FACULTY OF MANAGEMENT STUDIES AND RESEARCH

DEPARTMENT OF BUSINESS ADMINISTRATION

ALIGARH MUSLIM UNIVERSITY, ALIGARH

BUSINESS LAW & ETHICS ASSIGNMENT

MBA1C12

SUBMITTED TO - SUBMITTED BY-

Dr. Mohammed Afaq Khan Mohd Aaris
Faculty No.- 20MBAA08
Enroll No.- GJ1407
The Questions alloted to Roll No. 20MBAA07-12:-
Explain the following with the help of suitable examples:-
A) Differentiate between Void Agreement & Void Contract
B) Suit for Ordinary Damages
C) Company- A separate legal entity

SOLUTION –

A) Differentiate between Void Agreement & Void Contract

Solution:

Void Agreement Void Contract

Void contract implies a valid contract,
Void agreement refers to an agreement that ceases to be enforceable by law,
which as per law, is unenforceable and becomes a void contract when it lacks
has no legal consequences. enforceability.
A void agreement does not create any A void contract is that create rights and
right or obligations to the parties obligations to all the parties involved. A
involved because the law as it lacks the party enjoying goods and services as
basics principles to be considered does his or her rights must pay for those
not recognize it. goods in the sum of money agreed
upon which failure to pay will be
enforced under the legal provisions.
Void agreement is void due to the Void contract is the one that void due to
absence of one or more necessary impossibility of performance.
elements that results in a contract.
Void agreement does not satisfy the Void Contract is one that fulfils all the
prerequisites of a valid contract, and requirement of a valid contract, but
because of this, it is considered as void. cannot be enforced due to unexpected
circumstances, thus become void.
Restitution or restoration is not granted Restitution is granted to the concerned
in the case of void agreement although party when the valid contract, eventually
in certain circumstances, restitution is becomes void.
permitted on equitable grounds.
Void agreement is not legally binding on Void contract is legally binding at the
both sides since its beginning. beginning but subsequently becomes
invalid.
Example: John asks a laborer Tim to Example: Party A buys cattle from
supply 100 Kg of cement at a future party B but unfortunately, the cattle die
date on a certain location but Tim who before supplying date thus the contract
is a minor is unable to do so. Since the becomes void due to the impossibility to
agreement is between a minor and John perform and is not legally binding
so John cannot sue Tim. anymore.
B) Suit for Ordinary Damages

Solution:
A contract is a legal promise to perform certain obligations. When a party breaks a
promise, then the other parties to the contract might suffer losses due to non-
performance of the obligation. The Indian Contract Act, 1872, has laid down some
specific rules for filing a suit for damages in such cases.

Compensation for Losses or Damages caused by a Breach of Contract

This section of the Indian Contract Act, 1872, lays down certain rules to determine the
amount of compensation upon the breach of a contract. The ground rule is, on
the breach of contract, it is the entitlement of the suffering party to receive
compensation from the party who breaks the contract for losses sustained due to the
breach. Here are some rules:

 The suffering party can claim compensation for any loss arising naturally in the
usual course of events.

 Even if the party knew that on the breach of the contract, they might suffer certain
losses, he can claim compensation.

 Special damages, if any, can be claimed only if the suffering party has given
notice about it earlier. Also, the party suffering a loss is expected to take
reasonable steps to minimize it.

 The suffering party cannot claim compensation for indirect or remote

losses/damages.

Types of Damages
Sections 73-75 of the Indian Contract Act, 1872, define remedy by way of damages as
the entitlement of the suffering party to recover compensation for losses suffered due to
non-performance of the contract. The damages can be of the following types:

1] Ordinary damages
On the breach of a contract, the suffering party may incur some damages arising
naturally, in the usual course of events. Even if the suffering party knew about the likely
damages if the contract was breached, he can claim compensation for such losses.

Peter agrees to sell and deliver 10 bags of potatoes to John for Rs 5,000 after two
months. On the date of delivery, the price of potatoes increases and Peter refuses to
perform his promise. John purchases 10 bags of potatoes for Rs 5,500. He can receive
Rs 500 from Peter as ordinary damages arising directly from the breach.

2] Special Damages
A party to a contract might receive a notice of special circumstances affecting the
contract. In such cases, if he breaches the contract, then he is liable for the ordinary
damages plus the special damages.

Example: Peter hired the services of John, a goods transporter, to deliver a machine

to his factory urgently. He also informed John that his business has stopped for want of
the machine. However, John delayed the delivery of the machine by an unreasonable
amount of time. Peter missed out on a huge order since he didn’t have the machine
with him.

In this case, Peter can claim compensation from John. The compensation amount will
include the amount of profit he could have made by running his factory during the
period of delay. However, he cannot claim the profits that he would have made if he got
the contract since John was not made aware of the same.

3] Vindictive or Exemplary Damages

There are two scenarios for awarding vindictive or exemplary damages:

 Breach of a promise to marry because it causes injury to his/her feelings

 Wrongful dishonour of cheque by a banker because it causes loss of reputation

and credibility.
In case of a wrongful dishonour of cheque from a businessman, the compensation will
include exemplary damages even if he has not suffered any financial loss. However, a
non-trader is not awarded heavy compensation unless the damages are alleged and
proved as special damages.

Example: Peter is a farmer. He issues a cheque for procuring seeds for his next crop.
He has sufficient funds in his account but the bank erroneously dishonours the cheque.
Peter files a suit claiming compensation for damages to his reputation. The Court
awards a nominal amount as damages since Peter is not a trader.

4] Nominal Damages
If a party to a contract files a suit for losses but proves that while there has been a
breach of contract, he has not suffered any real losses, then compensation for nominal
damages is awarded. This is done to establish the right to a decree for a breach of
contract. Also, the amount can be as low as Re 1.
5] Damages for Deterioration caused by Delay
In cases where goods are being transported by a carrier and he delays the delivery of
goods causing them to deteriorate, the affected party can file a suit for damages for
deterioration by the delay. Deterioration can mean physical damage to the goods
and/or loss of a special opportunity for sale.

6] Pre-fixed damages
During the formation of a contract, the parties might stipulate payment of a certain
amount as compensation upon the breach of the contract. This amount can be a
reasonable estimate of the likely loss in case of a breach or a penalty.

Under Section 74 of the Indian Contract Act, 1872, it is specified that if an amount is
mentioned in a contract as the sum to be paid in case of a breach, then the suffering
party is entitled to reasonable compensation, not exceeding the amount specified.

C) Company- A separate legal entity

Solution:
A company is a “Separate Legal Entity” having its own identity distinct from its
members. As a legal entity, a company can own a property in its own name, can sue
and be sued in its own name and also enjoys perpetual succession, among others.
OR
A corporate body, once registered under Companies act 2013, it is clothed with legal
fiction of being referred as company. It is considered as an artificial person that is,
created by law with independent existence from its promoters, directors, employees
and staff members.

THE CONCEPT OF SEPARATE LEGAL ENTITY:

The principal effects of the formation of a company are twofold. First, its
shareholders, and their transferees, become members of an association and are
granted rights as such. Pre-eminent among these are, usually, powers of control in
the widest sense of an entitlement to participate, by voting, in the management of the
company through the appointment and removal of its directors, the distribution of
profits and other decisions of the company in general meeting, and also by the
power to enforce the company’s regulation. Secondly, and consequently, the
members relinquish all proprietary and other interests in the monetary or other
consideration which they have given for their shares and which becomes wholly
vested in the company. In effect, therefore, the members’ rights of ownership of their
assets are completely reconstituted and the powers conferred by membership
substituted for powers of direct this result is achieved by.
 Applying to the company three basic principles or groups of principles. First, the
legal capacity of the company is restricted or limited in its extent, both by the objects
of the company and, more basically, by the common law, to activities which are both
lawful and appropriate to the general scope of its purposes. Secondly, within the
scope of its particular objects the company is accorded legal capacity for proprietary,
contractual and other purposes which is of exactly the same nature as that
possessed by natural persons of full capacity. This capacity is entirely separate from,
and not derived from or related in any way to, the individuals who ultimately
comprise the company’s membership. Thirdly, the company itself is accorded full
and independent procedural capacity both vis-h-vis its members and outsiders. From
the combination of these principles flow all the well-known practical aspects of
separate legal entity. For example, due to its separate proprietary and other capacity
the company may enjoy perpetual existence, its usefulness as an entity for
accounting purposes is given a legal foundation, and the possibility is opened that its
members may limit their liability.
Like the trust, the company enables the proprietary interests of natural persons to be
associated and reconstituted in a manner which makes possible a real division of the
ownership and control of property. Unlike the trust, however, the company may, to
the extent it is empowered, itself possess full and independent capacity to exercise
contractual, proprietary and other rights.

Example:

Let’s say you are in a partnership and you are a silent partner (i.e., limited
partnership) with a 25% stake in the business. The company manufactures
electronics, and the company faces a lawsuit. 

Your personal liability in the lawsuit is limited to the amount of your investment,
25%. Your partner carries 75% of the liability in the lawsuit and may have assets
seized to pay for it. Or, your partner may need to use personal funds to cover the
costs of the legal proceedings. 

If the lawsuit costs $25,000, your stake consists of $6,250 toward the legal
proceedings ($25,000 X 25%). 

References:

https://www.google.com/search?
q=example+of+separate+legal+entity&rlz=1C1RXQR_enIN964IN964&sxsrf=AOaemvIR
18K277dAFOweaDF5QlW4kZQGYw%3A163396235466

https://www.lawctopus.com/academike/concept-separate-legal-entity-light-
corporations/
https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-ii/
suit-for-damages/

https://lawcorner.in/difference-between-void-agreement-and-voidable-contract/