IGNOU| MERCANTILE LAW (ECO - 05)| SOLVED PAPER – (JUNE - 2023)| (BDP)| ENGLISH MEDIUM
BACHELOR'S DEGREE PROGRAMME
(BDP)
Term-End Examination
June - 2023
ECO-05
MERCANTILE LAW
Time: 2 Hours
Maximum Marks: 50
Note: Answer any five questions. All questions carry
equal marks.
हिंदी माध्यम: यहां क्लिक करें
1. What is a contract? Explain the essentials of a valid contract. 2,8
Ans:- A contract is a legal agreement between two or
more parties. It outlines the terms and conditions of the agreement. The
contract may be written or oral.
In a business, a
contract or agreement plays an important role in the smooth functioning between
two parties. In simple words, a contract is a written agreement between two
parties, which contains certain obligations and is enforced by law. Breach of
contract or law may result in legal action being taken by either party, up to
and including voiding the entire contract. Any person entering into a written
agreement must have adequate knowledge of the essentials of the contract.
The Indian
Contract Act 1872 states that the word contract is like an agreement which
creates an obligation between the parties. According to the Act, a contract is
"an agreement enforceable by law."
The Act also
lists the essentials of a valid contract, either directly or through various
decisions of the Indian judiciary.
Essentials of
a valid contract:-
A contract that
is not a valid contract will create many problems for the parties involved. For
this reason, we must be fully aware of the different elements of a valid
contract. In other words, here we will consider all the implications of the
definition of contract as provided by the Indian Contract Act, 1872.
The Indian
Contract Act, 1872 itself defines and lists the essentials of the contract
either directly or through interpretation through various decisions of the
Indian Judiciary. Section 10 of the contract states certain points which are
essential for valid contracts such as free consent, competency of the parties,
legitimate consideration etc.
(i) Two
parties: So you decide to sell your car yourself! Suppose the purpose is to
avoid taxes or some other sinister purpose. would it be possible? Can you make
a contract with yourself? Unfortunately, the answer is no. You can't make a
contract with yourself.
A valid contract
must involve at least two parties identified by contact. One of the parties
will make the offer and the other is the party that will ultimately accept it.
One or both parties must own what is known as a legal entity. Must be
companies, schools, organizations etc. or natural persons.
For example: In
the case of State of Gujarat vs. Ramanlal S & Co. – A business partnership
was dissolved and the assets were distributed among the partners as per the
agreement. However, all transactions covered under the contract are liable to
taxation by the office of the State Sales Tax Officer. However, the court held
that this transaction was not a sale because the parties involved were business
partners and thus joint owners. For a sale, we need a buyer (party one) and
seller (party two), who should be different people.
(ii)
Intention of legal obligations: There must be a clear intention to create
legal relations between the parties subject to the contract. This means
agreements that, for example, cannot be enforced by law. Social or domestic
agreements between relatives or neighbors are not enforceable in court and thus
any such agreement cannot become a valid contract.
(iii) Case
specific contracts: Some contracts contain special conditions which if not
followed will render them void or voidable. For example, an insurance contract
is not a valid contract unless it is in writing.
Similarly, in the
case of contracts such as contracts for immovable properties, its registration
under law is necessary for the contract to be valid.
(iv)
Certainty of meaning: Consider the statement "I have agreed to pay Mr.
Is this a valid contract even if all parties agree to the terms?" Of
course, this cannot be the case because the “desirable amount” is not well
defined and there is no certainty as to its meaning. Thus we say that a valid
contract must have certainty of meaning.
(v)
Possibility of execution of an agreement: Suppose two people decide to
enter into an agreement where a person A agrees to bring back to life a dead
relative of person B. Even when all parties agree and all other terms of the
contract are met, it is still not valid because bringing someone back from the
dead is an impossible task. Therefore, implementation of the agreement is not
possible and the contract is not valid.
(vi) Free
Consent: Consent is vital for an agreement and thus for a valid contract. If
two people reach equal agreement on the same meaning, they are said to agree to
the promise. However, for a valid contract, we must have free consent, which
means both parties must reach the agreement without being influenced, forced,
misrepresented or deceived. In other words, we say that if the consent of
either party is intentionally or accidentally impaired, the contract between
the parties is no longer valid.
(vii)
Qualification of the parties: Section 11 of the Indian Contract Act, 1872
states:-
"Who are
competent to contract - Every person is competent to contract who (1) is of the
age of majority according to the law to which he is subject, and who (2) is of
sound mind and (3) Is incapable of contracting under any law to which he is
subject.
Let us look
at these qualifications in detail:-
(a) Refers to the
fact that the person must be at least 18 years of age or older.
(b) means that
the party or person must be capable of fully understanding the terms or
promises of the contract at the time the contract is made.
(c) states that
the party shall not be disqualified by any other legal effect. For example, if
the person is a criminal, a foreign sovereign, or a foreign enemy, etc., they
cannot enter into a contract.
(viii)
Consideration: Quid pro quo means 'something in return' meaning that the
parties must earn some benefit, right, interest, etc. or there must be some
kind of valuable "consideration".
For example, if
you decide to sell your watch for Rs. 500 to your friend, your promise to give
possession of the watch to your friend is a consideration to your friend.
Besides, your friend has also promised to give Rs. 500 is an idea for you.
(ix) Lawful
Consideration: In Section 23 of the Act, unlawful consideration is defined
as all of those:-
(a) It is
prohibited by law.
(b) is of such a
nature that, if permitted, it would defeat the provisions of any law, or is
fraudulent.
(c) involves or
implies injury to any other person or property
(d) the court
considers it immoral or contrary to public policy
These
conditions will invalidate the agreement.
2. Define 'Coercion' and 'Undue influence' with examples.
Distinguish between coercion and undue influence. 4, 6
Ans:- Using force or threats to persuade someone to
do something they do not want to do is coercion. Synonyms for coercion include:
force, pressure, threat, intimidate.
Here are some
examples of coercion:-
(i) Food in
Nigeria: Food has been withheld and used as a means of coercion by those in
power.
(ii) Dog
kidnapping: Threatening to kidnap someone's dog unless they tell something
is coercion.
(iii)
Athenian efforts: The Athenians threatened to enslave and kill the Melian
population during the Peloponnesian War to force them to abandon their
neutrality.
Undue
influence occurs when a person uses his or her power to persuade another person
to make a decision. This may include:-
(i)
Contract Law: Using power to compel someone to contract. For example, a
lawyer is using his power to get money or free work from his client.
(ii)
Psychology: Using persuasion, authority figures or rewards to get someone
to participate in research. For example, promising psychology students are
given extra credit.
(iii)
Actual undue influence: When one party so influences the other that the
consent is not free or voluntary. For example, threatening someone with
violence to get them to sign a will.
Some examples
of undue influence include:-
(a) A lawyer
uses his power to obtain money or free work from a client
(b)
threatening someone with violence to force them to sign a will
(c) A
boyfriend is influencing his girlfriend to change her estate plan so that all
of his assets go to her.
(D) A banker
refuses to make a loan except at an unusually high interest rate
Anyone can be
vulnerable to undue influence, but the elderly are particularly vulnerable.
The
differences between coercion and undue influence are:-
(i)
Meaning: Coercion involves using force or threat to compel a party who is
generally unwilling to enter into a contract. On the other hand, undue
influence refers to a person's desire to be influenced by another party, often
through psychological pressure or by taking advantage of an existing
relationship.
(ii) Nature
of the offence: Coercion is considered a criminal offense because it
involves the use of force or physical violence to obtain consent to a contract.
Undue influence is not considered a criminal offense in itself, but it is a
legal concept that voids a contract if proven.
(iii) Legal
Provisions: Coercion is covered under Section 15 of the Indian Contract Act
1872. On the other hand, undue influence is addressed under Section 16 of the
Indian Contract Act 1872.
(iv)
Relationship between the contracting parties: In cases of force majeure,
there is no established relationship between the contracting parties. Coercion
is carried out externally, usually by someone who has no prior relationship
with the party doing the coercing. In contrast, undue influence requires a
pre-established relationship between the contracting parties, such as a
fiduciary relationship or a relationship based on trust and confidence.
(v)
Actions: Coercion includes actions such as threats, physical violence or
use of force to obtain consent. Undue influence revolves around subjecting a
person to psychological pressure or social dilemmas, taking advantage of their
emotional vulnerability or dependence on the influencing party.
(vi)
Purpose: The purpose of coercion is to force a person to enter into a
contract, usually for the benefit of the party using coercion. On the other
hand, undue influence is used when one party intends to take advantage of the
other party's position of weakness or vulnerability.
(vii)
Burden of proof: In cases of coercion, the burden of proof is on the
aggrieved party to demonstrate that force or threats were used to obtain their
consent. For undue influence, the burden of proof is on the party who holds the
dominant position in the relationship, as they must show that their influence
was not undue or unreasonable.
(viii)
Example:-
An example of
coercion would be where Party “A” threatens to harm Party “B” if Party “C” does
not sell its property to “A”. Here, “A” is using coercion to force “C” into the
contract.
Conversely, an
example of undue influence would be a teacher asking their student to sell them
their car at an unreasonably low price in exchange for the promise of getting
good grades on a final exam.
3. Explain the various ways by which a contract can be
discharged by mutual agreement. 10
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