1. Master of Business Administration – MBA Semester 3
MB0035 – Legal Aspects of Business
Assignment Set- 1
60 Marks
Note: Each question carries 10 Marks. Answer all the questions.
Q.1 Explain the characteristics of law and briefly describe the sources of Indian Law. [10 marks]
Q.2 Suman is an agent. In an agency contract, what will be Suman’s rights and duties? Explain.
[10 marks]
Q.3. a. What is a contract of indemnity? Explain? [5 marks]
b. Mention the features of different kinds of guarantees. [5 marks]
Q.4. Divya, Vidya and Rajendra want to start a partnership firm dealing with designer jewelery.
Explain to them the different elements in a Partnership deed and other aspect of a partnership firm.
[10 marks]
Q. 5 a. Explain the rights of unpaid seller. [5 marks]
b. What are the remedies available for breach of contract? [5 marks]
Q. 6. a. Discuss the essentials of a valid contract. [6 marks]
b. What is consideration? Give some examples. [4 marks]

2. Q.1. Explain the characteristics of law and briefly describe the sources of Indian Law.
Ans. The term ‘law’ is used in many senses: you may speak of the law of physics, mathematics, science, or
the laws of the football or health. In its widest sense, ‘law’ means any rule of conduct, standard or pattern, to
which actions are required to conform; if not conformed, sanctions are imposed. When we speak of the law of a
State, we use the term ‘law’ in a special and strict sense.
Characteristics of law:
1. Law is a body of rules: These rules prescribe the conduct, standard or pattern to which actions of the
persons in the state are required to conform. However, all rules of conduct do not become law in the
strict sense. We resort to various kinds of rules to guide our lives. For example, our conduct may be
guided by a rule such as “do not be arrogant” or “do not be disrespectful to elders or women”. These
are ethical or moral rules by which our daily lives are guided. If we do not follow them, we may lose our
friends and their respect, but no legal action can be taken against us.
2. Law is for the guidance or conduct of persons – both human and artificial: The law is not made
just for the sake of making it. The rules embodied in the law are made, so as to ensure that actions of
the persons in the society conform to some predetermined standard or pattern. This is necessary so as
to ensure continuance of the society. No doubt, if citizens are ‘self-enlightened’ or ‘self-controlled’,
disputes may be minimized, but will not be eliminated. Rules are, therefore, drawn up to ensure that
members of the society may live and work together in an orderly manner. Therefore, if the rules
embodied in the law are broken, compulsion is used to enforce obedience, and certain consequences
ensue.
3. Law is imposed: Law is imposed on the members to bring about an order in the group, enabling it to
continue and prosper. It is not something which may or may not be obeyed at the sweet will of the
members of society. If you cannot impose a rule it is better not to have it. Thus, law is made obligatory
on the members of the society.
4. Law is enforced by the executive: Obviously, unless a law is enforced it ceases to be a law and
those persons subject to it will regard it as dead. For example, if A steals B’s bicycle, he may be
prosecuted by a court and may be punished. Also, the court may order the restitution of the bicycle to
its rightful owner i.e., B. If the government passes many laws but does not attempt to enforce them, the
citizens lose their respect for government and law, and society is greatly weakened. The force used is
known as sanction which the state administers to secure obedience to its laws.
5. The state: A state is a territorial division, with people therein subject to a uniform system of law
administered by some authority of the state. Thus, law presupposes a state.
6. Content of law: The law is a living thing and changes throughout the course of history. Law responds
to public opinion and changes according. Law can never be static. Therefore, amendments are made
in different laws from time to time. For example, the Monopolistic and Restrictive Trade Practices Act,
1969, has been subjected to many amendments since its inception in 1969.
7. Two basic ideas involved in law: The two basic ideas involved in any law are : (i) To maintain some
form of social order in a group and (ii) To compel members of the group to be within that order. These
basic ideas underlie formulation of any rules for the members of a group. A group is created because
first, there is a social instinct in the people to live together and secondly, it helps them in self-
preservation. Rules are made by the members of the group, so that the group doesn’t whither away.
8. Law is made to serve some purpose which may be social, economic or political : Some
examples of ‘law’ in the widest sense of the term. ‘Law’ in its widest sense may include : (i) Moral rules
or etiquettes, the non-observance of which may lead to public ridicule, (ii) Law of the Land the non-
observance of which may lead to arrest, imprisonment, fines, etc., (iii) Rules of international law, the
non-observance of which may lead to social boycott, trade-sanctions, cold war, hot war, proxy war, etc.
Sources of Indian Law:

3. The main sources of modern Indian Law, as administered by Indian courts, may be divided into two broad
categories: (i) Primary sources and, (ii) Secondary sources.
(i) Primary sources of Indian Law:
The primary sources of Indian Law are: (a) customs, (b) judicial precedents (stare deices’), (c) statutes and (d)
personal law.
a) Customary Law:
Customs have played an important role in making the law and therefore are also known as customary law.
‘Customary Law’, in the words of Keeton, may be defined as “those rules of human action, established by
usage and regarded as legally binding by those to whom the rules are applicable, which are adopted by the
courts and applied as sources of law because they are generally followed by the political society as a whole
or by some part of it”. In simple words, “it is the uniformity of conduct of all persons under like
circumstances”. It is a generally observed course of conduct by people on a particular matter. When a
particular course of conduct is followed again and again, it becomes a custom.
b) Judicial precedents are an important source of law:
Judicial precedents are another important source of law. It is based on the principle that a rule of law which
has been settled by a series of decisions generally should be binding on the court and should be followed
in similar cases. These rules of law are known as judicial precedents. However, only such decisions which
lay down some new rules or principles are treated as judicial precedents. Thus, were there is a settled rule
of law, it is the duty of the judges to follow the same; they cannot substitute their opinions for the
established rule of law. This is known as the doctrine of ‘stare deices’. The literal meaning of this phrase is
“stand by the decision”.
c) ‘Statute’ – an important source of law:
The statutes or the statutory law or the legislation is the main source of law. This law is created by
legislation such as Parliament. In India, the Constitution empowers the Parliament and state legislatures to
promulgate law for the guidance or conduct of persons to whom the statute is, expressly or by implication,
made applicable. It is sometimes called ‘enacted law’ as it is brought into existence by getting Acts passed
by the legislative body. It is called Statute Law because it is the writ of the state and is in written form (jus
scriptum).
d) Personal law :
Many times, a point of issue between the parties to a dispute is not covered by any statute or custom. In
such cases, the courts are required to apply the personal law of the parties. Thus in certain matters, we
follow the personal laws of Hindus, Mohammedan and Christians.
(ii) Secondary sources of Indian law :
The secondary sources of Indian Law are English Law and Justice, Equity and Good Conscience.
English law :
The chief sources of English Law are : (i) The Common Law (ii) Equity, (iii) The law Merchant and (iv) The
Statute Law.
Nowadays, English law is not very important source of Indian law. The English law, in its application to India,
has to conform to the peculiar circumstances and conditions prevailing in this country. Even though the bulk of
our law is based on and follows the English law, yet in its application our courts have to be selective. It is only
when the courts do not find a provision on a particular problem in the primary sources of Indian Law that it my
look to subsidiary sources such as the English Law. For example, the greater part of the Law Merchant has
been codified in India. The Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Scale of Goods Act
1930 and the Negotiable Instruments Act, 1882, are some of the very important Acts relating to business
transactions. Where, however, there is some doubt as to the interpretation of any provisions of these Acts or
where certain branches of the Law Merchant have not been codified, the courts in India look to English
decisions on the point, for guidance.
Justice, equity and good conscience:

4. In India, we do not have, no did we ever had separate courts (as in England) administering ‘equity’. But the
equitable principles of law, i.e., justice, equity and good conscience, are the guiding force behind most of the
statutes in our country and the decisions of the courts. Especially, where law is silent on any point or there is
some lacuna n a statute, the principles of equity come handy to the judges who exercise their discretion often
on equitable considerations. The frequent use of terms such as ‘good faith’, ‘public interest’, ‘public policy’, in
statutes and by the judges in their judgments is based on principles of equity.
Now we shall briefly describe the main sources of English law:
1. Common law: This source consists of all those unwritten legal doctrines embodying customs and
traditions developed over centuries by the English courts. Thus, the common law is found in the
collected cases of the various courts of law and is sometimes known as ‘case law’.
2. Equity: The literal meaning of the term ‘equity’ is ‘natural justice’. The development of equity as a
source of law occurred due to rigours and hardships of the Common Law. Therefore, in its technical
and narrower sense, ‘equity’ means a body of legal doctrines and rules emanating from the
administrations of justice, developed to enlarge, supplement or override a narrow rigid system of
existing law of the land. However, like the common law, the ‘equity’ is unwritten and is a supplement to
common law as a source of law.
3. Statute law: The Statute law consists of the law passed by the Parliament and therefore, is ‘written’
law. The authority of parliament is supreme but is subject to natural limitations and those laid down by
the Constitution. It can pass any law it pleases and can override its own previous Acts and the
decisions of the courts. Statute law, therefore, is superior to and can override any rule of Common Law
or equity.
4. The law merchant or lex mercatoria : It is another important source of law and is based to a great
extent on customs and usages prevalent among merchants and traders of the middle ages. Its
evolution like that of equity can be traced to unsuitability of Common Law so far as the commercial
transactions were concerned. The Common Law was found to be unsatisfactory in dealing with
disputes between merchants. The merchants, therefore, developed certain rules based upon customs
and usages to govern their mercantile transactions. These rules were known as Lex Mercatoria or the
Law Merchant.
Q 2. Suman is an agent. In an agency contract, what will be Suman’s rights and duties? Explain.
Ans Duties and Rights of Agent
Duties of agent:
The duties of agent towards his principal are:
1. To conduct the business of agency according to the principal’s directions
(Sec. 211): The duty of the agent must be literally complied with, i.e., the agent is not supposed to
deviate from the directions of the principal even for the principal’s benefit. If he does so, any loss
occasioned thereby shall have to be borne by the agent, whereas any surplus must be accounted for
to the principal.
2. The agent should conduct the business with the skill and diligence that is generally possessed
by persons engaged in similar business, except where the principal knows that the agent is wanting
in skill (Sec. 212).
3. To render proper accounts (Sec. 213) : The agent has to render proper accounts. If the agent fails
to keep proper accounts of the principal’s business, everything consistent with the proved facts will
be presumed against him. Rendering of accounts does not mean showing the accounts, but
maintaining proper accounts supported by vouchers.
4. To communicate with the principal in case of difficulty (Sec. 214) : It is the duty of agent, in case
of difficulty, to use all reasonable diligence, in communicating with his principal and in seeking to

5. obtain his instructions. In case of emergency, however, the agent can do all that a reasonable man
would, under similar circumstances, do with regard to his own business. He becomes agent by
necessity.
5. Not to make any secret profits : Agent should deliver to the principal all moneys including secret
commission received by him. He can, however, deduct his lawful expenses and remuneration.
6. Not to deal on his own account : Agent should not deal on his own account without first obtaining
the consent of his principal. If he does so, the principal can claim from the agent any benefit which
he might have obtained.
Example : Pawan directs Amar, his agent, to buy a particular house for him. Amar tells Pawan that it
cannot be bought, but buys the house for himself. Pawan may, on discovering that Amar has bought the
house, compel him to sell it to Pawan at the prince he bought.
7. Not entitled to remuneration for misconduct (Sec. 220) : Agent who is guilty of misconduct in the
business of agency is not entitled to any remuneration in respect of that part of the business which
he has misconduct.
8. Not to disclose confidential information supplied to him by the principal.
9. To take all reasonable steps for the protection and preservation of the interests entrusted to
him when the principal dies or becomes of unsound mind (Sec. 209).
Rights of agent:
Agent has a number of rights these are:
1. Right to remuneration (Secs. 219-220): Agent is entitled to his agreed commission or remuneration
and if there is no agreement, to a reasonable remuneration. But the remuneration does not become
payable unless he has carried out the object of agency, except where there is a contract to the
contrary. When the object of agency is deemed to have been carried out or the act assigned to the
agent is completed would depend on the terms of the contract.
Example : Pawar appoints Amar, a broker. Amar is entitled to his commission when he has procured a
party who is willing to negotiate on reasonable terms and to desirous of entering into a contract with
Pawar.
2. Right of retainer (Sec. 217) : Agent may retain, out of any sums received on account of the
principal in the business of the agency, all moneys due to himself in respect of advances made or
expenses properly incurred by him in conducting such business and also such remuneration as may
be payable to him for acting as agent. This is known as agent’s right of retainer.
3. Right of lien (Sec. 221) : In the absence of any contract to the contrary, agent is entitled to retain
goods, papers and other property, whether movable or immovable of the principle received by him,
until the amount due to himself for commission, disbursements and services in respect of the same
has been paid or accounted for to him. This lien of the agent is a particular lien confined to all claims
arising in respect of the particular goods and property. By a special contract, however, agent may get
a general lien extending to all claims arising out of the agency. Since, the word ‘lien’ means retaining
possession, it can be enjoyed by the agent only where the goods or papers are in actual or
constructive possession of the agent. The right of lien will, therefore, be lost where he parts with the
possession of goods or papers. But if the possession is obtained from the agent by fraud or unlawful
means, his lien is not affected by the loss of possession.
4. Right of stoppage in transit : The agent can stop the goods while in transit in two cases : (a)
Where he has purchased goods on behalf of the principal either with his own funds, or by incurring a
personal liability for the price, he stands towards the principal in the position of an unpaid seller. Like
an unpaid seller, he enjoys the right of stopping the goods in transit if in the meantime the principal
has become insolvent. (b) Where agent holds himself liable to his principal for the price of the goods

6. sold, For example, del credere agent, he may exercise the unpaid seller’s right of stopping the goods
in transit in case of buyer’s insolvency.
5. Right of indemnification (Sec. 222-224) : The principal is bound to indemnify agent against the
consequences of all lawful acts done by the agent in exercise of authority conferred on him.
Q 3.a. What is a contract of indemnity? Explain.
Ans 3.a: Contract of indemnity:
Secs. 124 and 125 provide for a contract of indemnity. Sec. 124 provides that a contract of indemnity is a
contract whereby one party promises to save the other from loss caused to him (the promises) by the
conduct of the promissory himself or by the conduct of any other person. A contract of insurance is a glaring
example of such type of contracts. A contract of indemnity may arise either by (i) an express promise or (ii)
operation of law, e.g., the duty of a principal to indemnify an agent from consequences of all lawful acts done
by him as an agent. The contract of indemnity, like any other contract, must have all the essentials of a valid
contract. These are two parties in a contraction of identity indemnifier and indemnified. The indemnifier
promises to make good the loss of the indemnified (i.e., the promise).
Example: A contracts to indemnify B against the consequences of any proceeding which C may take against
B in respect of a certain sum of Rs. 200. This is a contract of indemnity.
Q 3.b. Mention the features of different kinds of guarantees.
Ans.3.b: Kind of Guarantee:
Oral or written guarantee:
A contract of guarantee may either be oral or in writing (Sec. 126), though a creditor should always prefer to
put it in writing to avoid any dispute regarding the terms, etc. In case of an oral agreement the existence of
the agreement itself is very difficult to prove.
Specific and continuing guarantee:
From the point of view of the scope of guarantee a contract of guarantee may either by specific or continuing.
A guarantee is a “specific guarantee”, if it is intended to be applicable to a particular debt and thus comes to
end on its repayment. A specific guarantee once given is irrevocable.
Example: A guarantees the repayment of a loan of Rs. 10,000 to B by C (a banker). The guarantee in this
case is a specific guarantee.
A guarantee which extends to a series of transactions is called a “continuing guarantee” (Sec. 129).
Example: A guarantees payment to B, a tea-dealer, to the amount of Rs. 10,000 for any tea he may from
time to time supply to C. B supplies C with tea of the value above Rs. 10,000 and C pays B for it. Afterwards
B supplies C with tea to the value of Rs. 15,000. C fails to pay. The guarantee given by A was a continuing
guarantee and he is accordingly liable to B to the extent of Rs. 10,000.
A guarantee regarding the conduct of another person is a continuing guarantee. Unlike a specific guarantee
which is irrevocable, a continuing guarantee can be revoked regarding further transactions (Sec. 130).
However, continuing guarantee cannot be revoked regarding transactions that have ready taken place.
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a
continuing guarantee, so far as regards future transactions. (Sec.131)
A guarantee may either be for the whole debt or a part of the debt:
Difficult questions arise in case of guarantee for a limited amount because there is an important distinction
between a guarantee for only a part of the whole debt and a guarantee for the whole debt subject to a limit.
For instance, where X owes Y Rs. 50,000 and A has stood as surety for Rs. 30,000, the question may arise
whether A has guaranteed Rs. 30,000 out of Rs. 50,000 or whether he has guaranteed the full amount of Rs.

7. 50,000 subject to a limit of Rs. 30,000. This matter becomes important if X is adjudged insolvent and Y wants
to prove in X’s insolvency and also enforce his remedy against A. If a stood surety only for a part of the debt
and if X’s estate can pay only 25 paisa dividend in the rupee, then Y can get
Rs. 30,000 the full amount of guarantee from A and Rs. 5,000 from X’s estate, being ¼ of the balance, i.e.,
Rs. 50,000 – Rs. 30,000 = Rs. 20,000 which was not guaranteed. Since after paying Rs. 30,000 to Y, A can
claim from X’s estate, he will get Rs. 7,500 being ¼ of Rs. 30,000 paid by A to Y. If on the other hand, A had
stood surety for the whole debt of Rs. 50,000 subject to a limit of Rs. 30,000 then Y can recover from A Rs.
30,000 and from X’s estate Rs. 12,500, i.e., ¼ of Rs. 50,000. A will not get any dividend unless Y has been
fully paid. This can happen only if X’s estate declares a higher dividend.
Q 4. Divya, Vidya and Rajendra want to start a partnership firm dealing with designer jewelery.
Explain to them the different elements in a Partnership deed and other aspect of a partnership firm.
Ans 4: Partnership Deed:
A partnership can be formed either by oral or written agreement:
In France and Italy, the law requires all partnership agreements to be in writing. But in England, USA and
India, written agreement is not compulsory. But in order to avoid misunderstanding and litigation, it is
desirable to enter into a written agreement which is called Partnership deed or agreement. The partnership
deed is required to be stamped according to the provisions of the Stamp Act, 1899. Each partner should
possess a copy of the Deed.
Partnership agreements and contract law:
Sec. 3 provides that the unrevealed provisions of the Indian Contract Act, 1872 save insofar as they are
inconsistent with the provisions of this Act, shall continue to apply to firms. Also Sec. 2(e) provides that
“expressions used but not defined in this Act and defined in the Indian Contract Act, 1872, shall have the
meanings assigned to them in that Act”. As a partnership agreement is a contract, the provisions of the
Indian Contract Act, 1872, are applicable to it.
Partnership Firms:
Application for registration:
Sec. 58 lays down the procedure for registration of partnership firms. A partnership firm may be registered at
any time by post, or delivering to the Registrar of Firms of the area in which any place of business of the firm
is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed
fee, stating : (i) the firm’s name, (ii) the place or the 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 addresses of the partners and (vi) the duration of the firm. The statement must be signed
by all the partners, or by their agents especially authorized in that behalf and duly verified. When the
Registrar of Firms is satisfied that the provisions of Sec. 58 have been duly complied with, he registers the
firm by recording an entry of the statement in a register called the Register of Firms and shall file the
statement (Sec. 59). He then issues under his hand a Certificate of registration. Registration is effective from
the date when the Registrar files the statement and makes entries in the Register of Firms.
Registration of firms is optional:
The Act does not provide for compulsory registration of firms. It is optional and there is no penalty for non-
registration. But at the same time Sec. 69 has effectively, ensured registration of firms by introducing certain
disabilities that an unregistered firm suffers from. The firm cannot.

8. Q 5.a. Explain the rights of unpaid seller.
Ans 5.a: Unpaid Seller and his Rights:
A contract is comprised of reciprocal promises. In a contract of sale, if seller is under an obligation to deliver
goods, buyer has to pay for it. In case buyer fails or refuses to pay, the seller, as unpaid seller, shall have
certain rights.
Who is an unpaid seller ?
A seller of goods is an unpaid seller when (i) the whole of the price has not been paid or tendered. (ii) a bill of
exchange or other negotiable instrument has been received as conditional payment and the condition on
which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.
Rights of an unpaid seller :
The rights of an unpaid seller may broadly be classified under two heads, namely : (i) Rights under the Secs.
73-74 of the Indian Contract Act, 1872, i.e., to recover damages for breach of contract. (ii) Rights under the
Sale of Goods Act, 1930 : (a) rights against the goods; (b) rights against the buyer personally. The rights
against the goods are as follows :
Lien on goods (Secs. 47-49) :
The word lien means to retain possession of. An unpaid seller who is in possession of goods is entitled to
retain them in his possession until payment or tender of the price in three situations, namely, (a) where the
goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but
the term of credit has expired; (c) where the buyer becomes insolvent. Lien can be exercised only for non-
payment of the price and not for any other charges due against the buyer. For Example, the seller cannot
claim lien for godown charges for storing the goods in exercise of his lien for the price.
Right of stoppage in transit :
This right of the unpaid seller consists in preventing the goods from being delivered to the buyer and
resuming and regaining their possession while in transit, retaining them till the price is paid. The right of
stoppage in transit is earned only where the right of lien is lost and is available only where the buyer has
become insolvent (Sec. 50).
Right of resale (Sec. 54) :
The unpaid seller, who has retained the possession of the goods in exercise of his right of lien or who has
resumed possession from the carrier upon insolvency of the buyer, can resell the goods, (i) if the goods are
of a perishable nature, without any notice to the buyer and (ii) in other cases after notice to buyer calling
upon him to pay or tender the price within a reasonable time and upon failure of the buyer to do so.
Q 5.b. What are the remedies available for breach of contract?
Ans 5.b: Remedies for Breach of a Contract:
In addition to the rights of a seller against goods provided in Secs. 47 to 54, the seller has the following
remedies against the buyer personally, (i) suit for price (Sec. 55); (ii) damages for non-acceptance of goods
(Sec. 56); (iii) suit for interest (Sec. 56).
Suit for price (Sec. 55):
Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully
neglects or refuses to pay the price, the seller can sue the buyer for the price of the goods. Where the
property in goods has not passed to the buyer, as a rule, the seller cannot file a suit for the price; his only
remedy is to claim damages.

9. Example: A sold certain goods to B for Rs. 5,000 and the price was agreed to be paid before the expiry of
ten days of the contract. B fails to pay the price within the stipulated time. A can file a suit for price against B
even though the goods have not been delivered or the property in goods has not been passed to B.
Suit for damages for non-acceptance (Sec. 56):
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for
damages for non-acceptance. Where the property in the goods has not passed to the buyer and the price
was not payable without passing of property, the seller can only sue for damages and not for the price. The
amount of damages is to be determined in accordance with the provisions laid down in Sec. 73 of the Indian
Contract Act, 1872. Thus, where there is an available market for the goods prima facie, the difference
between the market price and the contract price can be recovered.
Suit for interest (Sec. 61):
When under a contract of sale, the seller tenders the goods to the buyer and the buyer wrongfully refuses or
neglects to accept and pay the price, the seller has a further right to claim interest on the amount of the price.
In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the
amount of the price. The interest may be calculated from the date of the tender of the goods or from the date
on which the price was payable. It is obvious that the unpaid seller can claim interest only when he can
recover the price, i.e., if the seller’s remedy is to claim damages only, then he cannot claim interest.
Buyer’s remedies against seller:
The buyer has the following rights against the seller for breach of contract : (i) damages for non-delivery
(Sec. 57); (ii) right of recovery of the price; (iii) specific performance (Sec. 58); (iv) suit for breach of
condition; (v) suit for breach of warranty (Sec. 59); (vi) anticipatory breach (Sec. 60); (vii) recovery of interest
(Sec. 61).
Q 6.a. Discuss the essentials of a valid contract.
Ans 6.a: Essentials of a Valid Contract:
Contract:
A contract is an agreement, enforceable by law, made between at least two parties by which rights are
acquired by one and obligations are created on the part of another. If the party, which had agreed to do
something, fails to do that, then the other party has a remedy.
Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10
January. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. In case the
Airlines fails to fulfill its promise, X has a remedy against it.
Thus, X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. A
corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor (the Airlines),
the other party to the contract (i.e., X) has a legal remedy.
Agreement:
Sec. 2(e) defines an agreement as “every promise and every set of promises forming consideration for each
other”. In this context, the word ‘promise’ is defined by Sec. 2(b). In a contract there are at least two parties.
One of them makes a proposal (or an offer) to the other, to do something, with a view to obtaining the assent
of that other to such act. When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted becomes a promise [Sec. 2(b)].
Enforceability by law: The agreement must be such which is enforceable by law so as to become a
contract. Thus, there are certain agreements which do not become contracts as this element of enforceability
by law is absent.
Essentials of a contract:

10. Sec. 10 provides that all agreements are contracts, if they are made by free consent of parties, competent to
contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be
void. To constitute a contract, there must be an agreement between two or more than two parties. No one
can enter into a contract with himself. An agreement is composed of two elements – offer or proposal by one
party and acceptance thereof by the other party.
Effect of absence of one or more essential elements of a valid contract : If one or more essentials of a valid
contract are missing, then the contract may be either voidable, void, illegal or unenforceable.
Q 6.b. What is consideration ? Give some examples.
Ans 6.b.: Consideration [Secs. 2(d), 23-25 and 185]
One of the essential elements of a valid contract is that it must be supported by consideration.
In simple terms consideration is what a promissory demands as the price for his promise. The term
consideration is used in the sense of quid pro que, i.e., “something in return”. This something or
consideration need not be in terms of money. This “something” may even be some benefit, right, interest or
profit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other party. Also a promise by one party may be consideration for the promise of other
party.
“No consideration, no contract” (Secs. 10 and 25):
A promise without consideration cannot create a legal obligation. A person who makes a promise to do or
abstain from doing something usually does so as a return of equivalent of some loss, damage, or
inconvenience that may have or may have been occasioned to the other party in respect of the promise.
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