Executive Post Graduate Diploma in Management

Subject: Legal Aspects of Business

Sample Question paper (Reference only)
Level 1: Objective Type (2 marks each)
1.

A person cannot be a Director at the same time in more than____________________companies.

20  15
25
10
30

2.

A contract in which the terms are started in word (written or spoken) by the parties is known as
____________________contract.
 Express
Mutual
Written
Term
None of the above

3.

A's nephew was missing. A sent his munim B in search of the missing boy. In the meanwhile A
issued hand bills offering Rs.5,000/- to any person who would find out the missing boy. B could trace
the boy and brought him home. Later on, he came to know about the reward and sued A for the
reward. Will he succeed?

(a) Yes
 (b) No

4.

A sent a telegram to B, "Will you sell your car? Quote lowest price". B sent a reply "Lowest price
Rs.25,000/-". A sent a second telegram to B, "I agree to buy your car for Rs.25,000/-". B thereafter
refuses to sell.
(a) Can A compel B to do so?
(b) Is there a contract between A and B?

(a) Yes
 (b) No

5.

X at Delhi on 1st August, 1974 sends a letter to Y in Mumbai offering to sell his car for Rs.16,000/-.
Y on 2nd August, 1974 sends a letter to X accepting the offer. This acceptance letter reaches X on
4th August, 1974. But on 3rd August X has sold the car to Z and wired Y revoking the offer. This wire
reaches on 3rd August, 1974 itself. Is there a breach of contract committed by X?
 (a) Yes

(b) No

6.

X lent to Y three sums of Rs.100/-, Rs.200/- and Rs.500/-. Y sent a sum of Rs.100/- asking X to
appropriate this money towards the third debt of Rs.500/-. X wants to appropriate this money to the
first loan. Can he do so?

(a) Yes
 (b) No

7.

X agreed to supply certain goods to Y. The goods were to be procured from Algeria. Due to riots and
civil disturbances in that country, goods could not be procured. Can X be discharged on the ground
of riots, etc.?

(a) Yes
 (b) No

8.

A, a tradesman, sends some goods ordered by B. A's servant delivers the goods by mistake at C's
house. C uses the goods. Can A recover the price of the goods from C?
 (a) Yes

(b) No

9.

A minor fraudulently represented to a moneylender that he was of full age and executed a mortgage
deed for Rs.10,000/-. Has the moneylender any right of action against the minor for the money lent
or for damages for fraudulent misrepresentation?

(a) Yes
 (b) No

10. A executed a pronote in favour of B while he was a minor. The pronote was renewed by A in favour
of B when he attained the age of majority. B brings a suit against A on the basis of the second
pronote. Will he succeed?

(a) Yes
 (b) No

11. A tells his wife that he would commit suicide, if she did not transfer her personal assets to him. She
does so under this threat. Can the wife avoid the contract?
 (a) Yes

(b) No

12. A pays some money to B by mistake. It is really due to C. Can C recover the amount from B?

(a) Yes
 (b) No

13. 5 persons are the only members of a private company. All of them go in a boat on a pleasure trip
into the open sea. The boat capsizes and all the 5 die being drowned. Does the private company
cease to exist?

(a) Yes
 (b) No

14. During the war, all the members of a private company, while in general meeting, were killed by a
bomb. Does the company cease to exist because all the members died?

(a) Yes
 (b) No

15. The promoters of a company, before its incorporation, enter into an agreement with P to buy a plot of
land on behalf of the company. After incorporation, the company refuses to buy the said plot of land.
Has P any remedy either against the promoters or against the company?

(a) Yes
 (b) No

16. The secretary of a company issued in favour of R a certificate which apparently complied with the
company's articles as it purported to be signed by 2 Directors and the secretary and it had the
company's seal affixed to it. In fact the secretary had forged the signatures of the Director's and
affixed the seal without authority. Is the certificate binding on the company?

(a) Yes
 (b) No

17. To foster better industrial relations, Directors of A.B. Ltd agree with its trade union to offer 1,000
shares of Rs.100/- each, fully paid upto its employees and to receive amount thereon in 10 equal
installments of Rs.10/- per share. Can the company make such an issue?
 (a) Yes

(b) No

18. The secretary of a company purchased some stationery for the company but he took it home and put
it to his private use. The company refused to pay to the supplier of the stationery on the plea that it
never received the stationery. Is the company liable?
 (a) Yes

(b) No

19. Anil aged 17 years, borrowed money from a moneylender by representing himself to be of 21 years.

(a)
 (b)

(c)

(d)

(e)

a) Anil can be sued for fraud

b) Anil cannot be sued for fraud
c) Anil is liable to repay the amount
d) Guardian of Anil is liable to repay the amount
Both (a) and (c)

20. An agreement made under coercion, renders the contract:
(a)

(b)
 (c)

(d)

(e)

Unenforceable
Illegal
Voidable
Valid
Void

21. The contract entered with a lunatic during the times of his sound mind is: (a)

(b)

(c)

(d)

(e)

Valid
Void
Void abinitio
Not enforceable
Voidable

22. 'A' accepts 'B's invitation to dinner by phone. This is not a contract as:
(a)

(b)
 (c)

(d)

(e)

a) There is no consensus between the two parties

b) Acceptance is given orally
c) There is no intention to create a legal relationship
Both (b) and (c)
None of the above

23. 'A' agreed to sell his car to 'B'. His consent was given at gun point. This contract is voidable as it
involves:
(a)

(b)

(c)
 (d)

(e)

Under influence
Extortion
Compulsion
Coercion
None of the above

24. A contract where consent is obtained by coercion is: (a)

(b)

(c)

(d)

(e)
party

Voidable at the option of the party whose consent was obtained by coercion
An illegal contract
Voidable at the option of either of the parties to the contract
A void contract
Voidable only if coercion proceeds from one of the parties to the contract and not from a third

If choice a is selected set score to 2.

25. A contract which is wholly performed by both the parties is called:
(a)
 (b)

(c)

(d)

(e)

Executory contract
Executed contract
Quasi contract
Unilateral contract
Bilateral contract

26. The right of lien exercised by an unpaid seller is to: (a)

(b)

(c)

(d)

(e)

a) Retain possession
b) Recover possession
c) Recover price and other charges
d) Damages
Both (c) and (d)

27. A private company must have atleast:
(a)

(b)

(c)
 (d)

(e)

Five Directors
Seven Directors
Four Directors
Two Directors
Three Directors

28. A person dealing with a company having satisfied himself that the proposed transaction is not in its
nature inconsistent with the Memorandum and Articles, is not bound to enquire into the regularly of
the internal proceedings. This is known as:
(a)

(b)
 (c)

(d)

(e)

Doctrine of Ultravires
Doctrine of Lispendens
Doctrine of Indoor Management
Doctrine of Fraudulent Transfer
Doctrine of Constructive Notice

29. Every person dealing with a company is presumed to have read the Memorandum and Articles and
understood them in their true perspective. This is known as:
(a)

(b)

(c)

(d)
 (e)

Doctrine of Election
Doctrine of Lispendens
Doctrine of Fraudulent Transfer
Doctrine of Indoor Management
Doctrine of Constructive Notice

30. A public company:
(a) a) Can commence business once Certificate of Incorporation is received

(b) b) Is required to file a prospectus and declaration of statutory compliance under Section 149
with the registrar

(c) c) Can commence business after receiving the Certificate of Commencement of Business

(d) Both (a) and (b)
 (e) Both (b) and (c)

31. The transferee becomes a member of the company when:
(a) The instrument of transfer according to section 108 (1A) along with the share certificates or letters of allotment are delivered to the company

(b) The company acknowledges receipt of the instrument of transfer

(c) The instrument of transfer is delivered to the company

(d) The instrument of transfer along with the share certificates are delivered to the company
 (e) The transfer is registered by the company

32. Transmission of shares:
(a)

 (b)

(c)
s

(d)

(e)

Is a voluntary act of the transferor

Requires an application to be made by the person to whom shares are transmitted
Requires an instrument of transfer to be delivered to the company by the transmittee of share
Results in cessation of all original liabilities relating to those shares
Can take place only by order of the court of law

33. Total managerial remuneration payable by a public company to its Directors:
(a)

(b)

(c)

(d)
 (e)

Cannot exceed 11% of gross profits for the financial year

Shall be less than 10% of net profits for the financial year
Is left to the discretion of the company
Can exceed 11% but not 15% of gross profits
Cannot exceed 11% of net profits for the financial year

34. The maximum number of Directors in the Board of a public limited company can be:
(a)

(b)

(c)

(d)
 (e)

a) Decided by articles
b) 12 but excluding nominee
c) Decided by articles but no.12
d) 12 without the approval of the Central Government
Both (a) and (d)

35. Portion of uncalled capital, to be called in the event of winding-up is called:
(a)
 (b)

(c)

(d)

(e)

Capital Reserve
Reserve Capital
Working Capital
Unpaid Capital
Fixed Capital

36. Inserting a coin in the slot of a weighing machine installed at the railway station is an example of:
(a)

(b)
 (c)

(d)

(e)

Express acceptance
No acceptance
Implied acceptance
Offer
None of the above

37. Mr.A accepts Mr.B's telephonic invitation for dinner. This is: (a)

(b)

(c)

(d)

(e)

Not a contract
A voidable contract
A void contract
A valid contract
An invalid contract

38. Who can be a beneficiary to a contract?

(a)
 (b)

(c)

(d)

(e)

a) A major
b) A minor
c) An alien enemy
d) An insolvent
Both (a) and (b)

39. The liability of members in a company limited by shares:
(a)

(b)
 (c)

(d)

(e)

Is limited to the guarantee given by members

Can be decided at the time of winding up
Is nil, if the shares are fully paid-up
Is limited to the called-up values on shares
Is unlimited

40. A public company:
(a)

 (b)

(c)

(d)

(e)

Can commence allotment of shares before the minimum subscription is subscribed for
Must have atleast 3 Directors
Need not hold the statutory meeting
Cannot have more than 100 members
Can commence business immediately on incorporation

Level 2: Descriptive Type (10 marks each)

1.

State the doctrine of "caveat emptor" and exceptions to it.

2.

When is a seller of goods deemed to be an unpaid seller? What are his rights against (i) the goods,
and (ii) the buyer personally?

3.

What are the rules of law relating to time and place of performance of a contract?

4.

Discuss the doctrine of public policy. What are those agreements which are opposed to public
policy?

5.

What are the various ways in which a contract may be discharged?

6.

What do you understand by impossibility of performance?

7.

Under what circumstances is a party entitled to specific performance?

8.

Explain the term 'Consideration' and state the exceptions to the rule: "No consideration, No
contract."

9.

"In quasi-contracts, the promise to pay is implied by law and is not based on any express
agreement". Explain giving illustrations.

10. Explain the nature of contract of sale of goods and bring out clearly the distinction between a sale
and an agreement to sell.