assignments of legal aspects of business

8/8/2019 Assignments of legal aspects of business

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something in return for something. It is the price for the promise. An agreement

not supported by`

consideration becomes a nudum pactum i.e., naked agreement. The considerationshould be lawful and

adequate. However, there are certain exceptions to this rule.

e) Lawful object : The object or purpose of an agreement must be lawful. It should

not be forbidden by

law, should not be fraudulent, should not cause injury to the person or property of

another, should not be

immoral or against public policy.

f) Not expressly declared void: The statute should not declare an agreement void.

The Act itself hasdeclared certain types of agreements as void.

E.g., agreements in restraint of marriage, trade, legal proceedings. In such cases,

the aggrieved party cant

seek any relief from the court of law.

g) Possibility of performance: The agreement should be capable of being

performed. e.g., Mr. A agrees

with Mr. B to discover treasure by magic. Mr. B cant seek redressal of the

grievance if Mr. A fails toperform the promise.

h) Certainty of terms: The terms of the agreement should be certain. E.g., Mr. A.

agrees to sell 100 tons

of oil. The agreement is vague as it does not mention the types of oil agreed to be

sold.

i) Intention to create legal obligation: Though Sec. 10 is silent about this, under

English law this

happens to be an important ingredient. Therefore, Indian courts also recognise this

ingredient. An

agreement creating social obligation cant be enforced.

j)Legal formalities: Indian Contract Act deals with a simple contract supported by

consideration.Agreements made in India may be oral or written. However, Sec. 10

states that where the statute statesthat the contract should be in writing and should

be witnessed or should be registered, the same must beobserved. Otherwise, the


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agreement cant be enforced e.g., Under Indian Companies Act, theMemorandum

of Association and Articles of Association must be registered.

Q2. What are the rules regarding the acceptance of a proposal? Describe them in

details.

Ans:

According to law When the person to whom the proposal is made signifies his

willingness thereto theproposal is said to be accepted. A proposal, when accepted,

becomes a promise. By accepting the offer,the acceptor expresses his willingness

to be bound by the terms and conditions of the offer. Regarding anoffer and its

acceptance, Anson has given an analogy of a lighted match stick. Acceptance is to

an offerwhat a lighted match is to a train of gunpowder. It produces something

which cant be recalled orundone. An acceptance turns the offer into a binding

obligation.

`

Rules Regarding Acceptance:

a) An offer can be accepted only by the person to whom it is made: The offeree

only has to accept the

offer. In case it is accepted by any other person no agreement is formed. However,

in case authority isgiven to another person to accept the offer on behalf of the

person to whom it is made, it is a valid acceptance.

b) Acceptance should be unconditional and absolute:Sec. 7 (I) states that the

acceptance should be

absolute and unconditional. The acceptor should accept the offer in toto. If it is

qualified or conditional, it

ceases to be valid. In fact, a qualified or conditional acceptance is nothing but a

counter-offer.

c) Acceptance should be communicated: The party accepting the offer must

communicate his

acceptance to the offeror. Acceptance is not a mental resolve but some external

manifestation. Theacceptance can be communicated in writing or word of mouth or

also by conduct. An agreement does notresult from a mere state of mind. As

regards unilateral contracts (e.g., offer of reward) it is impossible tothe offeree to


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communicate his acceptance otherwise than by performing the contract. In the case

ofbilateral contracts acceptance must be communicated. The offeror cant force a

contract on offeree byfixing the mode of refusal. Further, acceptance should be

communicated only to the offeror and not to somebody else.d) Acceptance should be according to the prescribed form: Unless specified in the

offer the

acceptance must be in some usual and reasonable manner. The proposer has the

right to prescribe themanner of acceptance. He may require it to be oral or in

writing or to be communicated to him by phoneor telephone etc. He can also waive

his right or may ask the offeree to express acceptance by somegesture. Once he

prescribes the mode of communication later he cant say that it was insufficient. Iftheofferee does not signify his assent to the offeror according to the mode

prescribed it becomes deviatedacceptance and strictly speaking it is no

acceptance at all. However, such a regid rule is not followed inIndia. In the case of

deviated acceptance the proposer may insist for the acceptance in the

prescribedmanner. He then has to do this within a reasonable time after

communication of acceptance to him.Otherwise it will be presumed that the

proposer has accepted the deviated acceptance. Sec. 7 of the Actdoes not tell that

deviated acceptance is no acceptance.

e) Acceptance must be provoked by offer: The acceptor must be aware of the offer.

Even if he fulfills

the conditions mentioned in the offer, if he is ignorant of the offer itself, he cant

give a valid acceptance.`

[Lalmann Shukla V, Gouridutt]. f) Acceptance must be given before the offer

lapses or is revoked: Wherea time limit has been fixed the acceptor has to accept

the offer within such time. Where no time limit isprescribed the acceptance has to

be within the reasonable time. An offer once dead cant be acceptedunless there is

a fresh offer.


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g) Provisional acceptance is no acceptance: A provisional acceptance does not

make a binding

agreement unless final approval is given. The offer may be withdrawn before

giving final approval.However, whether an agreement is provisional or final

depends upon the intention of the parties. Contractby post: No problem arises

where there is instantaneous communication of offer and acceptance which

ispossible when the parties are face to face. But how to determine the point of time

when the contract iscomplete if the parties are at distance by each other ? As

regards the point of time when the contract iscomplete, there is fundamental

difference between English Law and Indian Law. Under English Law, theproposer

is legally bound by the acceptance effected through postal medium when the letteris prepared,addressed, stamped and mailed eventhough it is delayed or lost in

transit.

Indian Law (Sec. 4) lays down that the communication of an acceptance is

complete as against theproposer when it is put in a course of transmission to him so

as to be out of the power of the acceptor; asagainst the acceptor when it comes to

the knowledge of the proposer . The distinction between EnglishLaw and Indian

Law lies with regard to the position of the acceptor. While under English Law,

theacceptor is bound by acceptance the moment the letter is mailed properly, under

Indian Law thecommunication of acceptance is complete as against, the acceptor

only when it comes to the knowledge of the proposer.

Termination of offer: Following are the circumstances under which an offer is

terminated.

(a) Lapse : An offer lapses because of passage of time, death or insanity of the

proposer. In case time

limit for acceptance is prescribed by the offeror, offer lapses if not accepted within

that time. In theabsence of any stipulation of time, it has to be accepted within a

reasonable time depending upon thecircumstances of each case. A proposal is

revoked by the death or insanity of the proposer, if the fact ofhis death or insanity

comes to the knowledge of the acceptor before acceptance. An acceptance is


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noteffective if it is communicated to the legal representatives of the proposer. But

in case the offeree isignorant of the offerors death, it can be accepted.`

(b) Failure to fulfill a condition procedent: Sec. 6 (3) provides that an offer is

terminated by the failure

of the acceptor to fulfil a condition precedent to acceptance. e.g., A offers to sell

his car to B for Rs.1,00,000 on the condition that B has to show his driving licence

to A. B has to comply with this conditionif he has to accept the offer.

(c) Rejection: By rejecting the offer offeror can terminate an offer. This rejection

may be express or

implied. A counter offer has the same effect as rejection.(d) Destruction of the subject matter or illegality : If the thing offered is destroyed

or cant be bought

and sold due to operation of law, the offer itself lapses.

(e) Revocation: The withdrawal of an offer by the offeror is known as revocation.

Till the acceptance of

the offer, the offeror can revoke it. Sec. 5 provides that a proposal may be revoked

by the proposer at anytime before the communication of its acceptance is complete.

Communication of acceptance as againstthe proposer is complete where it is put in

the course of transmission to him so as to be out of the reach ofthe acceptor. In

England, an acceptance cant be revoked.

Q3: What is the difference between fraud and misinterpretation? What do you

understand by mistake?

Ans:

Distinction between fraud and misrepresentation:

1) In misrepresentation the person making the false statement honestly believes it

to be true. In fraud, thefalse statement is made by person who knows that it is falseor he does not care to know whether it is true or false.

2) There is no intention to deceive the other party when there is misrepresentation

of fact. The very

purpose of fraud is to deceive the other party to the contract.


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3) Misrepresentation renders the contract voidable at the option of the party whose

consent was obtainedby misrepresentation. In the case of fraud the contract is

voidable. It also gives rise to an independentaction in tort for damages.

4) Misrepresentation is not an offence under Indian Penal Code and hence notpunishable. Fraud, in

certain cases is a punishable offence under Indian Penal Code.

5) Generally, silence is not fraud except where there is a duty to speak or the

relation between parties is

fiduciary. Under no circumstances can silence be considered as misrepresentation.`

6) The party complaining of misrepresentation cannt avoid the contract if he had

the means to discoverthe truth with ordinary deligance. But in the case of fraud, the party making a false statement cannot saythat the other party had the means to

discover the truth with ordinary deligance.

5. Mistake:

Usually, mistake refers to mis-understanding or wrong thinking or wrong belief.

But legally, its meaningis restricted and is to mean operative mistake. Courts

recognise only such mistakes which invalidate thecontract. Mistake may be

mistake of fact (either unilateral or bilateral) or mistake of law (either Indianlaw orforeign law). Sec. 20 Where both parties to an agreement are under a mistake as

to a matter offact essential to the agreement, the agreement is void. Sec. 21 A

contract is not voidable because it wascaused by a mistake as to any law in force in

India; but a mistake as to a law not inforce in India has thesame effect as a mistake

of fact. Bilateral mistake: Sec. 20 deals with bilateral mistake. Bilateral mistakeis

one where there is no real correspondence of offer and acceptance. The parties are

not really inconsensus-ad-idem. Therefore there is no agreement at all.

A bilateral mistake may be regarding the subject matter or the possibility of

performing the contract.Mistake as to the subject matter: This mistake arises when

the parties to the contract assume at the timeof making the contract, that a certain

state of things exists, but in reality it does not exist. Such a mistake may relate to


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(i) existance of the subject matter: Two parties may enter into the contract on the

assumption that thesubject matter exists at the time contract. But actually it may

have ceased to exist or has never existed atall. Then the contract becomes void.

(ii) Identity of the subject matter: A mutual mistakes as to the identity of subjectmatter renders the

contract void.

(iii) A mistake as to the quality of the subject matter will not render the agreement

void owing to theapplication of the principle of caveat emptor unless there is

misrepresentation or guarantee by the seller.(iv) Price of the subject matter: An

explanation to Sec. 20 provides that an erraneous opinion as to thevalue of the

thing which forms the subject matter of the agreement is not to be deemed a

mistake as to amatter of fact. A mistaken notion about the value of a thing bought

or sold may be unilateral or bilateral.If it is unilateral, the buyer or seller has to

presume that he has made a bad bargain. Where the mistake ismutual and the

parties enter into the contract with false assumption and mistake as to the value of

thesubject matter is the basis of their agreement, there cant be an enforceable

contract between them.`

(v) Title of the subject matter: If a person agrees to purchase property which is

unknown to himself andthe seller is his own already, the contract may be void. A

mistake as to the title does not invalidate acontract since Sec. 14 of the Sale of

Goods Act imposes an implied condition as to the title of the seller.Where there is

no such warrantee or the buyer purchases his own property the agreement will be

void-ab- initio.

vi) A false and fundamental assumption: A false and fundamental assumption

going to the root of thecontract would render the contract invalid. Mistake as to the

possibility of performance: There may notbe any possibility of the performance of

the contract. This impossibility of performance may be physicalor legal

impossibility. However, impossibility of performance cannot be included under the


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head bilateralmistake as there is Sec. 56 which lays down a positive rule of law

regarding responsibility. Unilateralmistakes: Mistake of one of the parties to a

contract as to a matter of fact is known as unilateral mistake.Sec. 22 provides that a

contract is not voidable merely because it was caused by unilateral mistake.

A person is bound by an agreement to which he has expressed a clear assent unless

the unilateral mistakeis caused by misrepresentation or fraud. However, where

consent to an agreement is given by a party to itunder mistake which prevents the

formation of a contract, the unilateral mistake multifies the consent andthe contract

becomes void. The following are such exceptional cases:

(a) Mistake as to identity: It is a rule of law that if a person intends to contract with

A, B cannot givehimself any right under it. An offer can be accepted only by the

person to whom it is offered. If it isaccepted by some one else, there arises a

unilateral mistake rendering the contract void. Mistake as toidentity is of two

types: (i) where the parties are dating with each other from a distance (ii) where

they areface to face with each other.

b) Mistake as to the character of a written document: If a person signs a document

under the mistakenimpression that he is signing a document of a different nature

altogether he may escape liability in thedocument signed by him, provided he can

prove that the nature of the document is different from what itis supposed to be.

One party to a contract may not disclose to the other the nature of the document

andinduce the other to sign the same. The other party may sign it presuming it to

be a document of differentnature. In such a case, the contract becomes wholly void

for want of concent. Mistake of law: A mistakeof law may be of law of land or of

foreign law. Mistake as to the law of the land doesnot render thecontract voidableas ignorance of law is no excuse.

`

Q4.What are the different ways in which a contract can be discharged? Describe

these ways in

details.


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Ans:

When the rights and obligations arising out of a contract are extinguished, the

contract is said to

be discharged or terminated. A contract may be discharged in any of the following

ways:

1. By performance actual or attempted.

2. By mutual consent or agreement.

3. By subsequent or supervening impossibility or illegality.

4. By lapse of time.

5. By operation of law.

6. By breach of contract.

1. Discharge by performance:

When a contract is duly performed by both the parties, the contract is discharged or

terminated by

due performance. But if one party only performs his promise, he alone isdischarged. Such a party

gets a right of action against the other party who is guilty of breach. Performance

may be:

(1) Actual performance; or (2) Attempted performance or Tender.

1. Actual performance: When each party to a contract fulfills his obligation arising

under thecontract within the time and in the manner prescribed, it amounts to

actual performance of thecontract and the contract comes to an end.

2. Attempted performance or tender: When the promisor offers to perform his

obligation underthe contract, but is unable to do so because the promisee does not

accept the performance, it iscalled attempted performance or tender. Thus

tender is not actual performance but is onlyan offer to perform the obligation

under the contract. A valid tender of performance isequivalent to performance.

Essentials of a valid tender. A valid tender or offer of performancemust fulfil the

following conditions:

1) It must be unconditional. A conditional tender is not a tender.

2) It must be made at proper time and place. A tender before or after the due date

or at a place

other than agreed upon is not a valid tender.

3) It must be of the whole obligation contracted for and not only of the part.4) If the tender relates to delivery of goods, it must give a reasonable opportunity

to the promiseefor inspection of goods so that he may be sure that the goods

tendered are of contract description.5) It must be made by a person who is in a

position and is willing to perform the promise. Atender by a minor or idiot is not a

valid tender.


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6) It must be made to the proper person i.e., the promisee or his duly authorised

agent. Tender

made to a stranger is invalid.

7) If there are several joint promisees, an offer to any one of them is a valid tender.

8) In case of tender of money, exact amount should be tendered in the legal tender

money.Tendering a smaller or larger amount is an invalid tender. Similarly, a

tender by a cheque isinvalid as it is not legal tender but if the creditor accepts the

cheque, he cannot afterwards raise an objection.

Effect of refusal to accept a valid tender (Sec. 38): The effect of refusal to accept a

properly madeoffer of performance is that the contract is deemed to have been

performed by the promisor i.e.,tenderer and the promisee can be sued for breach of

contract. A valid tender, thus, diacharges the`

contract. Exception: Tender of money, however, does not discharge the contract.

The money willhave to be paid even after the refusal of tender of course without

interest from the date of refusal.In case of a suit, cost of defence can also be

recovered from the plaintiff, if tender of money is proved.

2. Discharge by Mutual Consent or Agreement

Since a contract is created by means of an agreement, it may also be discharged by

anotheragreement between the same parties. Sections 62 and 63 provide for the

following methods ofdischarging a contract by mutual agreement:

1. Novation: Novation occurs when a new contract is substituted for an existing

contract, eitherbetween the same parties or between different parties, the

consideration mutually being thedischarge of the old contract. When the parties to

a contract agree for novation, the originalcontract is discharged and need not be

performed. The following points are also worth-notng inconnection with novation:

a) Novation cannot be compulsory, it can only be with the mutual consent of all the

parties.

b) The new contract must be valid and enforceable. If it suffers from any legal flaw

on account ofwhich it becomes unenforceable, then the original contract revives.

2. Alteration: Alteration of a contract means change in one or more of the material

terms of acontract. If a material alteration in a written contract is done by mutual

consent, the originalcontract is discharged by alteration and the new contract in its

altered form takes its place. Amaterial alteration made in a written contract by one


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party without the consent of the other, will,make the whole contract void and no

person can maintain an action upon it.

3. Rescission: A contract may be discharged, before the date of performance, by

agreementbetween the parties to the effect that it shall no longer bind them. Such

an agreement amounts torescission or cancellation of the contract, the

consideration for mutual promises being theabandonment by the respective parties

of their rights under the contract. An agreement ofrescission releases the parties

from their obligations arising out of the contract. There may also bean implied

rescission of a contract e.g., where there is non-performance of a contract by both

theparties for a long period, without complaint, it amounts to an implied rescission.

4. Remission: Remission may be defined As the acceptance of a lesser sum than

what wascontracted for or a lesser fulfilment of the promise made. Section 63 lays

down that a promiseemay give up wholly or in part, the performance of the

promise made to him and a promise to doso is binding even though there is no

consideration for it. An agreement to extend the time for theperformance of apromise also does not require consideration to support it on the ground that it isa

partial remission of performance.

5. Waiver: Waiver means the deliberate abandonment or giving up of a right which

a party isentitled to under a contract, whereupon the other party to the contract is

released from his obligation.

3. Discharge by subsequent or supervening impossibility or illegality: Impossibility

at the time ofcontract: There is no question of discharge of a contract which is

entered into to performsomething that is obviously impossible, e.g., an agreement

to discover treasure by magic, because,in such a case there is no contract to

terminate, it being an agreement void ab- initio by virtue ofSection 56, Para 1,

which provides: An agreement to do an act impossible in itself is

void.Subsequent impossibility: Section 56, Para 2, declares: A contract to do an

act which, after the

contract is made, becomes impossible, or, by reason of some event which the

promisor could not

prevent, unlawful, becomes void when the act becomes impossible or unlawful.

The following conditions must be fulfilled:1) that the act should have become impossible;

2) that impossibility should be by reason of some event which the promisor could

not prevent;

and

3) that the possibility should not be self-induced by the promisor or due to his

negligence. Thus,under Section 56 (Para 2), where an extent which could not


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reasonably have been in thecontemplation of the parties when the contract was

made, renders performance impossible orunlawful, the contract becomes void and

stands dischraged. This is known as frustration of thecontract brought about by

supervening impossibility. It is also known as the doctrine ofsupervening

impossibility. The rationale behind the doctrine is that if the performance of

acontract becomes impossible by reason of supervening impossibility or illegality

of the act agreedto be done, it is logical to absolve the parties from further

performance of it as they never didpromise to perform an impossibility. The

doctrine of supervening impossibility as enunciated inSection 56 (Para 2), is wider

than the doctrine of frustration known to the English law. Thedoctrine of

frustration is an aspect or part of the law of discharge of contract by reason

ofsupervening impossibility or illegality of the act agreed to be done. In the case of

subsequentimpossibility or illegality, the dissolution of the contract occurs

automatically. It does not dependon the choice of the parties. Cases where the

doctrine of supervening impossibility applies: Acontract will be discharged on theground of supervening impossibility in the following cases:

1. Destruction of subject-matter: When the subject-matter of a contract, subsequent

to itsformation, is destroyed, without the fault of the promisor or promisee, the

contract is discharged.It is so only when specific property or goods are destroyed

which cannot be regained.

2. Failure of ultimate purpose: Where the ultimate purpose for which the contract

was entered intofails, the contract is discharged, although there is no destruction of

any property affected by thecontract and the performance of the contract remains

possible.

3. Death or personal incapacity of promisor: Where the performance of a contract

depends uponthe personal skill or qualification or the existence of a given person,

the contract is discharged onthe illness or incapacity or the death of that person.

4. Change of law: A subsequent change in law may render the contract illegal and

in such casesthe contract is deemed discharged. The law may actually forbid the

doing of some act undertakenin the contract, or it may take from the control of the

promisor something in respect of which hehas contracted to act or not to act in a

certain way. Cases not covered by superveningimpossibility: He that agrees to do

an act must do it or pay damages for not doing it is thegeneral rule of the law of

contract. Thus, unless the performance becomes absolutely impossible(asdiscussed above), a person is bound to perform any obligation which he has

undertaken, andcannot claim to be excused by the mere fact that performance has

subsequently becomeunexpectedly burdensome, more difficult or expensive. Some

of the cases where impossibility ofperformance is not an excuse are as follows:

1. Difficulty of performance: Increased or unexpected difficulty and expense do

not, as a rule,


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excuse from performance.

2. Commercial impossibility: When in a transaction profits dwindle to a very low

level or actualloss becomes certain, it is said that the performance of the contract

has become commerciallyimpossible. Commercial impossibility also does not

discharge a contract.`

3. Impossibility due to the default of a third person. The doctrine of supervening

impossibilitydoes not cover cases where the contract could not be performed

because of the impossibilitycreated by the failure of a third person on whose work

the promisor relied.

4. Strikes and lock-outs: A strike by the workmen or a lock-out by the employer

does not excuseperformance because the former is manageable and the latter is

self-induced. Where theimpossibility is not absolute or where it is due to the

default of the promisor himself, Section56would not apply. As such these eventsalso do not discharge a contract.

5. Failure of one of the objects: When a contract is entered into for several objects,

the failure of

one of them does not discharge the contract.

4. Discharge by lapse of time: The Limitation Act lays down that in case of breach

of a contractlegal action should be taken within a specified period, called the

period of limitation. Otherwisethe promisee is debarred from instituting a suit in a

court of law and the contract standsdischarged. Thus in certain circumstances lapse

of time may also discharge a contract. Wheretime is of essence in a contract if

the contract is not performed at the fixed time, the contractcomes to an end, and theparty not at fault need not perform his obligation and may sue the other party for

damages.

5. Discharge by operation of law:

A contract terminates by operation of law in the following cases:

a) Death: Where the contract is of a personal nature, the dealth of the promisor

discharges thecontract. In other contracts the rights and liabilities of the deceased

person pass on to the legalrepresentatives of the dead man.

b) Insolvency: A contract is discharged by the insolvency of one of the parties to it

when aninsolvency court passes an order of discharge exonerating the insolventfrom liabilities on debtsincurred prior to his adjudication.

c) Merger: Where an inferior right contract merges into a superior right contract,

the former

stands discharged automatically.

d) Unauthorised material alteration: A material alteration made in a written

document or contract


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by one party without the consent of the other, will make the whole contract void.

6. Discharge by breach of contract: Breach of contract by a party thereto is also a

method ofdischarge of a contract, because breach also brings to an end the

obligations created by acontract on the part of each of the parties. Of course the

aggrieved party i.e., the party not at faultcan sue for damages for breach of contract

as per law; but the contract as such stands terminated.Breach of contract may be of

two kinds: (1) Anticipatory breach; and (2)

Actual breach.

1. Anticipatory breach: An anticipatory breach of contract is a breach of contract

occurring beforethe time fixed for performance has arrived. It may take place in

two ways: (a) Expressly by wordsspoken or written. Here a party to the contract

communicates to the other party, before the duedate of performance, his intention

not to perform it. (b) Impliedly by the conduct of one of theparties. Here a party by

his own voluntary act disables himself from performing the contract.When a party

to a contract has refused to perform or disabled himself from performing,hispromise in its entirity, the promisee may put an end to the contract, unless he

has signed, bywords or conduct his acquiscence in its continuance.

2. Actual breach: Actual breach may also discharge a contract. It occurs when a

party fails to

perform his obligations upon the date fixed for performance by the contract. Actual

breach

entitles the party not in default to elect to treat the contract as discharged and to sue

the party at

fault for damages for breach of contract.`

Q5 : What do you understand by Discharge of Instrument? What are the different

ways in which one or

more parties to a negotiable instrument are discharged?

Ans:

The term discharge in relation to negotiable instruments has two connotations,

viz., (1) discharge of

instrument, and (2) discharge of one or more parties from liability on the

instrument.A negotiable instrument is said to be discharged when it becomes completely

useless, i.e., no action onthat will lie, and it cannot be negotiated further. After a

negotiable instrument is discharged the rightsagainst all the parties thereto comes


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to an end, and no party, even a holder in due course, can claim theamount of the

instrument from any thereto.

Discharge of the party primarily and ultimately liable on the instrument

results in the discharge of the instrument itself. For example, in the following cases

and instrument isdeemed to be discharged:

1. When the party primarily liable on the instrument (i.e., the maker of the note,

acceptor of the bill ordrawee bank) makes the payment in due course to the holder

at or after maturity. A payment by a partywho is secondarily liable does not

discharge the instrument because in that case the payer holds it toenforce it against

prior indorser and the principal debtor.

2. When a bill of exchange which has been negotiated is, at or after maturity, heldby the acceptor in his

own right, the instrument is discharged.

3. When the party primarily liable becomes insolvent, the instrument is discharged

and the holder cannotmake any other prior party liable thereon. Similarly, an

instrument stands discharged when the primaryparty liable is discharged by

material alteration in the instrument or by lapse of time making the debt timebarred

under the Limitations Act.

4. When the holder cancels the instrument with an intention to release the party

primarily liable thereonfrom the liability, the instrument is discharged and ceases

to be negotiable. Discharge of One or MoreParties A party is said to be discharged

from his liability when his liability on the instrument comes to anend. When only

some of the parties to a negotiable instrument are discharged, the instrument

continues to

be negotiable and the undischarged parties remain liable on it.

One or more parties to a negotiable instrument are are discharged from liability in

the following ways:

1. By cancellation: When the holder of a negotiable instrument deliberately cancels

the name of any of

the party liable on the instrument with an intent to discharge him from liability

thereon, such party and allindorsers subsequent to him, who have a right of action


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against the party whose name is so cancelled, aredischarged from liability. If the

name of an indorser has been cancelled then all the indorsers subsequentto him will

be discharged but those prior him will remain liable. Where the cancellation is

done under amistake or without the authority of the holder if will not discharge any

party.

2. By release: If the holder of a negotiable instrument releases any party to the

instrument by any method

other than cancellation of names (i.e., by a separate agreement of waiver, release or

remission), the partyso released and all parties subsequent to him, who have a right

of action against the party so released, aredischarged from liability.

3. By payment: When the party primarily liable on the instrument makes the

payment in due course tothe holder at or after maturity, all the parties to the instrument stand discharged.

4. By allowing drawee more than 48 hours to accept: If the holder of a bill of

exchange allows the

drawee more than forty-eight hours, to consider whether he will accept the same,

all previous parties not

consenting to such allowance are thereby discharged from liability to such holder.

5. By taking qualified acceptance: If the holder of a bill agrees to a qualified

acceptance all prior parties

whose consent is not obtained to such an acceptance are discharged from liability.6. By not giving notice of dishonuour: Any party to a negotiable instrument (other

than the party

primarily liable) to whom notice of dishonour is not sent by the holder is

discharged from liability as

against the holder, unless the circumstances are such that no notice of dishonour is

required to be sent.

7. By non-presentment for acceptance of a bill: When a bill of exchange is payable

certain period after

sight, its holder must present it for acceptance to the drawee within a reasonabletime after it is drawn. Ifhe makes a default in making such presentment the drawer

and all indorsers who were liable towardssuch a holder are discharged from their

liability towards him.

8. By delay in presenting cheque: It is the duty of the holder of a cheque to present

it for payment


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within reasonable time of its issue. If he fails to do and in the meanwhile the bank

fails.`

Q6 : What do you understand by Arbitration? What are the objectives of the

Arbitration Act? What arethe essentials for Arbitration Agreement?

Ans:

Arbitration- (The Arbitrator decides)

Arbitration is a dispute resolution process where the opposing parties select or

appoint an individualcalled an Arbitrator. Upon appointment, the Arbitrator will

arrange the process to hear and consider theevidence, review arguments and

afterwards will publish an award in which the items of dispute aredecided. In some

cases the Arbitrator can conduct the arbitration on documents evidence only.

Whenpublished the Arbitrator's decisions are final and binding on the parties. It is

rare for an arbitration to beappealed to the courts. Arbitration may comprise a sole

Arbitrator, or may be a panel of Arbitrators.

Costs of the arbitration are disposed of in the Arbitrator's award, unless the parties

have some agreementto the contrary. Arbitration is a settlement of dispute by the

decision of one or more persons calledarbitrators. It is an arrangement forinvestigation and settlement of a dispute between opposing parties byone or more

unofficial persons chosen by the parties. In arbitration some dispute is referred by

the partiesfor settlement to a tribunal of their own choosing. The dispute is not

submitted for decision to theordinary courts but a domestic tribunal. It is thus a

method of settling the disputes in a quasi-judicialmanner. The essence of

arbitration is that the arbitrator decides the case and his award is in the nature ofa

judgement. Arbitration is a speedy and inexpensive method of settling the disputes

between the parties.In lines with the international trend, the Government of India

has also enacted the Arbitration andConciliation Act, 1996 and repealed the three

earlier enactments namely, the Arbitration (Protocol andConvention) Act, 1937;


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the Arbitration Act, 1940; and the Foreign Award (Recognition and Enforcement)

Act, 1961.

Objectives of the Act :The main objectives of the Act are as under:

i) To comprehensively cover international commercial arbitration and conciliation

as also domesticarbitration and conciliation. ii) To make provision for an arbitral procedure which

is fair, efficient and

capable of meeting the needs of the specific arbitration.

iii) To provide that the arbitral tribunal gives reasons for its arbitral award.

iv) To ensure that the arbitral tribunal remains with in the limit of jurisdiction.

v) To minimize the supervisory role of courts in the arbitral process.

`

vi) To permit an arbitral tribunal to use mediation, conciliation or other procedures

during the arbitral

proceedings to encourage settlement of disputes.

vii) To provide that every final arbitral award is enforced in the same manner as if

it were a decree of the

court.

viii) To provide that a settlement agreement reached by the parties as a result ofconciliation proceedingswill have the same status and effect as an arbitral award on

agreed terms on the substance of the disputerendered by an arbitral tribunal.

ix) To provide that, for purposes of enforcement of foreign awards, every arbitral

award made in thecountry to which one of the two international Conventions

relating to foreign arbitral awards to whichIndia is a party applies, will be treated

as a foreign award.

Arbitration Agreement: The foundation of arbitration is the arbitration agreementbetween the parties to

submit to arbitration all or certain disputes which have arisen or which may arise

between them. Thus,the provision of arbitration can be made at the time of entering

the contract itself, so that if any disputearises in future, the dispute can be referred

to arbitrator as per the agreement. It is also possible to refer adispute to arbitration


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after the dispute has arisen. Arbitration agreement may be in the form of

anarbitration clause in a contract or in the form of a separate agreement.

The agreement must be in writing and must be signed by both parties. The

arbitration agreement can be

by exchange of letters, document, telex, telegram etc [section 7].

Court must refer the matter to arbitration in some cases: If a party approaches court

despite the arbitrationagreement, the other party can raise objection. However,

such objection must be raised before submittinghis first statement on the substance

of dispute. Such objection must be accompanied by the originalarbitration

agreement or its certified copy. On such application the judicial authority shall

refer the partiesto arbitration. Since the word used is shall, it is mandatory for

judicial authority to refer the matter toarbitration [Section 8]. However, once first

statement to court is already made by the opposite party, thematter has to continue

in the court. Once an application is made by other party for referring the matter

toarbitration, the arbitrator can continue with arbitration and even make an arbitral

award.

Essentials of Arbitration Agreement

1. It must be in writing [Section 7(3)]: Like the old law, the new law also requires

the arbitrationagreement to be in writing. It also provides in section 7(4) that an exchange of

letters, telex, telegrams, or

`other means of telecommunications can also provide a record of such an

agreement. Further, it is alsoprovided that an exchange of claim and defence in

which the existence of an arbitration agreement isalleged by one party and not

denied by the other, will also amount to be an arbitration agreement.It is not necessary that such written agreement should be signed by the parties. All

that is necessary is thatthe parties should accept the terms of an agreement reduced

in writing. The naming of the arbitrator inthe arbitration agreement is not

necessary. No particular form or formal document is necessary.


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2. It must have all the essential elements of a valid contract: An arbitration

agreement stands on the

same footing as any other agreement. Every person capable of entering into a

contract may be a party toan arbitration agreement. The terms of the agreement

must be definite and certain; if the terms are vagueit is bad for indefiniteness.

3. The agreement must be to refer a dispute, present or future, between the parties

to arbitration:

If there is no dispute, there can be no right to demand arbitration. A dispute means

an assertion of a rightby one party and repudiation thereof by another. A point as to

which there is no dispute cannot bereferred to arbitration. The dispute may relate to

an act of commission or omission, for example, withholding a certificate to which

a person is entitled or refusal to register a transfer of shares.

Under the present law, certain disputes such as matrimonial disputes, criminal

prosecution, questionsrelating to guardianship, questions about validity of a will

etc. or treated as not suitable for arbitration.Section 2(3) of the new Act maintains

this position. Subject to this qualification Section 7(1) of the newAct makes it

permissible to enter into an arbitration agreement in respect of a defined legal

relationshipwhether contractual or not.

4. An arbitration agreement may be in the form of an arbitration clause in acontract or in the

form of a separate agreement [Section 7(2)].`


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9. Licensed Companies or Associations not for profit: The Companies Act permits

the registration

under a licence granted by the Central Government of an association not for profitwith limited liability.However, such a company can not use the word Ltd. or the

words Pvt. Ltd. with its name. This type ofassociation or company is formed for

the promotion of charity, science, commerce, sports, art or cultureetc. Naturally,

such associations are not of a commercial nature and do not aim at earning profits.

Q6: What do you understand by Cyber Crime? Explain the importance of the IT

Act 2000.

Ans:

Cyber crime refers to all the activities done with criminal intent in cyberspace or

using the medium ofInternet. These could be either the criminal activities in the

conventional sense or activities, newlyevolved with the growth of the new

medium. Any activity, which basically offends human sensibilities,can be included

in the ambit of Cyber crimes.

Because of the anonymous nature of Internet, it is possible to engage in a variety of

criminal activitieswith impunity, and people with intelligence, have been grossly

misusing this aspect of the Internet tocommit criminal activities in cyberspace. The

field of cyber crime is just emerging and new forms ofcriminal activities in

cyberspace are coming to the forefront each day. For example, child pornography

onInternet constitutes one serious cyber crime. Similarly, online pedophiles, using

Internet to induce minorchildren into sex, are as much cyber crimes as any others.

Categories of cyber crimes:

Cyber crimes can be basically divided in to three major categories:

1. Cyber crimes against persons;

2. Cyber crimes against property; and

3. Cyber crimes against government.


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1. Cyber crimes against persons: Cyber crimes committed against persons include

various crimes liketransmission of child-pornography, harassment of any one with

the use of a computer and cyber stalking.The trafficking, distribution, posting, and

dissemination of obscene material including pornography,indecent exposure, and

child pornography constitute the most important cyber crimes known today.These

threaten to undermine the growth of the younger generation and also leave

irreparable scars on theminds of the younger generation, if not controlled.

Similarly, cyber harassment is a distinct cyber crime. Various kinds of harassments

can and do occur in

cyberspace, or through the use of cyberspace. Harassment can be sexual, racial,

religious, or of any other

`

nature. Cyber harassment as a crime also brings us to another related area of

violation of privacy ofcitizens. Violation of privacy of online citizens is a cyber

crime of a grave nature. Cyber stalking: TheInternet is a wonderful place to work,

play and study. The net is merely a mirror of the real world, andthat means it also

contains electronic versions of real life problems. Stalking and harassment

areproblems that many persons especially women, are familiar within real life.

These problems also occuron the Internet, in the form of cyber stalking or

online harassment.

2. Cyber crimes against property: The second category of Cyber crimes is Cyber

crimes against all forms

of property.

unauthorized computer trespassing through These crimes include cyberspace,

computer vandalism, and

transmission of harmful programs and unauthorized possession of computerized

information.3. Cyber crimes against Government: The third category of Cyber crimes is Cyber

crimes againstGovernment. Cyber Terrorism is one distinct kind of crime in this

category. The growth of Internet hasshown that the medium of cyberspace is being


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used by individuals and groups to threaten internationalgovernments as also to

terrorize the citizens of a country.

This crime manifests itself into Cyber Terrorism when an individual cracks into

a government ormilitary maintained website, for the purpose of perpetuating terror.

Since Cyber crime is a newlyemerging field, a great deal of development has to

take place in terms of putting into place the relevantlegal mechanism for

controlling and preventing cyber crime. The courts in United States of America

havealready begun taking cognizance of various kinds of fraud and cyber crimes

being perpetrated incyberspace. However, much work has to be done in this field.

Just as the human mind is ingeniousenough to devise new ways for perpetrating

crime, similarly, human ingenuity needs to be canalized intodeveloping effective

legal and regulatory mechanisms to control and prevent cyber crimes.

A criminal mind can assume very powerful manifestations if it is used on a

network, given the

reachability and size of the network.

Explain the importance of the IT Act 2000

Enables Legal recognition to Electronic Transaction / Record

Facilitates Electronic Communication by means of reliable electronic`

record

Provides for acceptance of contract expressed by electronic means

Facilitates Electronic Commerce and Electronic Data interchange.

Facilitates Electronic Governance.

Facilitates electronic filing of documents.

Enables retention of documents in electronic form.


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Where the law requires the signature, digital signature satisfies the

requirement.

Ensures uniformity of rules, regulations and standards regarding the

authentication and integrity of electronic records or documents.

Facilitates Publication of Official Gazette in the electronic form.

Enables interception of any message transmitted in the electronic or

encrypted form.

Prevents Computer Crime, forged electronic records, international

alteration of electronic records fraud, forgery or falsification in Electronic

Commerce and electronic transaction.********************END*************

assignments of legal aspects of business

Documents