BUS law

1. FINAL ASSIGNMENT
COURSE CODE: BUS-502
COURSE TITLE: BUSINESS LAW & ETHICS
SECTION-01
Submitted By: Submitted To:
Hania Sultana Sonia Mallick
ID:201600017 Senior Lecturer
Department: MBA Eastern University
Submission Date: 07.10.2020

2. Answer to the que no 1
Answer:
Capacity to contract means the legal competence of a person to enter into a valid contract. Usually the
capacity to contract refers to the capacity to enter into a legal agreement and the competence to
perform some act. The basic element to enter into a valid contract is that s/he much have a sound mind.
So, we have three main aspects:
1. Attaining the age of majority
2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject to
Now I want to give some explanation about these.
1] Attaining the Age of Majority
According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years. For the
purpose of entering into a contract, even a day less than this age disqualifies the person from being a
party to the contract. Any person, domiciled in India, who has not attained the age of 18 years is termed
as a minor.
Let’s look at certain laws governing a minor’s agreement:
A Contract made with a Minor is Void
Since any person less than 18 years of age does not have the capacity to contract, any agreement made
with a minor is void ab-initio.
Example, Peter is 17 years and 6 months old. He needs some money to go on vacation with his friends.
He approached a moneylender and borrows Rs 25,000. As security, he signs some papers mortgaging his
laptop and motorcycle. Six months later, when he attains the age of majority, he files a suit declaring
that the mortgage executed by him when he was a minor is void and should be cancelled. The Court
agrees and relieves Peter of all liability to repay the loan.
Also, if a minor enters into a contract, then he cannot ratify it even after he attains majority since the
contract is void ab-initio. And, a void agreement cannot be ratified.
A Minor can be a Beneficiary of a Contract
While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of the Indian
Partnership Act, 1932 also specifies that while a minor cannot become a partner in the Partnership firm,
the benefits of the firm can be extended to him.

3. Contract by Guardian
Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of the
minor. Such a contract, which the guardian enters into, for the benefit of the minor, can also be
enforced by the minor.
However, guardians cannot bind a minor by a contract for buying immovable property. But a contract
entered into by a certified guardian of a minor, appointed by the Court, with approval from the Court for
the sale of a minor’s property can be enforced.
Insolvency
A minor cannot be declared insolvent as he cannot avail debts. Also, if some dues are pending from the
properties of the minor and he is not personally liable for the same.
Joint contract by a Minor and an Adult
In case of a joint contract between an adult and a minor, executed by the guardian on behalf of the
minor, the Liability of the contract falls on the adult.
2] Person of Sound Mind
According to law, or the purpose of entering into a contract, a person is said to be of sound mind if he is
capable of understanding the contract and being able to assess its effects upon his interests.
It is important to note that a person who is usually of an unsound mind, but occasionally of a sound
mind, can enter a contract when he is of sound mind. No person can enter a contract when he is of
unsound mind, even if he is so temporarily. A contract made by a person of an unsound mind is void.
3] Disqualified Persons
Apart from minors and people with unsound minds, there are other people who cannot enter into a
contract. i.e. do not have the capacity to contract. The reasons for disqualification can include, political
status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien enemy,
convicts, insolvents, etc.
Answer to the que no 2
Answer:
Mere silence as to facts is not fraud: According to the concept of fraud, it is evident to fathom the concept
of concealment and role of concealment in fraud. Concealment is of two types:
1.Active
2.Passive
Active concealment means if one has the duty to speak and one does not speak then it amounts to
active concealment. Active concealment amounts to fraud and the contract becomes voidable.
Passive concealment means a mere silence as to the kernel facts or material facts which may affect
the consent of the parties. Since it is mere silence as to material facts, it does not vitiate the concept
of consent.
The Explanation of ‘Mere silence as to facts is not fraud’:

4. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the
person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech.
As the explanation states, mere silence which may affect the willingness of a person to enter into a
contract is not fraud.
Illustration:
The illustrations describe that mere silence does not amount to fraud. Illustrations a and d portray the
same. They are as follows:
(a) A sell, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse’s
unsoundness. This is not fraud in A."
(b) A and B, being traders, enter upon a contract. A has private information of a change in prices which
would affect B’s willingness to proceed with the contract. A is not bound to inform B.
Now let us examine the first illustration. This illustration says that “A sells, by auction, to B, a horse
which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not fraud in
A”. A knows the fact that the horse, which he was selling, was unsound. In general, it is expected to be
fraud. But the nuances of the law convey the point that there shall be a duty to speak. Unless there is
duty to speak, one cannot consider mere silence as fraud. In this case, since B made no inquiry
pertaining to the soundness of the horse, A cannot be made liable.
According to another example “A and B, being traders, enter upon a contract. A has private information
of a change in prices which would affect B’s willingness to proceed with the contract. A is not bound to
inform B”. even in this case, the legislators wished to convey that unless there exists duty to speak or
silence amounting to or equivalent to speech, mere silence is no fraud. In the prior two illustrations, no
question was posed by B to A pertaining to the quality etc. hence, this clarifies the stance that mere
silence is no fraud.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud,
unless the circumstances of the case are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence, is, in itself, equivalent to speech.”[11]
As stated in the
explanation, unless the circumstances of the case are such that, regard being had to them, it is the duty
of the person keeping silence to speak or unless his silence in itself is equivalent to speech. Hence, the
exceptions are as follows:
1. Duty to speak;
2. Silence amounts to speech;
3. Change of circumstances;
4. Half-mentioned facts.
1.Duty to speak: As stated earlier, unless there exists duty to speak, mere silence is no fraud. There are
several circumstances where one has duty to speak. The instances are: where one reposes trust on the
other party; where one has no means to ascertain the truth; one relies on them, where contracts are
made uberrima fides.

5. Ex: Insurance contracts- one is expected to furnish all the details effecting the fundamentals of the
contract
2.Silence amounts to speech: Mere silence is fraud when the silence amounts to speech or when the
person knows that the silence may be deceptive.
Ex: If one knows about the value of property and one doesn’t disclose, it may amount to fraud.
3.Change of circumstances: Albeit it may happen that the statement wasn’t a misrepresentation earlier but
due to change in circumstances, it becomes a misrepresentation. If the person making it becomes aware of
the changes then it becomes his responsibility to apprise the same to the other party. If not then it may
amount to fraud.
4.Half mentioned facts: In cases where one expresses the material facts and fails to mention in toto then
for the remaining undisclosed facts, he may be held liable for fraud. When one starts expressing the
material facts then it becomes his duty to elucidate the whole.
Hence, mere silence is no fraud generally. Merely because one is silent of the material facts, one cannot
be held liable for fraud. But there are exceptions to it. Those are instances where one has: a. Duty to
speak; b. Silence amounts to speech; c. Change of circumstances; d. Half-mentioned facts.
Answer to the que no 3
Answer:
Undue Influence: Undue influence is when a person puts pressure on the testator or manipulates them
into leaving the influencer property in their will. Undue influence is more than just persuading someone
to write their will a certain way. The influence must be coercive or intimidating.
The influencer is someone with a special or confidential relationship to the testator, like a nurse,
caretaker, attorney, close friend, or even a family member. The relationship between the testator and
the influencer is what allows the influencer to be involved in the estate planning.
This person is already trusted and involved in controlling other parts of the testator’s life, like their
finances, housing, or healthcare. They use that trust to manipulate the testator into writing a will that
benefits the influencer, typically instead of close family members.
Effect of undue influence:
When consent to an agreement is caused by undue influence, the agreement is a contract voidable at
the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely, or if the party who was entitled to avoid it has
received any benefit there under, upon such terms and conditions as the Court may deem, just (Sec 19
A).Only a party to the contract can avoid or rescind the contract. This right does not lie in the hands of a
third party.
Undue influence makes an agreement voidable. The person unduly influenced can have the agreement
set aside if he acts in good time, and does nothing to show that he has subsequently affirmed the

6. agreement. Again, the agreement should be avoided before innocent third parties become affected or
involved.
MISREPRESENTA TION
Misrepresentation is another important factor whose presence vitiates consent and prevents an
agreement from becoming a binding contract.
Misrepresentation consists of untrue statements, relating to some existing facts, or past events, made
by a party to induce the other party to enter into an agreement. From the definition, the features of
misrepresentation are as follows: -
(a) Misrepresentation takes the form of an untrue statement:
There must be evidence that an untrue statement was made (either in writing, verbally, or by conduct).
For the general rule is that silence does not constitute misrepresentation. The exceptions to this rule or
the situations in which silence may amount to misrepresentation are as follows:
(i) Contracts uberrima fidei - These are contracts like insurance and Partnership which are based on
utmost good faith. Parties are obliged to volunteer all material information to each other. Non-
disclosure may therefore amount to misrepresentation and make the agreement
voidable.
(ii) If a true statement made in the course of the negotiations subsequently becomes false, failure to
inform the other party before the agreement is finalized may amount to misrepresentation.
(iii) When silence distorts and makes a representation untrue, i.e. half-truths.
In R. v. Kylsant (1932) 1 K.B. 442, for example, a company issued a prospectus offering shares for
subscription and stated that it had paid dividends throughout the preceding five years. It omitted to
disclose that dividend was rather paid from extra-ordinary items. The court held that this omission
amounted to misrepresentation since it gave the wrong impression that the company had made profits
throughout the period.
(b) The untrue statement must be made before or at the' time of. Making the contract: The purpose of
making representations is to persuade a reluctant party to contract. These representations may be
incorporated into the agreement itself if the parties want. If that happens, the representations become
terms of the contract. If incorporated as a part of the terms of the agreement, it affords a party extra
protection since the other party thereby contracts or warrants that the representations are true, and
may be sued for breach of contract if they turn out to be untrue.
(c) A statement of opinion, intention or about the law does not amount to misrepresentation: If a party
gives an opinion, i.e. he states beliefs which are based on grounds that cannot be subjected to any
proof, he cannot be liable for misrepresentation. To advertise a product as "the best of its kind in the
world" is regarded as mere puffery. Since every salesman is entitled to "puff-up" his products to attract
customers, he is entitled to state his opinion and commend the virtues of his wares. This right is
expressed in the Latin maxim simplex commendation non obligate (mere commendation creates no
obligations). On the basis of this maxim, it was held in Scott v. Hanson that it is not misrepresentation to
describe one's land as "uncommonly rich"
Illustrations:
1) A’s son has forged B’s name on a promissory note. B, under threat of prosecuting A’s son, obtains a
bond from A, for the amount of the forged note. If B sues on this bond, the Court may set it aside.

7. 2) A, a money lender advances Rs 100 to B, an agriculturist and by undue influence, induces B to execute
a bond for Rs 200 with interest at b6 per cent per month. The Court may set the bond aside ordering B
to repay Rs 100 with such interest as may seem just.
Answer to the que no 4
Answer: The act defines a contract of sale of goods as a contract whereby the seller transfers or
agrees to transfer the property in goods to the buyer for a price.
There must be two distinct parties to a contract of sale. Ex: when students of a hostel take
meals with a mess run by themselves on cooperative lines, there is no contract of sale.
Under the Sale of Goods Act 1979 Goods under a contract of sale that have been either totally
destroyed or so damaged that they no longer fit the contract description is called perishing of
good.
The effect of perishing of goods on a contract of sale:
The effect of perishing of goods are being discussed under the following heads.
1. Perishing of goods at or before making of the contract (Sec. 7):
Perishing of goods at or before making of the contract (Sec. 7) may again be divided into the following
sub-heads:
(a) In case of perishing of the whole of the goods:
Where specific goods form the subject- matter of a contract of sale (both actual sale and agreement to
sell), and they, without the knowledge of the seller, perish, at or before the time of the contract, the
contract is void. This provision is based either on the ground of mutual mistake as to a matter of fact
essential to the agreement, or on the ground of impossibility of performance, both of which render an
agreement void ab-initio.
Illustrations:
(a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It turned
out, that before the day of the bargain, the ship conveying the cargo had been cast away and the goods
were lost. Neither party was aware of the fact. The agreement was held to be void.

8. (b) A agrees to sell to B a certain horse. It turns out that the horse was dead at the time of bargain,
though neither party was aware of the fact. The agreement is void.
(b)In case of perishing of only ‘a part’ of the goods.
Where in a contract for the sale of specific goods, only part of the goods is destroyed or damaged, the
effect of perishing will depend upon whether the contract is entire or divisible. If it is entire and only
part of the goods had perished, the contract is void. If the contract is divisible, it will not be void and the
part available in good condition must be accepted by the buyer.
Illustration:
There was a contract for the sale of a parcel containing 700 bags of Chinese groundnuts of different
qualities. Unknown to the seller, 109 bags had been stolen at the time of the contract. The seller
delivered the remaining 591 bags, and on the buyer’s refusal to take them, brought an auction for the
price. It was held that the contract, being indivisible, had become void by reason of the loss of the goods
and the buyer was not bound to take delivery of 591 bags or pay for the goods (Barrow Ltd. vs. Philips
Ltd.)
2. Perishing of goods before sale but after agreement to sell (Sec. 8):
Where there is an agreement, to sell specific goods and subsequently the goods, without, any fault on
the part of the seller or buyer, perish before the risk passed to the buyer, the agreement is there by
avoided. This Provision is based or the ground of Supervening impossibility of performance which makes
a contract void. If only part of the goods agreed to be sold perish, the contract becomes void if it is
indivisible. But if it is divisible then the parties are absolved from their obligations only to the extent of
the perishing of the goods
It must further be noted that if fault of either party causes the destruction of the goods, then the party
in default is liable for non-delivery or to pay for the goods, as the case may be (Sec. 26). Again, if the risk

9. has passed to the buyer, he must pay for the goods, though undelivered [unless otherwise agreed risk
prima facie passes with the property (Sec. 26).
Illustrations:
(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his purpose, the
bargain would become absolute. The horse died on the 3rd
day without any fault of either party. Held,
the contact, which was in the form of an agreement to sell, becomes void and the seller should bear the
loss (Elphick vs. Barnes).
(b) A, had contracted to erect machinery on M’s premises, the price was to be paid on completion.
During the course of the work, there was a fire which completely destroyed the premises and the
machinery. It was held that both parties were excused from further performance and A was not entitled
to any payment as the price was payable on the completion of entire work (Appleby vs. Myers.).
3. Effect of Perishing of Future Goods:
As observed earlier, a present sale of future goods always operates as an agreement to sell [Sec. 6(3)].
As such there arises a question as to whether Section 8 applies to a contract of sale of future goods as
well? The answer is found in the leading case of Howell vs. Coupland, where it has been held that future
goods, if sufficiently identified, are to be treated as specific goods, the destruction of which makes the
contract void. The facts of the case are as follows:
Illustration:
C agreed to sell to H 200 tons of potatoes to be grown on C’s land. C sowed sufficient land to grow the
required quantity of potatoes, but without any fault on his part, a disease attacked the crop and he
could deliver only about ten tons. The contract was held to have become void.