the shop
invites the public to make the offer. Anyone from the public who approaches the cashier’s desk is
making the offer.

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In the above case Shambhu Dayal had a self service shop. Smt. Prakash selected all the goods and
approaches the desk. The cashier refuses to accept the price. As the goods on display is an invitation
to offer the cashier is not bound to sell the goods.

Thus if the cashier does not accept the price, the interested buyer cannot co
compel
mpel him to sell.

2. (a) Section 6 of the Indian Contract Act, 1872 deals with various modes of rev
revocation
ocation of offer. An offer
may be revoked in any of the following ways:
ways:-

a) By notice of revocation:: if the offeror after making the offer gives a notice of the revocation of the
same before it is accepted by the offeree, the offer shall stand revoked.

b) By lapse of time:: The time for acceptance can lapse if the acceptance is not given within the
specified time and where no time is specified, then within a reasonable time. This is for the reason
that proposer should not be made to wait indefinitely. It was held in Ramsgate Victoria Hotel Co Vs
Montefiore, that a person who applied for shares in June was not bound by an allotment made in
November. This decision was also followed in India Cooperative Navigation and Trading Co. Ltd. Vs
Padamsey PremJi . Howeverr these decisions now will have no relevance in the context of allotment
of shares since the Companies Act, 2013 has several provisions specifically covering these issues.

c) By non fulfillment of condition precedent

precedent: in case the offer is conditional and thehe acceptor fails to
fulfill a condition precedent to acceptance the proposal gets revoked. This principle is laid down in
Section 6 of the Act. The offeror for instance may impose certain conditions such as executing a
certain document or depositing certa
certain
in amount as earnest money. Failure to satisfy any condition will
result in lapse of the proposal. As stated earlier ‘condition precedent’ to acceptance prevents an
obligation from coming into existence until the condition is satisfied. Suppose where ‘A’ proposes
p to
sell his house to be ‘B’ for 5 lakhs provided ‘B’ leases his land to ‘A’. If ‘B’ refuses to lease the land,
the offer of ‘A’ is revoked automatically.

d) By death or insanity:: Death or insanity of the proposer would result in automatic revocation
revocatio of the
proposal but only if the fact of death or insanity comes to the knowledge of the acceptor.

e) By counter offer:: when the offeree accepts the offer but with ceratin medication it is a counter.
Such counter offer shall result in the lapse of the ori
original
ginal offer. Say A agrees to sell his bike to B for
40,000. B replies that he is willing to buy it but only for 35,000. The reply of B amounts to a counter
offer resulting in the lapse of the offer made by A.

f) By the non acceptance of the offer according to the prescribed or usual mode:

Where the mode of acceptance is prescribed in the proposal, it must be accepted in that manner.non
acceptance of the offer in the prescribed mode is not a valid acceptance resulting in the lapse of the
offer. If the offeror prescribes acceptance through messenger and offeree sends acceptance by
email, there is no acceptance of the offer

g) By subsequent illegality

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(b) A minor cannot become a partner of the firm however he can be admitted to the benefits of the firm.
On attaining
ttaining majority the minor shall within 6 months from the day he attains majority or the day he
comes to know he was a beneficiary whichever is later he must give a notice to the registrar and a
public notice of whether he wants to become a partner or not not.. If he fails to give notice he shall
automatically become the partner of the firm.
i. the minor becomes a partner on his own willingness or by his failure to give the public notice within
specified time, his rights and liabilities as given in Section 30 of tthe
he Indian Partnership Act, 1932, are
as follows:
a) He becomes personally liable to third parties for all acts of the firm done since he was admitted to
the benefits of partnership.

b) His share in the property and the profits of the firm remains the same to which he was entitled as
a minor.

ii. When the minor elects not to become a partner:

a) His rights and liabilities continue to be those of a minor up to the date of giving public notice.

b) His share shall not be liable for any acts of the firm done af
after
ter the date of the notice.

c) He shall be entitled to sue the partners for his share of the property and profits. It may be noted
that such minor shall give notice to the Registrar that he has or has not become a partner

3. (a) The term “Goodwill” has not be

been
en defined under the Indian Partnership Act, 1932.

Section 14 of the Act states that the goodwill of a business shall be regarded as a property of the
firm. Goodwill may be defined as the value of the reputation of a business house in respect of profits
expected
pected in future over and above the normal level of profits earned by undertaking belonging to the
same class of business.

(b) According to section 16, subject to contract between the partners:

a) If a partner derives any profit for himself from any transaction of the firm, or from the use of the
property or business connection of the firm or the firm name, he shall account for that profit and
pay it to the firm.
b) If a partner carries on any business of the same nature and competing with that of the firm, he
shalll account for and pay to the firm all profits made b
by him in that business.

(c) Consideration as defined u/s 2(d) means “when at the desire of the promisor, the promisee or any
other person does something such an act is consideration.” In light of the definition
tion consideration
may proceed from the promise or any other person who is not a party to the contract. In other
words, there can be a stranger to a consideration but not stranger to a contract.

In the given problem, Mr. Balwant has made a registered gift deed in favour of Ms. Reema for some
property on the condition that she would pay annuity to Mr. Sawant. Mr. Sawant has not given any
consideration to Ms. Reema but the consideration did flow from Mr. Balwant to Ms. Reema. Such

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consideration from third party
ty is sufficient to enforce the promise of Ms. Reema, to pay an annuity to
Mr. Sawant.

Thus, a stranger to the contract cannot enforce the contract but a stranger to consideration may enforce
it. Hence, the contention of Ms. Reema is not valid.

4. (a) No consideration, no contract: Every agreement, to be enforceable by law must be supported by

valid consideration. An agreement made without any consideration is void. A gratuitous promise may
form a subject of a moral obligation and may be binding in honour but it does not cause a legal
responsibility. No consideration, no contract is a general rule.

However, Section 25 of the Indian Contract Act, 1872 provides some exceptions to this rule, where an
agreement without consideration will be valid and binding. TThese
hese exceptions are as follows:

a) Agreement made on account of natural love and affection: Section 25 (1) provides that if an
agreement is (i) in writing (ii) registered under the law and (iii) made on account of natural love and
affection (iv) between thee parties standing in a near relation to each other, it will be enforceable at law
even if there is no consideration.

b) Compensation for services voluntarily rendered: Section 25(2) provides that something which the
promisor was legally compelled to do; ((iii)
iii) and the promisor was in existence at the time when the act
was done whether he was competent to contract or not (iv) the promisor must agree now to
compensate the promise. Thus when A finds B's purse and gives it to him and B promises to give A ` 50,
this is a valid contract.

c) Promise to pay time-barred

barred debts [Section 25 (3)]: Where there is an agreement, made in writing and
signed by the debtor or by his agent, to pay wholly or in part a time barred debt, the agreement is valid
and binding even thoughgh there is no consideration. If A owes B ` 1,000 but the debt is lapsed due to
time-bar
bar and A further makes a written promise to pay ` 500 on account of this debt, it constitutes a
valid contract.

d) Contract of agency (Section 185): No consideration is n

necessary
ecessary to create an agency.

e) Completed gift (Explanation 1 to Section 25): A completed gift needs no consideration. Thus, if a
person transfers some property by a duly written and registered deed as a gift he cannot claim back the
properly subsequently on the ground of lack of consideration.

f) Bailment (Section 148): No consideration is required to effect the contract of bailment.

(b) As per section 69 of the Partnership Act, 1932if a partnership firm wants to sue a third party two
conditions must be fulfilled:

i. The firm must be registered; and

ii. the partners suing should be named as partners of the firm.

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In case of a registered firm if the firm continues its business after the death of a partner without any
fresh registration a suit can be filed by the remaining partners in respect of any subsequent dealings or
transactions without notifying to the Registr
Registrar
ar of Firms, the changes in the constitution of the firm. The
suit shall be valid if it is filed by the remaining partners in respect of such subsequent dealings or
transactions. However in case the firm takes a new partner the a suit cannot be filed without witho fresh
registration

In the above case A & Co. a registered partnership firm with X, Y and Z as partners. X dies and without
fresh registration the firm sues W.. In view of this position of law, the suit is in the case by Y and Z against
W in the name and on behalf of A & Co. is maintainable.

5. (a) Section 29 of the Indian Partnership Act, 1932 provides that a share in a partnership is transferable
like any other property. Such transfer may take place either by way of sale, pledge or mortgage. By
virtue of Section
ection 31, a person cannot be introduced as a partner in a firm without the consent of all the
partners. A partner is not debarred from transferring his interest but for such transfer he must get the
consent of all the other partners.

However as the partnership

rship relationship is based on mutual confidence, the assignee of a partner’s
interest cannot enjoy the same rights and privileges as the original partner.

The rights of such transferee are as follows:

1. During the continuance of partnership, such transfe

transferee is not entitled

a) to interfere with the conduct of the business,

b) to require accounts, or

c) to inspect books of the firm.

He is only entitled to receive the share of the profits of the transferring partner and he is bound to
accept the profits as agreed
greed to by the partners, i.e., he cannot challenge the to inspect books of the firm
to interfere with the conduct of the business

On the dissolution of the firm or on the retirement of the transferring partner, the transferee will be
entitled, against the remaining partners:

i. to receive the share of the assets of the firm to which the transferring partner was entitled, and
ii. for the purpose of ascertaining the share, he is entitled to an account as from the date of the
dissolution.

(b) According to section 10 to form a valid contract there should be an intention to create legal relationship
between the parties. Agreements of a social nature or domestic nature do not contemplate legal
relationship and as such are not contracts, which can be enforced. This principlee has been laid down in

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the case of Balfour v. Balfour. Further to create a contract it must be supported by some consideration.
A contract without consideration is void ab intio.

In the above case the father promised to pay a sum of 1,00,000 to his son if he passed his CA exams in
the first attempt. The son passed the exams but the father failed to pay his the money.

In this contract there was no legal relation between the father and son as it was a domestic agreement.
Also there is no consideration from tthe son to his father and so the contract also lacks consideration.

Accordingly, applying the above provisions and the case decision, in this case son cannot recover the
amount of Rs. 1 lakh from father.

(c) A contract with a minor is void ab intio as was held in the case of Mohiri Bibi V. Dharmodas Ghosh.
Though a minor is not competent to contract, nothing in the Contract Act prevents him from making the
other party bound to the minor.

For example: A promissory note duly executed in favour of a minor is n

not
ot void and can be sued upon by
him, because he though incompetent to contract, may yet accept a benefit.

As per section 30 of the Indian Partnership Act, 1932 a m

minor
inor cannot become partner in a partnership
firm. However, he may with the consent of all the partners, be admitted t o the benefits of partnership

6. (a) Following are the differences between Wagering Contract and Contract for Insurance:

Wagering Agreement Insurance Agreement

It’s a promise to pay money or money worth It’s a contract to indemnify the loss
on happening or non happening of any
uncertain event
There is no consideration between two The crux of insurance contract is mutual
parties. They are just gambling for money consideration. (premium and compensation
amount)
There is no property in case of wagering Insured party has insurable interest in the
agreements. It involves betting. life and property insured.
Loser has to pay the fixed amount in case of Except life insurance, the contract of
happening of an uncertain event insurance indemnifies the insured person
against loss.
It is void and unenforceable agreement It is valid and enforceable
No logical calculations are required in Calculation off premium is based on scientific
Wagering agreements. and actuarial calculation of risk
They have been regarded as against the They are beneficial to the society.
public welfare

(b) U/s 58 of the Indian Partnership Act, 1932, the registration of a firm may be affected at any time
ti by:

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1. A statement in the prescribed form along with the fee shall be sent to the Registrar of the area in
which any place of business of the firm is situated or proposed to be situated. The statement shall be
sent by post or hand and shall state: -

i. The firm’s name

ii. The place or principal place of business of the firm,
iii. The names of any other places where the firm carries on business,
iv. The date when each partner joined the firm,
v. The names in full and permanent addresses of the partners, and
vi. The duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorised in this behalf.

Each person signing the statement shall also verify it in the manner prescribed.

A statement in the prescribed form along with the fee sh

shallll be sent to the Registrar of the area in which
any place of business of the firm is situated or proposed to be situated. The statement shall be sent by
post or hand and shall state: -Each
Each person signing the statement shall also verify it in the manner
prescribed.

A firm name shall not contain any of the following words, namely: namely:- ‘Crown’, Emperor’, ‘Empress’,
‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or implying the sanction, approval or
patronage of Government except when the Sta State
te Government signifies its consent to the use of such
words as part of the firm-name
name by order in writing.