DOON BUSINESS SCHOOL

MBA 1

MID-TERM EXAMINATION-2020

Business Law

Time: 2-00 Hrs. Total Marks: 50

Section A (Answer Any 4)

Question: Explain following:

20 (4X5)
1. All contracts are agreement, but all agreements are not contract.

Answer- A contract is an agreement which creates a legal obligation between

2 or more parties to do or abstain from performing certain act(s).
For contract to take place their must be an agreement, without which a
contract is not possible.
A contract is defined as “an agreement enforceable by law” in Section 2 (h) of
The Indian Contract Act, 1872 .
From his definition it is very clear that agreement is necessary for every
contract.
Whereas, an agreement is defined as a promise or set of promises, forming
consideration for each other, is an agreement.

So, a contract is an agreement which is enforceable by law, but an agreement can

exist even when tere is no legal obligation. So an agreement is broader term
here.
For agreement to become a contract, following requisite need to be their,
1) Free consent of both the parties
2) Lawful consideration
3) Lawful objective
4) Competent parties

If these elements are fulfilled in the agreement then that agreement is called as
contract.
 2. Liquidated Damages.

3. June 2 – X mails offer to Y.

June 3 – Y receives offer at noon.

June 3 – X mails letter of revocation at 2 pm.

June 3 – Y mails acceptance at 5.00 pm.

June 4 – Y receives the revocation.

June 5 – X receives Y’s acceptance.

When the contract was formed?

Answer- No contract was formed, because before acceptance of offer, revocation was
made by X.

So, no contracts take place. For an agreement to become a contract, it must be

accepted before any kind of revocation is made. But in this situation, X revokes the
offer and hence Y acceptance is not considered as acceptance.

4. Distinguish between offer and invitation to offer

Answer- Offer- When a person signifies to another

1) His willingness to do or to abstain from doing anything,
2) With a view to obtaining the ascent of that another to such act or
abstinence,
He is said to make a offer/proposal.
Where as invitation to offer is to circulate the information that the person is willing
to deal with anybody, this can be done by
1) Auctions
2) Tenders
3) Advertising, etc

Basis Offer Invitation to offer

Purpose Offer is made with an Invitation to offer is

objective to get made to get an offer.
accepted.
 Legal Consequences It gives rise to legal It does nit give rise to
Consequences legal consequences.

Motive It is made to a It can be made to a

particular party. group of people.

Defined in Section 2 (a) of indian It is not f=defined in

contract Act, 1872 indian contract Act,
1872.

Acceptance Offer becomes an An invitation to offer

agreement when becomes offer.
accepted.

5. Distinguish between coercion and undue influence

Answer- Coercion means 1) committing an act forbidden by law.
2) Threatening to do so
3) Illegally detaining somebody or somebody’s property,
4) Threatening to do so
5) Irrespective of place, if any of the above act is committed. It amounts to be
coercion
Undue- Influence- It means taking undue advantage of ones position to
enter into contract.

Basis Coercion Undue-influence

Coercion can be It is only moral in

Nature mental or physical in nature. Or moral
nature. coercion.

Crime Coercion is crime Undue- influence is

not regarded as crime

Relation It is not required that Their must be some

parties have some or relation existing
the other relation to between the parties.
each other.

Presumed or not Coercion has to be It can be presumed.

proved it cannot be
presumed.
 Other parties Coercion can be The party to the
committed through contract should have
any 3rd party. committed the undue
influence.

Section B (Answer Any 2 Questions . Each question is of 15 Marks. Question 3 is

compulsory)

30 (2X15)

Q. 1. No. Write detail note on Doctrine of Caveat Emptor? What are the exceptions to this

doctrine?

Answer- The doctrine of caveat emptor means, when a buyer buys a product, he is
responsible for knowing all the details about that product, ie. he must enquire about the product
specifications and any fault in it if any.

For example- For purchasing a mobile phone, when a person goes into a shop and buys a
phones, then he must enquire about everything he thinks important, if the mobile battery life is
only for 18 hours then after buying the buyer can't say that the battery life is very less, and he
wants to return the mobile or anything like such.

Here the seller can’t be responsible for any kind of return, so in this situation the buyer
cant ask for return or any other such action,

In the above example, the doctrine of caveat emptor is applied that means let the buyer
beware.

Exceptiones-

1) Seller makes a false representation- Lets relate this with the above example of
mobile , so if the seller says that the mobile is very good and has battery life of 48
hours and then it turns out to be that it is only 18 hours then in such case this
exception can be experienced.

Which means that if seller makes false representation of facts then this doctrine is
not applicable.

2) Seller conceals a defect in the good- if the same seller says that this is brand new
mobile but it turns out to be a renewed of damaged mobile then here the seller is
hiding the facts about the product.
 Again doctrine of caveat emptor will not be applicable.

3) Merchantable quality- when detailed description is provided about the product

then it is expected that the goods are of mentioned quality, so in such situation the
doctrine of caveat emptor is not applicable.
4) Proof of reasonable usage or custom of trade- In this situation the reasonable
usege if any then doctrine will not affect the situation.

Q. No. 2.

A) P was appointed Principal of a school. One of the members of the governing body
privately informed P that he had been appointed Principal. But no official communication
was sent to P by the governing body. Later the governing body did not appoint P as the
Principal. P filed a suit against the governing body to claim damages. Advise him giving
full reason as to whether he would succeed. 5

B) X left his car with Y on his premises. Y’s creditor seized it for non-payment of Y’s
dues. X paid off Y’s creditors to recover his car. Can X recover the amount so paid
from Y? Reason out with relevant law.
5

C) Bharat obtains Arjun’s acceptance to a bill of exchange by fraud. Bharat endorses it

to Kumar. Kumar indorses it to Damodar who knows of the fraud. Can Damodar recover
the amount from Arjun? Reason out with relevant law. 5

Q. No. 3. Case study (Compulsory):

( Critically analyse the Case below and answer the questions there upon)

Carbolic Smoke Ball Ltd.

A Company called the Carbolic Smoke Ball Ltd. was the manufacturer and vender of a medical
preparation called the 'Carbolic Smoke Ball’. The contraption comprised of hollow ball of rubber.
with a nozzle at the top. A certain medicinal powder had to be put inside the ball. On
compressing the ball, the powder was forced out in the form of a cloud of infinitesimally small
particles, resembling smoke. Thus, the name ‘Smoke Ball'. The carbolic soke ball was to be
used for the treatment of cold and influenza. In the years 1B90 and 1891-92, influenza had
spread like an epidemic in London. At the time, flu was not necessarily life threatening but il was
debilitating. The cause of influenza was not known and quack cures abandoned. Carbolic
Smoke Ball Ltd., had inserted the following advertisement in the Pall Mall Gazette of November
13,1891, and in some other newspapers.

'A pound 100 reward will be paid by the Carbolic Smoke Ball Ltd. to any person who the
increasing epidemic influenza, cold or any disease caused by cold, after having used the ball
three times daily for two weeks, according to the printed directions supplied with each ball.
Pound 1000 has been deposited with the Alliance Bank. Regent Street, showing our sincerity in
the matter.

During the last epidemic of influenza, many thousands of carbolic smoke balls has been sold as
preventives against this disease, and in no ascertained case was the disease contracted by
those using the Carbolic Smoke Ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in the
world at the price, 10s, post free. The ball can be refilled at a cost of S5. Address, Carbolic
Smoke Ball Company, 27, Princes Street, Hanover Square, London.'

A lady, Edina Carlill, had never had influenza before, but She was anxious about preventing it in
the future as well. She bought one of the balls from a chemist, and used it as directed, three
times a day, from November 20,1891, to January 17, 1B92. Despite the proper use of the smoke
ball, not just for two weeks, but for two months. she contracted influenza. She wrote a letter to
the Carbolic Smoke Ball Ltd., setting out the details of her purchase and the event of her
contracting influenza and claimed 'the 100 pounds promised in your advertisement and in
accordance with the contract between us.' The Company flatly refused to pay and Ms. Carlill
went to the court.

Questions:

1. Was the advertisement an offer?

Answer- Yes, the advertisement was offer to the population,as it mentioned that 100 pounds
will be paid if the situation arises.

The offer of 100 pounds affected the people to accept the offer and buy the smoke ball, so in
this situation the advertisement can be said as offer.

2. To whom had the offer been made?

Answer- The offer was made to everyone in london stating that using this smoke ball will cure
the influenza .

3. Could the offer have been accepted so as to convert it into agreement?

Answer- Yes, the offer was open for everyone and if anyone uses the product as directed
comes into contract with the company and therefore if the offer is being accepted it can be
converted into agreement.
4. If Ms Carlill had accepted the offer, what had been the consideration?

Answer- If the offer is accepted, and the smoke ball does not work, then the company is liable
for giving the amount (100 pounds) to Ms. Carlill, or otherwise the medicine cures the user.