The exceptions: i) a subscription or any contribution or an agreement to subscribe or contribute towards any plate, prize or some of money of the value of Rs 500 or more to the winner of any horse race is not void; ii) literary competitions which involve application of skill and where an effort is made to select the best and most skilful competitor are not wagers; and iii) in speculative transactions, where delivery is intended to be given and taken, the contract is valid.

Agency by ratification: Section 196 provides that where acts are done by a person on behalf of another without the latter's knowledge or authority, the latter may elect to ratify or disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. On ratification, the principal is bound by the acts already done on his behalf. Ratification may be express or implied in the conduct of the person on whose behalf the acts are done. The agent must purport to act for the principal (Section 197). The other points are: i) the principal must be in existence and competent to contract at the time of contract by the agent; ii) the acts to be ratified should be valid and lawful; iii) the ratification must be with full knowledge of facts; iv) it must be of the whole transaction; and v) it must be done within a reasonable time.

Endorsement: According to Section 15, "When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose, a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same."

Thus `endorsement' implies the signing of a negotiable instrument otherwise than as a maker for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto. Endorsement is usually done on the back of the instrument or on a separate slip (known as `allonge'). The person who signs the instrument is called `endorser' and the person to whom the instrument is transferred is called the `endorsee' Mere endorsement is not sufficient unless the instrument is delivered to the endorsee. Delivering the signed instrument to the endorsee completes the endorsement.

Dissolution of the firm: This happens when the business of the firm is closed down and its affairs wound up. According to Section 39, dissolution of partnership between all the partners of the firm leads to the dissolution of the firm. It results in the breaking up of the relationship which subsisted between all the partners of the firm.

A firm may be dissolved without the intervention of the court (by agreement, by consent of all the partners, through compulsory dissolution, on the happening of certain contingencies and by notice of partnership at will) and with intervention of the court (owing to insanity, permanent incapacity of a partner, misconduct of a partner, persistent breach of agreement, transfer of interest by a partner, perpetual losses in business and where it is just and equitable).

Management process: Newman and Summer classified managing process as the functions of organising, planning, leading and controlling. Luther Gullick referred to the management process as comprising the functions of planning, organising, staffing, directing, co-ordinating, reporting and budgeting. Another way to describe management process is to group managerial functions around the components of planning, organising, staffing, directing and controlling. All these functions are common to all business organisations and enterprises.

Matrix organisation: The matrix structure in an organisation is a combination of the product and functional organisation and is usually created for executing a project which requires the skilled services of a functional man and the specialised knowledge of a product man. Large turnkey projects in specialised fields require a matrix structure. The distinguishing characteristic of a matrix structure is that it operates under a dual authority. A person is accountable to two bosses at the same time — one his usual boss and the other his boss for the duration of the project. Obviously, the problems emanating from this type of structure relate to conflicting roles and authority arising out of an ambiguous demarcation of authority and responsibility.

Management audit: It is the systematic appraisal of overall performance of the management. It is a periodic and diagnostic activity that is undertaken on a regular basis in order to assess the effectiveness of the operating and managerial functions. It permits a more objective and complete evaluation of the total management and operating structure. It enables the management to find specific problem areas where managers are unable to come out with fruitful solutions. It has measures to ensure the effectiveness of current managerial controls.

Agreements vs contracts

WHILE all agreements are not contracts, all contracts are necessarily agreements. To be binding, an agreement must create legal relations or obligations. All agreements do not create legal obligations, though. Offers which are social in nature do not make a valid contract because, in these cases, the intention is not to form a legal relationship (Balfour vs Balfour). The intention whether the parties intended to create legal obligations can be ascertained from the terms of the agreement and other surrounding circumstances.

Section 2 (h) clearly stipulates that an agreement enforceable by law is a contract. Section 10 lays down the conditions of enforceability by stating that all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful constitution and with a lawful object, and are not hereby expressly declare to be void.

Contract bound

AJAY gifted whole of his property to his daughter on the condition that she should pay Rs 200 a month to her uncle (father's brother). Later, she refused to pay her uncle on the ground that she did not receive any consideration from her uncle. Is she justified?

She is not justified. Consideration may move from the promisee or any other person as stated in Section 2 (d), Thus, a stranger to a consideration can sue on a contract, provided he is not a stranger to the contract (Chinnaya vs Ramaya).

(Suggested answers for the December 2001 ICSI (Foundation) paper on business laws and management.)

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