Business Law-Assignment

Submitted to Sir Kaukab Sabauddin

Updesh 1/28/2014

1) What is meant by Undue influence? A applies to a banker for a loan at a time where there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. Whether the contract is induced by Undue Influence? Decide. According to the Oxford Dictionary, Undue influence is defined as influence by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences. The Section 16 of Contract Act 1872 explains undue influence as follows, (1) A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another: (a) Where he holds a real or apparent authority over the other of where he stands in a fiduciary relation to the other; or (b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reasons of age, illness or mental or bodily distress. (3) Where a person who is in a position to dominate the will of another enters into a contract with him and the transaction appears on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Now according to the given problem, A applies for loan when the market conditions are pretty much stringent. The banker agrees to give loan only on the condition of high interest rate which A has to accept in order to obtain the loan which he /she ultimately does. The question that arises is whether the transaction is made under undue influence. Following conditions should be kept in mind while addressing the problem. The loan is applied in a time where there is stringency in market. The market is very strict and under tight control. The banker clearly declines and states of not providing the loan, in case the condition of high interest rate, is not accepted. A clearly accepts the loan on these terms.

Also two conditions of the section 16 are important (i) (ii) One party must be in the position to dominate the will of other That dominance is utilized to obtain an undue advantage

In this case, one party (bank) is not in the position to dominate the will of the other (borrower). The borrower can borrow from other banks or sources as well if he/she finds the interest rate unaffordable. Thus this transaction is of ordinary course of business and the contract is not induced by undue influence. 2) A stands surety for B for any amount which C may lend to B from time to time during the next three months subject to a maximum of Rs. 50,000. One month later A revokes the guarantee, when C had lent to B Rs. 5,000. Referring to the provisions of the Contract Act, 1872 decide whether A is discharged from all the liabilities to C for any subsequent loan. What would be your answer in case B makes a default in paying back C the money already borrowed i.e. Rs. 5,000? A surety can be discharged from his liability in the following number of ways. Notice of Revocation (Section 130 clearly elicits that) Death of Surety (Section 131 clearly elicits that) Change in terms of Contract (Section 133 clearly elicits that) Release or discharge of Principal debtor (Section 134 clearly elicits that) Arrangement without Suretys consent (Section 135 clearly elicits that) Creditors Act or Omission (Section 139 Clearly states that) Loss of Security (Section 141 explains that) Invalidation of Contract of Guarantee (Section 142-144 explains it)

The problem that has been stated in this case mainly focuses on the first two ways i.e. Notice of Revocation and Death of Surety. 1. Notice of Revocation: According to Section 130, A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor. 2. Death of Surety: According to Section 131, The death of the Surety operates, in absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions. Now in the first case and by applying the above provisions of Section 130 we can safely conclude that A as a surety is discharged from all the liabilities to C for subsequent loans because of the fact that A has revoked the guarantee one month later and before the payment of debt had to be made. However, in the second case, A is liable to C for amount of Rs. 5000, simply because of the reason that B makes a default on his loan payment to C before the notice of revocation by A and thus A is not discharged from all the liabilities as long as there is a Revocation of Guarantee by A which was done in this case after the default of payment, holding A still liable.

3) Khalid started self service system in his shop. Mrs. Ahmed entered the shop took a basket and after taking articles of her choice into the basket reached the cashier for payments. The cashier refuses to accept the price. Can Khalid be compelled to sell the said articles to Mrs. Ahmed? Decide. This case basically related with offer and invitation to offer. According to Section 2(A),When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. Both words Proposal and Offer are similar in English Law, Proposal, however is a formal term and offer is that we use in our natural day to day life. An Invitation to Offer is something basically done prior to making an offer. It is done with the intention of inducing and negotiating. It can be taken as a proposal for certain terms but cannot be accepted as it is. In simple words, invitation to offer does not make an offer itself but invites the other party to come and make an offer and to let everybody that one is ready to negotiate and deal with any party who is ready to do the same with him/her. Now in the given case, the display of articles is nothing but an invitation of offer. It is not at all an offer for sale which can either be accepted or rejected as it is. When Mrs. Ahmed enters the shop, takes articles of her choice in her basket and approaches the counter to pay, then she is only making an offer to buy the articles (selected by her) which were previously presented to her as an Invitation to offer and thus by no means she can compel or force the cashier to accept the payment for those articles and allow her to buy them if the seller (Khalid) is not ready to accept the same price. Thus, the case is merely of understanding the difference between offer and invitation to offer. 4) Arshad entered into an agreement with Shahid to deliver him (Shahid) 5.000 bags to be manufactured in his factory. The bags could not be manufactured because of strike by the workers and Arshad failed to supply the said bags to Shahid. Decide whether Arshad can be exempted from liability under the provisions of Contract Act, 1872. This case basically deals with performance of promise. According to section 56, An agreement to do an impossible act in itself is void. Its paragraph 1 states, A contract to do an act which, after the contract is made becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Its paragraph 2 states, Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of promise.

Now In above case, it should be kept in mind that impossibility of performance of an event does not excuse one for the performance of contract. One needs to try his/her best to perform the promise as long as it becomes absolutely impossible. It also depends from one case to another case and here we should understand the fact that strikes does not at all make the performance of the promise absolutely impossible. One can find out other ways to cope up with the situation. In the above mentioned case, it is transparent that Arshad was not able to fulfill his agreement of delivering 5,000 bags to be manufactured in his factory because of the reason of labor strike. However, he could have made use of other ways to perform the promise which he didnt and that is why under the section 56, he is held liable to Shahid for not performing the contract and thus he can be held liable for compensation under section 56, Paragraph 2.