CA FOUNDATION

Notes for Private Circulation only

PAPER – 2
BUSINESS LAWS

MASTER SUGGESTED (Q&A Book)

 by 
Prof. S. M. Joshi
M. Com.

© All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or copied in any
form or by any means, electronic, mechanical, photographic or otherwise, without the written permission of
the Ekatvam Academy Breach of this condition is liable for legal action.
Dear Students,

This book is prepared specially for the students preparing for CA Foundation
Examination of the Institute of Chartered Accountants of India, New Delhi.

It is divided into three parts -

• Indian Contract Act, 1872.

• Indian Partnership Act, 1932.

• Sale of Goods Act, 1930.

Every person viz. a real person or artificial entity in the society has to deal with Business
Laws on a continuous basis. Business Laws is a very practical subject and its knowledge is
extremely helpful in our day-to-day business and commercial transactions. This subject is
compact and exact in nature.

This book gives detailed explanations, appropriate examples to support and better
understand the concepts as well as the important sections and case-laws which the
students are expected to know.

Business Laws is an extremely interesting and scoring subject which, though new to the
students, is easily understood and loved.

All the Best!

PROF. S. M. JOSHI
Pune.
 CA FOUNDATION
Notes for Private Circulation only

PAPER 2 - BUSINES LAWS

MASTER SUGGESTED (Q&A Book)

INDEX

Chapter Page
Chapters Name
No. Nos.

1. THE INDIAN CONTRACT ACT, 1872 1.1 – 1.114

2. THE INDIAN PARTNERSHIP ACT, 1932 2.1 – 2.36

3. SALE OF GOODS ACT, 1930 3.1 – 3.32


Notes:
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………….
 Chapter 2 – The Indian Contract Act, 1872 1.1

CHAPTER

The Indian Contract Act, 1872 1

PART I: QUESTIONS SET

UNIT 1 - NATURE OF CONTRACT

SHORT NOTES
1. Voidable Agreement. (1995 – Nov., 5 Marks)
Ans. Voidable Agreement: A contract the consent to which is caused by coercion, undue influence. fraud
or misrepresentation is voidable at the option of the party whose consent was so caused. (Bishandeo
Narain v. Seogero Rai AIR 1951 SC 280).
Thus, the aggrieved party has the option either to avoid the contract or alternatively, to affirm it. The
burden of proving the said elements is on the plaintiff. [Hims Enterprise v. Ishak Bin Subari (1992) 1
CLJ 132]. He can exercise his option only once. If the contract is affirmed, it becomes enforceable and
if avoided it becomes void [East India Commercial Company v, Collector of Customs AIR 1962 SC
1893] It continues to be valid and enforceable till it is repudiated by the aggrieved party. The
application of option by aggrieved party is subject to certain restrictions:
1. When the party, aware of his right to rescind, affirms the contract, the right of rescission is lost.
2. When a party at whose option a contract is voidable rescinds it, the other party thereto need
not perform any promise therein contained in which he is promiser.
3. Rescission must be claimed within reasonable time.
4. The right of rescission is lost when a third party, acting in good faith, acquires rights in the
subject matter of the contract.
5. Rescission is subject to the condition that the party seeking rescission must be in position to
restore the benefits he may have obtained under the contract.
Section 19 A deals with the contracts affected by undue influence which have been declared
as voidable at the option of aggrieved party. Such contracts may be set aside absolutely or
partly. Court enjoys discretion.

2. Acceptance by conduct. (1996 - Nov., 5 Marks)

Ans. Acceptance by Conduct: Section 2(b) of the Indian Contract Act states that when a person to whom
a promise is made, signifies his assent thereto, the proposal is said to have been accepted. The assent
means that acceptance has been signified either in writing or by word of mouth or by performance
of the act. Thus, acceptance may be in writing, oral or by conduct.
Thus, where a person performs the act intended by the proposer as the consideration for the promise
offered by him, the performance of the act constitutes acceptance. To illustrate it, a tradesman
receives an order from a customer and executes it by sending the goods, the customer's order for
goods constitute the offer which has been accepted by the tradesman subsequently by sending the
goods. This example is a case of acceptance by conduct.
 1.2 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

In fact, where the offeror invites acceptance by the performance of the act, the performance of the
act becomes a valid acceptance of the offer. On this account it is provided in Section 8 that the
performance of the condition or conditions of a proposal or the acceptance of any consideration for
a reciprocal promise which may be offered with a proposal, constitutes an acceptance of the
proposal. A bus conductor shouting that the bus is going to a particular place invites passengers to
board the bus. A passenger boards the bus and pays the fare. Boarding and paying the fare amounts
to acceptance by conduct on the passenger.
But performance of the act without knowledge of the offer, does not amount to a valid acceptance.
Lalman Shukla v. Gourie Dutt and Crown v. Clarke are the cases on this point.

3. Kinds of offer. (1998 - May, 2 Marks)

Ans. The kinds of offer may be discussed as follow:
(i) General Offer: It is an offer made to the public at large and hence anyone can accept and do
the desired act (Carlill v. Carbolic Smoke Ball Co. 1893). For instance, an offer to give reward to
any body who finds a lost dog is a general offer. Although a general offer is made to the public
at large. the contract is concluded only with that person who acts upon the terms of the offer.
(ii) Specific Offer: When the offer is made to a specific or an ascertained person it is known as a
specific offer. Specific offer can be accepted only by that specified person to whom the otter
has been made (Bottom v. Johns).
(iii) Cross Offer: When two parties exchange identical offers in ignorance at the time of each
other’s offer. the offers are called Cross Offers. There is no binding contract in such a case
because offer made by a person cannot be treated as an acceptance of the another's offer
[Tinn v. Hoffman and Co. (1873) 29 L. T. 271]
(iv) Counter Offer: When the offeree offers to qualified acceptance of the offer subject to
modifications and variations in the terms of original offer, he is said to have made a counter
offer. Counter offer amounts to rejection of the original offer (Hyde B. v. Wrench 1840).
(v) Standing Open or Continuing Offer: An offer which is allowed to remain open for acceptance
over a period of time is known as a standing, open or continuing offer. Tender for the supply
of goods is. a kind of standing otter.

4. Executed and executory contracts. (1999 - May 2 Marks)

Ans. Executed and Executory Contracts: On the basis of execution or performance, contracts may be
classified into two groups i.e. executed and executory.
Executed contract is a contract where both the parties have fulfilled their respective terms and
obligations, and where in nothing remains to be done by either party. Thus, executed is a contract
which has reached to its maturity of performance and completion of contractual obligations.
On the other hand executory contract is a contract where both the parties have still to perform their
respective contracted obligations. In such contracts. some act remains to be performed at a future
date.
 Chapter 2 – The Indian Contract Act, 1872 1.3

5. Offer and invitation to offer. (1999 - Nov., 2 Marks)

Ans. Offer and Invitation to Offer: When one person signifies to another his willingness to do or to
obstain from doing anything with a view to 'Obtaining the asset of that other to such act or
abstinence, he is said to make an offer or proposal [Section 2(a) Indian Contract Act, 1872]. A valid
offer must meet the tests of (1) contractual intention of definiteness and (2) communication to
offeree.
Offer is different from an invitation to offer. In an offeror expresses his willingness to contract in
terms of his offer with such finality that the only thing to be awaited is the assent of the other party.
Where a party without expressing is final willingness, proposes certain terms on which is willing to
negotiate, he does not make an offer. He only invites the other party to make an offer on those
terms. An invitation to traders to make tenders, an invitation of a company to the public to subscribe
its shares, display of goods for sale in shop windows, auction sales, quotation of prices in reply to a
query, are all examples of invitation to offer - buy or sell as the case may be.

6. Void Contracts. (2001 – May, 5 Marks)

Ans. Void Contracts (read as void agreements): Ah agreement which is not enforceable by law is void.
Such an agreement has some legal defect and therefore cannot be enforced in a Court of Law.
Section 2(i) defines a void contract as, "a contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable."
Thus. a void agreement does not have any legal affect i.e., the party not performing his part of the
promise under a void contract cannot be sued in a law court, rather does not have any legal
obligations.
Examples of Void Contracts:
1. A contract vitiated by mistake as to fact and both the parties are mistaken as to the identity,
existence of the ·subject matter of the contract etc. (Section 20)
2. Where the consideration or object of the contract is unlawful (Section 23).
3. Where the contract is not supported by consideration.
4. Agreements declared expressly void by the Contract Act, such as:
• agreement in restraint of marriage (Section 26)
• agreement in restraint of trade (Section 27)
• agreement in restraint of legal proceedings (Section 28)
• agreement by way of wager (Section 30).
There may be cases of such contracts where in the beginning they are valid but later on become void
due to impossibility of performance due to operation of law.

7. When is the communication of an offer and acceptance through post complete?

(2001 – Nov., 2 Marks)
Ans. Communication of an offer is complete through post when it comes to the knowledge of the person
to whom it is made i.e., when the letter containing ·the offer reaches the offeree. (Section 4 Indian
Contract Act, 1972). Communication of acceptance has two aspects:
(i) As against the proposer.
(ii) As against the acceptor.
 1.4 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Against the proposer, the communication of acceptance is complete when it is put in the course of
transmission to him, so as to be out of the prior of the acceptor, but it shall be complete as against
the acceptor when it comes to the knowledge of the proposer. e.g. A proposer by letter to sell a
house to B at a certain price. B accepts A's proposal by a letter sent by post. The communication of
acceptance is complete;
(a) As against A, when the letter is posted by B.
(b) As against B, when the letter is received by A.
Thus, an offer can be revoked till a duly addressed letter of acceptance is put in the course of
transmission and not thereafter.

8. Rules regarding acceptance. (2002 – Nov., 5 Marks)

Ans. Rules relating to Acceptance of Offer:
The following are the Rules relating to Acceptance of Offer'.
(i) Absolute and Unqualified: As per Section 7 of the Indian Contract Act, 1872, an acceptance
is valid when it is absolute and unqualified and is expressed in some unusual and reasonable
manner, unless the proposal prescribed the manner in which it is to be accepted.
(ii) Communicated to Offeror: An acceptance with a variation is no acceptance. It is simply a
counter proposal, which shall have to be accepted by the original proposer before a contract
can be deemed to have come into existence. A counter proposal is the offer by the offeree and
can result in a contract only if the other party accepts it. It must further be remembered that
an acceptance must specifically relate to the offer made. An offer made by the intended offeree
without the knowledge that an offer has been made to him cannot be deemed as an
acceptance thereto.
(iii) Mode Prescribed: Where the mode of acceptance is prescribed in the proposal, it must be
accepted in that manner. But ii the proposer does not insist on the proposal being accepted in
the manner prescribed after it has been accepted otherwise, i.e. not in the prescribed manner,
the proposer is presumed to have consented to the acceptance.
(iv) Reasonable Time: Acceptance must be given within a reasonable time and before the offer
lapses.
(v) Mere Silence is not Acceptance: Acceptance may be expressed or implied. Acceptance must
be given after knowing the offer. Acceptance must be given by the person to whom the
proposal is made.
(vi) By Conduct Also: The assent mean that acceptance has been signified either in writing or by
word of mouth or by performance of some act. Therefore, when, a person performs the act
intended by the proposer as the consideration for the promise offered by him, the performance
of the act constitutes acceptance.
 Chapter 2 – The Indian Contract Act, 1872 1.5

DISTINGUISH BETWEEN
1. General offer and Specific offer. (1995 – Nov., 5 Marks)
Ans. General and Specific Offer: When offer is made to. a definite person, it is known as specific offer
and such offers can be accepted only by that specified person (Bottom v. Johns). On the other hand,
general offer is an offer made to the public in general and hence anyone can accept and do the
desired act. In Carlill v. Carbolic Smoke Ball Co. (1893) The Court accepted that an offer could be
made to the world at large.
Section 8 of the Indian Contract Act points out that performance of the conditions of a proposal is
an acceptance of the proposal.
Where a general offer is of continuing nature, it will be open for acceptance to any number of persons
until it is retracted.

2. Offer and invitation to an offer. (1996 - May, 2 Marks)

Ans. Offer and Invitation to an Offer: An offer is the final expression of willingness by the offeror to be
bound by his offer, should the other party choose to accept it. On the other hand offers made with
the intention to negotiate or offers to receive offers are known as invitation to offer. Thus, where a
party without expressing his final willingness proposes certain terms on which he is willing to
negotiate he does not make an offer, but only invites the other party to make an offer on those
terms.
In order to ascertain whether a particular statement amounts to an offer or an invitation to offer, the
test would be intention with which such statement is made. The mere statement of the lowest price
which the vendor would sell contains no implied contract to sell at that price to the person making
the inquiry.
Examples: Quotations, Catalogues and Price lists cannot be considered as offers.

3. Void and Voidable Contract. (1996 – Nov., 5 Marks)

Ans. Void and Voidable Contracts: The two can be distinguished on the basis of:
1. Definition: A contract which ceases to be enforceable by law become void when it ceases to
be enforceable. A voidable contract is an agreement which is enforceable by law at the option
of one or more of the parties thereon, but not at the option of other or others.
2. Nature: A void contract is valid when it is made but subsequently becomes unenforceable on
certain grounds such as supervening impossibility, subsequent illegality, repudiation of a
voidable contract, a contingent contract depending upon happening of a uncertain event when
occurrence of such event becomes impossible. A voidable contract on the other hand, is
voidable at the option of the aggrieved party.
3. Rights: A void contract does not provide any legal remedy for the parties to the contract. They
even cannot get it performed when they so desire. The aggrieved party in a voidable contract
gets a right to rescind the contract. When such a party rescinds it, the contract becomes void.
In case the aggrieved party does not rescind the contract, within a reasonable time, the contract
remains valid.
 1.6 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

4. In Case of void agreements, restitution is always allowed unless the illegality of the void nature
of the agreement was known to the parties at the time of making of the agreement. In voidable
contracts, when they are rescinded benefit will be restored as far as possible.
5. A voidable contract does not affect the collateral transactions. But where the agreement is void
on account of illegality the collateral transactions will also become void.

4. Void agreement and an Illegal agreement. (1997 – May, 2 Marks)

Ans. Distinction between Void and Illegal Agreements: According to Section 2(g) of the Indian
Contract Act, 1872, an agreement not enforceable by law is void: Both the agreements are not
enforceable by the law courts. The points of distinction, however, of both these agreements can be
made on the following basis:
1. Scope: An illegal agreement is always void while a void agreement is not always illegal being
void due to some other factor e.g., an agreement in which the terms of the agreement are
uncertain.
2. Effect of collateral transactions: If an agreement is merely void and not illegal, the collateral
transaction to the agreement may be enforced for execution, but collateral transactions of an
illegal agreement cannot be enforced since they are also declared to be illegal.
3. Punishment: Illegal agreements are punishable under the Indian law. while void agreements
are not.
4. Void-ab-initio: Illegal agreements are void from the very beginning, but sometimes void
agreements are not. Sometimes a valid contract may be subsequently void e.g. doctrine of
supervening impossibility may apply.

5. Wagering agreements and contingent contracts. (2000 – Nov., 5 Marks)

Ans. Wagering Agreements and Contingent Contracts: The two can be distinguished below:
1. A wagering agreement is a promise to give money or money’s worth upon the determination
or ascertainment of an uncertain event.
A contingent contract on the other hand, is a contract to do or not to do something if some
event, collateral to contract does or does not happen.
2. A wagering agreement consists of reciprocal promises, while a contingent contract may not
contain reciprocal promises.
3. In a wagering agreement the uncertain event is the sole determining factor, while in a
contingent contract the event is only collateral.
4. A wagering agreement is essentially of a contingent nature whereas a contingent contract may
not be of a wagering nature.
5. A wagering agreement is void, while a contingent contract is valid.
6. In a wagering agreement the parties have no other interest in the subject matter of the
agreement except the winning or losing of the amount of the wager. In other words, a wager
is a game of chance, but this is not so in case of a contingent contract.
 Chapter 2 – The Indian Contract Act, 1872 1.7

DESCRIPTIVE QUESTION
Comment on the following:
1. Acceptance is to a proposal what a lighted match is to a train of gunpowder.
(1994 – Nov., 5 Marks)
Ans. Offer is lighted match while acceptance is a train of gun powder: It is a cardinal rule as regards
to acceptance that once the acceptance has been made to an offer the contract is complete.
According to Sir William Anson "Acceptance is to offer what a lighted match is to a train of gun
powder". The effect is that the acceptance produces something which cannot be recalled or undone.
But the man who led the train may remove it before the match is applied. So, an offer may lapse for
want of acceptance, or be revoked before acceptance. Acceptance converts the offer into a promise
and then it is too late to revoke it. This means that as soon as a lighted match is brought in contact
with a train of Gun Powder the gun powder explodes. Offer is compared to gun powder and
acceptance to a lighted match. Gun Powder (i.e. The Offer) by itself is inert, it is the lighted match
(i.e., the acceptance) which causes the gun powder to explode. The meaning is that an offer by itself
cannot create legal relations between the parties, but as soon as it is accepted by the offeree, legal
relationship is established between the parties. Once an offer is accepted it becomes a promise and
cannot be revoked or withdrawn.

2. What agreements are expressly declared void by the Indian Contract Act? (1994 - Nov. 5 Marks)
Ans. Void contract, in effect, is no contract at all. Usually the word void means not binding in law. As such
void contract means a contract which has no legal effect at all, it is a nullity and will not create any
legal rights between the parties. A contract may be void from its very inception or it may become
void subsequently. The Indian Contract Act specifically declares the followings agreements as void:
1. Agreements entered by parties incompetent to contract such as minor, lunatic, persons of
unsound mind, alien enemy.
2. Agreements with an unlawful consideration and object in full or in part (Sec. 23).
3. Agreements made under a mutual mistake of fact by both the parties to the contract (Sec. 22).
4. Agreements without consideration (Sec. 25).
5. Agreements in restraint of marriage, trade, or legal proceedings etc.
6. Agreements the meaning of which is not certain. But where the meaning thereof is capable of
being made certain, the agreement shall be a valid one (Sec. 29).
7. Wagering agreements i.e. agreements involving a payment of a sum of money upon the
determination of an uncertain event and where none of the parties to the agreement has a
legitimate interest in the subject matter of the agreement.

3. What are the essential elements of a valid contract? (1996 – May, 5 Marks)
Ans. The examination of the provisions of Section 10 of the Indian Contract Act, 1872 disclose the
following essentials of a valid contact:
1. There must be an agreement between the parties to the contract with an intention to create
legal relationship. An agreement consists of offer and acceptance, which is enforceable by law.
2. There must be consideration and its object both must be lawful and not prohibited by law.
 1.8 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

3. The parties must have capacity to make a valid contract so as to be not affected by the
provisions of Section 11.
4. The consent of the parties must be free so as not to be covered by the provisions of Section
14.
5. The agreement must not be one which the law declares to be either illegal or void.
6. The agreement must be in writing and registered if so required by the law for the time being
in force.

4. A proposal can be revoked otherwise than by communication. (1996 - Nov. 5 Marks)

Ans. A proposal can be revoked otherwise than by communication: A proposal may be revoked not
only by the communication of the notice of revocation by the proposer or by his authorised agent
to the other party but also:
1. By lapse of time fixed for acceptance or lapse of reasonable time, if not acceptance has
been specified [Section 6(2)]: A proposer is not bound to keep his proposal open indefinitely,
the reason being that it would amount to a promise without consideration and such a promise
is unenforceable. (Ramsgate Victoria Hotel Co. Vs. Montefiore).
2. By the failure of the acceptor to fulfil a condition precedent to acceptance: Section 6 of
the Act contains the law on this subject A proposal is also revoked by the failure of the acceptor
to fulfil condition precedent to acceptance. e.g. A agrees to execute a certain document in
favour of B, if B deposits ` 5,000/- as earnest money.
3. By the death or insanity of the proposer: Death or insanity of the proposer under the law
operates as the revocation of the proposal, only if the fact of the death or insanity has come
to the knowledge of the acceptor.

5. What is an illegal agreement? State the effects of illegality. (1997 – May, 5 Marks)
Ans. The illegal agreements are those which involve committing of a crime or act of moral turpitude or
acts opposed to public morals. An illegal agreement is not only void as between the immediate
parties; but its collateral transactions are also illegal.
Effects of illegality: Generally, in law, no action is allowed on an illegal agreement so that people
will be discouraged from entering into an illegal agreement. Thus, no action can be taken for recovery
of money paid or property transferred under an illegal agreement and for breach of illegal
agreement.
In case of equal guilt in an illegal agreement, the position of defendant is better that of plaintiff.
However. the plaintiff may sue on an illegal agreement than where he was induced to enter into an
agreement by fraud or undue influence and where an essential part of the agreement has not been
carried out and he is truly repentant.

6. Counter offer to an offer lapses the offer. (1997 – Nov., 5 Marks)

Ans. When the offeree offers to qualified acceptance of the offer subject to modifications and variations
in the terms of original offer, he is said to have made a counter offer. Counter offer amounts to
rejection of the original offer. (Hyde v. Wrench, 1840)
 Chapter 2 – The Indian Contract Act, 1872 1.9

The rule is based on the principle that unless the parties have consensus-ad-idem i.e. are of one mind
there cannot be agreement between them. The rule is in itself obviously necessary for words of
acceptance which do not correspond to the proposal actually made are not really an acceptance of
anything and therefore, can amount to nothing more than a new proposal. or, as it is frequently
called a counter offer. Making a counter offer amounts to a rejection of the original offer, which offer
cannot be thereafter accepted.

7. Define the term 'Acceptance'. Discuss the legal provisions relating to communication of acceptance.
(1997 – Nov., 10 Marks)
Ans. According to Section 2(b), the term 'acceptance' is defined as follows:
"When the person to whom the proposal is made signifies his assent thereto. the proposal is said to
be accepted. A proposal, when accepted, becomes a promise."
An acceptance in order to be valid must be absolute, unqualified, accepted according to the mode
if any prescribed within reasonable time and communicated to offeror. Acceptance can also be made
by way of conduct.
The legal provisions relating to communication of acceptance are contained in Section 4.
The communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made.
The communication of an acceptance is complete:
(a) as against the proposer, when it is put in a course of transmission to him, so as to be out of
power of the acceptor;
(b) as against the acceptor, when it comes to the knowledge of the proposer.
Illustrations: A proposes, by letter, to sell a house to B at a certain price
(1) The communication is complete when B receives the letter.
(2) B accepts the proposal by a letter sent by post. The communication is complete:
as against A, when letter is posted.
As against B when the letter is received by A.
Section 3 of the Act prescribes, in general terms, two modes of communication, namely: (1) by any
act or (2) by omission, intending thereby to communicate to the other or which has the effect of
communicating it to the other. This first method would include any conduct and words whether
written or oral. Written words would include letters, telegrams, telex messages, advertisements, etc.
Oral words would include telephone messages. Any conduct would include positive acts or signs so
that the other person understands what the person acting or making signs means to say or convey.
Omission would exclude silence but include such conduct or forbearance on one's part that the other
person takes it as his willingness or assent. These are not the only modes communication of the
intention of the parties. There are other means as well, e.g., if you as the owner, deliver the goods to
me as the buyer thereof at a certain price, this transaction will be understood by every one, as
acceptance by act or conduct, unless there is an indication to the contrary.
The phrase appearing in Section 3 "which has the effect of communicating it", clearly refers to an act
or omission or conduct which may be indirect but which results in communicating an acceptance or
non-acceptance. However, a mere mental but unilateral act of assent in one's own mind does not
tantamount to communication, since it cannot have the effect of communicating it to the other.
 1.10 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

8. Who is competent to accept an offer? Explain the rules relating to an offer. as provided in the Indian
contract Act, 1872. (1998 – Nov., 10 Marks)
Ans. Who can accept an offer?
When an offer is made to a particular person it can be accepted by him alone. If it is accepted by any
other person, there is no valid acceptance. However. in case of general offer, it can be accepted by
any one, who has the knowledge of the offer. The persons who wants to accept the offer must be
competent to enter into contract, as per requirements of the Indian Contract Act.
Legal Rules relating to an offer:
(i) Offer must be such as in law is capable of being accepted and giving rise to legal relationship.
A social invitation, even if it is accepted, does not create any relation because it is not so
intended.
(ii) Terms of offer must be definite, unambiguous and certain and not loose and vague.
(iii) Offer must be distinguished from: (i) a declaration of intention and an announcement and (ii)
an invitation to make an offer or do business.
(iv) Offer must be communicated, otherwise there can be no acceptance of it. An acceptance of
the offer, in ignorance of the offer. is no acceptance and does not confer any right on the
acceptor.
(v) Offer must be made with a view to obtaining the assent of the other party addressed and not
merely with a view to disclosing the intention of making an offer.
(vi) Offer should not contain a term the non-compliance of which may be assumed to amount to
acceptance. Thus, a man cannot say that if acceptance is not communicated by a certain time,
the offer would be considered as accepted.
(vii) A statement of price is not an offer.

9. When the revocation of a proposal may be made otherwise than by communication?

(1999 - May 5 Marks)
Ans. Revocation of proposal otherwise than by communication: A proposal - may be revoked not only
by the communication of the notice of revocation by the proposer or by his authorised agent to the
other party but also;
(i) By lapse of time [Section 6(2)]: Proposer is not bound to keep his proposal open indefinitely
the reason being that it would amount to a promise without consideration, and such a promise
is unenforceable (Ramsgate victoria Hotel Co. V. Montefire 1866).
(ii) By non-fulfilment by the offeree of a condition precedent to acceptance [Section 6(3)]:
A proposal is also revoked by the failure of the acceptor to fulfil condition precedent to the
acceptance. A condition precedent is a· condition which prevents an obligation to come into
existence until the condition is satisfied. An offeror may impose condition such as executing a
certain document, or deposition of certain amount as -earnest money. Failure to satisfy any
such condition shall make a proposal lapse.
(iii) By the death or insanity of the proposer: Death or insanity of the proposer, under the Indian
law, operates as the revocation of the proposal, only if the fact to the death or insanity has
come to the knowledge of the acceptor. If the acceptor accepts an offer in ignorance of the
death or insanity of the offeror, the acceptance is valid.
 Chapter 2 – The Indian Contract Act, 1872 1.11

(iv) If a counter offer is made to it: The counter offer lapses the offer made by the offeror.
(v) If an offer is not accepted according to the prescribed or usual mode, provided the offeror
gives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the
acceptance [Section 7(2)].
An offer can, however, be revoked subject to the following rules:
(i) It can be revoked at any time before its acceptance is complete as against the offeror.
(ii) Revocation takes effect only when it is communicated to the offeree.
(iii) If the offeror has agreed to keep his offer open for a certain period, he can revoke it before the
expiration of the period only.
(a) if the offer has in the meantime not been accepted or
(b) if there is no consideration for keeping the offer open.

10. An acceptance must be made before the proposal lapses. (2000 – May, 5 Marks)
Ans. Under Section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time, before the
communication of its acceptance is complete as against the proposer but not afterwards. An
acceptance may be revoked at any time before the communication of acceptance is complete as
against the acceptor but not afterwards. Therefore, an acceptance must be made before the offer
lapses or is revoked.

11. What are implied contracts? State the various implied contracts. (2000 - May, 10 Marks)
Ans. Under certain circumstances, a person may receive a benefit to which the law regards another person
as better entitled, or for which the law considers he should pay to the other person. even though
there is no contract between the parties. Such relationships are termed as "Quasi-Contracts" or
Implied Contracts. A quasi contract rests on the ground of equity that a person shall not be allowed
to enrich himself unjustly at the expense of another.
Sections 68 to 72 of the Indian Contract Act, 1872 have prescribed the following relationships
creating quasi-contractual relationship:
1. Supply of necessaries: Under Section 68, if a person, incapable of entering into a contract, or
anyone whom he is legally bound to support. is supplied by another person with necessaries
suited to his conditions in life, the person who has furnished such supplies is entitled to be
reimbursed from the property of such incapable person.
2. Payment by an interested person: It has been laid down in Section 69 of the Indian Contract
Act that a person who is interested in the payment of money which another is bound by law
to pay, and who therefore pays it, is entitled to be reimbursed by the other.
3. Obligation to pay for non-gratuitous Act: Section 70 of the Indian Contract Act states that
where a person lawfully does anything for another person or delivers anything to him not
intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make compensation in respect of or to restore, the things so done or delivered.
 1.12 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

4. Responsibility of finder of goods: Under Section 71 of the Act, a person who finds goods
belonging to another, and takes them into his custody, is subject to the same responsibility as
a bailee.
5. Case where money is paid by mistake or under coercion: Finally, Section 72 of the Indian
Contract Act provides that a person to whom money has been paid, or anything delivered, by
mistake or under coercion, must repay or return it. Thus, quasi-contractual right is always a
right to money. It does not arise from any agreement between the parties concerned, but is
imposed by the law. It is a right which is not available against whole world but against a
particular person or persons only. There is no contract between the parties in cases of quasi
contracts, yet they are put in the same position as if there were a contract between them.

12. Stats the rules relating to acceptance of a Contract. (2000 – Nov., 10 Marks)
Ans. Rules Relating to Acceptance of a Contract: The Indian Contract Act, 1872 specifies the following
rules relating to the acceptance of a contract. It means that a valid contract can be made only by
adhering to the following rules relating to the acceptance of an offer. These are:
1. Acceptance must be absolute and unqualified: Acceptance shall be valid only when it is
absolute and unqualified and is expressed. in some usual and reasonable manner, unless the
proposal prescribes the manner in which it is to be accepted.
2. Acceptance must be communicated to the offeror: Acceptance must be brought to the
knowledge of the offeror. Unless the offeror knows about the acceptance, he cannot be bound
by the acceptance given by the offeree. Mere silence is no acceptance.
3. Acceptance must be in the mode prescribed: Where the mode of acceptance has been
prescribed in the proposal, it must be accepted in the manner prescribed, otherwise it shall not
bind the offeror.
4. Time: Acceptance must be given within the prescribed time and where no time is prescribed,
within the time which is reasonable and does not allow the offer to lapse.
5. Acceptance may be expressed i.e. words of mouth or in writing, or ever implied i.e. by conduct
of the party concerned.
6. Acceptance must be made by the person to whom the offer is made: Acceptance given by
some other person or even on behalf of the person to whom the offer is made, is not valid
acceptance.
7. It cannot precede an offer. If it does, it is not a valid acceptance and does not result in a
contract.
8. It must show an intention on the part of the acceptor to fulfil the terms of offer.
9. It must be given before the offer lapses or before the offer is withdrawn.

13. When does an offer come to an end? (2002 - May, 5 Marks)

Ans. An offer may come to an end by revocation or lapse or rejection. Accordion to Section 6 and 7 of the
Indian Contract Act, 1872, an offer comes to an end in the following cases:
1. If the offeror revokes his offer before it has been accepted by the offeree, the offer comes to
an end.
 Chapter 2 – The Indian Contract Act, 1872 1.13

2. The offer comes to an end of it is not accepted within the time fixed in the offer, or within a
reasonable time as the case may be. What is a reasonable time is a question of fact.
3. If there is a condition mentioned in the proposal, before the fulfilment of which the acceptor
cannot accept the proposal, the offer will automatically be revoked of the acceptor fails to fulfil
that condition precedent.
4. If the fact of the death or insanity of the proposer comes to the knowledge of the acceptor
before acceptance, the offer of proposal is revoked. (Section 6)
5. Sometimes. the mode of acceptance is specifically prescribed in the offer. In such a case, if the
proposal is not accepted in the prescribed form or method, it stands revoked. [Section 7(2)]
6. An offer comes to an end as soon as it is rejected by the offeree.
7. An offer lapses if it becomes illegal before it is accepted.

14. All contracts are agreements, but all agreements are not contracts. (2002 – Nov., 5 Marks)
Ans. "All contracts are agreements, but all agreements are not contracts":
An agreement comes into existence when one party makes a proposal or offer to the other party and
that other party gives his acceptance to it. A contract is an agreement enforceable by law. It means
that to become a contract an agreement must give rise to a legal obligation i.e. duty enforceable by
law. If an agreement is incapable of creating a duty enforceable by law, it fs not a contract. There can
be agreements which are not enforceable by law, such as social, moral or religious agreements. The
agreement is a wider term than the contract. All agreements need not necessarily become but all
contracts shall always be agreements.
All agreements are not contracts: When there is an agreement between the parties and they do
not intend to create a legal relationship, it is not a contract. For example, A invites B to see a football
match and B agrees. But A could not manage to get the tickets for the match, now B cannot enforce
this promise against A i.e. no compensation can be claimed because this was a social agreement
where there was no intention to create a legal relationship.
All contracts are agreements: For a contract there must be two things (a) an agreement and (b)
enforceability by law. Thus, existence of an agreement is a pre-requisite for existence of a contract.
Therefore, it is true to say that all contracts are agreements.
Thus, we can say that there can be an agreement without it becoming a contract, but we can't have
a contract without an agreement.

15. "A person who is usually of unsound mind but occasionally of sound mind may enter into a valid
contract when he is of sound mind", explain.
Ans. As per section 11 of the Contract Act, for a valid contract, it is necessary that each party to contract
must have a 'sound mind'.
What is a 'sound mind'? Section 12 of the Contract Act defines the term 'sound mind' as follows. 'A
person is said to be of sound mind for the purpose of making a contract, if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgment as to its effects upon
his interest."
 1.14 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

According to this Section, therefore, the person entering into the contract must be a person who
understands what he is doing and is able to form a rational judgment as to what he is about to do,
is to his interest or not.
Section 12 further states that:
"A person who is usually of unsound mind, but occasionally of sound mind, may make a contract
when he is of sound mind. "Thus, a patient in a lunatic asylum, who is at intervals of sound mind,
may contract during those intervals.

16. "Though minor is not competent to contract nothing in the contract act prevents him from making
the other party bound to the minor". Discuss.
Ans. According to the provisions of section 11 of the Indian Contract Act, 1872, a minor is incompetent
to contract and any contract made with a minor is void ab initio. A minor can never be held personally
liable for the contracts entered into by him. Thus, no person can enforce any contract against a minor
and claim any restoration of benefits or compensation against the minor. However, the courts, with
an intention to protect the interest and the rights of the minor, allow minors to enforce contracts
where he is a party as a beneficiary and no personal obligation is to be borne by him. Thus, in respect
of contracts where the minor is entitled to benefits, rights and interest (without any subsisting legal
obligations), the enforcement of such contracts shall be permitted to the minor. Therefore, in cases
where minor is a payee, endorsee or promise to a contract or a negotiable instrument, he can seek
its enforcement in the court of law.

PRACTICAL QUESTION
1. Mr. Ramesh promised to pay ` 50,000 to his wile Mrs. Lali so that she can spend the sum on her 30th
birthday. Mrs. Lali insisted her husband to make a written agreement if he really loved her. Mr.
Ramesh made a written agreement and the agreement was registered under the law. Mr. Ramesh
failed to pay the specified amount to his wife Mrs. Lali. Mrs. Lali wants to file a suit against Mr. Ramesh
and recover the promised amount. Referring to the applicable provisions of the Contract Act, 1872,
advise whether Mrs. Lali will succeed. (2018 - Nov. 3 Marks)
Ans. According to the facts of this case there appears to be a clear-cut application of the definition of a
contract that is statutorily defined as an agreement enforceable by law. In this case though initially
Mr. Ramesh made an agreement in the form of promise to his wife Mrs. Lali of paying ` 50,000 but
after getting the agreement registered under the law he got the agreement converted into a contract
which is legally enforceable. Hence it can be concluded that Mrs. Lali will succeed in her suit to
recover ` 50,000 from her husband Mr. Ramesh.

CASE STUDIES
1. Lekhpal promises today ` 5 lakhs to his son if the son passes the CA exams. On passing the exams,
the son claims the money. Can the son file a suit against the father?
Ans. No. Because it is a domestic agreement [no intention to create legal relations].
 Chapter 2 – The Indian Contract Act, 1872 1.15

2. X, a coolie in uniform carried Y's luggage from the railway platform to taxi without being asked by Y
to do so. Y does not make any attempt to stop X from carrying the luggage. Is Y bound to make
payment to X?
Ans. Yes [implied contract: implied offer & implied acceptance (silence as manifestation of acceptance)]

3. Arun has two cars - one of white colour and another of red colour. He offers to sell one of the cars
to Basu thinking that he is selling the car which has white colour. Basu agrees to buy the car thinking
that Arun is selling the car which has red colour. Will this agreement becomes a valid contract?
Ans. No. [Hint- since consensus idem is missing]

4. A shopkeeper exhibits an article in his shop window with a price tag attached to it. A customer offers
to buy the article for the same price. Is the shopkeeper bound to part with the article receiving the
price offered by the customer?
Ans. No, there is no sale because the display of the article at the shop window is only an invitation to offer
and not an offer [invitation to an offer does not result in generation of acceptance, instead gives rise
to an offer)

5. A railway passenger receives a ticket on the face of which is printed 'This ticket is issued subject to
rules / regulations / conditions contained in the current timetable of the railways'. Comment on
whether he is bound by these terms.
Ans. He shall be bound by them whether he has read them or not [if special terms and conditions arc
communicated along with the offer, then the same shall be binding on offeree]

6. State when the communication will be complete in the following cases:

(i) D proposes, by a letter, to sell his printing machine to E for ` 50,000.
(ii) E accepts D's proposal.
(iii) D revokes his proposal by a telegram.
(iv) E revokes his acceptance by telegram
Ans. (i) When E receives the letter
(ii) Against D. where E posts letter; Against E, when the letter is received by D
(iii) Against E, when D sends the telegram; Against D, when E received the telegram
(iv) Against D, when E sends the telegram: Against E, when D receives the telegram.

7. "Good Girl" Soap Co. advertised that it would give a reward of ` 1,000 who developed skin disease
after using, "Good Girl" soap of the company for a certain period according to the printed directions.
Miss Rakhi purchased the advertised "Good Girl" and developed skin disease in spite of using this
soap according to the printed instructions. She claimed reward of ` 1,000. The company refused the
reward on the ground that offer was not made to her and that in any case she had not communicated
her acceptance of the offer. Decide whether Miss Rakhi can claim the reward or not. Refer the relevant
case law, if any.
Ans. Miss Rakhi can claim the reward, since the advertisement here is in the form of a general offer [Carlill
v. Carbolic Smoke Ball Co.]
 1.16 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

8. Shambhu Dayal started "Self-service" system in his shop. Smt. Prakash 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 Shambhu Dayal be compelled to sell the said articles to Smt.
Prakash? Decide as per the provisions of the Indian Contract Act, 1872. (C.A. Foundation MTP May
2019)
Ans. The display of goods in a self-service shop is in the form of an invitation to offer selection of goods
& producing them for payment to cashier amounts to an offer by the customer to purchase the
goods. It is only when the cashier accepts the price being offered and agrees to sell that contract is
created.
In the given case Shambhu Dayal cannot be compelled to sell the articles to Smt. Prakash since he
has rejected her offer to buy the said articles & therefore no contract is created between them.

9. H sent a telegram to K asking - "Will you sell us Bumper Hall Penn? Telegraph the lowest cash price."
K replied through a telegram. "The lowest cash price for Bumper Hall Penn is ` 50,000." H replies
through a telegram. "We agree to buy Bumper Hall Penn at the price of ` 50,000 asked by you. Send
the title deeds. "Comment on the validity of contract created between H & K.
Ans. A quotation price is merely an invitation to an offer; thus, K has merely replied to H's query by sending
a price quotation. Agreeing to or accepting the price quotation document nut amount to acceptance.
Thus, no contract is created between H & K and K is not bound to sell Bumper Hall Penn.

10. X purchased a steamer ticket for travelling from Dublin to Whitehaven. Terms & conditions were
printed on the back of the ticket. One of the conditions prescribed that the shipping company shall
not be liable in the event of loss, injury or delay to the passengers or their luggage. X did not see the
back of the ticket and there was no instruction on the face of the ticket to see the back for the terms
& conditions. During the journey X's luggage is lost due to negligence of the staff on board. X claims
loss from the shipping company which denies its liability on the grounds that the company has
expressly excluded its liability at the time of formation of contract comment whether the shipping
company's stand is tenable in the context of provisions of the Indian Contract Act, 1872.
Ans. Essentials of a valid offer: the special terms & conditions must also be communicated along with
the offer so as to bind the offeree. If the special terms & conditions are not communicated the same
shall not be binding on the offeree. Further the party prescribing such special terms must make
reasonable efforts to bring such special terms to the knowledge of the other party at the time of
formation of contract.
Thus, in this case X shall be entitled to compensation for his loss from the shipping company, despite
the special term exempting the company from its liability since there was no indication on the face
of the ticket to draw X's attention to the special terms printed on the back of the ticket. The company
has failed to make reasonable efforts to communicate the special terms at the time of formation of
contract as a consequence of which X is not bound by such term and company’s contention is not
tenable.
 Chapter 2 – The Indian Contract Act, 1872 1.17

11. lshaan, aged 16 years was studying in an engineering college. On 1st March, 2016 he took a loan of
` 2 lakhs from Vishal for the payment of his fees and agreed to pay by 30th May, 2017. lshaan
possesses assets worth ` 15 lakhs. On due date, lshaan fails to pay back the loan to Vishal. Vishal
now wants to recover the loan from lshaan out of his assets. Decide whether Vishal will succeed
referring to the provisions of the Indian Contract Act, 1872.
Ans. Claim for necessaries of life supplied to a minor can be made from the properties of the minor if any;
education expenses amount to necessaries of life; Vishal can recover the amount of loan of ' 2 lakhs
from the properties of the minor Ishaan.

12. A minor fraudulently misrepresents is age to Mr. X, a money lender and executes a mortgage deed
for ` 20,000. The minor subsequently denies his liability on the deed. Comment.
Ans. Contracts with minor are void ab initio; no personal liability of the minor; rule of estoppel does not
apply against a minor and he can plead minority in his defense. The mortgage deed is void ab initio
and the money lender has no right of action against the minor. [Mohori Bibi Vs. Dharmo Das Ghose)

13. A executes a promissory note in favour of Mr. X during his minority. The promissory note is later on
renewed by A on his attainment of his majority. Mr. X wants to bring a suit for the recovery of his
amount due on the basis of the second note. Comment?
Ans. A minor cannot ratify the contracts made by him during his minority; the contract made during
minority shall be void ab initio inspite of the subsequent approval given on the attainment of
majority; Mr. X cannot recover any sum even on the second note since ratification is not possible.

UNIT 2 - CONSIDERATION

DESCRIPTIVE 0UESTIONS
1. When is a contract valid even without consideration? (1934 – Nov, 5 Marks)
Ans. The general rule is that an agreement made without consideration is void (Sec. 25) In every valid
contract consideration is very important. A contract may only be enforceable when there is
consideration. However, the Indian Contract Act contains certain exceptions to this rule. In the
following cases, the agreement though made without consideration, will be valid and enforceable.
1. Natural Love and Affection: A written and registered agreement based on natural love and
affection between the parties standing in near relation (e.g. husband and wife) to each other is
enforceable even without consideration. A contract in writing, registered on account of natural
love and affection between parties standing near relation to each other are the essential
requirements for valid contract though it is without consideration (Rajlukhee Devee vs.
Bhootnath).
2 Compensation for past voluntary services: A promise to compensate, wholly or in part. a
person who has already voluntarily done something for the promisor, is enforceable under
(Sec. 25(2)). In order that a promise to pay for the past voluntary services is binding, the
following essential factors must exist·
(i) The services should have been rendered voluntarily.
 1.18 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(ii) The services must have been rendered for the promisor.
(iii) The promisor must be in existence at the time when services were rendered.
(iv) The promisor must have intended to compensate the promisee.
3 Promise to pay time barred debt: Where a promise in writing signed by the person making
it or by his authorized agent, is made to pay a· debt barred by limitation it is valid without
consideration (Sec. 25(3)).
4 Agency: According to section 185 of the Indian Contract Act, no consideration is necessary to
create an agency.
5 Completed gift: In case of completed gifts, the rule no consideration, no contract does not
apply. Explanation (1) to Section 25 states "nothing in this section shall affect the validity as
between the donor and donee, of any gift actually made." Thus, gifts do not require any
consideration.

2. What is Consideration? Discuss briefly the legal requirements of valid consideration.

(1995 – Nov, 10 Marks)
Ans. Meaning of Consideration:
Consideration is an essential element of a valid contract. It is a technical word meaning thereby quid
pro quo i.e. something in return. A valuable consideration in the sense of the law may consist either
in some right, interest, profit or benefit accruing to one party. or some forbearance, detriment, loss
or responsibility given, suffered or undertaken by the other. Thus, consideration must result in a
benefit to one party and a detriment or loss to the other party or a detriment to both.
Thus, if A agrees to sell his books to B for ` 100, B's promise to pay ` 100 is the consideration for A's
promise to sell his books and A's promise to sell the books is the consideration for B's promise to
pay ` 100
Section 2(d) of the Indian Contract Act defines consideration as under: "When. at the desire of
the promisor, the promisee or any other person has done or abstained from doing, or does abstains
from doing or promises to do or to abstain from doing something, such act or abstinence or promise
is called a consideration for the promise·”
For every valid contract consideration is very essential. But there are certain exceptions to this rule
which have been incorporated under section 25 of the Indian Contract Act.
Legal requirements of valid consideration may be enumerated as under:
(i) Section 2(d) of the Indian Contract Act emphasises that consideration must move at the desire
of the promisor. Any act done at the desire or request of the third party or voluntary acts would
not constitute a valid consideration.
(ii) Consideration must be lawful and should not be forbidden by law.
(iii) Consideration must be real and not illusory. If it is physically impossible, vague or legally
impossible. the contract cannot be enforced.
(iv) Consideration must be of some value in the eyes of law. The Supreme Court has laid down
consideration shall be something which not only the parties regard but the law can also regard
as having some value.
(v) The consideration must not be the performance of existing duties e.g. (i) legal obligations or
(ii) contractual obligations.
 Chapter 2 – The Indian Contract Act, 1872 1.19

(vi) The consideration need not be adequate. In other words, an inadequate consideration does
not render a contract void.
(vii) The consideration may be furnished by the promisee or any other person. So long as there is
consideration for a promise, it is immaterial who has furnished it.
(viii) The consideration must be either positive or negative (See definition).
(ix) Consideration may be forbearance to sue.
(x) The consideration may be past, present or future.

3. When consideration is deemed to be unlawful? (1996 – Nov, 5 Marks)

Ans. Unlawful Consideration: The legality of consideration arid object thereto is provided under Section
10 of the Indian Contract Act, 1872 As per Section 23, an agreement of which the object or
consideration is unlawful is void. Following are the cases in which the consideration and object of an
agreement is said to be unlawful:
1. I if it is forbidden by law.
2. If it is of such nature that if permitted it will defeat the provision of any law.
3. If it is implies or involves injury to the person or property of another.
4. If it is fraudulent.
5. If the court regard it as immoral
6. if it is opposed to public policy.
According to Section 24. where consideration and object of an agreement is unlawful in part the
whole agreement is void.

4. To form a valid contract consideration must be adequate. Comment (1999 – May, 5 Marks)
Ans. The raw provides that a contract should be supported by consideration. So long as consideration
exists, the Courts are not concerned as to its adequacy, provided it is of some value. The adequacy
of the consideration is for the parties to consider at the time of making the agreement, not for the
Court when it is sought to be enforced. (Bolton v. Madden). Consideration must however, be
something to which the law attaches value though it need not be a equivalent in value to the promise
made.
According to Explanation 2 to Section 25 of the Indian Contract Act 1872, an agreement to which the
consent of the promisor is freely given is not void merely because the consideration is inadequate
but the inadequacy of the consideration may be taken into account by the Court in determining the
question whether the consent of the promisor was freely given.

CASE STUDIES
1. X transferred his house to his daughter M by way to gift. The gift deed, executed by X, contained a
direction that M shall pay a sum of ` 5,000 per month to N (the sister of the executant). Consequently,
M executed an Instrument In favour of N agreeing to pay the said sum. Afterwards, M refused to pay
the sum to N saying that she Is not liable to N because no consideration had moved from her. Decide
with reasons under the provisions of the Indian Contract Act, 1872 whether M Is liable to pay the
said sum to N.
 1.20 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Ans. Yes, there can be stranger to consideration, consideration may be supplied by the promisee or any
other person [Chinnaya v, Rammaya].

2. S bought tyres from Dunlop Rubber Co. Ltd. and sold them to D, a sub-dealer, who agreed not to
sell them below Dunlop's list price & to pay the Dunlop Co. $5 as damages on every tyre D undersold.
D sold two tyres at less than the list price and thereupon Dunlop Co. Ltd. sued him for the breach.
Ans. Stranger to contract cannot sue. Dunlop Co. is not entitled to sue and therefore cannot claim any
damages from D, the sub-dealer, since it is not a party to contract between S & D.

3. Mr. X was in need of money & offered to sell his Casio to Z for ` 6000. Z refused to buy the same at
the stated price. X gradually reduced the quoted price until ` 2000 was reached, which Z accepted.
Before the Casio was delivered, X received an offer from Mr. A for the purchase of his Casio for `
4500 and X refused to carry out his contract with Z on the grounds that the consideration was
inadequate. Is Mr. X liable to pay damages to Mr. Z. for the failure to perform the contract?
Ans. Consideration may or may not be adequate. Thus, inadequacy of the consideration has no effect on
the validity of the contract. Mr. X is liable under the contract to Mr. Z.

4. R & S two brothers entered into a contract for the division of the family property between them and
agreed to contribute ` 20000 each, per month towards the maintenance of their mother. Can the
mother enforce the contribution under the contract?
Ans. Generally stranger to contract cannot sue. However, in certain exceptional cases such as in case of
contract for marriage settlement, partition of property of family arrangements, the beneficiaries
under the contract are entitled to sue and enforce the contract. Thus, the mother is entitled to sue
on the contract and enforce her rights against R & S.

5. A received certain goods from B promising to pay ` 1,00,000. Later on A, expressed his inability to
make payment. C, who is known to A, makes payment of ` 60,000 to B on behalf of A. However, A
was not aware of the payment. Now B is intending to sue A for the amount of ` 1,00,000. Discuss
whether the contention of B is right?
Ans. Consideration can even proceed from a stranger to contract. When the promisee for consideration
receives & accepts the same, from a third party i.e. a person other than the promisor, then it shall
discharge the promiser from his obligation to furnish the consideration irrespective of the fact
whether the promisor has authorized or ratified the act of the third party or not. Thus, A is discharged
from his obligation to pay ` 60,000 and is now liable to B only for `40,000. A shall however be bound
to compensate C for his past voluntary payment which was the legal obligation of A.
 Chapter 2 – The Indian Contract Act, 1872 1.21

UNIT 3 - OTHER ESSENTIAL ELEMENTS OF VALID CONTRACT

SHORT NOTES
1. Agreements opposed to public policy. (1996 - May, 5 Marks)
Ans. Agreement Opposed to Public Policy: If the court regards an agreement opposed to public policy
it is unlawful and it cannot be enforced by either of the parties. These agreements have been declared
void by the Indian Contract Act, 1872.
Following are the agreements opposed to public policy:
1. Trading with an alien enemy.
2. Agreements encouraging litigation.
3. Agreements for stifling prosecution.
4. Agreements tending to create interest against duty.
5. Trafficing in public offices.
6. Marriage brokerage agreements
7. Agreements in restraint of marriage.
8. Agreements interfering with marital duties.
9. Agreements in restraint of parental rights.
10. Agreements in restraint of legal proceedings.
11. Agreements in tending to create monoplies.
12. Agreements in restraint of personal freedom.
13. Agreements in restraint of trade.
A contract having tendency to injure public interest or public welfare, is opposed to public policy,
The leading case or. this is of Ratan Chand Hira Chand· V. Askar Nawaz Jung (1991) 3SCC67, .it was
held that any agreement which tends to promote corruption or injustice or is against the interest of
the public is considered to be opposed to public policy.

2. Capacity of the parties to a contract. (1997 – May, 5 Marks)

Ans. Capacity of parties to contract: Capacity means the competence of the parties to enter into a valid
contract. Section 11 of the Contract deals with the competency of parties and provides that every
person is competent to contract who is:
1. of the age of majority as per law to which he is subject,
2. of sound mind,
3. is not disqualified from contracting by any law to which he is subject.
The qualification stated above must be fulfilled by the person competent to contract. The first
qualification refers to the age of the contracting person. A person attain majority on completing his
18 years. While in case of matters of property majority is attained after completing 21 years of age.
The second qualification requires a person to be of a sound mind at the time of making the contract.
he must be capable of understanding it and of forming a rational judgement as to its effect. Following
are the person who are not supposed to be of sound mind such as a lunatic, an idiot, a drunken
person.
 1.22 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

The third qualification requires that a person entering into a contract should not be disqualified by
his status while entering into such contracts. For example: alien enemy, insolvents, convicts, married
women and corporations.
The contract will not be valid if it is entered by the persons who are not competent to contract.

3. Free consent. (1998 - Nov., 5 Marks)

Ans. Free Consent: In the words of section 10, of the Indian Contract Act, free consent is one of the
essential requirements of a valid contract. The consent which is obtained by the free will of the parties
on their own accord is called free consent.
Consent is said to be free when it is not caused by (Section 14):
1. Coercion, or
2. Undue Influence, or
3. Fraud, or
4. Misrepresentation, or
5. Mistake.
The contract becomes voidable, when it is obtained by coercion, fraud, undue influence or
misrepresentation. But when the consent is obtained by mistake the contract becomes void.

4. Mere silence as to facts does not amount to fraud. (1999 – Nov., 5 Marks)
Ans. Mere silence as to the facts does not amount to fraud: Mere silence of the party as to certain facts
does not actually amounts to fraud. A party to the contract is owing no gratitude to disclose the
whole truth to the other party. The Rule of Caveat Emptor is applicable here that is let Buyer be
beware principal. This principle means that the buyer should be aware of things while making the
contract. In these cases there is no duty to speak and silence does not result in fraud. When both the
parties are aware of the contract, there is no duty to disclose the facts.
Hence, silence does not amount to fraud. These are two exception to the rule. These are:- (i) where
circumstances create a duty the part of the person keeping silence to speak and (ii) where silence in
itself is equivalent to speech.

5. Agreements in restraint of legal proceedings. (1999 – Nov., 5 Marks)

Ans. Agreements in restraint of legal proceedings: Agreements in restraint of legal proceedings comes
under Section 28, of the Indian Contract Act, 1872. The section provides that every agreement by
which any party thereto is restricted completely from following his rights under or in respect of any
contract, by the usual legal proceeding in the ordinary tribunals or which fixes the time within which
he may thus enforce his right, is void to that extent. There are some exceptions to it;
1. Arbitration shall be valid in respect of all future disputes in connection with a contract.
2. If the parties agree to refer to arbitration, any question between them. which has already arisen,
or which may arise in future if it is in writing.
 Chapter 2 – The Indian Contract Act, 1872 1.23

6. Coercion. (1999 - Nov., 5 Marks)

Ans. Coercion: In simple terms, coercion means threat or force used by one party against the another for
compelling him to enter into a contract.
Section 15 of the Contract Act. 1872, defines coercion as, "the committing or threatening to commit
any act forbidden by the Indian penal Code or Unlawful detaining or threatening to detain, any
property, to the prejudice of any person, with the intention of causing any person to enter into an
agreement".
For example: A threatens to shoot B, a friend of C, if C does not let out his house to him. C agrees
to do so. Thus, the agreement has been bought by coercion.

7. When is an agreement in 'restraint of Trade' valid? (2000 – May, 5 Marks)

Ans. An agreement in restraint of trade is void [Section 27, Indian Contract Act, 1872): All
agreements in restraint of trade, whether general or partial, qualified or unqualified are void.
However, in the following cases, a contract in restraint of trade is valid:
(a) Sale of goodwill: Section 27 itself gives one exception. One who sells the goodwill of a
business may agree with the buyer to refrain from carrying on or similar business within
specified local limits.
(b) Partner’s agreement: A contract between partners to provide that a partners shall not carry
on any business than that of the firm while he is a partner. [Section 11(2)] Act, 1932].
(c) A partner may make an agreement with his partners that on ceasing to be a partner, he will
not carry on any business. Similar to that of the firm within a specified period or local limits.
[Section 36 (2), Indian Partnership Act, 1932]
(d) A partner may upon or in-anticipation of the dissolution of the firm, make an agreement that
some or all of them will not carry on business similar to that of the firm within a specified
period or local limits such an agreement is valid provided the restrictions are reasonable.
(Section 54 of the Indian Partnership Act, 1932)
(e) A partner may upon sale of goodwill of a firm, make an agreement with the buyer of goodwill
that such partner will not carry on any business similar to that of the firm, within a specified
period or local limits. Such agreement is valid provided the restrictions are reasonable. [Section
55(3), Indian Partnership Act, 1932].

DISTINGUISH BETWEEN
1. Fraud and Misrepresentation. (1994 - Nov., 5 Marks)
Ans. Distinction between Fraud and Misrepresentation: Fraud means deliberate misstatement or active
concealment of a material fact or any other act fitted to deceive. Misrepresentation is incorrect or
false statement or breach of duty giving an advantage to the person committing it but the fallacy or
failure is not due to any desire to deceive the other party.
The main points of distinction between the two are as follows:
(a) Intention: In Fraud the intention of the party committing fraud is to deceive the other party,
while in Misrepresentation the intention of the party is not to deceive. Misrepresentation is
innocent, while fraud is deliberate or willful.
 1.24 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(b) Belief: In fraud the person making the suggestion does not believe it to be true, while in
misrepresentation, the party making such suggestion believes it to be true.
(c) Rescission and damages: In misrepresentation, the aggrieved party can rescind the contract
or sue for restitution (Sec. 64). But he cannot file a suit for damages. In fraud, the remedy
available to the aggrieved party is not limited to rescission only, but to damages also.
(d) Discovery of truth: In case of misrepresentation, the aggrieved party cannot avoid the
contract ii it had the means to discover the truth with ordinary diligence. But in Fraud, where
there is active concealment, the contract is voidable, even though the aggrieved party had the
means of discovering the truth with ordinary diligence.

2. 'Unilateral' and 'Bilateral' mistake. (1995 – May, 5 Marks)

Ans.
Sr.
Basis Unilateral Mistake Bilateral Mistake
No.
1. Meaning When only one of the party to a When both the contracting parties
contract is under a mistake it is misunderstand each other and are
called unilateral mistake at cross purpose, it is bilateral
mistake.
2. Mistake arises In unilateral mistake, mistake Bilateral Mistake arises on the part
arises only on the part of one of of both the parties to the contract.
the parties
3. Nature of Only one· party is under a mistake, As both the parties are under
contract the contract is not void mistake so the agreement is void.

3. Coercion and Undue influence. (1999 – May, 5 Marks)

Ans.
Sr.
Basis Coercion Undue Influence
No.
1. Definition Coercion involves threat to use In undue influence mental or moral
physical force to obtain the pressure is used to get the consent
consent of the other party of the other party.
2. Parties Coercion May be committed by Undue Influence must be made by a
any person against any person. party to the contract.
Even a strange act may amount to.
coercion
3. Relationship In coercion, the parties to the In undue influence the parties are
contract do not have any definite under fiduciary relationship.
relationship with each other
 Chapter 2 – The Indian Contract Act, 1872 1.25

4. Intention In coercion, the parties or party In undue influence the influencing

causing coercion has an intention party uses its position to obtain an
to enter into an agreement unfair advantage over the other
party.
5. Penalty An act of coercion may be The act of undue influence may not
Punishable under the Indian Penal be punishable
Code

DESCRIPTIVE QUESTIONS
1. Wagering agreements do not cover insurance contracts. (1994 – Nov., 5 Marks)
Ans. Wagering agreements do not cover insurance contracts: Sec. 30 of the Indian Contract Act defines
a wager as an agreement between two parties by which one promises to pay money or money's
worth on the happening of some uncertain event in consideration of the other party's promise to
pay if the even does not happen.
Contract of Insurance also have a resemblance with wagering agreements, since the insurance
companies have to pay the insured a certain sum of money after the occurrence of certain event. But
wager and insurance contracts have a superficial resemblance. As a matter of fact, the two have
difference in basic characters. The difference of the two lies in the following:
In Insurance contracts, the insured has an insurable interest in the subject matter of the insurance,
such an interest is not there in the wagering agreements. Further in insurance contracts, the insured
as well as the insurer both, are interested in safety of the subject-matter, but in wagering agreements,
only one party may be interested in the safety of the subject-matter, if any and not both. Moreover
in wagering agreements the sum payable is ascertained at the time of making the agreement, but in
insurance contracts the insured is indemnified only and is not allowed to take a benefit out of the
contract. Further, insurance is beneficial to the public at large, but wager is not. Last but not the least,
the amount of premium (consideration) payable by the insured to the insurance company is based
on scientific calculations, which is not the case in wagers. On the basis of above explanation, it can
safely be said that wagering agreements do not cover insurance contracts. However, if the insured
does not have insurable interest in the subject-matter insured, then, in such cases such insurance
contracts shall have no distinction with wagering agreements.

2.. When is the 'Consent' said to be not free? (1995 – May, 5 Marks)
Ans. When consent is not freely given: Section 13 of the Indian Contract Act, 1872, defines the term
'consent' as, "two or more persons are said to consent when they agree upon the same thing in the
same sense". It means that the contracting parties must have identity of minds i.e. consensus - ad
idem. Section 10 of the Act says that all agreements are contracts if they are made by the free consent
of the parties competent to contract for a lawful consideration and with a lawful object. It means that
not only there should be consent, but the consent of the parties must also be free. The consent is
said to be not free when it is vitiated by coercion, undue influence, fraud, misrepresentation or
mistake. In such a case the contract becomes voidable at the option of the party whose consent is
not free. Various factors which may affect free consent are discussed below:
 1.26 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Coercion: Coercion is the committing or threatening to commit any act forbidden by the Indian
Penal Code or the unlawful detaining, or threatening to detain, any property, to the prejudice of any
person whatever, with the intention of causing any person to enter into an agreement. (Section 15).
Undue Influence: 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 of another.
Fraud: "Fraud" exists when it is shown that a false representation has been made (i) knowingly, or (ii)
without belief in its truth, or (iii) recklessly, not caring whether it is true or false and (iv) the maker
intended the other party to act upon it. It also exists when there is a concealment of a material fact
(Section 17).
Misrepresentation: Misrepresentation is a misstatement of a material fact made innocently with an
honest belief as to its truth or non-disclosure of a material fact, without any intent to deceive the
other party (Section 18).
Mistake: Mistake is a misconception or error. A mistake means that parties intending to do one
thing, by error do something else. When an agreement is made under a mistake, it may be a mistake
of fact or law.

3. Mere silence is not a fraud. (1995 – Nov., 5 Marks)

Ans. Silence is not a Fraud: It is a rule of law that mere silence does not amount to fraud. A contracting
party is not duty bound to disclose the whole truth to the other party or to give him the whole
information in his possession affecting the subject matter of the contract.
The rule is contained in explanation to Section 17 of the Indian Contract Act which clearly states the
position that mere silence as to facts likely to affect the willingness of a person to enter into a contract
is not fraud.
To this rule the following two exceptions are provided:
(i) Where the circumstances of the case are such that, regard being had to them, it is the duty of
the person keeping silence to speak. Duty to speak arises when one contacting party reposes
trust and confidence in the other or where one party has to depend upon the good sense of
the other (e.g. Insurance Contract).
(ii) Where the silence is in itself, equivalent to speech.

4. When may a person be treated as of unsound mind to form a contract? (1995 – Nov., 5 Marks)
Ans. Person of unsound mind:
A person is said to be of unsound mind for the purpose of making a contract, if at the time when he
makes it, he is not capable of understanding it, and of forming a rational judgement as to its effect
upon his interests.
According to Section 12 of the Indian Contract Act a person may be treated as of unsound
mind to form a contract if he is:
(i) Idiot. who has completely lost his mental faculties of thinking.
(ii) Lunatic, a person who is usually of unsound mind, but occasionally of sound mind, may make
a contract when he is of sound mind. But during his lunacy he is incapable he is incapable to
form a contract.
(iii) Drunken or intoxicated person when he is under drunkenness or intoxication.
 Chapter 2 – The Indian Contract Act, 1872 1.27

5. "A minor is liable to pay for the necessities of life supplied to him". (1997- May, 5 Marks)
Ans. Section 68 of the Contract Act, deals with the cases of necessities of life supplied to a minor. The Act
provides that "if a person incapable of entering into a contract or anyone, when he is legally bound
to support is supplied by another person with necessaries suited to his condition in life, the person
who has furnished such supplies is entitled to be recovered from the property of such incapable
person." ·
Thus, a minor is not personally liable for the payment of necessities supplied to him, the payment
for such necessities can be recovered only out of the property of the minor. The supplier will lose the
price of necessities, if the minor does not possess any property. What constitutes necessities shall be
determined with reference to the status and the circumstances of a particular minor.
Simple example of necessaries are food, clothing and shelter but necessaries will also include minor's
medical expenses. cost of defending a minor's civil or criminal proceedings. provisions for education
etc. Loan taken by minor to obtain necessities also bind a minor.
The point to be noted is that the parent or guardian of a minor cannot be made responsible for any
good supplied to a minor unless these goods are supplied to a minor as the agent of the parent or
guardian.

6. Explain the term Fraud as per the Indian Contract Act. What are its effects upon the validity of a
contract? (1997 – May, 10 Marks)
Ans. When a wilful representation is made by a party to a contract with the intention to deceive the other
party or to induce such party to enter into a contract is called Fraud.
According to Section 17, fraud means and includes any of the following acts:
1. a false suggestion as to fact known to be false or not believed to be true; or
2. the active concealment of a fact with knowledge or belief of the fact; or
3. a promise made without any intention of performing it; or
4. doing any other act fitted to deceive; or
5. doing any such act or making any such omission as the law specially declares to be fraudulent.
Essential elements of the fraud:
The essential elements of the fraud are as follows:
1. There must be representation or assertion and it must be false.
2. The representation or assertion must be of a fact.
3. The party acting on the representation must have suffered some loss.
4. Active concealment of the facts also results into fraud.
5. The statement must have been made with a knowledge of its falsity or without belief in its truth
or recklessly.
6. The fraud must have actually deceived the other party.
Effect of fraud:
A contract becomes voidable at the option of the party whose consent to an agreement is caused
by fraud.
The remedies available to the aggrieved party are as follows:
1. he may cancel the contract, or
 1.28 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

2. he can insist the other party to perform the contract, so that he shall put in the position in
which he would have been if the representation made has been true.
3. he can sue for damages.

7. A minor can always plead minority. (1997 - Nov., 5 Marks)

Ans. A minor can always plead minority: A minor's agreement being void, so no money can be
recovered from him on any type of advance made. A minor cannot be stopped from pleading his
minority, even when he procures loan by falsely representing that he is a major, in a suit to recover
the amount. In such a case the suit will stand to be dismissed.
A minor's agreement being void, it cannot be specifically enforced against the minor under the
Specific Relief Act. The fact that the minor misrepresented his age or by fraud. induced the other
party to enter into a contract with him, cannot be used of to make him liable on his contract. Rule of
estoppel cannot be pleaded against the minor.

8. What is coercion? What are the consequences of coercion upon the validity of the contract?
(1997 – Nov., 5 Marks)
Ans. Coercion: According to Section 15. "Coercion is the committing or threatening to commit any act
forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detain any property,
to the prejudice of any person whatever, with the intention of causing any force in the place where
the coercion is employed." Following are the essential elements of coercion:
1. There should be clear utterance of threat.
2. The threat must be to commit an act forbidden by the Indian Penal Code.
3. The act must be done with the intention of causing other person to enter into agreement.
Effect of Coercion:
Effect of coercion is given under section 19 of the Act and they are as follows: ·
1. An agreement whose consent is obtained by coercion is voidable at the option of the party
whose consent is so obtained.
2. A person to whom the money has been paid or anything delivered under coercion must repay
or return it (Section 72)

9. Mistakes of fact. (1999 – Nov., 5 Marks)

Ans. Mistake of fact: Mistake of fact may be divided into two groups that is:
1. Bilateral Mistake
2. Unilateral Mistake

1. Bilateral mistake: According to Section 20 of the Act, Bilateral mistake is a mistake, "Where
both the parties to an agreement are under a mistake, as to a matter of fact essential to the
agreement, the agreement is void."
Bilateral mistake may relate to the existence, identity, title, quantity and price of the subject
matter, However, an erroneous opinion as to the value of a thing which forms the subject
matter of the agreement is not to be deemed a mistake as to matter of fact (Explanation to
section 20).
 Chapter 2 – The Indian Contract Act, 1872 1.29

2. Unilateral Mistake of fact: Section 22 of the Act deals with unilateral mistake, "A contract is
not voidable merely because it was caused by one of the parties to it being under a mistake as
to a matter of fact".

10. All illegal agreements are void but all void agreements are not illegal. (2000 – May, 5 Marks)
Ans. All illegal agreement are void but all void agreements are not illegal:
The agreement which has no legal effect is a void agreement. In the case of the illegal contract, there
is no legal effect in between the parties but the transaction collateral to such a contract is further
effected.
A contract which is termed illegal and is void ab initio, is treated by law as if it had not been made at
all. Thus, parties to an illegal contract cannot get the help from court of law. For example, in the case
of an illegal contract for the sale of goods, the buyer though has paid the price, cannot sue for non-
delivery. The price cannot be recovered by the seller who has to make the delivery. No suit can be
filed in respect of an illegal contract.

11. When does the mistake of the parties invalidate a contract? (2000 – Nov., 5 Marks)
Ans. 'Mistake' has not been defined anywhere in the Indian Contract Act, 1872. But Section 20 of the act
provides the effect of the term 'mistake' which is ‘when both the parties to an agreement are under
a mistake as to a matter of fact essential to the agreement, the agreement is declared void’
Following conditions must be fulfilled before a contract can be avoided on the ground of
mistake:
1. There must be a mistake as to the formation of contract.
2. The mistake must relate as to the matter of fact and not of law.
3. The mistake must be of both the parties i.e. bilateral.
4. The matter of fact must be essential to the agreement.

12. Law relating to minor's contracts. (2002 – Nov., 5 Marks)

Ans. Law relating to minor's contract:
(i) An agreement entered into by a minor is altogether void.
(ii) Minor can be a beneficiary: Though a minor is rot competent to contract, there is nothing in
the Indian Contract Act, 1872, which prevents him from making the other party bound to the
minor.
(iii) Minor can always plead minority.
(iv) Ratification on attaining a majority is not allowed: As a minor's agreement is void, he
cannot validate it by ratification on attaining majority.
(v) Though a minor's agreement is void, his guardian can under certain circumstances enter into
a valid contract as minor's behalf.
(vi) Under section 68 (Indian contract Act, 1872), any person would be entitled to reimbursement
out of minor's estate, for necessaries supplied to him or to his family.
 1.30 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

CASE STUDIES
1. In Shrikrishan v. Kurukshetra University, Shrikrishan, a candidate for the LLB. Part-I exam, who was
short of attendance, did not mention that fact himself in the admission form for the examination.
Neither the Head of the Law Department nor the university authorities made proper scrutiny to
discover the truth. It was held by the Supreme Court that:
(a) There was fraud by the candidate.
(b) There was no fraud by the candidate.
(c) There was misrepresentation by the candidate.
(d) There was mistake on the part of the candidate.
Ans. There was no fraud, since the head of the department failed to conduct reasonable scrutiny. Thus,
since means were available for discovering the truth, the contract cannot be treated as voidable on
the grounds of fraud, since it is a case of fraudulent silence.

2. 'A' is dire need of ` 1,00,000 but was unable to get any loan from banks as he had to security to offer.
'A' approached his friend 'B' who knowing the helpless position of 'A' lent money at a very high rate
of interest, saying that he had himself borrowed money from 'C'. The contract is:
(a) Vitiated by undue influence that 'B' had exercised over 'A' due to his close friendship
(b) Void as the rate of interest being very high was unconscionable
(c) Not valid as 'B' had wrongly misled 'A' that he had borrowed money from 'C'
(d) Valid as a friend could not be supposed to have wielded undue influence only because the
money lent carried a higher rate of interest.
Ans. The contract is valid; no undue influence; since B was not in a dominant position so as to influence
the will of A, to cause him to enter in to a contract at terms of high rates of interest.

3. A student was induced by his teacher to sell his brand-new car to the latter at less than the purchase
price to secure more marks in examination. Accordingly, the car was sold. However, the father of the
student persuaded him to sue his teacher. State on what grounds can the student sue the teacher?
Ans. The contract can be avoided by the aggrieved party i.e. the student, on the grounds of undue
influence, since the teacher stood in a dominant position and used the same to obtain an unfair
advantage over the student in a contract; teacher stands in a fiduciary relation with the student and
is in a position to influence him.

4. A threatened his wife and son to commit suicide if they did not agree to transfer A's house to his
brother. Thereupon his wife and son agreed to transfer the house. Subsequently, his wife and son
filed a suit to set aside the transfer. Will they succeed?
Hint: Yes, Threat to commit suicide amounts to coercion.
Ans. The contract is voidable by the wife and son on the grounds of coercion; threat to suicide amounts
to coercion.
 Chapter 2 – The Indian Contract Act, 1872 1.31

5. C offers to sell a painting to D, which C knows is a master copy of the original painting. D thinking
that the painting is the original, immediately accepts the offer. Comment on the validity of the
contract.
Ans. The contract is valid even though it is created under a unilateral mistake of fact. D has the erroneous
belief that the painting is an original one; C is under no duty to speak.

6. A, advances money to his son B during his minority. Upon B's coming of age, A obtains by parental
influence, a bond from his son B for an amount higher than the sum due in respect of the money
advanced. Is B bound by the bond?
Ans. The contract is voidable on the grounds of undue influence and therefore Bis not bound by the bond.

7. A, honestly believing that his watch is made in Switzerland agreed to sell it to B by representing that
the watch is made in Switzerland. Subsequently, it is discovered that the watch is made in India. What
is the remedy of B? Will your answer be different had A known that his watch was made in India.
Ans. The contract is voidable on the grounds of misrepresentation, since untrue statement was made by
A, in honest ignorance of its falsehood and therefore the only remedy available to B is to rescind the
contract; no damages shall be granted.
However, if A, knew that the watch was actually made in India, it will amount to fraud and the contract
shall be not only voidable at the option of B but damages shall also be awarded to him for his loss.

8. A agreed to sell rice to B. Both A and B believed that the rice is old basmati and a very high price is
settled. Subsequently, it is discovered that rice is new one. Can B get back his price? Will your answer
be different if B alone purchased the rice thinking it to be old basmati?
Ans. The contract is void on the grounds of bilateral mistake as lo the quality of subject matter; Bis entitled
to get back his price. However, if B is alone mistaken as to the quality of subject matter, it amounts
to unilateral mistake. and the contract shall be treated as valid and enforceable.

9. G pays ` 5,00,000 to A, a civil servant employed in a Government Department in consideration of A's

promise that a Government contract which is at the disposal of his department will be placed with
G. Before this can be done, A is transferred to another department. G now wishes to reclaim from A`
5,00,000 paid to him. Will G succeed?
Ans. The agreement is opposed to public policy since it creates A's interest opposed to his duty. The
agreement is illegal and void ab initio. G cannot recover the amount paid.

10. A enter into a contract that he shall give his house to B for rent. They further agree that if B uses, his
house for gambling, the rent shall be charged at the rate of ` 50,000 per month and if the house is
used for residential purpose then the rent shall be charged at the rate of ` 10,000 per month. Is the
contract valid?
Ans. Where a contract contains reciprocal alternative promises, one part of which is legal and the other
part being illegal, then if the legal branch is pursued, the contract is valid and enforceable, whereas
if the illegal branch is pursued, the contract shall be treated as void ab initio. The contract for rent is
 1.32 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

valid if the house is used for residential purposes whereas if it is used for gambling then the same
shall be treated as void ab initio.

11. W appoints K to supervise his businesses of cloth manufacturing and trading in drugs for a salary of
` 1,00,000 pm. Can K recover his salary?
Ans. Where a contract is made for several objects but single consideration then the contract shall be
treated as illegal and void ab initio, if even a single object is illegal. Thus, since the legal part cannot
be severed from the illegal part the contract shall be treated as illegal and void ab initio and K shall
have no right to recover his salary from W.

12. F, a father of a minor son & a daughter agreed to transfer guardianship of his children in favour of
Mrs. 0, an elderly lady and agreed not to revoke it for consideration. Subsequently F filed a suit
against Mrs. 0 for the recovery of his children. Mrs. 0. Contends that the same should not be allowed
as she had contractual right of guardianship. Comment on the validity of contention of Mrs. 0. in
context of the Indian Contract Act, 1872.
Ans. Agreements interfering with parental rights are opposed to public policy, illegal & void ab initio.
Thus, the above contract is void ab initio & F has a right to revoke his authority & get back his
children.

13. X agreed to become an assistant for 2 years to Y who was a practicing chartered accountant at
Jodhpur. It was also agreed that during the term of agreement X will not practice as a chartered
accountant on his own account within 20 kms of the office of Y at Jodhpur. At the end of one year,
X left the assistantship of Y and started practice on his own account within the said area of 20 kms.
Ans. The restriction contained in service agreements, whereby the employee agrees not to earn· on the
similar service on his own or for any one else during the period of his employment is valid and not
treated as in restraint of trade (exception to agreements in restraint of trade); the restriction on X not
to earn on his own practice during the period of his employment with Y is valid and enforceable.

14. Sarvesh sells the goodwill of his shop to Vikas for ` 10,00,000 and promises not to carry on such
business forever and anywhere in India.
Ans. The buyer can impose restriction of the seller of goodwill, not to earn· on similar business, provided
the restrictions are reasonable as regards to the duration and place of such business; (exception to
restraint on trade); the restraint on carrying on similar trade placed on Sarvesh, is not valid and hence
is void to that extent.

15. A employed B and during the course of employment, B came to know of all the secrets of A's
business. B agrees with A not to do similar business in the particular area for 5 years after leaving A's
employment. Comment on the validity of agreement
Ans. Generally, any restriction imposed by service agreements on the employee is valid and not in restraint
so far as relates to the period of employment. Any restriction on the employee whereby, after the
termination of his service, he is prohibited from carrying on similar work on his own or for another
employer, is treated as in restraint of trade and therefore void to that extent. However where such a
 Chapter 2 – The Indian Contract Act, 1872 1.33

restraint pertaining to the period after termination of services is essential to protect the trade secrets
and interest of the employer, since the employee has knowledge of the same, then such restriction
shall also be treated as valid and enforceable provided it is for a reasonable period of time.
The agreement between A & B is valid and enforceable since B has knowledge of A's business secrets.

16. Mr. Seth an industrialist has been fighting a long-drawn litigation with Mr. Raman another
industrialist. To support his legal campaign Mr. Seth enlists the services of Mr. X a legal expert stating
that an amount of ` 5 lakhs would be paid, if Mr. X does not take up the brief of Mr. Raman, Mr. X
agrees, but at the end of the litigation, Mr. Seth refuses to pay. Decide whether Mr. X can recover
the amount promised by Mr. Seth under the provisions of the Indian Contract Act, 1872.
Ans. Restraints imposed under service Agreements are valid and enforceable provided they are
reasonable. A clause in a service agreement whereby an employee is prohibited from accepting any
other engagement during his employment is valid and is not regarded as in restraint of trade.
In the given case Mrs. Seth has enlisted (hired) the services of Mr. X a legal expert who agrees not to
take up the brief of Mr. Raman during the course of litigation.
Thus the agreement is valid & enforceable since the restriction imposed on Mr. X does not amount
to restraint of trade. Mr. X can recover the amount from Mr. Seth.

17. Mr. X lends ` 10,000 to Mr. Y in order to enable him to bet with Mr. C as to the results of a horse
race. Can Mr. X recover the amount lent by him?
Ans. Wagering agreements are generally void and their collateral agreements are treated as valid and
enforceable. However in case where the wagering agreement is regarded as illegal, agreements
collateral to such agreements shall also be regarded as illegal and void ab initio; Mr. X can recover
his loan from Mr. Y since the loan given by him is in the form of an agreement collateral to the
wagering agreement (betting on horse race is void) and is therefore valid and enforceable.

18. A and B agree to share the proceeds of a robbery committed by them. A lends ` 500 to B to buy
implements required for the robbery. Can A recover from B the money lent by him (A). Give reasons.
Ans. No, the agreement is illegal and hence collateral transactions will also be void.
 1.34 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

PART II: QUESTIONS SET 1

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 [PE-II, Nov. 2002] [4 Marks]
Ans. Meaning of Undue Influence:
Section 16 of the Indian Contract Act, 1872, states that a contract is said to be induced by undue
influence where the relations subsisting between the parties are such that the parties are in a position
to dominate the will of the other and Used that position to obtain an unfair advantage over the other.
A person is deemed to be in that position:
(a) where he holds real or apparent authority over the other or stands in a fiduciary relation to him;
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of old age, illness or mental or bodily distress.
(c) where a man who is in position to dominate the will of the other enters into contract with him
and the transaction appears to be unconscionable, the burden of proving that it is fair, is on
him, who is in such a position.
When one of the parties who has obtained the benefits of a transaction is in a position to dominate
the will of the other, and the transaction between the parties appears to be unconscionable, the law
raises a presumption of undue influence [section 16(3)]. Every transaction where the terms are to the
disadvantage of one of the parties need not necessarily be considered to be unconscionable. If the
contract is to the advantage of one of the parties but the same has been made in the ordinary course
of business the presumption of under influence would not be raised.
In the given problem, A applies to the banker for a loan at a time when 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. This is a transaction in the ordinary course of business, and the
contract is not induced by undue influence. As between parties on an equal footing, the court will
not hold a bargain to be unconscionable merely on the ground of high interest. Only where the
lender is in a position to dominate the will of the borrower, the relief is granted on the ground of
undue influence. But this is not the situation in this problem, and therefore, there is no undue
influence.

2. Explain the concept of ‘misrepresentation’ in matters of contract.

Sohan induced Suraj to buy his motorcycle saying that it was in a very good condition. After taking
the motorcycle, Suraj complained that there were many defects in the motorcycle. Sohan proposed
to get it repaired and promised to pay 40% cost of repairs After a few days, the motorcycle did not
work at all. Now Suraj wants to rescind the contract. Decide giving reasons.
[PE-II, Nov. 2003] [4 Marks]
Ans. Misrepresentation & the Problem: According to Section 18 of the Indian Contract Act, 1872,
misrepresentation is there:
1. When a person positively asserts that a fact is true when his information does not warrant it to
be so, though he believes it to be true.
 Chapter 2 – The Indian Contract Act, 1872 1.35

2. When there is any breach of duty by a person, which brings an advantage to the person
committing it by misleading another to his prejudice.3. When a party causes, however,
innocently, the other party to the agreement to make a mistake as to the substance of the thing
which is the subject of the agreement.
Problem:
The aggrieved party, in case of misrepresentation by the other party, can avoid or rescind the contract
[Section 19, Indian Contract Act, 1872]. The aggrieved party loses the right to rescind the contract if
he, after becoming aware of the misrepresentation, takes a benefit under the contract or in some way
affirms it. Accordingly in the given case Suraj could not rescind the contract, as his acceptance to the
offer of Sohan to bear 40% of the cost of repairs impliedly amount to final acceptance of the sale
[Long v. Lloyd, (1958)].

3. Shambhu Dayal started "self service" system in his shop. Smt. Prakash 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 Shambhu Dayal be compelled to sell the said articles to Smt. Prakash?
Decide. [PE-II, May 2004] [4 Marks]
Ans. Invitation to offer
The offer should be distinguished from an invitation to offer. An offer is the final expression of
willingness by the offeror to be bound by his offer should the party chooses to accept it. Where a
party, without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but invites only the other party to make an offer on those
terms. This is the basic distinction between offer and invitation to offer.
The display of articles with a price in a self-service shop is merely an invitation to offer. It is in no
sense an offer for sale, the acceptance of which constitutes a contract. In this case, Smt. Prakash in
selecting some articles and approaching the cashier for payment simply made an offer to buy the
articles selected by her. If the cashier does not accept the price, the interested buyer cannot compel
him to sell. [Fisher V. Bell (1961) Q.B. 394 Pharmaceutical society of Great Britain V. Boots Cash
Chemists].

4. Akhilesh entered into an agreement with Shekhar to deliver him (Shekhar) 5,000 bags to be
manufactured in his factory. The bags could not be manufactured because of strike by the workers
and Akhilesh failed to supply the said bags to Shekhar. Decide whether Akhilesh can be exempted
from liability under the provisions of the Indian Contract Act, 1872. [PE-II, May 2004] [6 Marks]
Ans. Delivery of Bags
According to Section 56 (Para 2) of Indian Contract Act, 1872 when the performance of a contract
becomes impossible or unlawful subsequent to its formation, the contract becomes void, this is
termed as ‘supervening impossibility’ (i.e. impossibility which does not exist at the time of making
the contract, but which arises subsequently).
But impossibility of performance is, as a rule, not an excuse from performance. It means that when a
person has promised to do something, he must perform his promise unless the performance
becomes absolutely impossible. Whether a promise becomes absolutely impossible depends upon
the facts of each case.
 1.36 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

The performance does not become absolutely impossible on account of strikes, lockout and civil
disturbances and the contract in such a case is not discharged unless otherwise agreed by the parties
to the contract (Budget V Bennington; Jacobs V Credit Lyonnais).
In this case Mr. Akhilesh could not deliver the bags as promised because of strike by the workers.
This difficulty in performance cannot be considered as impossible of performance attracting. Section
56 (Para 2) and hence Mr. Akhilesh is liable to Mr. Shekhar for non-performance of contract.

5. Mr. Seth an industrialist has been fighting a long drawn litigation with Mr. Raman another
industrialist. To support his legal campaign Mr. Seth enlists the services of Mr. X a legal expert stating
that an amount of ` 5 lakhs would be paid, if Mr. X does not take up the brief of Mr. Raman. Mr. X
agrees, but at the end of the litigation Mr. Seth refuses to pay. D ecide whether Mr. X can recover the
amount promised by Mr. Seth under the provisions of the Indian Contract Act, 1872.
[PE-II, Nov. 2004] [4 Marks]
Ans. The problem as asked in the question is based on one of the essentials of a valid contract.
Accordingly, one of the essential elements of a valid contract is that the agreement must not be one
which the law declares to be either illegal or void. A void agreement is one without any legal effect.
Thus any agreement in restraint of trade, marriage, legal proceedings etc., are void agreements. Thus
Mr. X cannot recover the amount of ` 5 lakhs promised by Mr. Seth because it is an illegal agreement
and cannot be enforced by law.

6. What is meant by Anticipatory Breach of Contract?

Mr. Dubious textile enters into a contract with Retail Garments Show Room for supply of 1,000 pieces
of Cotton Shirts at ` 300 per shirt to be supplied on or before 31st December, 2004. However, on 1st
November, 2004 Dubious Textiles informs the Retail Garments Show Room that he is not willing to
supply the goods as the price of Cotton shirts in the meantime has gone upto ` 350 per shirt. Examine
the rights of the Retail Garments Show Room in this regard.
[PE-II, Nov. 2004] [6 Marks]
Ans. Anticipatory breach of contract
Anticipatory breach of contract occurs when the promisor refuses altogether to perform his promise
and signifies his unwillingness even before the time for performance has arrived. In such a situation
the promise can claim compensation by way of loss or damage caused to him by the refusal of the
promisor. For this, the promisee need not wait till the time stipulated in the contract for fulfillment
of the promise by the promisor is over.
In the given problem Dubious Textiles has indicated its unwillingness to supply the cotton shirts on
1st November 2004 itself when it has time upto 31st December 2004 for performance of the contract
of supply of goods. It is therefore called anticipatory breach of contract. Thus Retail Garments show
room can claim damages from Dubious Textiles immediately after 1st November, 2004, without
waiting upto 31st December 2004. The damages will be calculated at the rate of ` 50 per shirt i.e. the
difference between ` 350/- (the price prevailing on 1st November) and ` 300/- the contracted price.

7. Father promised to pay his son a sum of ` One lakh if the son passed C.A. examination in the first
attempt. The son passed the examination in the first attempt, but father failed to pay the amount as
promised. Son files a suit for recovery of the amount. State along with reasons whether son can
recover the amount under the Indian Contract Act, 1872. [PE-II, May 2005] [4 Marks]
 Chapter 2 – The Indian Contract Act, 1872 1.37

Ans. Problem as asked in the question is based on the provisions of the Indian Contract Act, 1872 as
contained in Section 10. According to the provisions there should be an intention to create legal
relationship between the parties. Agreements of a social nature or domestic nature do not
contemplate legal relationship and as such are not contracts, which can be enforced. This principle
has been laid down in the case of Balfour vs. Balfour (1912 2 KB. 571). Accordingly, applying the
above provisions and the case decision, in this case son cannot recover the amount of ` 1 lakh from
father for the reasons explained above.

8. M Ltd., contracts with Shanti Traders to make and deliver certain machinery to them by 30.6.2004 for
` 11.50 lakhs. Due to labour strike, M Ltd. could not manufacture and deliver the machinery to Shanti
Traders. Later, Shanti Traders procured the machinery from another manufacturer for ` 12.75 lakhs.
Shanti Traders was also prevented from performing a contract which it had made with Zenith Traders
at the time of their contract with M Ltd. and were compelled to pay compensation for breach of
contract. Advise Shanti Traders the amount of compensation which it can claim from M Ltd., referring
to the legal provisions of the Indian Contract Act. [PE-II, May 2005] [6 Marks]
Ans. Section 73 of the Indian Contract Act, 1872 provides for consequences of breach of contract.
According to it, when a contract has been broken, the party who suffers by such breach is entitled to
receive from the party who has broken the contract, compensation for any loss or damage caused to
him thereby which naturally arose in the usual course of things from such breach or which the parties
knew when they made the contract, to be likely to result from the breach of it. Such compensation is
not given for any remote and indirect loss or damage sustained by reason of the breach. It is further
provided in the explanation to the section that in estimating the loss or damage from a breach of
contract, the means which existed of remedying the inconvenience caused by the non-performance
of the contract must be taken into account.
Applying the above principle of law to the given case, M Ltd is obliged to compensate for the loss of
` 1.25 lakhs (i.e. ` 12.75 minus ` 11.50 = ` 1.25 lakhs) which had naturally arisen due to default in
performing the contract by the specified date.
Regarding the amount of compensation which Shanti Traders were compelled to make to Zenith
Traders, it depends upon the fact whether M Ltd knew about the contract of Shanti Traders for supply
of the contracted machinery to Zenith Traders on the specified date. If so, M Ltd is also obliged to
reimburse the compensation which Shanti Traders had to pay to Zenith Traders for breach of contract.
Otherwise M Ltd is not liable.

9. Miss X, a film actress agreed to work exclusively for a period of two years, for a film production
company. However, during the said period she enters into a contract to work for another film
producer. Discuss the rights of the aggrieved film production company under the Indian Contract
Act, 1872. [PE-II, Nov. 2005] [4 Marks]
Ans. Where a party commits a breach of negative term of a contract i.e., where he does something which
he promised not to do, the aggrieved party can go to court which may issue an order restraining him
from doing what he promised not to do. Such an order of the court is known as injunction. Since
Miss X has agreed to work exclusively for the film production company for a period of two years, the
aggrieved film production company can go to court and get injunction order restraining Miss X
working for another film production company. A similar decision was taken in the case of Warrior
Bros vs. Nelson (1937) 1 K.B. 209
 1.38 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

10. J, the owner of a Fiat car wants to sell his car. For this purpose he hand over the car to P, a mercantile
agent for sale at a price not less than ` 50,000. The agent sells the car for ` 40,000 to A, who buys
the car in good faith and without notice of any fraud. P misappropriated the money also. J sues A to
recover the car. Decide giving reasons whether J would succeed. [PE-II, Nov. 2005] [4 Marks]
Ans. The problem in this case is based on the provisions of the Sale of Goods Act, 1930 contained in the
proviso to Section 27. The proviso provides that a mercantile agent is one who in the customary
course of his business, has, as such agent, authority either to sell goods, or to consign goods, for the
purpose of sale, or to buy goods, or to raise money on the security of goods [Section 2(9)]. The buyer
of goods from a mercantile agent, who has no authority from the principal to sell, gets a good title
to the goods if the following conditions are satisfied:
(1) the agent should be in possession of the goods or documents of title to the goods with the
consent of the owner.
(2) the agent should sell the goods while acting in the ordinary course of business of a mercantile
agent.
(3) the buyer should act in good faith.
(4) the buyer should not have at the time of the contract of sale notice that the agent has no
authority to sell.
In the instant case, P, the agent, was in the possession of the car with J’s consent for the purpose of
sale. A, the buyer, therefore obtained a good title to the car. Hence, J in this case, cannot recover the
car from A. A similar decision, in analogous circumstances, was taken in Folkes v. King.

11. Examine the validity of a contract when the acceptance from the offeree is obtained under ‘Coercion’
or under ‘Undue influence’. Point out the distinction between ‘Coercion’ and ‘Undue influence’.
[PE-II, Nov. 2005] [4 Marks]
Ans. According to Section 19 of the Indian Contract Act, 1872 when consent to an agreement is given due
to coercion or undue influences, such a contract is voidable at the option of the party whose consent
was so obtained. The difference between coercion and undue influence is as under:
Coercion Undue Influence
(a) It involves the physical force or threat. The It involves moral or mental pressure. The
aggrieved party is compelled to make the aggrieved party believes that he or she would
contract against its will. make the contract.
(b) It involves committing or threatening to No such illegal act is committed or a threat is
commit an act forbidden by Indian Penal given.
Code for detaining or threatening to detain
property of another person.
(c) It is not necessary that there must be some Some sort of relationship between the parties
relationship between the parties. is absolutely necessary.
(d) Coercion need not proceed from the Undue influence is always essential between
promisor nor need it be directed against the parties to the contract.
the promisee.
 Chapter 2 – The Indian Contract Act, 1872 1.39

(e) The contract is voidable at the option of the Where consent is induced by undue influence,
party whose consent has been obtained by the contract is either voidable or the court may
the coercion. set it or enforce it in a modified form.

12. Ramaswami proposed to sell his house to Ramanathan. Ramanathan sent his acceptance by post.
Next day, Ramanathan sends a telegram withdrawing his acceptance. Examine the validity of the
acceptance in the light of the following:
(i) The telegram of revocation of acceptance was received by Ramaswami before the letter of
acceptance.
(ii) The telegram of revocation and letter of acceptance both reached together.
[PE-II, May 2006] [5 Marks]
Ans. The problem is related with the communication and time of acceptance and its revocation. As per
Section 4 of the Indian Contract Act, 1872, the communication of an acceptance is a complete as
against the acceptor when it comes to the knowledge of the proposer.
An acceptance may be revoked at any time before the communication of the acceptance is complete
as against the acceptor, but not afterwards.
Referring to the above provisions
(i) Yes, the revocation of acceptance by Ramanathan (the acceptor) is valid.
(ii) If Ramaswami opens the telegram first (and this would be normally so in case of a rational
person) and reads it, the acceptance stands revoked. If he opens the letter first and reads it,
revocation of acceptance is not possible as the contract has already been concluded.

13. X, a minor was studying in a college. On 1st July, 2005 he took a loan of ` 10,000 from B for payment
of his college fees and to purchase books and agreed to repay by 31st December, 2005. X possesses
assets worth ` 2 lakhs. On due date X fails to pay back the loan to B. B now wants to recover the loan
from X out of his (X’s) assets. Referring to the provisions of Indian Contract Act, 1872 decide whether
B would succeed. [PE-II, Nov. 2006] [5 Marks]
Ans. Yes, B can proceed against the assets of X. According to section 68 of Indian Contract Act 1872 “If a
person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.”
Since the loan given to X is for the necessaries suited to the conditions in life of the minor, his assets
can be sued to reimburse B.

14. Y holds agricultural land in Gujarat on a lease granted by X, the owner. The land revenue payable by
X to the Government being in arrear, his land is advertised for sale by the Government. Under the
Revenue law, the consequence of such sale will be termination of Y’s lease. Y, in order to prevent the
sale and the consequent termination of his own lease, pays the Government, the sum due from X.
Referring to the provisions of the Indian Contract Act, 1872 decide whether X is liable to make good
to Y, the amount so paid? [PE-II, May 2007] [5 Marks]
 1.40 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Ans. Yes, X is bound to make good to Y the amount so paid. Section 69 of the Indian Contract Act, 1872,
provides that “A person who is interested in the payment of money which another is bound by law
to pay, and who therefore pays it, is entitled to be reimbursed by the other. In the given case Y has
made the payment of lawful dues of X in which Y had an interest. Therefore, Y is entitled to get the
reimbursement from X.

15. A contracted with B to supply him (B) 500 tons of iron-steel @ ` 5,000 per ton, to be delivered at a
specified time. Thereafter, A contracts with C for the purchase of 500 tons of iron-steel @ ` 4,800 per
ton, and at the same time told ‘C’ that he did so for the purpose of performing his contract entered
into with B. C failed to perform his contract in due course. Consequently, A could not procure any
iron-steel and B rescinded the contract. What would be the amount of damages which A could claim
from C in the circumstances? Explain with reference to the provisions of the Indian Contract, 1872.
[PE-II, May 2007] [5 Marks]
Ans. The problem in the question is based on the provisions of the Indian Contract Act, 1872 as contained
in Section 73. Section 73 provides that when a contract has been broken the party who suffers by
such breach is entitled to receive from the party who has broken the contract compensation for any
loss or damage caused to him thereby which naturally arose in the usual course of things from such
breach or which the parties knew when they made the contract to be likely to result from the breach
of it. The leading case in this point is Hadley v Baxendale.
In a leading case of “Hadley vs. Baxendale” it was decided that if the special circumstances under
which the contract was actually made were communicated by the plaintiffs to the defendants, and
thus known to both parties, the damages resulting from the breach of such a contract which they
would reasonably contemplate, would be the amount of injury which would ordinarily follow from a
breach of contract under these special circumstances so known and communicated.
In the instant case ‘A’ had intimated to ‘C’ that he was procuring iron steel from him for the purpose
of performing his contract whit ‘B’ Thus, C had the knowledge of the special circumstance. Therefore,
is entitled to claim from ‘C’ ` 1,00,000 (difference between the procuring price of iron steel and
contracted selling price to ‘B’) being the amount of profit ‘A’ would have made by the performance
of his contract with ‘B’. If A had not told C of B’s contract then the amount of damages would have
been the difference between the contract price and the market price on the day of default.

16. X' agreed to become an assistant for 5 years to 'Y' who was a Doctor practising at Ludhiana. It was
also agreed that during the term of agreement 'X' will not practise on his own account in Ludhiana.
At the end of one year, X' left the assistantship of 'Y' and began to practise on his own account.
Referring to the provisions of the Indian Contract Act, 1872, decide whether X' could be restrained
from doing so? [PE-II, Nov. 2007] [5 Marks]
Ans. An agreement in restraint of trade/business/profession is void under Section 27 of the Indian
Contract Act, 1872. But an agreement of service by which a person binds himself during the term of
the agreement not to take service with anyone else directly or indirectly to promote any business in
direct competition with that of his employer is not a restraint of trade. However in the given case X
cannot be restrained by an injunction from doing so.
 Chapter 2 – The Indian Contract Act, 1872 1.41

17. X transferred his house to his daughter M by way of gift. The gift deed, executed by X, contained a
direction that M shall pay a sum of ` 5, 000 per month to N (the sister of the executant). Consequently
M executed an instrument in favour of N agreeing to pay the said sum. Afterwards, M refused to pay
the sum to N saying that she is not liable to N because no consideration had moved from her. Decide
with reasons under the provisions of the Indian Contract Act, 1872 whether M is liable to pay the said
sum to N. [PE-II, Nov. 2007] [5 Marks]
Ans. As per Section 2 (d) of the Indian Contract Act, 1872, in India, it is not necessary that consideration
must be supplied by the party, it may be supplied by any other person including a stranger to the
transaction.
The problem is based on a case "Chinnaya Vs. Ramayya” is which Honorable Court clearly observed
that the consideration need not necessary move from the party itself, it may move from any person.
In the given problem, the same reason applies. Hence, M is liable to pay the said sum to N. and
cannot deny from liability on the ground that consideration did not move from N.

18. X, Y and Z jointly borrowed ` 50,000 from A. the whole amount was paid to A by Y. Decide in the
light of the Indian Contract Act, 1872 whether:
(i) Y can recover the contribution from X and Z,
(ii) legal representatives of X are liable in case of death of X,
(iii) Y can recover the contribution from the assets, in case Z becomes insolvent.
[PE-II, Nov. 2007] [5 Marks]
Ans. Section 42 of the Indian Contract Act, 1872 requires that when two or more persons have made a
joint promise, then, unless a contrary intention appears by the contract, all such persons jointly must
fulfill the promise. In the event of the death of any of them, his representative is liable jointly with the
survivors and in case of the death of all promises, the representatives of all jointly must fulfill the
promise.
Section 43 allows the promisee to seek performance from any of the joint promisors. The liability of
the joint promisors has thus been made not only joint but "joint and several". Section 43 provides
that in the absence of express agreement to the contrary, the promisee may compel any one or more
of the joint promisors to perform the whole of the promise.
Section 43 deals with the contribution among joint promisors, the promisors, may compel every joint
promisors to contribute equally to the performance of the promise (unless a contrary intertion
appears from the contract). If any one of the joint promisors makes default in such contribution the
remaining joint promisors must bear the loss arising from such default in equal shares.
As per the provisions of above sections,
(i) Y can recover the contribution from X and Z because XYZ are joint promisors.
(ii) Legal representative of X are liable to pay the contribution to Y. However, a legal representative
is liable only to the extent of property of the deceased received by him.
(iii) 'Y' also can recover the contribution from Z's assets.

19. Point out with reasons whether the following agreements are valid or void:
(i) Kamala promises Ramesh to lend ` 50,000 in lieu of consideration that Ramesh gets Kamala’s
marriage dissolved and himself marries with her.
(ii) Sohan agrees with Mohan to sell his black horse. Unknown to both the parties, the horse was
dead at the time of agreement.
 1.42 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(iii) Ram sells the goodwill of his shop to Shyam for ` 4,00,000 and promises not to carry on such
business forever and anywhere in India.
(iv) In an agreement between Prakash and Girish, there is a condition that they will not institute
legal proceeding against each other without consent..
(v) Ramamurthy, who is a citizen of India, enters into an agreement with an alien friend.
[PE-II, May 2008] [5 Marks]
Ans. Validity of agreements (The Indian Contract Act, 1872)
(i) Void Agreement: As per Section 23 of the Indian Contract Act, 1872 an agreement is void if the
object or consideration is against the public policy.
(ii) Void Agreement: As per Section 20 of the Indian Contract Act, 1872 the contract caused by
mistake of fact are void. There is mistake of fact as to the existence of subject-matter.
(iii) Void agreement: As per Section 27 of the Indian Contract Act, 1872 an agreement in restraint
of trade is void. However, a buyer can put such a condition on the seller of good will, not to
carry on same business. However, the conditions must be reasonable regarding the duration
and the place of the business.
(iv) Void agreement: An agreement in restraint of legal proceedings is void as per Section 28 of the
Indian Contract Act, 1872.
(v) Valid agreement: An agreement with alien friend is valid, but an agreement with alien enemy is
void.

20. “Good Girl” Soap Co. advertised that it would give a reward of ` 1,000 who developed skin disease
after using, “Good Girl” soap of the company for a certain period according to the printed directions.
Miss Rakhi purchased the advertised “Good Girl” and developed skin disease in spite of using this
soap according to the printed instructions. She claimed reward of ` 1,000. The company refused the
reward on the ground that offer was not made to her and that in any case she had not communicated
her acceptance of the offer. Decide whether Miss Rakhi can claim the reward or not. Refer the relevant
case law, if [PE-II, Nov. 2008] [5 Marks]
Ans. General offer (THE INDIAN CONTRACT ACT,1872)
Yes, Miss Rakhi can claim the reward of ` 1,000 because the advertisement issued by the company is
an offer made to the public in general and hence any one can accept and do the desired act. Where
a general offer is of continuing nature, it will be open for acceptance to any number of persons until
it is retracted. The Contract Act says that performance of the conditions of a proposal is an acceptance
of the proposal. So there is no need of actual and formal offer and the communication of an
acceptance of an offer. Relevant case law is Carlill v. Carbolic Smoke Ball Co.

21. W is the wife of H, who is Lunatic, purchases a diamond set of ` 10 lacs from Beauty Jeweller on
credit. Referring to the provisions of the Indian Contract Act,1872, decide whether the Beauty Jeweller
is entitled to claim the above amount from the property of H. [PE-II, June 2009] [5 Marks]
Ans. Claim for necessaries supplied to incapable person (THE INDIAN CONTRACT ACT,1872)
The present problem is related with quasi-contract. Under the provisions of section 68 of the Indian
Contract Act, 1872, ‘if necessaries are supplied to a person who is incompetent to contract, the
supplier is entitled to claim the reimbursement from the property of such person;
 Chapter 2 – The Indian Contract Act, 1872 1.43

However:
(i) Minors, persons of unsound mind or lunatics and other disqualified persons are incompetent
to contract.
(ii) A supplier would also be to recover the price of necessaries supplied to wives or minor child of
there person because they are legally bound to support them.
(iii) Necessaries means ‘goods suitable to the condition in the life of such person and to his/her
actual requirement at the time of sale and delivery’ as defined by English sale of Goods
Act,1893.
(iv) In such circumstances, the price only of necessaries and not luxuries can be recovered.
(v) Similarly, if money has been advanced in like circumstances for the purpose of necessaries, its
reimbursement can be claimed.
(vi) In such cases, no personal liability attaches to minor or lunatics. It is only their estate is liable. If
there is no property, nothing would be realizable.
(vii) To establish his claim, the supplier must prove not only that the goods were supplied to the
person who was minor or a lunatic but also that they were suitable to his requirements at the
time of the sale and delivery.
Provided that a person of unsound mind is incapable of entering into a contract. However, such
a person can enter into a valid contract during an interval of lucidity. For example, a patient in
a lunatic asylum, who is at intervals of sound mind may contract during such intervals. Thus, the
burden of proof that W is a lunatic and of unsound mind at the time of entering into the
contract lies on the party who challenges the validity of the contract.
In this problem, Beauty Jeweller is not entitled to claim the price of diamond set from the
property of H because diamond set of worth ` 10 lacs is not a necessaries for W. It is a luxury
for her.

22. G applies to Colours Bank for a loan of ` 80,000 needed for one year. The bank agrees to the loan at
a high rate of interest because of the recession in the Indian Capital Market. G accepts the loan on
these conditions. On due date G refuses to pay back the loan. He (G) pleads that the contract has
been procured by exercising undue influence. The bank files a suit against G for recovery of the said
loan.
Decide whether the bank would be given any relief by the court under the provisions of the Indian
Contract Act.1872. [PE-II, June 2009] [5 Marks]
Ans. Undue influence(THE INDIAN CONTRACT ACT,1872)
According to Section 16 of the Indian Contract Act, 1872, 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.
Section 16 further provides that a person is deemed to be in a position to dominate the will of another
due to following reasons.
(i) Where he holds a real or apparent authority over the other or where he stands in a fiduciary
relation to the other, or
(ii) Where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distress.
 1.44 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Thus, undue influence consists in the improper exercise of a power over the mind of one of the
contracting parties by the other, and in certain cases it is presumed, e.g. where a person enters into
a contract with his parents. Such agreement is voidable at the option of the aggrieved party.
In the given problem, the contract between G and colours Bank is not induced by undue influence. It
is a transaction in the ordinary course of banking business. Hence the argument of G is not tenable
(will not stand) and the bank would be given relief by the court for recovery of the said loan.

23. R of New Delhi sends his agent M to purchase certain goods from Global Enterprise, Mumbai on
credit for him. Later on R pays the amount for the goods purchased. On another occasion, he again
sends M to purchase goods but this time pays sufficient cash to M for the purpose. M, However again
purchases the goods from Global Enterprises but on credit and soon thereafter he dies. Global
Enterprise files a suit against R for recovery of the said amount. Decide whether Global Enterprise
would be given any relief by the Court under the provisions of the Indian Contract act, 1872.
[PE-II, June 2009] [5 Marks]
Ans. Liability of principal by estoppel (THE INDIAN PARTNERSHIP ACT,1932)
The problem relates to agency by estoppel. Section 237 of the Indian contract Act, 1872, which deals
with agency by estoppels, provides that where an agent has, without authority, done or incurred
obligations to third persons on behalf of the principal, the principal in bound by such acts or
obligations, if he has by his words or conduct induced such third persons to believe that such acts
and obligations were within the scope of the agent’s authority.
In the given problem, R has, through an affirmative act, held out M as his agent to purchase goods
for him on credit. Thus, based on the aforesaid provisions, Global Enterprises will succeeded against
R for recovery of the value of goods.

24. Mr. Ramaswamy of Chennai placed an order with Mr. Shah of Ahmedabad for supply of Urid Dal on
10.11.2006 at a contracted price of ` 40 per kg. The order was for the supply of 10 tonnes within a
month’s time viz. before 09.12.2006. On 04.12.2006 Mr. Shah wrote a letter to Mr. Ramashwmy stating
that the price of Urid Dhall was sky rocketing to ` 50 Per. Kg. and he would not be able to supply as
per original contract. The price of Urid Dhall rose to ` 53 on 09.12.06 Advise Mr. Ramaswamy citing
the legal position. [PCC, May 2007] [5 Marks]
Ans. The stated problem falls under the head ‘anticipatory breach of contract’ defined in Section 39 of the
Indian Contract Act, 1872. In this type of case, the promisee will be entitled to various damages
namely:
1. Nominal damages
2. Special damages
3. Damages for deterioration due to delay in performance
4. Exemplary damages.
The case law applicable here in Fross vs. Knight. As per details in the problem, price as contracted
` 40 per kg. on 10.11. 2006 rose to ` 50 per kg. as on 4.12.2006 and finally to ` 53 per kg, on
09.12.2006.
The answer to the problem is that
1. Mr. Ramaswamy can repudiate the contract on 04.12.2006 and can claim damages of ` 10 per
kg viz. ` 1,00,000.
2. He could wait till 09.12.2006 and claim ` 1,30,000 i.e. ` 13 per kg.
 Chapter 2 – The Indian Contract Act, 1872 1.45

3. If the Government imposes a ban on the movement of unit shall due to rise of prices, the
contract becomes void and Mr. Ramaswamy will not be able to recover any damages
whatsoever.

25. A, B and C are partners in a firm. They jointly promise to pay ` 1,50,000 to P.C. became insolvent and
his private assets are sufficient to pay only 1/5 of his share of debts. A is compelled to pay the whole
amount to P. Examining the provisions of the Indian Contract Act, 1872, decide the extent to which
A can recover and amount from B. [PCC, Nov. 2007] [5 Marks]
Ans. When two or more persons make a joint promise, the promisee may in the absence of express
agreement to the contrary, compel anyone or more of such joint promisors to perform the whole of
the promise. In such a situation the performing promisor can enforce contribution from other joint
promisors (Sec. 43 of Indian Contract Act). If anyone or more joint promisors make default in such
contribution, the remaining joint promisors must bear the loss arising from such default on equal
shares. Hence in the instant case, A is entitled to receive (a) from C’s assets - Rs,10,000 (1/5th of
` 50,000, (Rs 50,000 is the amount to be contributed by C being 1/3rd of ` 1,50,000) (b) from B -
` 70,000 (` 50,000 being his own share + ` 20,000 being one half share of total loss of Rs 40,000 due
to C's insolvency). A can recover ` 70,000 from B.

PART III: QUESTIONS SET 2

1. ESSENTIALS OF CONTRACT (Sec.10)

1. A husband enters into an agreement with his wife under which he promises to pay her an allowance
and she to refrain from pledging his credit. Is it a valid contract?
Ans. No. it is not a valid contract, because there is no intention to create legal relationship between
husband and wife which is of domestic in nature.
As per Sec. 10 of the Indian Contract Act, one of the essential elements of a valid contract is that
there must be intention to create legal relationship between parties. It there is no such intention to
create legal relationship on the part of both the parties, then there is no contract between them.
The facts of the case resemble the leading case Balfour Vs. Balfour, (1919) 2 K.B. 571, wherein the
Court held that an agreement between the husband and the wife that the husband would send £ 30
to wife every month is an agreement of domestic nature, not creating any legal relationship and
hence the wife could not legally enforce the agreement.

2. Anand says in a conversation to Ravi that he will give ` 25,000 to a person who so ever marries his
daughter. Ramu marries Anand's daughter and files suit for recovery of ` 25,000/- will he succeed?
Ans. As per Sec. 10 of the Indian Contract Act, one of the essential elements of a valid contract is that
there must be intention to create legal relationship between parties. It there is no such intention to
create legal relationship on the part of both the parties, then there is no contract between them.
Ramu cannot succeed in his suit because the promise of Anand has not created any legal obligation
to Ramu. An offer must give rise to legal relationship i.e., legal obligation and not social obligation,
(Sec. 10)
Further, Anand's conversation with Ravi that he will give ` 25,000/- to a person who so ever marries
his daughter is merely a declaration of his intention which is not an offer.
 1.46 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

3. Husband, upon divorce, promised his wife ` 3,000 a year as permanent allowance. In reliance upon
his promise the wife forbore to apply to the court for maintenance. The husband failed to make the
payments and the wife sues him on the promise - Decide.
Ans. The wife cannot succeed because the promise of her husband has not created any legal obligation
to his divorced wife. One of the rules of offer is that the offer must give rise to legal relationship i.e.,
legal obligation and not social obligation. (Sec. 10)
The facts of the problem are similar to Balfour Vs. Balfour, (1919) 2 K.B. 571): wherein the husband
promised to pay his wife a maintenance allowance of £ 30 every month. Later both the husband and
the wife got separated and the husband failed to pay the amount.
The wife sued for the allowance. The Court held that the agreement is of such nature which was
outside the realm and scope of contract and does not create any legal obligation.

4. 'H' a husband promised to pay ` 3,000 as a household allowance every month, to his wife 'W' Later
'H' defaulted in his. promise. ‘W’ sued for the allowance. Discuss.
Ans. Same as Problem No. 1

5. 'A' agrees to pay his postman ` 100 per month if the postman delivers his letters promptly. Is that
agreement enforceable?
Ans. No. It is not a valid contract and hence not enforceable.
Sec. 10 of Indian Contract Act, 1872 describes essentials or a valid contract.
According to Sec. 10, all agreements are contracts, if they are made by the free consent of parties,
competent to contract, for a lawful consideration and with a lawful object and are not expressly
declared to be void by law.
No. it is not a valid contract, because there is no intention to create legal relationship between
husband and wife which is of domestic in nature.
As per Sec. 10 of the Indian Contract Act, one of the essential elements of a valid contract is that
there must be intention to create legal relationship between parties. It there is no such intention to
create legal relationship on the part of both the parties, then there is no contract between them.
In the given case a post duty is to deliver letter promptly whether any party pays or not. So, there is
no intention to create a legal obligation between A and the postman.

2. OFFER (Sec. 2(a))

6. 'A' agrees to employ 'B' as salesman in his firm from December 1998. But in November 1998 he writes
to 'B' expressing his inability to employ him in the firm. Provide legal advice to 'B'.
Ans. B cannot have any remedy against A, as A's offer to employ B from December 1998 has not been
accepted by B. Even before the acceptance of A's offer by B in November 1998, A has revoked his
offer.
As per Sec. 5 of the Indian Contract Act, a proposal (offer) may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards.
In the above case, A has revoked his offer before its acceptance and its communication is complete
as against the offeror and hence B has no remedy against A.
 Chapter 2 – The Indian Contract Act, 1872 1.47

7. A offered to sell his car to B for ` 50,000/-. B accepts to purchase it for ` 40,000. A refused to sell the
car for ` 40,000. Subsequently B agrees to purchase the car for ` 50,000/-. A refused to sell the car.
B sues A for the specific performance of the contract. Will he succeed?
Ans. No. B cannot succeed in his suit against A for the specific performance of the sale of A's car to B for
` 50,000/-. As per the rules of acceptance and Sec. 7 (1) of the Indian Contract Act - if the acceptance
is conditional and if the offeree does not absolutely accept the offer, then it is only a counter offer.
Counter offer takes place, when an offeree adds / changes some conditions or terms of the offeror
at the time of acceptance. Counter offer thus changes the terms of offer and therefore counter offer
is not acceptance, but only a fresh offer made by the offeree.
In other words, an acceptance with counter offer is no acceptance at all. The Counter offer made by
the offeree must be accepted by the offeror to constitute a valid contract.
In the above case, A's offer to sell his car to B for ` 50,000/- was changed to ` 40,000/- by B and
hence it became a counter offer which is no acceptance at all. The subsequent offer of ` 50,000/ - by
B is only a fresh offer which may be accepted by A. Here A has not accepted the fresh offer of
` 50,000/- and hence there is no valid contract at all.
The facts of the case resemble Hyde Vs. Wrench, (1840) Beav 334, wherein the Court held the
counter offer terminated the original offer and hence there could be no further offer on the same
offer.

8. A issued a pamphlet offering to pay ` 1,000/- to any one who brings to him his missing son. 'B' traced
the boy and brought him to 'A' before he read the pamphlet. Can 'B' claim the reward?
Ans. B cannot claim the reward. Though the offer through issue of pamphlet is a public offer i.e. offer at
large, only such person who has become aware (i.e., known the contents of the offer) and then
performs the terms of offer i.e., tracing of the missing son, is deemed to have accepted the offer by
such performance as per Sec. 8 of the Indian Contract Act which reads that performance of the
condition of the proposal (after knowing the proposal) is an acceptance of the proposal.
One of the rules of offer as per Sec. 2 (a) of the Indian Contract Act is that the offer must have been
communicated to the offeree and in furtherance of such communication, the offeree must either
have accepted or performed the conditions mentioned in the offer to form a valid contract.
In the above case, since the offer of reward by A was not communicated to B, his performance of the
offer was without any intention / expectation of getting the reward and therefore B cannot
successfully claim the reward from A.
The facts of the case resemble Lalman Shukla Vs. Gauri Dutt, (1913) 11 All. LJ 489, wherein the
Court held that the plaintiff could not claim the reward, because he did not have the knowledge of
the offer of reward.

9. 'A' offers to sell his house to 'B', by letter sent by post. 'A' sends a telegram revoking his offer. The
telegram is received by 'B' after 'B' had posted his letter of acceptance. 'B' contends that 'A' is bound
by his offer. 'A' contends that he has validly revoked the offer. How will you decide the issue?
Ans. A is bound by this offer, as B has posted the letter of acceptance even before the telegram sent by
A was received by B.
As per Sec. 4 of the Indian Contract Act, the communication of acceptance is complete as against
the proposer when the letter of acceptance is put in the course of transmission so as it is out of the
power of the acceptor.
 1.48 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

As per Sec. 5 of the Indian Contract Act, a proposal (offer) may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards.
In the above case, the posting of letter of acceptance by B to the offeror A completes acceptance as
against the acceptor B and hence the offeror A must have revoked his offer before the acceptor posts
the letter of acceptance to the offeror, but in this case, the telegram revoking the offer has reached
the acceptor B, after the. acceptor has posted the letter of acceptance and hence the revocation is
not valid. There is a binding contract between A and B and A must fulfil his offer of selling his house
to B.

10. X, a customer picks up an article in a self service departmental store and takes it to the cash counter.
Y a clerk at cash counter declines to sell. X files a suit against the shopkeeper. Decide.
Ans. X cannot file a suit against the shopkeeper as keeping an article in self service departmental store is
only an invitation to make an offer and not an offer by itself. It is only an expression of willingness of
shopkeeper to enter into contract with the customer. Thus articles kept in a shop are invitations to
offer and not actual offers.
The facts of the case resemble the leading case Pharmaceutical Society of Great Britain Vs. Boots
Cash Chemists (1953) Q.B. 401, wherein the Court held that the mere display of an article constitutes
only an invitation to offer and not offer.

11. 'A' made a proposal to sell his house to 'B' and 'B' made a proposal to buy A's house on identical
terms the same day by post. The letters crossed each other. Did the parties reach an agreement?
Give reasons.
Ans. No. The parties A and B have not reached any agreement, because it is only a cross offer and there
is no separate offer and acceptance. Cross offers do not constitute any valid agreement.
One of the rules of offer under Sec. 3 (a) of the Indian Contract Act is that the 'offer should not be
cross offers. Cross offers take place, when two parties make identical offers to one another without
knowing each other's offers. In such cases, one offer cannot be considered as acceptance of the other
offer and there is no automatic contract.
Cross-offers do not constitute a valid contract, because there are only two offers, but no acceptance.
The facts of the case resemble Tinn Vs. Hoffman and Co. 1873 (29) LT 271, wherein the Court held
that mere crossing of two offer letters did not create a valid contract.

12. 'A' offers a reward of ` 50,000/- to any who brings to him his missing son. 'B', who is ignorant of the
offer, traces the boy and brings him to A. Can B claim the reward? Does it make any difference in
your decision, if B is A's servant.
Ans. B cannot claim the reward. Though the offer through issue of pamphlet is a public offer i.e. offer at
large, only such person who has become aware (i.e., known the contents of the offer) and then
performs the terms of offer i.e., tracing of the missing son, is deemed to have accepted the offer by
such performance as per Sec. 8 of the Indian Contract Act which reads that performance of the
condition of the proposal (after knowing the proposal) is an acceptance of the proposal.
One of the rules of offer as per Sec. 2 (a) of the Indian Contract Act is that the offer must have been
communicated to the offeree and in furtherance of such communication, the offeree must either
have accepted or performed the conditions mentioned in the offer to form a valid contract.
 Chapter 2 – The Indian Contract Act, 1872 1.49

Any person whether stranger or servant, if he has not read the offer of advertisement, he cannot
legally claim the reward. In the above case, since the offer of reward by A was not communicated to
B, his performance of the offer was without any intention / expectation of getting the reward and
therefore B cannot successfully claim the reward from A. When B is A's servant, it is much more of a
duty to trace the master's son and bring him to A.
The facts of the case resemble Lalman Shukla Vs. Gauri Dutt, (1913) 11 All. LJ 489, wherein the
Court held that the plaintiff could not succeed to the reward, because he did not have the knowledge
of the offer of reward.

13. "A" agrees to sell his Luna to his friend for ` 4,000/- or ` 5,000/- His friend agrees to purchase. Is this
agreement contract?
Ans. Only a valid offer and acceptance can give rise to a valid contract. There are certain basic essentials
of a valid contract. The first one is that the offer must be definite, certain and unambiguous or at
least must be capable of being made certain.
In the given case, this agreement does not constitute a contract, because the offer is vague and not
certain. It should be for a definite sum of money and not either for ` 4,000/- or ` 5,000/- which is a
vague and indefinite offer. Hence it does not give rise to a contract.

14. In a self-service departmental store a customer picks up the article and takes it to cash counter.
Cashier refuses to sell. Bas the customer any right against the owner of the shop?
Ans. Same as problem No. 10.

15. 'A in Mumbai rings up 'B' of Bangalore offering to sell a car for ` 50,000/- 'B' says that he accepts the
offer but at that time due to technical defect in the telephone line, 'A' does not hear B's acceptance.
Can 'B' enforce this contract? Give reasons.
Ans. A contract by telephone has the same effect as of oral agreement entered face to face. Offer and
acceptance can be communicated through phone. However, the contract is deemed to have been
entered at the place where offer was made.
However, since due to technical defect in the telephone line, 'A' does not hear B's acceptance, as per
Sec. 4, the acceptance is not complete. Sec. 4 reads, ‘Acceptance is complete only if the acceptance
is communicated to the offeror'. So, it is not a valid acceptance and B cannot enforce this contract.

16. 'A' offered to sell his house to 'B' for ` 25,000. B accepted it for 20,000. Is this a valid acceptance?
Discuss.
Ans. The terms of the offer or with some other condition not forming part of the offer, then such qualified.
Acceptance cannot create a contract.
If the acceptance is conditional and does not absolutely accept the offer, then it is only a counter
offer. The term absolute and unconditional means full acceptance of the offer without any condition.
Counter offer takes place, when an offeree adds / changes some conditions or terms of the offeror
at the time of acceptance. Counter offer thus changes the terms of offer and therefore counter offer
is not acceptance, but only a fresh offer made by the offeree.
 1.50 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

In other words, an acceptance with counter offer is no acceptance at all. The Counter offer made by
the offeree must be accepted by the offeror to constitute a valid contract.
In the given case, it is not a valid acceptance, because it is counter offer. If an offer is accepted with
some modification in acceptance amounts to a counter offer and it is not valid acceptance.

17. 'A' offers to sell his house to 'B' for 5,00,000. The offer is made to 'B' at Bombay by means of express
letter. The letter is delayed due to rain. Before A's letter containing the offer reaches 'B', 'B' receives
a telegram from 'A' revoking his offer. Can 'B' accept the offer?
Ans. B cannot accept the offer, as A has revoked his offer before it came to the knowledge of the offeree.
As per Sec. 5 of the Indian Contract Act, a proposal (offer) may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards; The offer
can be revoked by communication of notice of revocation by the proposer (offerer) at any time
before its acceptance is complete as against him.

18. Pawan was an applicant for the post of headmastership in school. The Board of management passed
a resolution appointing him, but the decision was not communicated to him. One of the members,
however, in his individual capacity informed him. Later the Board of Management cancelled the
resolutions. Pawan files a suit for breach of contract - Decide.
Ans. Acceptance cannot be implied from silence. It means that the acceptance of an offer cannot be
implied by the silence of the offeree or his failure to answer the offeror.
In the given problem, communication of offer is not valid, as it is not an authorised official
communication and hence such invalid offer cannot be legally accepted (Sec.2 (a)).

19. "A" while his wife "B" is alive promised to marry "C" in the event of B's death. Subsequently "B" died.
But "A" refuses to marry, "C" Advise. "C".
Ans. C cannot take any action on A for his refusal to marry C, though he promised to do so, because A's
promise to get married to C in the event of B's death is only a declaration of his intention which is
not an offer.
One of the rules of offer is that a declaration or announcement of intention is not an offer. A
declaration by a person that he intends to do something in future gives no right of action to another.
Such a declaration only means that an offer will be made or invited in future and not that an offer is
made now.
Since there is no offer itself, A's refusal to marry C is not a breach of contract.

20. A goes to the shop of 'B' where articles are exhibited with a price tag. A picks up an article and goes
to cash counter to pay for it. Cashier refuses to sell. A wants to sue B for breach of contract. Can he
do so?
Ans. Same as problem No. 10.

3. ACCEPTANCE (Sec. 2(b) & 3 to 6)

 Chapter 2 – The Indian Contract Act, 1872 1.51

21. P sold his business to ‘g’ without disclosing to his customers. 'M' an old customer sent an order for
goods to ‘p’ by name. 'Q' the new owner, executed the order. Is 'M' bound to accept the goods?
Ans. M is not bound to accept the goods as per the rules of acceptance under Sec. 2 (b). When an offer
is made to a particular person, then it should be accepted by him only.
If it is accepted by any other person, then it is not a valid acceptance and as such, there is no contract
between M and Q.
The facts of the case resemble the famous case Boulton Vs. Jones, (1857) 2 H and N. 564, wherein
the Court held that since the offer was made to one Brocklehurst,' Boulton could not unilaterally
accept the offer and hence there was no contract between the defendant and the plaintiff.

22. A sends an offer to B by post. B posts his letter of acceptance but subsequently B sends a telegram
revoking his acceptance. ls there any enforceable contract between A and B?
Ans. There is no enforceable contract between A and B, as B has revoked the offer by telegram even
before B's letter of acceptance has reached the hands of A.
As per Sec. 4 of the Indian Contract Act, the communication of acceptance is complete as against
the proposer when the letter of acceptance is put in the course of transmission so as it is out of the
power of the acceptor and as against the acceptor when it comes to the knowledge of proposer.
As per Sec. 5 of the Indian Contract Act, an acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor, but not afterwards.
In the above case, B may revoke his acceptance at any time before or at the moment when the letter
communicating acceptance reaches A, but not afterwards.

23. A Pharmaceutical company advertised that anyone who used the sun screen ointment manufactured
by it will not become dark and that it would award ` 50,000/- if any person inspite of using the
ointment became dark. A used it but became dark. A sues the. company - Decide.
Ans. A can successfully sue the company to get damages.
i. As per Sec. 2 (a) of the Indian Contract Act, a person is said to have made a proposal, when he
signifies to another his willingness to do or to abstain from doing anything with a view to
obtaining the assent (consent) of the other person to such act or abstinence. By advertisement
in the paper, the pharmaceutical company has made a proposal to all people who read the
same (general offer/offer at large).
ii. As per Sec. 2 (b) of the Indian Contract Act, when the person to whom the offer is made signifies
his assent thereto, the offer is said to be accepted. An offer, when accepted becomes a promise.
The assent may be signified to the offeror by performance of the terms of offer and no special
communication of acceptance is necessary.
In the above case, A has used the sunscreen ointment as per the terms that on usage the skin will
become not dark, but on the contrary it has become dark after usage by A.
Now as per Sec. 2 (b), A can -claim the award of ` 50,000/- from the pharmaceutical company.
The facts of the case resemble Carlill Vs. Carbolic Smoke Ball Co., 1839 (1) QB 256, wherein the
Court held that Mrs. Carlill was entitled to get compensation and that the performance of the
condition of offer itself of acceptance and there was no need to accept the offer in writing or orally.
 1.52 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

24. 'A' writes to B' I will sell my house to you for ` 90 lakhs and if I do not hear from you to the contrary,
I will assume that you accept my present offer". B sent no reply. A brought a suit against B for breach
of his contract to purchase the house for ` 90 Lakhs will A succeed? Give reasons.
Ans. A will not succeed in his suit against B for breach of his contract to purchase the house for ` 90 Lakhs.
Sec. 2 (b) of the Indian Contract Act says that when the person to whom the offer is made signifies
his assent thereto, the offer is said to be accepted. An offer, when accepted becomes a promise.
It means that if the person to whom the proposal is made remains silent and does nothing to show
that he has accepted the proposal, then no contract is formed. Mere mental acceptance without
expression by words or conduct is no acceptance. Acceptance of an offer cannot be implied by the
silence of the offeree or his failure to answer the offeror.
In the above case, only if 'B' has replied that he will purchase 'A's house for ` 90 Lakhs as per Sec. 2
(b), it will become a binding contract.
The Facts of the above case are similar to Felthouse Vs. Bindley (1862) 11 C.B. (N.S) 869) wherein
the Court held that silence could not be deemed to be a mode of acceptance and hence there was
no binding contract.

25. Raman offered a reward of ` 5,000/- to any person who finds his missing daughter Kamali. Krishnan
a good friend of Raman saw the advertisement and thereafter traced out the missing person. Kamali,
was, thereafter, restored to Raman. Krishnan did not claim the reward as he forgot about the same.
But after some-time Krishnan claims the reward, which was denied by Raman. Krishnan, therefore,
files a suit for recovery of the reward. Will he succeed?
Ans. Krishnan will succeed in his suit for recovery of the reward from Raman as the offer through
advertisement is a public offer i.e. offer at large and as such any person who has become aware of
such offer and then performs the terms of offer i.e., tracing of the missing person, is deemed to have
accepted the offer by such performance as per Sec. 8 of the Indian Contract Act which reads that
performance of the condition of the proposal is an acceptance of the proposal.
Since the offer of Raman has been accepted by Krishnan by performing the terms of contract, he is
deemed to accept the offer and hence there is a binding contract on both the offeror and offeree.
Just because Krishnan did not claim the reward as he forgot about the same, it would not prevent
him from claiming the reward subsequently, provided the claim is within the limitation period.

26. ‘A' sent an offer to 'B'. 'B' died before the letter reached him. B's son accepted the offer. Is he bound
by the acceptance?
Ans. One of the rules of acceptance is that offer can be accepted only by the person to whom such. offer
is made. So, in the given case, since B died before the offer letter reached him, acceptance in not
valid and A is not bound by the acceptance.
However, if he is acting as the agent of B, he is bound by the acceptance.

27. ‘A' posted a letter of acceptance to 'B'. But, the letter is lost in transit. Whether any contract will arise
or not?
Ans. Under English Law, a valid contract will arise even if the letter is lost in transit.
 Chapter 2 – The Indian Contract Act, 1872 1.53

But in Indian Law as per Sec. 4 of the Indian Contract Act, acceptance is complete only if the letter of
acceptance reaches the hands of the offeror. So, in Indian Law, acceptance can be revoked.
Thus the offeror becomes bound by the contract from the moment the letter of acceptance is posted
by the acceptor. But the acceptor will be bound by his acceptance only when the letter of acceptance
has reached the offeror.

4. TENDER (Sec.37 & 38)

28. A agrees to sell to the University hostel upto 200 quintals of rice for a period of two years as and
when orders are placed by the University. The University placed orders and A supplied the required
rice. But before the expiry of two years. A withdrew his offer to supply further rice and refused to
comply with the orders placed thereafter. Provide legal advice to the University.
Ans. A's act of supplying the required rice as and when orders are placed by the university is a standing /
open / continuing offer constituting 'tender' on the part of A.
As per Sec. 37 of the Indian Contract Act, the effect of acceptance of a standing offer is that as and
when the goods or services are required, the offeror must perform his promise i.e., the tenderor must
supply the goods as per the terms of the tender to the university and as such, the university can
compel A to comply with the orders placed by it to A.
The facts of the case resemble Great Northern Railway Vs. Witham, (1873) L.R. 9 C.P. 16, wherein
the Court held that the defendant could not refuse to supply the goods covered within the terms of
the tender.

5. CONSIDERATION (See.2(d))
29. Santhi owes ` 5,000/- to Nandhini. But the debt is barred by the limitation Act. Santhi gives another
written promise to pay ` 5,000/- for that time barred debt. Is the agreement enforceable?
Ans. The agreement is enforceable by Nandhini against Santhi.
Sec. 25 of the Indian Contract Act reads - an agreement without consideration is void unless it is a
promise to pay a debt barred by limitation law. The promise must be in writing and signed by the
debtor or his authorised agent to pay wholly or in part a debt of which the creditor might have
enforced payment but for the law for the limitation of suits.
In the above case, Santhi has given a written promise to pay ` 5,000/- for the time barred debt which
is covered under Sec. 25(3) of the Indian Contract Act and hence an enforceable contract by Nandhini
against, Santhi.
The facts of the case resemble Debi Prasad Vs. Bhagwati Prasad, AIR 1943 All 63, wherein the
Court held that if an acknowledgement of a debt was with an undertaking to pay interest, then it was
an agreement with a promise to pay the debt and hence covered under section 25 (3).

30. 'A' sold his car worth ` 10,000/-for ` 5,000/- to 'B'. Can this agreement be questioned, and if so on
what ground?
Ans. Sec. 2(d) of the Indian Contract Act defines consideration. Sec. 25 provides that a contract must be
supported by consideration i.e., there must be something in return in value.
Sec. 25 - Explanation 2 reads that an agreement to which consent of the promisor is freely given is
not void, merely because the consideration is inadequate; but the inadequacy of the consideration
may be taken into account by the Court in determining the question whether the consent of the
promisor was freely given.
 1.54 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

In Bolton Vs. Madden, (1873) L.R. 9 Q.B. 57, the Court held that the adequacy of the consideration
is for the parties to consider at the time of making the agreement, not for the Court, when it is sought
to be enforced. The Courts do not exist to repair bad bargains.
However, in all cases, the inadequacy of the consideration may be taken into account by the Court
in determining the question whether the consent of the promisor was freely given or not.
The question of free consent and inadequacy of consideration i.e., from ` 10,000/- to ` 5,000/- can
be questioned on grounds of undue influence (the buyer in a dominant position to dominate the will
of the other person) or coercion-committing or threatening to commit an act forbidden by IPC with
intention of causing any person to enter into an agreement.

31. 'X' has agreed to sell his golden ring worth ` 20,000/- for just ` 1,000/- to 'Y'. Consent of 'X' in this
contract is free. Subsequently 'X' wants to set aside the contract on the ground that the consideration
is not adequate. Advise 'X'.
Ans. X cannot set aside the contract on the ground that the consideration is not adequate.
Consideration means 'something in return', but such something in return need not be necessarily
equal in value with something given, but it must be of 'some value in the eye of law'.
If consideration exists, then the Courts will not look into adequacy. The parties are free to fix any
consideration not necessarily equivalent to each other.
The law simply provides that a contract should be supported by consideration and so long as
consideration exists, the Courts are not concerned as to its adequacy. According to explanation 2 to
Sec. 25 of the Act, an agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate.
In the given problems though X has agreed to sell his golden ring worth ` 20,000/- to Y for just
` 1,000/- it is a valid contract, since the consent in this contract is free.
So, X cannot set aside the contract on the ground that the consideration is not adequate.

6. PRIVITY OF CONTRACT (Sec. 2(d)

32. A contract was entered into between the parents of a boy and girl, each promising to pay them a
sum of ` 1,000/- per month for a period of one-year if the boy and girl get married. The boy's parents
further gave a charge of some of their properties as part of their commitment towards the promise.
After the marriage was over, the boy's parents failed to pay the amount as promised. The girl filed a
suit against her in-laws to recover the amount promised by them. Can she succeed?
Ans. The girl can succeed in her suit against her in-laws to recover the amount of ` 1,000/- per month for
a period of one year as promised by them.
The following are the reasons -
i. As per Sec. 2 (d) of the Indian Contract Act, the term 'consideration' is defined 'when at the
desire of the promisor, the promisee or any other person has done or abstained or does or
abstains or promises to do or to abstain from doing something ……………….'. It is clear from this
definition that consideration can move either from the promisee or any other person,
showing that there is no privity of consideration, in Indian Law.
ii. Though a stranger to the contract cannot sue, there are some exceptions to the rule. E.g., in
family arrangements, the beneficiaries under such arrangement can sue. In the given problem,
 Chapter 2 – The Indian Contract Act, 1872 1.55

though the girl is a stranger to the contract between the parents of the boy and girl, the boy
and girl are beneficiaries of the family arrangement of the agreement to pay ` 1,000/- per
month to them.
iii. In the same way, where a person creates a charge on an immovable property in 'favour of a
third person, such third person for whose benefit the charge is created can enforce the charge.
In the given problem, the boy's parents gave a charge of properties as commitment towards
the promise.
So, the girl can succeed in recovering the amount promised by them. The facts of the case resemble
Kwaja Mohammed Vs. Hussaiani Begum, (1910) 32 All. 410, wherein the Court held that the girl
could recover the money, even though she was not a party to the original contract between the
parents of the boy and the girl.

33. At the time of partition of the family property, it was agreed that the two male members. 'A' and 'B'
will bear the marriage expenses of 'C' the female member of the family. 'A' and 'B' fail to fulfil the
promise. Provide legal advice to 'C'.
Ans. C can file a suit to compel A and B to bear the marriage expenses of C, though C is a third party to
the agreement between A and B at the time of partition of the family property.
Family settlement, partition and marriage settlement are exceptions to the rule of privity of contract
i.e., only the parties to the contract can enforce the contract against each other and not outsiders of
the contract.
The facts of the case resemble Sundar Raja Vs. Lakshmi Ammal, 1915 ILR. 38 Mad. 877, wherein
the Court held that the sister could enforce the partition deed, though she was not a party to it.

34. A and B agree that A will pay ` 1,000/- per month to B's aged mother M. Can M enforce this payment?
Ans. M can enforce the payment as per the agreement of A and B. The general rule of law is that only a
party to the contract can sue and be sued. Strangers or third parties cannot enforce the contract.
In other words, contract is a private affair between the parties to the contract alone. If creates a legal
bond or tie between the parties to the contract alone. Thus if there is a contract between A and B, C
cannot enforce it.
One of the exceptions to this rule is that if any agreement is made in connection with family
arrangement like maintenance, marriage, partition, etc. then the beneficiary can sue for the
enforcement of the agreement, though he/she is not a party to the contract.
The facts of the case resemble Shuppu Ammal Vs. Subramanian (1910) 33 Mad 2, where on
partition of their 'properties, two brothers agreed to pay equal sum of money for maintenance of
their mother. The Court held that she was entitled to sue the sons for such payment of money.

35. 'X' receives some money from 'Y' to be paid over to 'P', ‘X’ admits of this receipt to ‘P’. Can ‘P’ recover
the due amount from 'X'?
Ans. Yes. P can recover the due amount from X, because X by his representation to Y that he is receiving
the money from Y to be paid to P and by such representation. X by his conduct has acknowledged
himself as agent of P and hence a binding obligation is incurred by X towards P.
Here, though P is a stranger to the contract between X and Y, in the capacity of implied principal can
sue his agent X for recovery of the amount.
 1.56 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

36. 'A', a mother, gifted her properties to her daughter 'B'. In turn 'B' has promised to pay a fixed amount
yearly to her maternal uncle ‘C’. After 'A’s death 'B' stops payment to ‘C’. Whether ‘C’ can file a case
against 'B’? Discuss.
Ans. C can file a case against B to pay the fixed yearly payment to him.
The general rule of law is that only a party to the contract can sue and be sued. Strangers or third
parties cannot enforce the contract. In other words, contract is a private affair between the parties to
the contract alone.
If creates a legal bond or tie between the parties to the contract alone. Thus if there is a contract
between A and B, C cannot enforce it.
One of the exceptions to this rule is that if any agreement is made in connection with family
arrangement like maintenance, marriage, partition, etc, then the beneficiary can sue for the
enforcement of the agreement, though he/she is not a party to the contract.
In the given case, there is a family arrangement between A the mother and B her daughter, in favour
of C, her maternal uncle. He is a beneficiary in this arrangement. So, he can file a suit for payment of
the yearly amount from B.
The facts of the case resemble Shuppu Ammal Vs. Subramanian (1910) 33 Mad 2, where, on
partition of their properties, two brothers agreed to pay equal sum of money for maintenance of
their mother. The Court held that she was entitled to sue her sons for such payment of money.

7. AGREEMENT WITHOUT CONSIDERATION (Sec.25)

37. Suresh promised ` 1,000/- towards the construction of a public library. The convener of the library
committee incurred certain liabilities to the contractor. Suresh did not pay the promised amount.
Will a suit lie for the recovery of the amount?
Ans. Yes. The suit will lie for the recovery of the amount to the extent of liability incurred by the convener
of the library committee. As per Sec. 25 of the Indian Contract, a contract without consideration is
void. But there are 6 circumstances, as expressed in the Act, which are exceptions to the doctrine of
“No consideration, No Contract”.
Generally, agreements created for charitable, subscription or donation is not enforceable, because
such agreement is not supported by any consideration.
However, if sufficient steps have been taken towards the achievement of the object and liabilities
have been incurred depending on the promise for donation, then such agreement is enforceable to
the extent of liability incurred.
The above legal provision has been followed in the leading case Kedamath Vs. Gori Mohammed,
(1886) 14 Cal. 64.

38. A, for natural love and affection, promises to give his son, B, ` 1,000/- under a registered document.
Is it a valid contract?
Ans. Yes. It is a valid contract under Sec. 25 (i) - love and affection theory - which is an exception to Sec.
25 - an agreement made without consideration is void.
If an agreement is expressed in writing and registered under the law in force and if it is made on
account of natural love and affection between the parties closely related to each other, then such
agreement is enforceable, even if there is no consideration.
 Chapter 2 – The Indian Contract Act, 1872 1.57

The following conditions are necessary -

a. The agreement must be between near relatives.
b. It must be made on account of natural love and affection.
c. It must be expressed in writing.
d. It must be registered under the law governing the registration of documents.
The facts of the case resemble illustration (ii) of Sec. 25 which states that A's promise to pay his son
` 1,000/- out of natural love and affection and when the promise is put into writing under registered
it is a valid contract.

39. A Muslim husband agreed by a registered deed to handover to his wife. the totality of his savings
and not to do anything without her permission and, if he did so, she would be at liberty to divorce
him. Decide.
Ans. The agreement by a registered deed to handover to his wife the totality of his savings and not to do
anything without her permission is valid under Sec. 25 (i) of the Indian Contract Act which is an
exception to Sec. 25 which reads an agreement made without consideration is void.
If an agreement is expressed in writing and registered under the law in force and if it is made on
account of natural love and affection between the parties closely related to each other, then such
agreement is enforceable, even if there is no consideration.
The following conditions are necessary -
a. The agreement must be between near relatives.
b. It must be made on account of natural love and affection.
c. It must be expressed in writing.
d. It must be registered under the law governing the registration of documents.
In the above case, the Muslim husband has agreed to handover to his wife, the totality of his savings
by a registered deed, natural love and affection and thus the agreement is valid as per Sec. 25 (i).

40. A promised B to pay a sum of ` 10,000/- for temple renovation. But 'A' refused. to perform his
promise. Can B recover the amount from 'A'? Give reasons.
Ans. B cannot recover the amount from A as the promise by A to pay a sum of ` 10,000/- for temple
renovation is a contract without consideration and hence void as per Sec. 25 of the Indian Contract
Act.
On the promise of payment of ` 10,000/- by A to B, only if B has taken some steps towards the
temple renovation, then the contract is enforceable to the extent of the amount incurred as an
exception to the rule that a contract without consideration is void.
The facts of the case resemble Abdul Aziz Vs. Masum Ali, (1914) 36 All 268, wherein the Court
held that in a promise to give certain sum of money as donation towards the construction of a
mosque building, if no steps were taken by the donor towards the construction, then the agreement
was invalid, as there was no consideration for the agreement.
 1.58 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

41. Saravanan owes ` 10,000 to Manivannan. But the debt is barred by the Law of Limitation. Hence
Manivannan cannot file a suit for this amount. Saravanan signs a written promise to pay 7,500 on
account of this debt. It this enforceable?
Ans. The general rule is that an agreement made without consideration is void. So, for every contract,
there must be a valid consideration for enforcing it a Court of law.
Sec. 25 of the Act gives six exceptions to this. In these cases, the agreements are enforceable even
though they are. made without consideration.
One of the exception is that a. promise made by a debtor to pay a time barred debt is enforceable
even though there is no consideration for such agreement.
The written promise to pay 7,500 by Saravanan on account of the debt is enforceable, because
as u/s 25(iii). of Indian Contract Act, a promise made by a debtor to pay a time barred debt is
enforceable even though there is no consideration for such agreement.
However, the agreement must be in writing and must be signed by the debtor or by his authorized
agent. The promise may be to pay the whole or any part of the debt.
In the above case the promise to pay ` 7,500 is in written promise and hence enforceable .

42. ‘A' promised to 'B', the Chairman of a village Panchayat, to subscribe ` 5,000 for construction of a
panchayat hall. B called for tenders and entrusted the work to a contractor to put up the building.
'A' latter refused to pay the amount. 'B' filed, a suit against 'A' for breach of contract. How will you
decide the case.
Ans. B can succeed in recovery promise amount of ` 5,000 for. construction of a panchayat hall. As per
Sec. 25 of the Indian Contract Act, though an agreement made without consideration is void and
unenforceable, if sufficient steps have been taken towards the achievement of the object depending
on the promise for donation, then such agreement is enforceable.
The fact of the case are similar to Kedarnath Vs. Gori Mohammed wherein Kedarnath agreed to
subscribe ` 100/- towards the construction of a hall in a mosque. Gori Mohammed, relying on the
promise called for the plans and entrusted the work to the contractors.
The Court held that the agreement is enforceable, because. definite steps have been taken relying
on the promise of Kedarnath.

8. PAST CONSIDERATION (Sec. 2(d))

43. A renders some service to B during his minority at the request of B. B on attaining majority enters
into an agreement with A to compensate A for services rendered during B's minority. Is the
agreement valid?
Ans. Yes. The agreement is valid for the following reasons:
Sec. 2(d) of the Indian -Contract Act reads - when at the desire of the promisor if the promisee has
done something, then such act is a consideration for the promise of the other party and hence valid
contract is entered into.
The above section uses the term 'has done' which shows that past consideration is a valid
consideration in Indian Law.
 Chapter 2 – The Indian Contract Act, 1872 1.59

In the above case, A has rendered service at B's request when B was a minor. For such past services,
minor B will attain majority has agreed to compensate A for A's services during B's minority.
Since A has rendered at the desire of the promisor namely B there is valid consideration and
consequently a valid contract and hence A can enforce the agreement against B.
The facts of the case resemble Sindha Vs. Abraham, ILR (1896) 20 Bom 755 wherein it was held
that eventhough the promise of the defendant was for the past services of the plaintiff, since past
consideration is a valid consideration in India, the defendant was liable to compensate the plaintiff.

44. 'A' the only son of 'B' fell into a well and 'C' saved him. 'B' orally promised to pay 'C' ` 6,000 in
gratitude. But B died before making any payment. 'C' claimed the amount from 'A'. Decide.
Ans. Past consideration is doing an act before the promise is given. Here, the act is totally unconnected
with the promise as the promise is subsequent. The promise should always be prior to the act. Thus,
if the act comes first and the promise comes second, then it is a past consideration.
"When at the desire of the promisor, the promisee or any other person has done or abstained from
doing or does or abstains from doing, promises to do or abstains from doing something, such act or
abstinence or promise is called a consideration for the promise".
In India, the promise would be enforceable as under section 25 (2) which provides 'a promise to
compensate, wholly or in part, a person who has already voluntarily done something for the promisor
is enforceable'.
So, in the given case, B's promise is past consideration of saving him from drowning. It is valid and
'C' can claim from the estate of 'B' in the hands of 'A'.

45. Naveena's car breaks down in Anna Salai, Chennai. She asks Naveen, a passing motorist, to tow the
car to the nearest garage. Naveen does so and in return, Naveena promises to pay him a sum of
` 500/- as payment for this act. Is Naveena bound by her promise?
Ans. Yes. Naveena is bound. by her promise, as it amounts to past consideration, which is valid under the
Indian Contract Act.
Past consideration is doing an act before the promise is given. Here, the act is totally unconnected
with the promise, as the promise is subsequent.
The promise should generally be prior to the act. But, if the act comes first and the promise comes
second, then it is a past consideration.
Sec. 3 "when at the desire of the promisor, the promisee or any other person has done or abstained
from doing or does or abstains from doing, promises to do or abstains from doing something, such
act or abstinence or promise is called a consideration for the promise".
'Past voluntary services'. is covered by section 25(2) and it means a service rendered without any
request or promise, but there is a subsequent promise to pay for the same.
In India, the promise would be enforceable as under section 25(2) which provides 'a promise to
compensate, wholly or in part, a person who has already voluntarily done something for the promisor
Is enforceable'.
 1.60 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

In the given problem, the passer by Naveen has rendered the services of towing the car to the nearest
garage for which Naveena promised to pay him a sum of ` 500 as payment for this act. This promise
to pay Naveen is enforceable and Naveen may claim the payment from Naveena.

9. CONSIDARATION NEED NOT BE ADEQUATE (Sec. 25 expl. 2)

46. 'A' Sold his car worth ` 5 lakh for ` 25,000 to 'B' Can this sale be questioned? Discuss.
Ans. Same as Problem No. 30.

10. CAPACITY TO CONTRACT – MINOR / LUNATIC (Sec. 11)

47. 'A' a minor representing himself as a major buys a motor car on credit. Can the seller recover the
price of the car back?
Ans. Since the principle of estoppel is not applicable to minor, even if a minor by misrepresenting his age
as a major, induces a party to contract with him, such contract is also void.
However, the seller can get back the motor car as per Sec. 68 (quasi contract), provided the supply
of car is necessary suited to the conditions in life of the minor.
The above provision of law was applied in Leslie Vs. Sheill, (1914) 3 K.B. 607 wherein when a minor
misrepresented his age as that of a major and fraudulently induced another person to lend him a
loan, the Court held that since the agreement was absolutely void, the minor was not liable to repay
the debt.

48. 'A.' borrowed a sum of ` 5,000/- from 'B' a minor and agreed to return the same within 3 years. But,
'A' did not return it. Decide minor's right in this case.
Ans. The minor B can sue for recovery of the amount of ` 5,000/- from A. Though any agreement with a
minor is void ab initio and not enforceable under Sec. 10 & 11 of the Indian Contract Act, the minor
can enforce all contracts which is of benefit to him.
Thus a minor can be beneficiary like a payee or promisee and at his option, he can enforce a beneficial
contract in his favour.
The facts of the case resemble Raghavacharya Vs. Srinivasa, (1916) 40 Mad. 308, wherein the
Court held that the law which makes a minor as incompetent to contract was enacted only . in his
favour and for his protection and so, a beneficial contract to minor is not hit by such provision and
he can always enforce a contract beneficial to him.

49. M, a minor aged 17 broke his right arm in a hockey game. He engaged. a physician to set it. Does
the physician has a valid claim for his services?
Ans. Yes. The physician has a valid claim for his medical services to setting right the broken right arm of
the minor M.
Though as per Sec. 11 of the Indian Contract Act, the minor contract is void ab initio, for any service
rendered or necessaries supplied for the benefit of the minor, the person who has rendered such
services / necessaries can recover only from the property of the minor under Sec.68 of the Indian
Contract Act (Quasi contract).
Here, minor is not personally liable, but recovery can be effected from his properties only.
 Chapter 2 – The Indian Contract Act, 1872 1.61

50. Raju, a shopkeeper, supplied the wife and children of Ramu, a lunatic with necessaries suitable to
their condition in life. Raju intends to recover price of the goods from Ramu, Advise him.
Ans. It is necessary that the parties to a contract must be of sound mind. Any contract entered into with
a person of unsound mind is void.
A contract by a person of unsound mind is altogether void. However, persons of unsound mind are
liable for necessaries supplied to them.
In the given case, Raju can recover the price of the goods, as necessaries supplied to lunatic and his
family members are recoverable.

51. "A" a minor has lent ` 1,000/- against the promissory note executed in his favour. Is borrower liable?
Ans. The borrower is liable to return the amount of ` 1000/- to the minor. Though any agreement with a
minor is void ab initio and not enforceable under Sec. 10 & 11 of the Indian Contract Act, the minor
can enforce all contracts which is of benefit to him.
Thus, a minor can be beneficiary like a payee or promisee and at his option, he can enforce a
beneficial contract in his favour. A minor can be a promisee. A promissory note executed in favour
of a minor can be enforced by the minor. He can draw, negotiate or endorse a negotiable instrument,
but he does not incur any liability to himself.
The facts of the case resemble Raghavacharya Vs. Srinivasa, (1916)40 Mad. 308, wherein the Court
held that the law which makes a minor as incompetent to contract was enacted only in his favour
and for his protection and so, a beneficial contract to minor is not hit by such provision and he can
always enforce a contract beneficial to him.
So, in the given case, the borrower is liable to repay the amount of ` 1,000 /- which he borrowed
from A, the minor, against the promisory note.

52. 'A' a minor, falsely represents to 'B' that he is a major and purchases some goods on credit. 'B' files
a suit to recover the price from 'A' Decide.
Ans. Since the principle of estoppel is not applicable to minor, even if a minor by misrepresenting his age
as a major, induces a party to contract with him, such contract is also void.
But if the benefits received are still with the minor, then the Court may order the return of the benefit
to the other party. This is known as restitution.
In the given problem, since the minor falsely represented to B that he is a major and purchased some
goods on credit, B may recover the price from A. If goods purchased on credit still lies with the minor,
the Court may order the return of them to the person who sent them to the minor.

53. 'K' a minor falsely represents to 'B' that he is major person and purchases some luxury goods on
credit. B sues for recovery of the price. Decide.
Ans. Generally, the principle of estoppel is not applicable to minor, and so, even if a minor by
misrepresenting his age as a major, induces a party to contract with him, such contract is also void.
But if the benefits received are still with the minor, then the Court may order the return of the benefit
to the other party. This is known as restitution.
In the given problem, K, the minor: had purchased some luxury goods on credit and hence, though
the contract is not enforceable, the minor had to return the goods which he purchased on credit.
 1.62 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

54. "A" a minor representing himself as a major borrows ` 500 from "B". Can "B" recover- the amount
from "A"?
Ans. Same as Problem No. 47.

55. ‘X’ a student aged 16 years studying in 1 year Pre-University class to score good marks taken private
tuition from a teacher and fails to pay the tuition fee. Can the teacher sue for the tuition fee?
Ans. Yes. The teacher can sue the minor for recovery of the tuition fee. Though as per Sec. 11 of the Indian
Contract Act, the minor's contract is void ab initio, for any service rendered or necessaries supplied
for the benefit of the minor, the person who has rendered such services / necessaries can recover
only from the property of the minor under Sec. 68 of the Indian Contract Act (Quasi contract).
Here, minor is not personally liable, but recovery can be effected from his properties only.
In the given problem, though the minor is not personally liable, recovery can be effected from his
properties.

11. CAPACITY TO CONTRACT - DRUNKEN PERSONS (Sec. 12)

56. When A was drunk, he entered into a contract. After he came out of his drunken state, he affirmed
the contract. Is the contract binding on 'A'?
Ans. Yes. The contract is binding on 'A'.
As per Section 11 of the Contract Act, for validity of a contract, each party to the contract must be of
sound mind.
Section 12 of the Act defines the term 'sound mind' - 'A person is said to be of sound mind for the
purpose of making a contract if at the time when he makes it, he is capable of undertaking it and
of forming a rational judgment as to its effects upon his interests'.
The section also states - 'A person who is usually of unsound mind, but occasionally of sound mind,
may make a contract when he is of sound mind'.
In the above case, though 'A' was drunk, when he entered into a contract, after he came out of his
drunken state, he has affirmed the contract. It means when he affirmed the contract, he was of sound
mind and as per Sec. 12 - Para 2, the contract is valid and binding on 'A'.

12. COERCION (Sec. 15)

57. A Hindu, threatened to commit suicide if his wife and son did not execute a release deed in favour
of his brother in respect of certain properties which they claimed as their own. Does his act amount
to coercion?
Ans. Yes. The act of the Hindu threatening to commit suicide if his wife and son did not execute a release
deed in favour of his brother in respect of certain properties amounts to coercion as under Sec. 15
of the Indian Contract Act.
Sec. 15 defines coercion as the committing or threatening to commit any act forbidden by the 'Indian
Penal Code, or the unlawful detaining or threatening to detain any property to the prejudice of -any
person, whatever, with the intention of causing any person to enter into an agreement.
In the above case, though the act of Hindu husband threatening to commit suicide, though not
punishable under I.P.C., is deemed to be an act of attempting to commit suicide under Sec. 309 of
I.P.C. and hence it amounts to coercion. Hence the agreement entered under such threat is voidable
at the option of wife and son.
 Chapter 2 – The Indian Contract Act, 1872 1.63

The facts of the case are similar to Chikham Amiraju Vs. Seshamma (1917)41 Mad. 33 wherein
the Court held that the agreement entered under threat of suicide is voidable at the option of the
plaintiffs namely wife and son.

58. 'A' asks his wife to transfer her property to him. When she refused to transfer 'A' threatens to murder
her. 'B' transfers her property and later wants to set aside the transfer. Advise 'B'.
Ans. B. the wife can set aside the transfer of property made by her to her husband A on the ground of
coercion under Sec. 15 of the Indian Contract Act.
Coercion means committing or threatening to commit any act forbidden by the Indian Penal Code
or unlawful detaining or threatening to detain any property with intention of causing another person
to enter into an agreement.
In the above case, A, the husband has threatened to murder his wife B, if she refuses to transfer her
property to A. Murder is an offence under Sec. 300 IPC and hence the agreement of transfer is vitiated
by coercion. As per Sec. 19-A, the above contract is voidable at the option of the affected party
namely the wife B.

59. A tells his wife that he would commit suicide if she did not transfer her personal assets to him. She
does so under threat. Can wife avoid this contract?
Ans. Yes. The wife can avoid the contract. Yes. The act of A threatening to commit suicide if his wife did
not transfer her personal assets to him amounts to coercion as under Sec. 15 of the Indian Contract
Act.
Sec. 15 defines coercion as the committing or threatening to commit any act forbidden by the Indian
Penal Code, or the unlawful detaining or threatening to detain any property to the prejudice of any
person, whatever, with the intention of causing any person to enter into an agreement.
In the above problem, as A threatens to commit suicide which is punishable under the Indian Penal
Code, thereby causing his wife to transfer her personal assets to him amounts to coercion on the
part of A and the wife can avoid the contract entered by her under such coercion.

60. 'X' threatened to commit suicide if his wife and daughter did not execute a gift deed of certain
properties in his favour. Does this act, amount to coercion.
Ans. Yes. This act amounts to coercion u/s. 15 of the Indian Contract Act, Sec.15 of the Indian Contract
Act defines coercion as the committing or threatening to commit any act forbidden by the Indian
Penal Code.
When a person is compelled to enter into a contract under a threat to commit any act forbidden by
the Indian Penal Code, coercion is employed.
The facts of the problem resemble Chikham Amiraju Vs. Seshamma (1917, 41 Mad. 33) wherein
the husband threatened to commit suicide if his wife and son did not execute a release deed in
favour of his brother.
Thereupon, the wife and the son executed the release deed.
The Court held that threat to commit suicide though not punishable under the IPC. is deemed to be
an act of attempting to commit suicide under Sec. 309 I.P.C. and hence the agreement entered under
such threat is voidable at the option of the wife and son.
 1.64 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

61. 'A' an agent, threatened his principal 'B' that unless he is discharged from all his liabilities, he will not
return the account books. Does his act amount to coercion?
Ans. Yes. A's act of threatening the principal to discharge him from liabilities and refusal to return the
account books, amounts to Coercion.
When a person is compelled to enter into a contract by unlawful detaining or threatening to detain
any property (in this problem - account books) to the prejudice of any person with the intention of
causing any person to enter into an agreement, then coercion is employed.
Section 15 of the Indian Contract Act defines coercion as -
i. The committing or threatening to commit any act forbidden by the Indian Penal Code or
ii. The unlawful detaining or threatening to detain any property to the prejudice of any person
with the intention of causing any person to enter into an agreement.
If consent is given for an unlawful detaining of any property, such consent is deemed to be given
under coercion.
In the given case, the act of the agent 'A' amounts to coercion and any agreement entered by the
principal under such coercion is voidable at the option of the principal.
The facts in given the problem resemble that of a famous case "S.P.M. Muthiah Chetti And Ors. vs
Muthu K.R.A.R. Karuppan Chetti(1927) 53 MLJ 606" .

62. 'A' kidnaps 'B's son and threatens to kill him, if 'B' does. not sign the document of sale deed. Out of
fear 'B' signs the sale deed. Later 'B' wants to set aside the contract. Can he do so? Decide.
Ans. B can set aside the contract, as the contract was entered under coercion under Sec. 15 of the Indian
Contract Act.
Coercion means committing or threatening to commit any act forbidden by the Indian Penal Code
or unlawful detaining or threatening to detain any property with intention of causing another person
to enter into an agreement.
In the above case, A kidnaps B's son and threatens to kill him if B does not sign the document of sale
deed i.e., threatening to commit any act forbidden by the Indian Penal Code. Since B entered into
the contract of sale deed under coercion, it is voidable at the option of B.

13. UNDUE INFLUENCE (Sec. 16 & 19A)

63. 'A' a man enfeebled by disease or age is induced by 'B' influence over him as his medical attendant
to agree to pay 'B' an unreasonable sum for his professional services. A refuses to fulfill his promise.
Can 'B' enforce this contract?
Ans. B cannot enforce the agreement, as he has exercised undue influence on A who is his patient,
enfeebled by disease/age.
Section 16 (2) (b) of the Indian Contract Act reads -
A contract is induced by 'undue influence' if the relations between the parties are such that one party
makes a contract with another person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distress.
In the above case, B is enfeebled by disease/age and his medical attendant A has used his influence
on B to agree to pay B an unreasonable sum for his professional services. Thus the influence of A
over B is undue influence covered under Sec. 16(2)(b) of the Indian Contract Act.
 Chapter 2 – The Indian Contract Act, 1872 1.65

As per Sec. 19-A of the Indian Contract Act, when an agreement is induced by undue influence, such
agreement is voidable at the option of the party whose consent was so obtained by undue influence.
The facts of the case resemble illustration (b) of Sec. 16 of the Indian Contract Act wherein it is stated
that B the medical attendant has employed undue influence on A enfeebled by disease/age.

64. Rajesh applied to a banker for a loan at a time when there was stringency in the money market, the
banker declined to grant the loan except at a usually high rate of interest. Rajesh accepted loan on
these terms. The contract is vitiated by undue influence. Decide.
Ans. The contract is valid and enforceable and not vitiated by undue influence.
Undue influence is unfair persuasion by one party thereby influencing the mind of the other
contracting party. It is the improper use of any power/authority possessed by one party over the
mind of the other contracting party.
However, only when the transaction appears on the face of it or on the evidence adduced to be
unconscionable, there is undue influence.
In the above case, the loan transaction by a banker at unusually high rate of interest due to stringency
in the money market is in the ordinary course of banking business applicable to all customers without
discrimination and further Rajesh has accepted the loan on these terms. Hence there is no undue
influence in the transaction.
Tue facts of the case resemble illustration (d) of Sec. 16, where it is stated that the loan transaction
at unusually high rate of interest is in the ordinary course of business and hence. the contract is not
induced by undue influence.

65. A, a teacher, purchased a brand new car from B, who is his student, for ` 1000/- though the actual
value is ` 10 lakh. Now, B wants to rescind the contract and get back the car. Decide.
Ans. If a person holds a real or apparent authority over the other, then there is presumption of existence
of undue influence.
In the case of teacher and student., it can be presumed that there is a relationship of undue influence.
So, the contract is voidable at the option of the student B, and he is bound to return the amount of
` 1,000/- to the teacher A and get back the car which he has sold to the teacher A.
A contract is induced by 'undue influence' if the relations 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.
i. A person dominates the will of another -
ii. If he holds a real or apparent authority over the other or
a. If he stands in a fiduciary relation to the other, or
b. If he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distress.
So, in the given problem, B can rescind the contract and get back the car on the ground of undue
influence.
 1.66 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

66. Anand is a spiritual advisor. 'B' an old Hindu man. Anand advises 'B' to gift away the whole of his
property, with a view to secure benefits to his soul in the next world. 'B' makes gift of his property to
Anand. Discuss the validity of gift.
Ans. A contract is said to be induced by 'undue influence' where the relations between the parties are
such that one of the parties is in a position to dominate the will of the other.
A person dominates the will of another if he holds a real or apparent authority over the other or if
he stands in a fiduciary relation to the other, or if he makes a contract with a person whose mental
capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
In the given problem, there is presumption of undue influence between the religious guru and the
disciple, and B has gifted away all his properties to Anand, a spiritual advisor.
Since the contract is vitiated by undue influence, it is voidable at the option of B, and he may get
back the properties which he gifted to his guru under undue influence. The facts of the given problem
resemble that of a famous case of Mannu Singh vs. Umadat Pandey.

67. A spiritual advisor induced his devotee to gift to him all the properties of the devotee. The devotee
also gifted away all his properties. After one month the devotee wants to get back all the properties.
Advise him.
Ans. The devotee can get back all the properties, because the Contract is induced by 'undue influence' as
per Sec.16 of the Indian Contract Act. (Same as Problem No. 66)

68. 'A’ an old lady entered into a lease in favour of her Manager. But the lease deed turned to be a gift
deed, as the Manager prepared the deed. accordingly. Advise 'A'.
Ans. The gift deed is voidable at the option of A due to the undue advantage taken by her Manager in
exercise of undue influence on the old lady.
A contract is said to be induced by 'undue influence' where the relations 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.
A person dominates the will of another, if he holds a real or apparent authority over the other or if
he stands in a fiduciary relation to the other, or if he makes a contract with a person whose mental
capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
In the given problem, the Manager of the old lady makes a contract with her, whose mental and
physical capacity are temporarily or permanently affected by reason of her age. So, undue influence
is presumed to be in existence.
In the given problem, the old lady has intended to enter into a lease deed in favour of her Manager,
but the Manager had prepared only a gift deed. So, the gift deed is voidable at the option of the old
lady, since the contract of gift is vitiated due to the existence of undue influence.

14. FRAUD (Sec.17 & 18)

69. Rahul sells by auction to Shanna a horse which he knows to be unsound. Rahul says nothing to
Sharma about the dog's unsoundness. Has Rahul committed fraud on Shanna?
Ans. No. Rahul has not committed any fraud on Sharma.
 Chapter 2 – The Indian Contract Act, 1872 1.67

Explanation of Sec. 17 of the Indian Contract Act reads - Mere silence as to facts likely to affect the
willingness / consent of a person to enter into a contract is not fraud.
However, only if the circumstances of the case are such that it is the duty of the person keeping
silence to speak or if his silence itself is equivalent to speech, then the person must speak.
In the above case, the circumstances are such that the auctioneer has no duty to tell the horse's
unsoundness voluntarily unless specifically asked by any of the participants in the auction about the
unsoundness of the horse and hence there is no fraud on the part of Rahul.
The facts of the case resemble the illustration (a) of Sec. 17 where it is stated that if the auctioneer in
an auction sale does not reveal the unsoundness of the animal to the buyers voluntarily, it does not
amount fraud.

70. 'B' says to 'A’ if you do not deny it I shall presume that the horse is sound". 'A' keeps silent. 'B' buys
the horse. Advise 'B' if the horse is unsound.
Ans. If the horse is unsound, B can sue A for committing fraud and hence the contract is voidable at the
option of B.
Explanation of Sec. 1 7 of the Indian Contract Act reads - Mere silence as to facts likely to affect the
willingness / consent of a person to enter into a contract is not fraud. However, only if the
circumstances of the case are such that it is the duty of the person keeping silence to speak or if his
silence itself is equivalent to speech, then the person must speak.
In the above case, B has specifically put a suggestion to A that if A does not deny, B shall presume
that the horse has sound. Here, the circumstances are such that it is the duty of A keeping silence to
speak and still if A keeps silence, then such silence is equivalent to speech i.e., admission that B can
presume that the horse is sound.
After purchase of the horse by B from A, the horse is found unsound and hence A has committed
fraud on B. The contract is voidable at the option of B, besides claiming damages for fraudulent
misrepresentation.
The facts of the case resemble the illustration (c) of Sec. 17 where it is stated that inspite of B's enquiry
with A about the soundness of the horse, if A keeps silence, it is equivalent to speech (admission that
the horse is sound) and hence A is liable for fraud.

71. 'X' sells his horse, which is unsound to his daughter 'Y'. 'X' remains silent about the unsoundness of
horse. Later wants to avoid the contract. Decide
Ans. If the horse is unsound, Y can sue X for committing fraud and hence the contract is voidable at the
option of Y.
Explanation of Sec. 17 of the Indian Contract Act reads - Mere silence as to facts likely to affect the
willingness / consent of a person to enter into a contract is not fraud.
However, only if the circumstances of the case are such that it is the duty of the person keeping
silence to speak or if his silence itself is equivalent to speech, then the person must speak.
In the above case, Y's relationship with X is that Y is X's daughter. Here, the relation between the
parties would make it X's duty to tell his daughter Y that the horse is unsound.
 1.68 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

In this case, the circumstances are such that it is the duty of X keeping silence to speak and still if X
keeps silence, then such silence is equivalent to speech i.e., admission that horse is sound.
After. purchase of the horse by Y from X, the horse is found unsound and hence X has committed
fraud on Y. The contract is voidable at the option of Y, besides claiming damages for fraudulent
misrepresentation.
The facts of the case resemble the illustration (b) of Sec. 17 where it is stated that inspite of Y being
the daughter of X which is of such relation where it is X duty to tell Y whether the horse is unsound
or not. If X keeps silence, then it is equivalent to speech (admission that the horse is sound) and
hence X is liable for fraud.

72. ‘C’ is an art critic. He knew that he would. not be allowed to attend a play in a theatre. He sent his
friend to buy a ticket. He tried to enter the theatre with that ticket. ‘C’ was refused admission. ‘C’ sues
for breach of contract. Decide.
Ans. C cannot sue the theatre authorities for breach of contract, because C has committed
misrepresentation as under Sec. 18 (3) of the Indian Contract Act and hence the contract is voidable
at the option of the theatre authorities.
Sec. 18 (3) reads - misrepresentation means and includes causing, even innocently, a party to an
agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
In the above case, C knowing fully well that he would not be allowed to attend a play in a theatre
and hence has sent his friend to buy a ticket, thereby causing the theatre authorities to make a
mistake as to the person using the ticket.
Since no dishonest intention is involved, it is only an innocent misrepresentation, but still the contract
is voidable at the option of the theatre authorities under Sec. 19 of the Indian Contract Act.

73. 'A' sells by auction to 'B' a horse which 'A' knows to be unsound. 'A' says nothing to 'B' about the
unsoundness of the horse. Is the sale valid?
Ans. Same as Problem No. 71

74. Akbar, by way of misrepresentation leads Razak erroneously to believe that 50 tons of Rin powder
are made annually at Akbar's factory. Razak examines the accounts of the factory and finds that only
25 tons of Rin powder have been made. Afterwards Razak buys the factory. Razak now wants to avoid
the contract on the ground of misrepresentation. Advise him.
Ans. In the given problem, Razak cannot avoid the contract on the ground of misrepresentation.
Any statement of fact made during negotiation to induce the other party to enter into a contract is
known as representation. When it is wrongly made, it is called 'misrepresentation'. The other party
must have acted upon such inducement and entered into the contract.
The other party can avoid or rescind the contract, within a reasonable time.
But, the aggrieved party cannot avoid a contract entered by misrepresentation by the other party if
he could discover the truth with ordinary diligence and care and if he, after being aware of the
misrepresentation, expressly accepted it.
 Chapter 2 – The Indian Contract Act, 1872 1.69

In the given problem, Razak could discover that only 25 tons of Rin powder have been made annually
on the contrary to the misrepresentation made by Akbar that 50 tons of Rin powder was made
annually.
Even after knowing the truth, he accepted it by buying the factory. So, he cannot avoid the contract
on the ground of misrepresentation.

15. FLAW /ERROR IN CONSENT (OR) MISTAKE (Sec. 20 to 22)

75. Surya agrees to sell his 100 acres of land to Satish for ` 1,00,000/-, but it turns out that his land is
only 98 acres. Discuss the rights of parties.
Ans. As per Sec. 20 of the Indian Contract Act, 'when both the parties to the contract are under a mistake
as to a matter essential to the contract, it is called bilateral mistake and it is void. Such mistake
may be with regard to quantity of the subject matter.
In the above case, both the seller Surya and the buyer Sathish were under bilateral mistake that the
land to be sold was 100 acres, but it turned out to be only of 98 acres of land.
So the agreement between Surya and Sathish is void and as per 'restitution' under Sec. 65 - under
void contracts, the person who has received any advantage under the agreement is bound to restore
it.
Another option is that as per novation under Sec. 62 of the Indian Contract Act, the contracting
parties may substitute a new contract in the place of the original contract and proceed with the
transaction. In such an event, the original contract gets discharged.

76. A was employed to sell B's cargo which was on voyage. After the sale of cargo at an intermediate
port to C, it was discovered that the cargo had been damaged by bad weather. Decide.
Ans. The sale of cargo at an intermediate port to C before its discovery that it had been damaged by bad
weather is a void contract under Sec. 20 of the Indian Contract Act due to bilateral mistake as to non-
existence of subject matter.
When both the parties to the contract are under a mistake as to a matter essential to the contract, it
is called Bilateral Mistake. Thus the mistake must be mutual and relate to the essential terms of the
contract.
If both the parties believe the subject matter of the contract to be in existence / good condition but
in fact, it is non-existent / damaged, then such contract between the parties is void.
The facts of the above case resemble the leading case Couturier Vs. Hastie, (1856) 5 H.L.C. 673,
wherein the Court held that the agreement of sale of fermented corn unknown to both the buyer
and the seller due to bilateral mistake was void and hence the buyer was not liable to pay for the
price to the seller.

77. 'A' an old man with feeble sight endorsed a bill of exchange thinking it was guarantee. There was no
negligence on the part of 'A'. Is A liable?
Ans. A is not liable, because there is unilateral mistake as to the nature of contract which is an exception
to Sec. 22 of the Indian Contract Act and hence the contract is void.
 1.70 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Sec. 22 reads that when only one of the parties is under mistake as to a matter of fact essential to
the agreement, then it is called unilateral mistake. Generally, a unilateral mistake is not allowed and
hence the agreement is valid.
The exception to the above rule is a mistake of a party as to the nature of contract. Thus if a person
signs a document under the mistake that he is signing a document of a different class, then such
agreement is void. The reason is that the mind of the signer and his signature do not go together.
This is called 'non est factum' meaning that it is not the deed intended to be signed.
'Non est factum' was evolved by Courts to help illiterate or blind people from the effect of a contract
which they could not read and which was not properly explained to them. 'Subsequently it was
extended to others also.
The facts of the case resemble Foster Vs. Mackinnon, (1869) L.R. 4 C.P. 701, wherein the Court held
that when an old man, due to poor eye sight, endorsed a bill of exchange thinking that it was a
guarantee deed, there was no contract.

78. "A" agree to sell "B" a particular horse which is believed by both the parties to be a race horse but
later on it turns out to be a cart horse. Is the agreement valid?
Ans. An agreement is not valid due to bilateral mistake on both the parties A and B. As per Sec. 20 of the
Indian Contract Act, when both the parties to the contract are under a mistake as to a matter essential
to the contract, it is called Bilateral Mistake.
Thus the mistake must be mutual and relate to the essential terms of the contract. When the parties
do not understand the same thing in the same sense, then there is mistake as to identity of subject
matter. It arises when one party intends to deal in one thing and the other in another thing.
In the given problem, there is bilateral mistake as to identity of subject matter, ie., both the parties
believe that the horse is a race horse, whereas it is only a cart horse. So, the agreement is not valid .

79. 'A' agrees to buy from 'B' a certain horse. It turns out that the horse was dead at the time of bargain
though neither party was aware of the fact. What type of agreement is this whether illegal, void or
voidable?
Ans. The agreement is void due to bilateral mistake on both the parties namely A and B. As per Sec. 20 of
the Indian Contract Act, when both the parties to the contract are under a mistake as to a matter
essential to the contract, it is called Bilateral Mistake.
If both the parties believe the subject matter of the contract to be in existence, but in fact, it is non-
existent, then such contract between the parties is. void.
In the given problem, since A and B enter into a contract for the sale of a horse which is already dead
and not in existence at the time of agreement, it is a void agreement.

16. UNLAWFUL OBJECT (Sec. 23 & 24)

80. 'A' contracts to marry 'B'. Since 'B' already married to C and being forbidden by the law, A refuses to
marry her later. 'B' sues 'A' for compensation for the loss and non-performance of the promise. Is 'A'
liable?
Ans. A is liable to pay compensation to B for the loss and non-performance of the promise to marry B on
account of A promising to marry B knowing fully well that B has already married C.
 Chapter 2 – The Indian Contract Act, 1872 1.71

As per Sec. 23 of the Indian Contract Act, any agreement, the object of which is unlawful, is void and
unenforceable. The agreement by A to marry B is an impossible agreement due to its illegality,
because such performance of promise of marriage would amount to the offence of 'bigamy'
punishable under Sec. 494 I.P.C.
As per Sec. 56 of the Indian Contract Act, any contract which 'contains an undertaking to perform an
impossibility is void.
However, as per Sec. 56 - para 3 (illustration 3), any person who has promised to do something
which he knew to be impossible or unlawful must pay compensation to the promisee for any loss
due to non-performance of such promise.
So in the above case, B can succeed in his claim to get compensation from A.

81. Mohan promises Kumar to pay ` 20,000/- if he murders Rani. What would be the rights of Kumar (a)
if he commits the murder and (b) if Kumar has already received the amount and fails to murder Rani.
Ans. Mohan's promise made to Kumar to pay ` 20,000/- if he murders Rani is for an unlawful object and
hence any agreement in furtherance of such promise is illegal and such agreement for unlawful
object is invalid as per Sec. 23 of the Indian Contract Act and hence not enforceable in Court of Law.
In case Kumar commits the murder of Rani, then Kumar has no right to claim ` 20,000/- from Mohan
as the agreement is illegal and void and not enforceable.
In case Kumar has already received the amount from Mohan and fails to murder Rani, Mohan cannot
get back the amount from Kumar as an illegal agreement is void and not enforceable at law.
It not only affects the immediate parties, but also affects the collateral transactions to the illegal
agreement and hence the collateral agreements are also illegal.
So no recovery of money paid (i.e., no restitution under Sec. 65 of the Indian Contract Act) is possible
in illegal agreements.

82. 'A' a married woman was given money by 'B' the landlord to enable her to obtain divorce from her
husband and. remarry the landlord. A refused to return the money. Is she right?
Ans. B cannot get back the money paid by him to A, in consideration of her getting a divorce from her
husband.
A is right in refusal to return the money to B, which was given by B to A to enable her to obtain
divorce from her husband.
Sec. 23 of the Indian Contract Act reads - the consideration or object of an agreement is unlawful. if
the Court regards it as opposed to public policy. The Courts have decided in many cases, but
agreements interfering with the performance of marital duties are opposed to public policy and
hence void and unenforceable.
In the above case, B has given money to A to enable her to obtain divorce from her husband and
marry B. This is an agreement interfering with the performance of marital duties and hence opposed
to public policy and void.
The facts of the case resemble Tikyat Vs. Manohar, 28 Cal. 751, wherein the Court held that an
agreement to lend money to a woman in consideration of getting a divorce from her husband and
marrying the lender is a contract opposed to public policy and void.
 1.72 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

83. Ravikumar pays ` 50,000/- to Sangeetha, a married woman on a condition that she should obtain a
divorce from her husband with the help of that money and should marry him after obtaining the
divorce. Sangeetha agrees for conditions and takes the money. Sangeetha obtains divorce from her
husband but refuses to marry Ravikumar. Ravikumar files a suit to recover the amount he has paid.
Decide.
Ans. Same as Problem No. 81.

84. 'X' a lady agreed for consideration to live in adultery with 'Y'. Subsequent to the agreement, 'X' had
performed the promise. 'Y' commits breach. Advise 'X'.
Ans. X cannot take any action against Y for the breach of contract, as the agreement between X and Y is
for an immoral purpose and hence unlawful and void. The consideration or object of such agreement
is regarded as immoral or contrary to good morals.
Law does not permit immoral agreements to be enforced. Sexual immorality is considered as
immorality by the Courts and hence the agreement is void.
In the given problem; X had agreed to live in adultery for consideration with Y, which is immoral.
Since the consideration is for immoral purposes, the agreement is void and X cannot take any action
for enforcing the agreement against Y, for not performing his part.

85. 'A' promises to pay 'B' ` 1,000/- if 'B' beats 'C'. B beats 'C' but 'A' refuses to pay. Can 'B' recover?
Ans. B cannot recover ` 1000 from A, because as per Sec. 23 of Indian Contract Act, if the object or the
consideration of an agreement is the doing of an act forbidden by law, the agreement is void. When
an act is punishable by the criminal law or any other special law of the land, then such act is
considered to be forbidden by law.
Thus, if the object of an agreement is to injure the person or property of another, then it is unlawful.
For e.g., An agreement to commit an offence causing physical injury or damage to one's property is
unlawful.
The term 'injury to the person' means injury to the body or mind or reputation of the person and
'injury to property' means damage or loss to both movable and immovable properties.

86. Ramesh promises to drop prosecution which he has instituted against Suresh for Robbery and Suresh
promises to restore the value of things taken. Can Ramesh enforce this promise?
Ans. Please Refer Problem No. 92

87. 'A' pays ` 10,000/- to 'B' under the agreement that 'B' should give rice or illicit liquor. Is this
agreement enforceable?
Ans. The consideration for the agreement of A with B to give rice is legal where as the agreement of giving
liquor is illegal. As per Sec. 24 of the Indian Contract Act, if the legal part is severable from the illegal
part, the Court can take out the illegal part of giving liquor and enforce the legal part 'of giving rice.
This is known as the Blue Pencil Rule.
In other words, it should be possible to draw a blue pencil line through the offending part, separating
the legal part from it.
 Chapter 2 – The Indian Contract Act, 1872 1.73

In the given problem, since the legal part of the contract of supply of rice is separable from the illegal
part of the contract of supply of liquor, it can be separated and the legal part (supply of rice} alone
is valid and enforceable.

17. AGREEMENT AGAINST PUBLIC POLICY (Sec. 23)

88. A was criminally prosecuted. Fearing the result of prosecution he enters into an agreement in favour
of the complainant in consideration of his abandoning the prosecution. It is an agreement under
coercion?
Ans. Whether the agreement is vitiated by coercion or not depends on the nature of offence, A has
committed under IPC.
Section 15 of the Indian Contract Act defines coercion as –
i. 'The committing or threatening to commit any act forbidden by the Indian Penal Code or
ii. The unlawful detaining or threatening to detain any property to the prejudice of any person
with the intention of causing any person to enter into an agreement.
In the above case, if A has offered gift to or restoration of property to the complainant in
consideration of saving A from the capital offence, then such offence and also abetment of such
offence are punishable under Sec. 213/214 of IPC and are non-compoundable offences under Sec.
320 Cr.P.C.
If A has committed capital offence, then by entering an agreement in favour of the complainant in
consideration of abandoning the prosecution of a capital offence punishable under Sec. 213/214 IPC,
A commits coercion.
Further, such agreement is void as it is an agreement for stifling prosecution or suppression of
prosecution which is opposed to public policy. If a person has committed a crime, then he must be
prosecuted and punished.
Any agreement not to prosecute an offender is an agreement for stifling or suppression of
prosecution and is unlawful.
'No Court of law can give effect to an agreement which attempts to take away the administration of
law out of the hands of the judges and put it in the hands of the private individuals'.
In Initial Service Ltd., Vs. Putterill, 1968 (1) QB 396, the Court observed, 'one cannot make a trade
of felony and one cannot convert a crime into a source of profit'.

89. 'A' promised to pay 'B' a sum of ` 5,000/- in consideration of procuring a second wife by him. 'B'
procured a wife and the marriage took place but 'A' refused to pay the money. Can 'B' recover the
money?
Ans. B cannot recover the money as it is an agreement of marriage brokerage which is opposed to public
policy under Sec. 23 and hence void.
An agreement is opposed to public policy when it is injurious to the welfare of the society or prejudice
the welfare of the society or has harmful tendencies. Further any agreement which is detrimental to
public good is opposed to public policy.
Further, the consideration or the object of the above agreement of A paying B ` 5,000/- in
consideration of procuring a second wife to A is forbidden by law as bigamy is an offence under Sec.
494 of IPC and hence illegal and void.
 1.74 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

90. A promise to obtain for B an employment in the public service, and B promises to pay ` 1,000/- to
A. Is it a valid agreement?
Ans. It is not a valid agreement. A's promise to obtain for B an employment in the public service, and B's
promise to pay ` 1,000/- to A, the object of such agreement is forbidden by law opposed public
policy under Sec. 23 of the Indian Contract Act.
Therefore, the agreement is unlawful and void and hence not enforceable.
Sec. 23 reads - the consideration or object of an agreement is unlawful, if it is forbidden by law or if
the Court regards it as opposed to public policy.
In the above case, the payment of consideration of ` 1,000 /- by A to B is for a purpose of obtaining
B, a public employment, the object of which, is unlawful and hence the contract is void and
unenforceable.
The facts of the case are similar to illustration (f) of Sec. 23.

91. 'X' a lady agreed for consideration to live in adultery with 'Y'. Subsequent to the agreement, 'X' had
performed the promise. 'Y' commits breach. Advise ‘x’ if any?
Ans. X, the lady cannot sue Y for breach of promise of payment to X even after the performance of
promise, because the object of the agreement is unlawful under Sec. 23 of the Indian Contract Act
and hence void.
Sec. 23 reads that the consideration or object of an agreement is unlawful, if the Court regards it as
immoral or opposed to public policy. Every unlawful agreement is void.
In the above case, X s agreement for consideration to live in adultery with Y is to commit an offence
of adultery punishable under Sec. 497 IPC and therefore, such an agreement is unlawful and void
and hence not enforceable.

92. 'A' promises 'B' to drop a prosecution which he has instituted against 'B' for robbery and B promises
to restore the value of the things of which 'A' was robbed. 'B' restores the value but 'A' does not drop
the prosecution. 'B' sues 'A' for breach of A's promise. Will 'B' succeed?
Ans. B will not succeed, as it is an agreement opposed to Public Policy and hence void-
If any agreement / clause in an agreement restraints a person from going to the Court of law to
enforce his rights, then such agreement is void on the grounds of public policy. An agreement
absolutely restricting a party from enforcing his legal rights by usual legal proceedings in the ordinary
tribunals is void.
The restriction imposed upon the right to. sue must be absolute, in order to make it invalid. A partial
restriction is valid.
In the given case, A and B have entered into an agreement opposed to public policy. So, it is not
valid and hence not enforceable.

93. Suguna promises to pay ` 1,00,000 to Susheela, a public servant to induce her to retire and to make
way for her appointment. Is this promise valid?
Ans. The promise is not valid, because agreements to pay money for getting appointments in public
services, getting degrees in educational institutions etc., are opposed to public policy.
 Chapter 2 – The Indian Contract Act, 1872 1.75

Similarly, an agreement to pay money to a public servant to induce him to act corruptly and against
public interest is also void.
In the given problem, Suguna promises to give ` 1,00,000/- to Susheela to induce her to retire and
make way for her appointment is a contract opposed to public policy and hence void.

18. AGREEMENTS EXPRESSLY DECLARED VOID (Sec. 11, 12, 20 to 30, 36 & 56)
94. "A" agrees with "B" to convert a brass plate into a gold plate by magic. "B" sues "A" for specific
performance. Decide.
Ans. B cannot sue A for specific performance, because the contract contains an undertaking to perform
an impossibility. As per Sec. 56, any contract which contains an undertaking to perform an
impossibility. whether it is known or not known to both the parties, is void ab initio.
In the given problem, A and B knew that a brass plate cannot be converted into gold by magic.
So, such an agreement to do an impossible act is void and hence specific performance cannot be
claimed for the enforcement of such an agreement.

19. AGREEMENT IN RESTRAINT OF TRADE (Sec. 27)

95. 'A' agrees to sell all the goods manufactured by him to 'B'. In breach of the said agreement 'A' sold
some goods to 'C'. There upon 'B' sued 'A' for breach of contract. Will 'B' succeed?
Ans. No. B cannot successfully sue A for breach of contract, as the agreement between A and B that A
must sell all the goods manufactured by him to B is an agreement in restraint of trade and hence
void under Sec. 27 of the Indian Contract Act.
The sole agency agreements, only if reasonable, are valid as they are considered as agreements not
in restraint of trade.
In the above case, the agreement to sell all the goods manufactured by A to B for unspecified period
is an agreement in restraint of trade and hence void.
The facts of the case resemble Shaikhkalu Vs. Ramsaran Bhagat, wherein the Court held that when
certain makers of combs agreed to sell their combs only to R and to none else, the contract was void.

96. A is an employee of B and Co. After leaving the service he agrees with B and Co. that he shall not
employ himself in any similar concern within distance 10 miles of the town. Is this restraint valid?
Ans. This agreement for restraint of trade is void (invalid) under Sec. 27 - Exception 1 of the Indian Contract
Act and hence not enforceable.
Sec. 27 reads - an agreement which restrains a person from engaging in any lawful profession / trade
/ business is void to that extent. Exception 1 of Sec. 27 reads - one who sells the goodwill of a
business may agree with a buyer to refrain from carrying on a similar business within specified local
limits, provided such limits appear to the Court reasonable with regard to the nature of the business.
The reading of the above section shows that the exception is applicable to sale of goodwill, trade
combinations and service agreement, but not applicable to restraining employees from accepting
similar jobs after the termination of employment, as employment is necessary for livelihood of the
person.
The facts of the case resemble Attwood Vs. Lamont, (1920) 3 K.B. 571 wherein the Court held that
an agreement between A and B that after termination of employment as tailor, B should not carry
on the business as a tailor within 16 kilometres of A's establishment is held void.
 1.76 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

20. AGREEMENT IN RESTRAINT OF MARRIAGE (Sec. 26)

97. 'A' agrees to pay ` 10,000 to 'B' if 'B' marries ‘C’. ‘C’ marries 'D'. B would like to wait and see if he
could have another chance to marry ‘C’ in case her husband D dies or is divorced. What would be
the proper course according to the law?
Ans. As per Sec. 34, it is a contingent contract, depending upon the act of a person.
If the happening or non-happening of an uncertain event depends on how a person will act at an
unspecified time, then the agreement becomes void if such person does any thing as to render the
event impossible.
In the given problem, the agreement is void, as it is a contingent contract depending upon the act
of a person, and such an act has become impossible.
Though .C can marry B after D's death or divorce, the agreement is void.

21. WAGERING CONTRACT (Sec. 30)

98. A and B entered into an agreement whereby A should pay ` 10,000/- to B if it rains on a specified
day, otherwise B should pay ` 10,000/- to A. It rains on that specified day. Can B recover the amount
in a court of Law.?
Ans. B cannot recover the amount, as it is a wagering contract.
Wager means a bet. So a wagering contract is an agreement of bet. Wagering is defined as follows:
Wagering is an agreement between two parties by which one person promises to pay a certain sum
of money on the happening of some uncertain event and the other person promises to pay if the
event does not happen.
As per Sec. 30 of the Indian Contract Act, an agreement by way of wager is void. And no suit shall be
brought for recovering anything alleged to be won on any wager or entrusted to any person to abide
by the result of any game or other uncertain event on which any wager is made.
In the given problem, the agreement between A and B that A shall pay ` 10,000/- to B if it rains on a
specified day and B promising to pay ` 10,000/- if it does not rain on that day, is a wagering contract
and hence void. So, B cannot recover the amount won by him in the wager.

22. CONTINGENT CONTRACT (Sec. 31 to 36)

99. 'A' promises to pay 'B' a sum of money if a certain ship does not return within a year. The ship never
returned and 'A' fails to pay the money. Can 'B' recover the money from 'A'?
Ans. Yes. B can recover the money from A, as it is a contingent contract under Sec. 35 of the Indian
Contract Act. Sec. 35 reads - the contract becomes valid, only if the uncertain event does not happen
within a fixed period.
In the above case, the promise by A to pay B a sum of money if a certain ship does not return within
a year. Since the ship never returned within the specified one year period, it means that the uncertain
event has not happened within the specified year and hence the agreement becomes valid and
enforceable.
The facts of the case resemble illustration (b) of Sec. 35 wherein it is stated that the contract is
enforceable, if the ship does not return within one year.
 Chapter 2 – The Indian Contract Act, 1872 1.77

100. A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. Can this contract
be enforced?
Ans. Yes. B can recover the money from A, as the ship is sunk. It is a contingent contract under Sec. 33 of
the Indian Contract Act. Sec. 33 reads - the contract becomes valid, only if the uncertain event does
not happen.
In the above case, the promise by A to pay B a sum of money if a certain ship does not return. Since
the ship. is sunk, it means that the uncertain event has not happened i.e., the ship cannot return and
hence the agreement becomes valid and enforceable.
The facts of the case resemble the illustration of Sec. 33 which states that the contract is enforceable,
if the ship is sunk.

101. 'A' contracts to pay 'B' ` 25,000/- if 'B' marries ‘C’. ‘C’ dies without getting married to 'B'. Can 'B'
recover the money from 'A'?
Ans. No. A cannot recover the amount from B, as the contract is a contingent contract enforceable only
on the event happening. If the event becomes impossible such contracts become void under Sec. 32
of the Indian Contract Act.
Sec. 32 reads - contingent contract to do anything if an uncertain future event happens cannot be
enforced by law unless and until that event has happened.
In the above case, the contingent event is B's marriage with C even before such marriage takes place,
C has died and hence the marriage of B with C becomes impossible. Therefore, the contract becomes
void as per Sec. 32.
The facts of the case resemble illustration (c) of Sec. 32 the contract by A to B to give a sum of money
when B marries C, if becomes impossible due to the death of C before such marriage, the contract
becomes void.

102. A' promises to pay a reward of ` 500/- to 'B' his close friend, if he refrains from smoking for 2 years.
Is the contract enforceable?
Ans. Yes. As per Sec. 2 (d) of the Indian Contract Act - when at the desire of the promisor, if the promisee
does or abstains from something, then such act or abstinence is a valid consideration for the promise.
As per Sec. 32 - a contingent contract to do anything can be enforced when that event happens. In
the above case, the reward of ` 500 / - is enforceable by B against A on B's completion of two years
of non-smoking.

103. 'A' agrees to jump up and touch the sky and 'B' agrees to pay ` 5,000/- to 'A' for this act. Decide the
validity of the agreement.
Ans. A contingent contract is a contract which depends on the happening or non happening of some
future event.
Sec. 31 to 36 deals with contingent contracts. Sec. 31 lays down "a contingent contract is a contract
to do or not to do something if some event, collateral to such contract, does or does not happen".
In the given problem, the agreement is invalid; as jumping up and touch the sky is an impossible act.
As per Sec. 36 of the Indian Contract Act, an agreement is void, if it is contingent on impossible
events. It is not necessary that the parties must know its impossibility at the time when it is made.
So, the agreement is not valid and cannot be enforced.
 1.78 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

23. PERFORMANCE OF CONTRACT (Sec. 37," 39 to 41)

104. 'A' a singer enters into a contract with 'B' to sing at B's theatre three days in a week during the. next
three months. On the sixth night 'A' willfully absents herself, but with the consent of 'B' 'A' sings on
the seventh night. However 'B' terminated the contract on the eight day. Provide legal advise to 'A'.
Ans. A can sue B for terminating his services. B cannot terminate the contract on the eight day. Sec. 37 of
the Act reads 'the parties to a contract must either perform or offer to perform their respective
promises unless such performance is dispensed with or excused as per the provisions of this Act or
any other law'.
Since B has signified his willingness in the continuance of the contract, he cannot now put an end to
it. B is entitled only to compensation from A for the 'damage sustained by him through A's failure to
sing on the sixth night.
The facts of the given problem resemble the illustration for Sec. 62 to 67 where performance is
excused.

24. DEVOLUTION OFJOINT RIGHTSAND JOINT LIABILITIES (Sec. 42 to 45)

105. A, B and C jointly promise to pay ` 3,000/- to D. D brings an action against A only. A is not able to
clear ` 3,000. Can D take a legal action against B & C?
Ans. Yes. If D's claim is not fully satisfied in an action against A, then he can bring subsequent action
against B and C for the balance due.
This is as per Sec. 42 of the Indian Contract Act - When two or more persons have made a joint
promise, then all the persons must jointly fulfill the promise unless contrary intention appears in the
contract. Further, as per Sec. 43 of the Indian Contract Act - When two or more persons make a joint
promise and when there is no express agreement to the contrary, the promisee may compel any one
or more of the joint promisors to perform the whole of the promise, i.e., the liability of the joint
promisors is joint and several.

106. A, B and C jointly promise to pay ` 30,000 to D. B becomes insolvent. Discuss the liability of A, B and
C.
Ans. When two or more persons have made a joint promise, then all the persons must jointly fulfill the
promise unless contrary intention appears in the contract.
When two or more persons make a joint promise and when there is no express agreement to the
contrary, the promisee may compel any one or more of the joint promisors to perform the whole of
the promise, i.e., the liability of the joint promisors is joint and several.
Since B has becomes insolvent, the joint liability is on A and C. As per Sec. 43, if any one of the joint
promisors makes default in the contribution, then the remaining joint promisors must bear the loss
arising from such default in equal shares.

107. P, Q and R jointly promise to pay Z ` 3,000/-. P and Q are not traceable. Can Z compel R to pay him
in full.
Ans. Yes. Z can compel R to pay him in full.
When two or more persons have made a joint promise, then all the persons must jointly fulfill the
promise unless contrary intention appears in the contract.
 Chapter 2 – The Indian Contract Act, 1872 1.79

When two or more persons make a joint promise and when there is no express agreement to the
contrary, the promisee may compel any one or more of the joint promisors to perform the whole of
the promise, i.e., the liability of the joint promisors is joint and several.
In the given problem, P, Q and R are jointly liable to pay Z ` 3,000/-. But since P and Q are not
traceable, as per Sec. 43, Z can be compelled to pay the amount of ` 3,000 /- in full .

25. TIME AS ESSENCE OF CONTRACT (Sec. 55)

108. Mahesh has agreed to deliver the goods to Umesh for certain price on 25.12.2009 without fail. Time
is essence of the contract. Mahesh fails to deliver the goods on 25.12.2009. Umesh rescinds the
contract and files a suit to claim damages. Can he succeed?
Ans. Mahesh Will succeed in his suit to claim damages, because as per Sec. 55, when the parties to a
contract have agreed that the contract should be performed at or before a specified time, then the
promisor must perform the contract at or before the stipulated time.
If the intention of the parties were that time should be the essence of the contract. then failure to
perform the contract gives right to the promisee to avoid the contract. To decide whether time is of
the essence of the contract, it is necessary to look into the nature of the contract and the intention
of the parties to the contract. Time as the essence of the contract, if expressed in writing, must be
clear and unambiguous.

26. APPROPRIATION OF PAYMENTS (Sec. 59 to 61)

109. 'A' owes to 'B' among other debts the sum of ` 5,000/- . “B” demands payment of the sum. 'A' sends
` 5,000/-. Explain how it is to be appropriated by B.
Ans. B should appropriate the payment of ` 5,000/- to the A's specific debt of ` 5,000/- as per Sec. 59 of
the Indian Contract Act.
Sec. 59 reads - if a debtor owing several distinct debts to a creditor makes payment with express
intimation or impliedly that the payment should be applied towards the discharge of some particular
debt, then the creditor must do so. (Sec. 59)
In the above case, A owes to B among other debts the sum of ` 5,000/-. Now, if A sends ` 5,000/-,
then it should be appropriated to the specific debt of ` 5,000/- only and not to other debts.
The facts of the case resemble illustration (a) of Sec. 59 wherein it is stated that if among other debts,
a specific debt amount is a due and if the amount sent is of same amount of the specific debt, then
such amount sent should be appropriated to the specific debt only.

110. 'A' owes to 'B' among debts, the sum of ` 500/- 'B' demands payment of the sum. 'A' sends ` 500/-.
Explain how it is to be appropriated by 'B'?
Ans. Sec. 59 - 61 of Indian Contract Act, speaks about appropriation of payments. If the debtor intimates
at the time of payment that the payment should be applied towards the discharge of a particular
debt, then the creditor must do so. (Sec. 59)
If the debtor does not intimate and the circumstances are not indicative, then the creditor may apply
the payment to any of the lawful debts payable to him. (Sec. 60). If the debtor does not intimate
and the creditor fails to appropriate, the payment shall be applied in discharge of the debts in order
of time. (Sec. 61)
 1.80 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

111. 'A' lent three sums to 'B' of ` 100, ` 200 and ` 500. B sent a sum of ` 100 asking 'A' to appropriate
this. money towards the third loan of ` 500. 'A' wants to appropriate this money to the first loan. Can
he do so?
Ans. When a debtor owes several distinct debts to one person and makes a payment not sufficient to
satisfy the whole indebtedness, it is difficult to decide to which debt the payment should be first
appropriated. If the debtor intimates at the time of payment that the payment should be applied
towards the discharge of a particular debt, the creditor must do so. (Sec. 59)
So, A cannot appropriate ` 100/- towards the first loan, because as per Sec. 59 of the Indian Contract
Act, If the debtor intimates at the time of payment that the payment should be applied towards the
discharge of a particular debt, the creditor must do so. He can only appropriate the amount of
` 100/- only to the 3rd loan of ` 500/-

27. DISCHARGE OF CONTRACT (Sec. 62 to 67)

112. 'A' borrows ` 5,000/-from 'B'. Later he begs 'B' to accept back ` 5,000/- and discharge him from the
debt as he was unable to pay the interest. 'B' agrees. However, 'B' subsequently changes his mind
and sues 'A' for the interest - Decide.
Ans. 'A' cannot sue 'B' for the interest.
As per Sec. 63 of the Indian Contract Act, if the promisee dispenses with or remits acceptance of a
lesser consideration than the promised amount wholly or in part, the performance of the promise
made to him, then he cannot subsequently sue for the total or lesser consideration.
In the above case, as per Sec. 63 of the Indian Contract Act, 'B' having agreed to accept ` 5,000/-
without interest, cannot subsequently demand interest for the principal amount.

113. 'A' a creditor accepted from 'B' a debtor a sum of ` 10,000 in full satisfaction of the debt of ` 20,000.
Later 'A' sues 'B' for recovery of the balance of ` 10,000. Can ‘A' succeed?
Ans. A cannot succeed in his suit for recovery of the balance of ` 10,000/-. Discharge of contract means
termination of the contractual relationship between the parties. A contract may be discharged by
mutual agreement or consent.
Remission: (Sec. 63) means acceptance of a lesser consideration than the one promised i.e., for
lesser sum of money. The promisee can dispense with the performance of the promise partly or
wholly.
In the given problem, as A had accepted lesser money of ` 10,000/- in consideration of ` 20,000/- as
remission, he can not succeed in his suit for the recovery of the balance of ` 10,000/- under Sec. 63
of Indian Contract Act.

28. ANTICIPATORY BREACH OF CONTRACT. (Sec. 39)

114. When B breaks the contract, A sells his house for ` 2,000/- more than the contract price and sues B
for damages for breach of contract. Advise B.
Ans. When a contract is breached by one party (called anticipatory breach of contract), the other party
may sue to treat the contract as rescinded under Sec. 39 of the Indian Contract Act and refuse further
performance. He is free from all his obligations under the contract.
 Chapter 2 – The Indian Contract Act, 1872 1.81

Further, if a person rightfully rescinds the contract, he is entitled to compensation for any damage
he has suffered through non-performance by the other party.
Sec. 39 reads - if a party has refused to perform his promise in its entirety, the promisee may put an
end to the contract and take immediate legal action for breach of contract.
In the above case, A cannot sue B for breach of contract, as A has not sustained any damage by such
breach of contract by B. On the other hand, A has made profit of ` 2,000/- than the contract price.

115. 'A' a bachelor agrees to marry 'B' after the death of 'A's father. But even while the father is alive 'A'
marries another woman ‘C’. 'B' sues 'A' for damages. Will she succeed?
Ans. B can successfully sue A for damages because A has committed anticipatory breach of. contract
under Sec. 39 of the Indian Contract Act by the act of marrying another woman, so as to render the
marriage with B impossible.
If a party makes the performance of the contract impossible by his own act, the contract is
discharged. This is-inferred by the conduct of the party, who acts in a manner indicating breach of
contract.
Sec. 39 reads - if a party by his implied conduct has refused to perform his promise in its entirety,
the promisee may put an end to the contract and take immediate legal action for breach of contract.

116. A agrees to sell his teakwood table to B a month after the date of the contract. But just after five
days of the contract he sells the table to C. B sues A for breach of contract. A contends that he can
still perform the contract by repurchasing the table from C. Decide.
Ans. B can take legal action for breach of contract. He can also refuse to accept the repudiation of A.
When a party to the contract declares his intention of not performing the contract when it is
due, it is called anticipatory breach of contract. Before the time of performance arrives, the promisor
makes the performance of his promise impossible by doing some act. This is called anticipatory
breach of contract By Implied Repudiation.
In such a case, the PROMISEE can treat the contract as discharged and he need not perform his part
of promise. He can immediately take legal action for breach of contract. Anticipatory breach does
not necessarily discharge the contract. It discharges the promisee if he so chooses and entitles him
to sue for the breach.
If the promisee refuses to accept the repudiation of the promisor and treats the contract as alive, the
consequences are:
i. The promisor may perform his promise when time for its performance comes and the promisee
will be bound to accept the performance.
ii. When the contract is alive, if an event happens which discharges the contract legally, the
promisor may take advantage of it. In such a case, the promisee has no right to sue for
damages,
Here A has committed anticipatory breach of contract by implied repudiation. B can take legal action
for breach of contract. He can also refuse to accept the repudiation of A. The promisor namely A may
perform his promise when time for its performance comes and the promisee will be bound to accept
the performance.
 1.82 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

29. IMPOSSIBILITY OF PERFORMANCE (DOCTRINE OF FRUSTRATION (Sec. 56))

117. Rajan has agreed to let Ragu use of their Hall between 10 Sept. to 20th Sept. for the purpose of
conducting a Magic show. On 9th Sept. the hall was destroyed by earthquake. Ragu sued Rajan for
the loss. Will he succeed?
Ans. Ragu cannot sue Rajan for the loss.
Sec. 56 - Para 2 of the Indian Contract Act reads - 'A contract to do an act, after the contract is made
becomes impossible or by reason of some event the promisor could not prevent becomes void when
the act becomes impossible'. This is known as impossibility arising subsequent to the formation of
contract or supervening impossibility.
If the impossibility is due to circumstances beyond the control of the parties, then the party who has
to perform the contract need not perform and he is discharged and he need not pay any
compensation to the other contracting party.
In this case, the subject matter of a contract namely the hall for conducting the magic show was
destroyed subsequent to the formation of the contract by earthquake i.e., without the fault of the
parties to the contract. So the contract is discharged, Rajan need not pay any compensation to Ragu.

118. 'A' and 'B' contract to marry each other. Before the time. fixed for the marriage, 'A' becomes insane.
Is this contract enforceable?
Ans. This contract between A and B is not enforceable, because after entering into the contract, since A
has become insane, it becomes impossible of performance. It is called supervening impossibility.
Sec. 56 - Para 2 reads - a contract to do an act, after the contract is made, becomes impossible by
reason of some event which the promisor could not prevent, then such contract becomes void, when
the act becomes impossible.
In the above example, after the contract between A and B to marry each other, A goes mad which B
cannot prevent and as such the marriage becomes impossible and hence void.
The facts of the above case are similar to illustration (b} of Sec. 56 where it is stated that if one of the
parties to contract of marriage becomes mad before the time fixed for the marriage, the contract
becomes void.

119. B hires a marriage hall from C. The hall was accidentally burnt down even before the marriage took
place. B files a suit against C. Advise to C.
Ans. C can successfully resist the suit filed by A as the contract has become void due to supervening
impossibility as under Sec. 56 - Para 2 of the Indian Contract Act.
Supervening impossibility means an impossibility which arises subsequent to the formation of the
contract and before the date of performance of the contract.
The above case, C has let out the marriage hall to B and even before the date of marriage, the hall
was accidentally burnt and hence the contract has become impossible of the performance due to
the supervening impossibility. So the contract becomes void.
The facts of the case resemble Taylor Vs. Caldwell, (1863) 3 B & S 826, where the subject matter
of the contract, subsequent to its formation, was destroyed without the fault of the contracting
parties and hence the contract gets discharged due to impossibility.
 Chapter 2 – The Indian Contract Act, 1872 1.83

120. Hubli-Dharwad Municipal corporation (HDMC) leased out certain autorikshaw stands to X for
` 50,000/-. But no autorikshaw owner came forward to use the stand throughout the leased period
and X. did not realise anything. X., intends to get back his ` 50,000/- from H.D.M.C. Advise.
Ans. Generally, if a person undertakes to do something, he must do it unless its performance is absolutely
impossible. But, Commercial impossibility is not an excuse i.e., a contract is not discharged, because
expectations of better profits is not realized, or the [necessary raw material is not available or
available at a higher price etc.
In the given problem, autorikshaw owners not coming forward to use the stand throughout the
leased period and X not realizing anything is a commercial impossibility.
So, X cannot get back his ` 50,000/- from HDMC, because commercial impossibility is not an excuse
for non-performance of a contract. u/s. 56 of Indian Contract Act.

121. Ramesh has agreed to sell his Motor car to Suresh for rupees two lakhs. However, the Motor car was
destroyed by fire before Ramesh could sell the car to Suresh. Suresh files a suit against Ramesh for
breach of contract. Decide.
Ans. Suresh cannot file a suit against Ramesh for breach of contract, because destruction of subject matter
is an impossibility of performance u/ s. 56 of Indian Contract Act and a valid ground for non-
performance of contract.
Ramesh can successfully resist the suit filed by Suresh as the contract has become void due to
supervening impossibility as under Sec. 56 - Para 2 of the Indian Contract Act.
Supervening impossibility means an impossibility which arises subsequent to the formation of the
contract and before the date of performance of the contract.
The above case, Ramesh has agreed to sell his Motor car to Suresh for rupees two lakhs but, the
Motor car was destroyed by fire before Ramesh could sell the car to Suresh and hence the contract
has become impossible of performance due to the supervening impossibility. So the contract
becomes void.
The facts of the case resemble Taylor Vs. Caldwell, (1863) 3 B & S 826, where the subject matter of
the contract, subsequent to its formation, was destroyed without the fault of the contracting parties
and hence the contract gets discharged- due to impossibility.

122. 'X' has agreed to exhibit the film of 'Y' in his cinema theatre. Due to unprecedentented heavy rain
two walls of the cinema theatre collapsed. Licence of theatre was suspended and hence 'X' failed to
exhibit the film of 'Y'. 'Y'. files a suit against 'X' for breach of contract. Decide.
Ans. Y cannot file a suit against X for breach of contract.
'If a contract to do an act, after the contract is made becomes impossible or by reason of some event
the promisor could not prevent, becomes void when the act becomes impossible'. This is known as
impossibility arising subsequent to the formation of contract or supervening impossibility.
If the impossibility is due to circumstances beyond the control of the parties, then the party who has
to perform the contract need not perform and he is discharged and he need not pay any
compensation to the other contracting party.
In the given problem, due to heavy rains, which is beyond the control of X and Y, two walls of the
cinema theatre collapsed and licence was suspended by reason of which X could not exhibit the film.
So the contract is void and Y cannot file a suit against X for breach of contract.
 1.84 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

123. A musical hall was agreed to be let out on certain day. But before that, it was destroyed by fire. Is the
promisor absolved from the contract.
Ans. Same as Problem No.121.

124. The unloading of ship was delayed beyond the date agreed with the ship owners, owing to a strike
of dock labourers. On a suit by the ship owners for damages the plea of impossibility of performance
was raised. Advise the shop owners.
Ans. Generally, if a person undertakes to do something, he must do it unless its performance is absolutely
impossible.
But, Commercial impossibility is not an excuse i.e., a contract is not discharged, because expectations
of better profits is not realized, or the necessary raw material is not available or available at a higher
price etc.
In the given problem, the ship owners cannot raise the plea of impossibility of performance, because
u/s 56 of the Indian Contract Act, events such as strikes, lockouts and civil disturbances cannot be
grounds for impossibility of performance discharge a contract .

125. 'X' had agreed to sell 100 bags of Paddy which he may grow on his land to 'Y'. Due to severe attack
of pests, 'X' grows only 50 bags of Paddy. Explain the rights and duties of 'X' and 'Y' under the
circumstances.
Ans. X is under the duty to sell 50 bags of Paddy only because, u/s 56 of Indian Contract Act, supervening
impossibility is excusable ground for non-performance of the contract.
If the subject matter of a contract is destroyed partly or fully subsequent to its formation without the
fault of the parties to the contract, then the contract is discharged to that extent. Y can claim only 50
bags of paddy.

126. Anand agreed to hire Vinayak's rooms in Mysore for the purpose of seeing the 'Dasara procession'
on 14th and 15th October. Due to the earthquake no Dasara procession took place on those days.
Now Vinayaka intends to recover the agreed rent Advice him.
Ans. Same as Problem No. 119.

127. 'A' musician agrees to sing in a theatre owned by 'B' on a particular day. 'A' requests to be excused
owing to his inability to sing on that day, because of a severe cold. Is 'A' liable for damages to 'B'?
Ans. A is not liable for damages to B. Sec. 56 - Para 2 of the Indian 'Contract Act reads - 'A contract to do
an act, after the contract is made becomes impossible or by reason of some event the promisor could
not prevent becomes void when the act becomes impossible'.
This is known as impossibility arising subsequent to the formation of contract or supervening
impossibility.
If the impossibility is due to circumstances beyond the control of the parties, then the party who has
to perform the contract need not perform and he is discharged.
In the above case, A's requests to be excused owing to his inability to sing on that day, because of a
severe cold is due to circumstances beyond the control of A and hence the contract becomes void.
Therefore A need not pay any compensation to B, but A must return his professional fees/advance if
any to B.
 Chapter 2 – The Indian Contract Act, 1872 1.85

The facts of the case resemble the illustration (e) of Sec. 56 wherein it is stated that on occasions
when A the singer is too ill to sing, those occasions becomes void due to supervening impossibility.

128. A entered into a contract with B to build 10 houses for a fixed sum of ` 10,00,000/-. Owing to
unexpected shortage of skilled labour and of certain materials, the contractor took 24 months to
complete the work instead of 12 months as expected and cost about ` 12,50,000/-. A claimed the
actual cost incurred for the construction. Advice A.
Ans. A has to pay compensation to B, as shortage of skilled labour and certain materials cannot be the
cause for supervening impossibility under Sec. 56 of the Indian Contract Act to delay the construction
by another twelve months.
In other words, commercial impossibility cannot be an excuse for breach of contract. In the above
case, A has to be contended with original cost of ` 10,00,000/- and also is liable to pay damages to
B for delayed completion of contract.

30. QUASI CONTRACTS (Sec. 68 to 72)

129. Mani a tradesman leaves a bag of rice at Selvam's house by mistake. Selvam consumes the goods
for his own use. Can Mani recover the price of the goods from Selvam?
Ans. Yes. Mani can recover the price of the goods from Selvam.
As per Sec. 72 of the Indian Contract Act which speaks about quasi contract - If a person pays or
delivers by mistake or under coercion something to any person, the latter must repay or return it
to the person who pays it. The mistake here can be a mistake of fact or mistake of law.
Further, as per Sec. 70 of the Indian Contract Act which reads that 'if a person lawfully does or
delivers anything to another person not intending to do so freely (gratuitously), then such other
person who enjoys such benefit is bound to compensate the former. However, the thing done must
be a lawful one'. Thus, Selvam must pay for the price of the goods to Mani.

130. A fruit parcel was delivered under mistake to B, who consumes the fruit thinking that it is a birthday
present. Is B bound to pay for the fruits to the true owner?
Ans. Yes. B is bound to pay for the fruits to the true owner.
As per Sec. 72 of the Indian Contract Act which speaks about quasi contract - If a person pays or
delivers by mistake or under coercion something to any person, the latter must repay or return it to
the person who pays it. The mistake here can be a mistake of fact or mistake of law.
Further, as per Sec. 70 of the Indian Contract Act which reads that 'if a person lawfully does or delivers
anything to another person not intending to do so freely (gratuitously), then such other person who
enjoys such benefit is bound to compensate the former. However, the thing done must be a lawful
one'. Thus, B must pay A for the price of the fruits to the true owner.

131. A and B jointly owe ` 1,000/- to C. A pays ` 1,000/- to C. B not knowing that, pays C another ` 1,000/.
Is C bound to return ` 1,000/- received extra by him?
Ans. Yes. C is bound to return ` 1,000/- received from B as extra by him.
As per Sec. 72 of the Indian Contract Act which speaks about quasi contract - If a person pays or
delivers by mistake or under coercion something to any person, the latter must repay or return it
to the person who pays it. The mistake here can be a mistake of fact or mistake of law.
 1.86 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Thus, C must return ` 1,000/- to B which C got as extra from B.

The facts of the case resemble illustration (a) of Sec. 72 of the Indian Contract Act which states that
C is bound to repay the amount to B, which B paid as extra amount to C by mistake.

132. The lessee, under a mining lease, had been paying his lessor on a wrong view of his rights based on
a misconstruction of the terms of the lease, larger sums by way of royalty than was really due on a
proper construction of those terms. Could the lessee set off amounts of these overpayments against
royalties which became subsequently due by him?
Ans. Yes. The lessee could set off amounts of the over payments made to the lessor against royalties
which became subsequently due by the lessee.
As per Sec. 72 of the Indian Contract Act which speaks about quasi contract - If a person pays or
delivers by mistake or under coercion something to any person, the latter must repay or return it
to the person who pays it. The mistake here can be a mistake of fact or mistake of law. So, the lessee
could set off the over payments to the lessor.

133. A was engaged for lumpsum to be paid after the completion of voyage. The engineer dies when only
2/3rd of voyage was complete. His legal representatives claim damages on quantum meruit basis.
Decide.
Ans. When a work is lawfully done or when goods are supplied to a person without any intention to do
so freely, and if the other person enjoys the benefit thereof, he is bound to make compensation to
the former in respect of the thing so done or delivered.
When one party abandons or refuses to perform the contract, he is, however, entitled to recover
compensation for the work he has already performed under the contract.
In the given problem, the marine legal representatives can claim damages on quantum meruit basis.

134. 'A’ finds a man 'B' lying unconscious on the road and fetches 'C' a doctor to attend on him. Has 'C'
any right to be paid for his services against A or B?
Ans. C has right to be paid for his services against A, because as per Sec. 70 if a person lawfully does
anything to another person not intending to do so freely (gratuitously), then such other person who
enjoys such benefit is bound to compensate the former. However, the thing done must be a lawful
one.
In the above case, A has fetched the doctor C for medical treatment, which the doctor has not
intended to do so freely and hence C has right against A for payment of his services.

135. A parcel containing vegetables was delivered to A under mistake. Be consumes it thinking that it was
sent by his father. Is A bound to pay to the true owner?
Ans. A is bound to pay to the true owner, because as per sec 72 of Indian Contract Act, it is quasi contract.
If a person pays or delivers by mistake or under coercion something to any person, the latter must
repay or return it to the person who pays it.
 Chapter 2 – The Indian Contract Act, 1872 1.87

136. 'A' merchant remitted to the government ` 3,000 as professional tax under a mistake. ‘A' wants to
recover the amount from the Government. Can he succeed?
Ans. Yes. The government is bound to return ` 3,000/- received from A, by mistake, as professional tax by
him.
As per Sec. 72 of the Indian Contract Act which speaks about quasi contract - If a person pays or
delivers by mistake or under coercion something to any person, the latter must repay or return it to
the person who pays it. The mistake here can be a mistake of fact or mistake of law.
Thus, the government must return ` 3,000/- to A which he paid by mistake.
The facts of the case resemble illustration (a) of Sec. 72 of the Indian Contract Act which states that
C is bound to repay the amount to B, which B paid as extra amount to C by mistake.

137. Ram has ordered sweets from sweet mart owner however, the servant of sweet mart owner gives
that packet containing sweets by mistake to Gopal. Gopal eats those sweets with his wife and
children. Sweet mart owner files a suit against Gopal to recover the price. Decide.
Ans. Yes. The sweet mart owner can recover the price of the sweets from Gopal.
As per Sec. 70 of the Indian Contract Act 'if a person lawfully does or delivers anything to another
person not intending to do so freely (gratuitously), then such other person who enjoys such benefit
is bound to compensate the former. However the thing done must be a lawful one'.
The sweet mart owner, has, by mistake, delivered the sweets to Gopal, who eats them with his family.
The sweets were wrongly delivered to Gopal instead of Ram, and not intended to be given freely,
and hence Gopal is bound to pay the amount to the sweet mart owner.
The sweet mart owner can recover the price from Gopal under 'quasi contract'.(i.e.) any delivery made
under mistake, the payment for which can be recovered. u/ s. 72 of Indian Contract Act.

31. MEASURE OF DAMAGES (Sec. 73)

138. A contracts to pay a sum of money to B on a specified day. A does not pay the amount on that day.
As a consequences of non-payment, B is totally ruined. Advise remedies available to B.
Ans. As per Sec. 73 of the Indian Contract Act, B can claim only ordinary damages i.e., to pay the principal
amount and agreed rate of interest and not special damages for breach of contract, as special
damages are awarded only if the parties had contempleted, at the time of making the contract, that
such damages would reasonably be the probable result of breach of contract.
Ordinary damages are awarded if the loss is direct and natural arising in the usual course of things
from such breach of contract. In other words, there must be some proximate link between the loss
and the breach of contract.
So, in the given problem, B can claim only ordinary damages from A for the breach of contract
committed by him.

139. 'A' is a cotton supplier who contracts to sell 500 bales of cotton to a fabric manufacturer 'B' on a
fixed day. A knows nothing about 'B's business requirement and mode of operating business. 'A' fails
to supply the promised cotton and as a result B had to keep his mill closed for three days. 'B' claims
for the damages not only for the breach of contract but also special loss caused to him due to closure
of Mill for three days. Advise Mr. 'B'.
 1.88 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Ans. B can claim ordinary damages for A for the breach of contract by A to supply 500 bales of cotton to
B on a fixed day.
When a contract is breached, the affected party is entitled for damages. Damages means money
compensation allowed to the affected party by the Court.
The object of awarding damages for the breach of a contract is to put the affected party in the same
position as if he had not been affected. The Court is often subject to difficultly to determine the exact
amount to be given as compensation to the affected party. The Court is guided by some norms and
principles.
When a contract is breached, the injured party is entitled to receive: Such damages as would arise
naturally in the course of things. This relates to ordinary damages.
Ordinary damages are awarded if the loss is direct and natural arising in the usual course of things
from such breach of contract. In other words, there must be some direct mate link between the loss
and the breach of contract.
Special damages are awarded only if the parties had contemplated at the time of making the contract
that such damages would reasonably be the probable result of breach of contract.
There must be special circumstances which would cause special loss in case of breach of contract.
Such special circumstances must be brought to the notice of the other party. Only then, special
damages can be claimed for the breach of such contract.
In the given case, B can claim only ordinary damages caused to him due to closure of mill for three
days, as he had not intimated A about the special requirement of cotton for the manufacture as the
time of entering into the contract.
So, B can claim ordinary damages for the breach of contract and not for the loss caused to him due
to closure of mill for 3 days.

32. PENALTY AND LIQUIDATED DAMAGES (Sec. 74)

140. A undertakes to repay B a loan of ` 2,000/- by five equal monthly instalments with a stipulation that
in default of payment of any installment the whole shall become due. Can this stipulation be
enforced?
Ans. Yes. The above stipulation can be enforced as this stipulation is not in the nature of penalty as per
Sec. 74 of the Indian Contract Act.
Sec. 74 reads that when a contract has been broken, only if a sum is named in the contract as the
amount to be paid in case of such breach is in the nature of penalty, then the party complaining of
the breach is entitled to receive only a reasonable compensation.
But. in the instant case, the stipulation does not burden the borrower with any interest, but the lender
demands only the principal amount immediately. So, the stipulation is not in the nature of penalty.
The illustration (f) of Sec. 74 provides similar facts as of the given problem - 'A' undertakes to repay
B a loan of ` 1,000/- by five equal monthly instalments with a stipulation that, in default of payment
of any instalment, the whole shall become due. This stipulation is not by way of penalty and the
contract may be enforced according to its terms.

141. A agreed to erect a plant for B by 31st January 1991. The contract provided that B should pay ` 500/-
per month that A took beyond the agreed date. A was late by six months. B sued A for ` 6,500/- the
actual loss caused to him as result of the delay. To what damages, if any, B is entitled? Give reasons.
 Chapter 2 – The Indian Contract Act, 1872 1.89

Ans. As per Sec. 73 of the Indian Contract Act, B is entitled to claim ordinary damages of his actual loss of
` 6,500/- from A for the delayed erection of a plant by A by six months, as no special damages was
contemplated. in the contract.
However, as per Sec. 75 of Indian Contract Act. If the damages of Rs; 500/- per month are in the
nature of penalty, then the Court. will award only reasonable damages, which will not exceed
` 6,500/-.

142. 'A' contracts to buy certain goods from 'B' for ` 2,000/-. The contract further provides that if 'A'
refuses to accept the goods, he would pay ` 5,000/- to B as damages. How would you decide?
Ans. The above contract, the breach of which, stipulates penalty and hence B who is complaining of breach
of contract by A is entitled to receive only a reasonable compensation not exceeding ` 5,000/-
mentioned in the contract from A.
This is as per Sec. 74 of the Indian Contract Act which reads - when a contract is broken and if any
sum is named in the contract as the amount to be paid in case of such breach, then the party
complaining the breach is entitled to receive from the other party only reasonable compensation
not exceeding the amount mentioned in the contract.
Thus in the above case, for the breach of contract by A, B can get only reasonable compensation not
exceeding ` 5,000/- as mentioned in the contract for breach of the contract.
 1.90 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

PART III: QUESTIONS SET

UNIT 4 - PERFORMANCE OF CONTRACT

SHORT NOTES
1. Write short note on: Appropriation of payment. (1995 – May, 5 Marks)
Ans. Appropriation of Payments: Sections 59 to 61 of the Contract Act, 1872 enact the rules of
appropriation of payment of English Law is laid down in. Clayton's case with certain modifications,
which may be reproduced below:
(i) Application of Payment where debt to be discharged is indicated (Section 59): Where a
debtor, owing several distinct debts to one person, makes a payment to him either with'
express intimation or under circumstances implying that the payment is to be applied to the
discharge of some particular debt. the payment, if accepted, must be applied accordingly.
(ii) Application of payment where debt to be discharged is not indicated (Section 60): Where
the debtor has omitted to intimate and there are no other circumstances indicating to which
debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt
actually due and payable to him from the debtor, whether its recovery is or is not barred by
the law in force for the time being as to the limitation of suits. '
(iii) Application of payment where neither party appropriates (Section 61): Where neither
party makes any appropriation, the payment shall be applied in discharge of the debts in order
of time, whether they are;' or are not barred by the law in force for the time being as to the
limitation of suits. If the debts are of equal standing, the payments shall be applied in discharge
of each proportionately.
(iv) Appropriation towards interest: When the debtor makes a part payment without indicating
the appropriation (whether toward principal or interest) in such cases, the payment must first
be adjusted towards interest and the balance towards the principal amount.

2. Rescission (1998 – Nov., 5 Marks)

Ans. Rescission: Rescission is the electing to avoid a contract and treat as not binding when it is void or
voidable or terminable by a party. It means when a contract is broken by one party, the other party
may treat the contract as rescinded. In such a case is absolved of all his obligations under the
contract' as rescinded. In such a case is absolved of all his obligations under the contract and is
entitled to compensation for any damages that he might have· suffered.
Rescission may occur:
(i) by mutual consent of the parties, or
(ii) where are party fails in the performance of his obligation, the other party may rescind the
contract without prejudice to his right to claim compensation for the breach of contract, or
(iii) by the party whose consent has not been given freely.
Rescission may be total or partial. Total rescission is the discharge of the entire contract. Partial
rescission is the variation of the original contract by (a) rescinding some of the terms of the contract
or (b) substituting new terms for the ones which are rescinded or adding new terms without
rescinding any of the terms of the original contract.
 Chapter 2 – The Indian Contract Act, 1872 1.91

3. Appropriation is a right primarily of the debtor and for his benefit. (2000 – Nov., 5 Marks)
Ans. When a debtor who owes several debts to the same creditor makes a payment which is insufficient
to satisfy the whole indebtedness, a problem arises as to how to appropriate the given payment.
Sections 59 to 61 of i.e. Indian Contract Act, 1872 lay down the following rules:
1. if the debtor expressly states that the payment made by him is to be applied to the discharge
of some particular debt, the creditor must act accordingly.
2. if there no express instructions, then the debtor's implied intention should be gathered from
the circumstances adhering the payment and the appropriation must be done accordingly.
3. if there is no express or implied directions of the debtor then the creditor had an option to
apply the payment to any debt lawfully due from the debtor including times barred debt
(Clayton's case).
4. where the debtor as well as the creditor had not made the appropriation. Then the payment is
to be applied in discharge of the debts in order of time, whether or not they are time barred.
If the debts are of equal standing, the payment 'shall be applied in discharge of each
proportionately.
5. if payment has been made without expressly stating whether it is interest or principal. payment
is to be applied towards interest first and then the balance to principal.
Thus, it is quite clear from the above that it is always not the case where appropriation is a right
primarily of the debtor and for his benefit. It depends upon circumstances of a particular case.

4. Reciprocal promises are to be performed simultaneously. (2001 – May, 5 Marks)

Ans. According to Section 51 of the Indian Contract Act, 1872 when a contract consists of reciprocal
promises to be, simultaneously performed, no promisor need perform his promise unless the
promisee is ready and willing to perform his reciprocal promise.:
When the parties agree that the performance of the contract by each party is to be simultaneous, it
is necessary that in exchange for the performance of the contract by one party, the other party should
also be in a position to give simultaneous performance, i.e. he should be ready and willing to perform
his reciprocal promise. In a contract of sale of goods, unless otherwise agreed, the delivery of the
goods and the payment of the price are concurrent conditions, that is to say, the seller shall be ready
and willing to give possession of the goods to the buyer in exchange for the price and the buyer
shall be ready to pay the price in exchange for possession of the goods. Readiness and Willingness
to perform the contract does not mean that the buyer should have the hard cash in his person, or
the seller should always continue to have a ready stock of the goods after the making of the contract.
It is enough that the buyer, has made arrangement to make the payment, which can be done without
undue delay, and the seller on his part arranged for the goods which can be delivered soon after the
payment is made. It is of course, necessary that the person should have the ability to perform the
contract. If a person is merely mentally prepared or willing to perform the contract but does not have
the ability to do so, the other party need not perform the contract. Thus, a person who becomes
insolvent does not have means of payment in exchange for the goods, he is deemed to be not ready
and willing to perform the contract.
 1.92 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

5. State the rules of appropriation of payments, when:

(i) the order of discharge of debts is indicated;
(ii) the order is not indicated. (2001 – May, 10 Marks)
Ans. As a normal rule, the debtor while making payment of debts should indicate to the creditor the order
of payment or appropriation. This is needed in case several debts are payable by a debtor to his
creditor. However, the debtor might not indicate the order or payment for one reason or the other.
In such cases, the rules laid down in the Indian Contract Act, 1872 apply.
Section 59. lays down. "Where a debtor, owing several distinct debts to one person makes a payment
to him either with express intimation or under circumstances implying that the payment is to or
applied to the discharge of some particular debt, the payment, if accepted, most be applied
accordingly." Thus, in the instance case, the debtor has indicated the order of discharge of debts, the
creditor has no other alternative except to appropriate the amount received by him according to the
order indicated by the debtor.
In the second case i.e. where the debtor does not indicate or has not indicated the order of discharges
of debts, Section 60 of the Act, makes the position clear. According to this Section 60. "Where the
debtor has omitted to intimate and there are no other circumstances indicating to which debt the
payment is to applied, the creditor may apply the money received at his discretion to any lawful debt
actually due and payable to him from the debtor whether its recovery is or is not barred by the law
in force for the time being as to the limitation of suits."
Thus, it is clear that in the second case, provisions of Section 60 shall apply and the creditor shall be
within his rights to appropriate the money against the debts if any-barred by law of limitation.
However, if there are several debts due on the same date and the debtor has not indicated the order
of payment, the creditor shall have to apply the money proportionately in discharge of these debts.

6. Doctrine of Frustration (2002 – May, 5 Marks)

Ans. Doctrine of Frustration: Part 2 of Section 56 of the Indian Contract Act, 1872 lays down that if the
performance of a contract becomes impossible or unlawful after its making due to some event which
is beyond the control of the parties, such contract becomes void when such event has accrued. This
is known as doctrine of frustration. The performance may become impossible legally or physically.
Following are the causes of frustration:
1. Destruction of subject matter of contract.
2. Death or personal incapacity of the party.
3. Cancellation of an expected event
4. Subsequent legal changes.
5. Declaration of war.
 Chapter 2 – The Indian Contract Act, 1872 1.93

DISTINGUISH BETWEEN
1. Briefly explain the distinguish between Succession and Assignment. (1996- May, 5 Marks)
Ans. Distinguish between Succession and Assignment: When the benefits of a contract are succeeded
to be process· of law, then both burden and benefits attaching to the contract, may sometimes
devolve on the legal heir. Suppose, a son succeeds to the estate of his father after his death, he will
be liable to pay the debts and liabilities of his father owed during his life time. But if the debts owed
by his father exceed the value of the estate inherited by the son then he would not be called upon
to pay the excess. The liability of the son will be limited to the extent of the property inherited by
him. In the matter of assignment, however, the benefit of a contract can only be assigned but not
the liabilities thereunder. This is because then the liability is assigned, a third party gets involved
therein. On the other hand, if a creditor assigns the benefits of a promise, he thereby entitles the
assignee to realise the debts from the debtor but where the benefits is coupled with a liability or
when a personal consideration has entered into the making of the contract then the benefit cannot
be assigned.

2. Briefly explain the distinguish between Novation and Alteration. (1996 – May, 5 Marks)
Ans. Novation and Alteration: The law pertaining to novation and alteration is contained in Sections 62
to 67 of the Indian Contract Act, 1872. In both these cases the original contract need not be
performed. Still there is a difference between these two:
1. Novation means substitution of an existing contract with a new one. Novation may be made
by changing in the terms of the contract or there may be a change in the contracting parties.
But in case of alteration the terms of the contract may be altered by mutual agreements by the
contracting parties but the parties to the contract will remain the same.
2. In case of novation there is altogether, a substitution of new contract in place of the old
contract. But in case of alteration it is not essential to substitute a new contract in place of the
old contract. In alteration there may be a change in some of the terms and conditions of the
original agreement.

3. Briefly explain the distinguish between Recession and Alteration. (2002 – May, 5 Marks)
Ans. Rescission and Alteration: Rescission means cancellation of the contract. If by mutual agreement
the parties agree to cancel all or some of the terms of the existing contract, it is called rescission of
the contract, and then the contract is discharged. A contract can be rescinded before its performance
becomes due. Non-performance of a contract by both the parties for a long period, without any
complaint, amounts to implied rescission. Rescission may be total or partial. When all the terms of
the contract are cancelled, it is total rescission which results in the discharge of the entire contract.
When some of the terms are cancelled and some new terms are added, it is partial rescission. Partial
rescission results in the variation of the original contract, Section 62 of the Indian Contract Act, 1872
lays down that of the parties to a contract agree to rescind it, the original contract need not be
preformed. Alteration on the other hand, means making a change in the terms of a contract with the
consent of all the parties. Alternation discharge the old terms which have been changed and the
parties become bound by the original contract with altered terms. Rescission of the contract may be
total or partial but· alteration is always partial and the original contract cannot be altered wholly. The
effect of alteration is the same as laid down in Section 62 of the Indian Contract Act, 1872 i.e. the
original contract need not be performed.
 1.94 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

DESCRIPTIVE QUESTIONS
1. What is "Supervening Impossibility"? What are its effects upon the contract?
(1997 – May, 5 Marks)
Ans. An impossibility which makes the performance of a contract impossible or illegal, by occurrence of
an unexpected event or a change of circumstances beyond the contemplation of parties, is called
Supervening Impossibility. It may arise on account of more than one reasons, which may be
enumerated as below:
(a) Accidental destruction of the subject-matter of the contract, such as loss of property by the
occurrence of accidental fire. death of an artist or incapacity of an artist by long illness.
(b) Non-existence or non-occurrence of a particular state of things, e.g. postponement of the
music concert for which the hall was rented out.
(c) Incapacity to perform a contract of personal services-long illness.
(d) Change in law, e.g. acquisition of the property by the government.
(e) Outbreak of war, making the contracting parties as citizens of enemy countries.
Effects: Supervening Impossibility makes the contract void and the parties are released out of their
obligations. They need not perform their part of the promises which have not accrued till the date of
the impossibility.

2. State in brief the grounds upon which a contract may be discharged. (1998 – May, 10 Marks)
Ans. Discharge of contracts: A contract is discharged when the obligation created by it come to an end.
A contract may be discharged in any one of the following ways:
(i) Discharge by performance: It takes place when the parties to the contract fulfil their
obligations arising under the contract within the time ·and in the mariner prescribed. Discharge
by performance may be (a) actual performance or (b) attempted performance. Actual
performance is said to have taken place; when each of the parties has done what he has agreed
to do under the a agreement. When the promisor offers to perform his obligation, but the
promisee refuses to accept the performance, it amounts to attempted performance or tender
of performance.
(ii) Discharge by mutual agreement: Section 62 of the Indian Contract Act provides if the parties
to a contract agree to substitute a new contract for it, or to refund or remit or alter it, the
original contract need not be performed. These principles come in the heads of novation,
rescission, alteration remission, owing to the occurrence of an event and waiver.
(iii) By impossibility of performance: The impossibility may exist from its initial stage. In that
case, it would be impossibility an initio. Alternatively, there may be supervening impossibility
which may take place owing to (a) an unforeseen change in law; (b) the destruction of the
subject matter essential to that performance. (c) the non-existence or non-occurrence of
particular state of things, which was naturally contemplated for performing the contract, as a
result of some personal incapacity; (d) the declaration of war (Section 56).
(iv) Discharge by lapse of time: A contract should be performed within a specified period as
prescribed by the Limitation Act, 1963. If it is not performed and if no action is taken within the
specified period of limitation. The party is deprived of remedy at law. For example, ii a creditor
does not file a suit against the buyer for recovery of the price within three years, the debt
becomes time barred and hence not recoverable.
 Chapter 2 – The Indian Contract Act, 1872 1.95

(v) Discharge by operation of law: A contract may be discharged by operation of law which
includes by death of the promiser, merger of inferior right in the superior right by which the
inferior right vanishes, by complete loss of evidence, by insolvency etc.
(vi) Discharge by breach of contract: Breach of contract may be actual breach of contract or
anticipatory breach of contract. If one party defaults in performing his part of the contract on
the due date, he is. said to have committed a breach thereof. When on the other hand, a person
repudiates a contract before the stipulated time for its performance has arrived, he is deemed
to have committed anticipatory breach. If one of the parties to a contract breaks the promise
the party injured thereby, has not only a right of action for damages but he is also discharged
from performing his part of the contract. (Section 64).
(vii) Remission accord and satisfaction: A promisee may dispense with or remit the performance
of the promise made to him or may accept any satisfaction of he thinks fit. In the first case, the
contract will be discharged by remission and in the second by accord and satisfaction.
(viii) Refusal to afford reasonable facilities: If any promisee neglects or refuses to afford the
promisor reasonable facilities for the performance of his promise, the promisor is excused by
such neglect or refusal as to any non-performance caused thereby.

3. Is it required that parties to the contract must perform the contract personally?
(1998 – May, 5 Marks)
Ans. Who must perform the contract: Except the contracts which require personal skill and labour, the
promise under a contract may be performed by the following persons:
1. Promisor himself: If it appears from the nature of the case that it was the intention of the
parties to any contract, that any promise contained in it should be performed by the promisor
himself, such promise must be performed by the promisor. Contracts involving personal skill
or those depending upon personal trust and confidence must be performed by the promisor
himself (Sec. 40).
2. Agent: Where personal consideration is not the foundation of a contract, the promisor or his
representatives may employ a competent person to perform it (Section 40).
3. The Legal Representatives: Promises bind the representatives of the promisor in case of the
death of such promisor before performance, unless a contrary intention appears from the
contract. On the death, of the promisor, the promisee can compel his legal representatives to
perform the promise unless it involves the personal skill of the promisor. However, the liability
of the legal representative will not be personal but shall be limited only to the extent of the
value of the estate of the deceased promisor inherited by him. (Section 37).
4. Third Persons: When the promisee accepts performance of the promise from a third person,
he cannot afterwards enforce it against the promisor. That is, performance by a stranger,
accepted by the promises, produces the result of discharging the promisor, although the latter
has neither authorised nor ratified the act of the third party (Section 41).
5. Joint Promisors: When two or more persons have made a joint promise, then unless a contrary
intention appears from the contract, all such persons must jointly fulfil the promise. If any of
them dies, his legal representatives must, jointly with the surviving promisors, fulfil the promise.
If all of them die, the legal representatives of all of them must fulfil the promise jointly (Section
42).
 1.96 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

4. Explain the rules under the law of contract as regards to time and place for the performance of the
promise. (1999 – May, 5 Marks)
Ans. Time and place for the performance of the promise: Section 46 to 50 of the Indian Contract Act,
1872 are relevant regarding time and place for the performance of the promise which are as follows:
1. If no time is specified, the promise must be performed within a reasonable time. The expression
'reasonable' time is to interpreted having regard to the facts and circumstances of a particular
case (Section 46).
2. If a promise is to be performed on a specified date but hour is not mentioned, the promisor
may perform it at any time during the usual hours of business, on such day. Moreover, the
delivery must be made at the usual place of business (Section 47).
3. Where no place is fixed, it is the duty of the promisor to ask the promisee to fix a reasonable
place for the performance of the promise. In all cases, the promisor must apply to the promisee;
here no distinction is made between an obligation to pay money to the promisee; here no
distinction is made between an obligation to pay money and obligation to deliver goods or
discharge any other obligation [Section 49).
The foregoing rules regarding the time and place for the performance of promise apply, only
when the promisor undertakes to perform the promise without an application being made by
the promisee.
4. Where the promisor has not undertaken to perform the promise without an application by the
promisee, and the promise is to be performed on a certain day it is the duty of the promisee
to apply for performance at a proper place and within the usual hours of business (Section 48).
Generally, the performance of any promise may be made in any manner, or at any time which
the promisee prescribes or sanctions.

5. State the circumstances under which an agreement may be void, since it is impossible to carry it out.
(2000 – May, 5 Marks)
Ans. Impossibility of Performance [Section 56 of the Indian Contract Act, 1872): An agreement may
be void since it is impossible to carry it out. A contract to do an act, which after the contract is made,
becomes impossible, or, by reason of some event which are promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful under the following cases:
(a) Impossibility existing at the time of contract:
(i) if known to the parties.
(ii) if unknown to the parties.
(iii) if known to the promisor only.
(b) Supervening impossibility (arising subsequent to the formation of a contract) like destruction
of subject matter, non-existence or non-occurrence of a particular state of things or incapacity
to perform a contract of personal services or change-of law, or outbreak of law or failure of the
ultimate purpose.
 Chapter 2 – The Indian Contract Act, 1872 1.97

6. What is meant by Performance of a Contract? By whom the contract can be performed?

(2001 – May, 10 Marks)
Ans. Performance of contract consists in doing or causing to be done, that which the promisor has
promised shall be done. Performance of contract is the completion of legal obligation which arises
out of the contract. Every party to the contract is obliged to perform the contract accordingly, unless
it is discharged or exempted from the performance.
The parties to a contract must either perform or offer to perform, their respective promises, unless
such performance is disposed with or excused under the provisions of the law of contract or any
other law (Section 37 Indian Contract Act, 1872). In order that a party could enforce the promises
made to him, he should perform his promise or offer to perform then he can ask to the other party
to perform his promise unless a contrary intention appears from the contract. Either performance or
readiness and willingness to perform the contract is the basic requirement of this section.
By whom contract must be performed?
The promise under a contract may be performed, as the circumstances may permit, by the promisor
himself, or by his agent or his legal representative.
(i) Promiser himself: If there is something in the contract to show that there was an intention of
the parties, that the performance should be made personally, such promise must be performed
by the promisor (Section 40). Such contracts involve personal skill or diligence.
(ii) Agent: Where personal consideration is not required, the promisor or his representative may
employ a competent person to perform (Section 40). .
(iii) Representatives: Except the contract which involve personal skill and diligence all contracts
may be performed by the legal representatives of the deceased promisors unless a contrary
intention appears from the contract (Section 37). But their liability under a contract is limited
to the value of the property they inherit from the deceased. Where personal skill and diligence
is the foundation of the performance such contracts come to an end on the death of the
promisor.
(iv) Third Persons: When a promisee accepts performance from a third person, he cannot
afterwards enforce it against the promisor (Section 41).
(v) Joint Promisors: When two or more persons have made a joint promise, then, unless a
contrary intention appears by the contract all such persons, during their joint lives, and after
the death of any of them, his representatives jointly with the survivor or survivors, and after the
death of last survivor, the representatives of all jointly must fulfil the promise (Section 42 of the
Indian Contract Act).

7. When a contract may be discharged by Operation of Law? (2001 – May, 5 Marks)

Ans. A contract may be discharged by -the operation of law in the following manner:
(i) By death: In contract involving personal skill and/or ability, the contract is terminated on the
death of the promisor. In other contracts the rights and liabilities of a deceased person pass
on to the legal representative.
(ii) By merger: Merger takes place when an inferior right accruing to a party under a contract
mergers into a superior right accruing to the same party under the same or same other
contract.
 1.98 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(iii) By insolvency: Where a person is adjudged insolvent he is discharged from all liabilities
incurred prior to his adjudication.
(iv) By unauthorised alteration of the terms of a written agreement: Where a party to a
contract makes any material alteration in the contract without the consent of the other party,
the other party can avoid the contract. A material alteration is one which changes, in a
significant manner, the legal identity or character of the contract or the rights and liabilities of
the parties to the contract.
(v) By rights and liabilities becoming vested in the same person: Where the liabilities and rights
under a contract vest in the same person, for example, when a bill gets into the hands of the
acceptor, the other parties are discharged.

8. State and explain the various modes whereby a contract may come to an end.
(2001 – Nov., 10 Marks)
Ans. Various modes whereby a Contract comes to an end: A contract may be discharged either by an
act of the parties or by an operation of law as stated below:
1. Discharge by performance: When the parties to the contract fulfil their part of the promise,
the contract comes to an end.
2. Discharge by mutual agreement: When the parties to the contract agree not to perform the
contract on the basis of the principles of rescission, or novation or alteration or remission, the
original contract comes to an end.
3. Discharge by impossibility of performance: When the performance of the contract becomes
impossible owing to (1) an unforeseen change in law or (2) the destruction of the subject matter
essential to the performance of the contract, or (3) the non-existence or non-occurrence of
particular state of things such as personal incapacity like illness or meeting with an accident or
(4) out break of war and the party being declared as an alien enemy.
4. Discharge of lapse of time: Where a contract is to be performed within a special time and it
is not performed within that time or period, the law of limitation applies and the contract comes
to an end e.g. creditor not taking any action against the debtor for the recovery of the debt
within a period of 3 years,
5. Discharge by operation of law: Where lay operates in the nonperformance of a contract say
death of the promiser or insolvency or merger etc.
6. Discharge by breach of a contract: Where the party to the contract makes a default in the
performance of the contract.
7. Discharge by waiver on the part of either party.
8. Discharge by not providing reasonable facilities for performance by the party to the contract.
 Chapter 2 – The Indian Contract Act, 1872 1.99

9. Explain with examples the principles of Novation, Rescission, Alteration and Remission where
contracts need not be performed. (2002 – Nov., 10 Marks)
Ans. Novation, Rescission, Alteration and Remission:
(a) Novation (Section 62): Novation means the substitution of a new contract for the original
contract. Such a new contract may be either between the same parties or between different
parties. The consideration for the new contract is the discharge of the original contract.
Example: A Owns B ` 10,000/-. A enters into an agreement with B. and gives B a mortgage or
his (A's) estate tor ` 5,000/- in place of the debts of ` 10,000/-. This is a new contract and
extinguishes the old.
(b) Rescission (Section 62): Rescission means cancellation of the contract by any party or all the
parties to a contract.
Examples: X promises Y to sell and deliver 100 Bales of cotton on 1st October at his godown
and Y promises to pay for goods on 1st November. X does not supply the goods. Y may rescind
the contract.
(c) Alteration (Section 62): Alteration means a change in the terms of a contract with mutual
consent of the parties. Alteration discharges the original contract and creates a new.
Example: X promises to sell and deliver 100 bales of cotton on 1st October and Y Promises to
pay for goods on 1st November. Afterwards X and Y mutually decide that the goods shall be
delivered in five equal instalments at Z's godown. Here, original contract has been discharged
and a new contract has come into effect.
(d) Remission (Section 63): Remission means acceptance by the promisee of a lesser fulfillment
of the promise made. Accordingly, to Section 63, "Every promisee may dispense with or remit,
wholly or in part, the performance of the promise made to him, or may extend the'· time for
such performance, or may accept; instead of it any satisfaction which he thinks fit”
Example 1: A promises to paint a picture for B. B afterwards forbids him to do so. A is no
longer to perform the promise.
Example 2: A owes B ` 5,000/- A pays to B, and B accepts, in satisfaction of the whole debts,
` 2,000/- paid at the time and place at which ` 5,000/- were payable. The whole debt is charged.

PRACTICAL QUESTIONS
1. X, Y and Z are partners in a firm. They jointly promised to pay ` 3,00,000 to D. Y become insolvent
and his private assets are sufficient to pay 1/5 of his share of debts. X is compelled to pay the whole
amount to D. Examining the provisions of the Indian Contract Act, 1872, decide the! extent to which
X can recover the amount from Z. (2018 – May, 4 Marks)
Ans. According to Section 43 of Indian Contract Act, 1872, when two or more persons make a joint
promise, the promisee may, in the absence of express agreement to the contrary, compel anyone or
more of such joint promisor to perform the whole of the promise.
Also, each of two or more joint promisors may compel every other joint promisor to contribute
equally with himself to the performance of the promise. unless a contrary intention appear from the
contract.
In other words, if one of the joint promisors is made to perform the whole contract, he can call for a
contribution from others.
 1.100 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

It also says that if any one of two or more joint promisors makes default in such contribution, the
remaining joint promisor must bear the loss arising from such default in equal shares.
In the given case X, Y and Z jointly promised to pay ` 3,00,000 to D. Y could pay only ` 20,000 (i.e.
1/5 of ` 1,00,000), hence loss due to his default i.e. ` 80,000 will be borne equally by X & Z. Now.
since X is compelled to pay entire amount, he can call for contribution from Z of his share i.e.
` 1,00,000.
Thus, the extent to which X can recover the amount from Z is ` 1,40,000.

2. Mr. X and Mr. Y entered into a contract on 1st August, 2018, by which Mr. X had to supply 50 tons of
sugar to Mr. Y at a certain price strictly within a period of 10 days of the contract. Mr. Y also paid an
amount of ` 50,000 towards advance as per the terms of the above contract. The mode of
transportation available between their places is roadway only. Severe flood came on 2nd August, 2018
and the only road connecting their places was damaged and could not be repaired within fifteen
days. Mr. X offered to supply sugar on 20th August, 2018 for which Mr. Y did not agree. On 1st
September, 2018, Mr. X claimed compensation of ` 10,000 from Mr. Y for refusing to accept the
supply of sugar, which was not there within the purview of the contract. On the other hand, Mr. Y
claimed for refund of ` 50,000, which he had paid as advance in terms of the contract. Analyse the
above situation in terms of the provisions of the Indian Contract Act, 1872 and decide on Y's
contention. (2018 – Nov., 4 Marks)
Ans. According to the facts of the case it can be clearly observed that the contract entered into by the
parties Mr. X and Mr. Y demonstrates a case under the applicability of the provisions of Section 56
of Indian Contract Act, 1872 that States - "A contract to do an act which after the contract is made
becomes impossible by reason of some event which the promisor could not prevent becomes void."
In this case Mr. X has promised to supply 50 tons of sugar to Mr. Y for which Mr. Y has paid an
amount of ` 50,000 in advance according to the terms of the contract. But due to severe flood the
only mode of transportation available between their places is damaged which clearly makes the
execution of delivery of 50 tons of sugar to Mr. Y impossible within the stipulated time. Now Mr. X
claims compensation of ` 10,000 from Mr. Y for non-acceptance of delivery after expiry of the
stipulated time - period but since the contract has already gone void due to impossibility of
performance within the stipulated time - period there remains no legal room for demanding
compensation. But at the same time the contention of Mr. Y for refund of his previously advanced
sum of ` 50,000 stands valid as under the provisions of Indian Contract Act, 1872 if a contract terms
void due to any specific reason then all previously advanced sums have to be refunded.
 Chapter 2 – The Indian Contract Act, 1872 1.101

CASE STUDIES
1. A makes a promise to three joint promisees X, Y & Z. X & Y die before the promise is performed.
Who can demand performance of the promise?
Ans. In case of joint promisees, in the event of death of one or more joint promisees, the rights and
liabilities shall vest with the surviving joint promisees along with the legal representatives of the
deceased joint promisees. Thus, in this case performance shall be demanded by Z, the surviving joint
promisee along with the legal representatives of X & Y

2. A owes B two sums, one for ` 1,000 which is barred by limitation and another for ` 1,500 which is
not barred by the limitation of time. A pays B ` 500 on account generally. B later sues A for ` 1,500.
A pleads that the amount of debt outstanding to B is ` 1,000 on account of settlement of ` 500
against the debt of ` 1,500 and the earlier debt of ` 1,000 now being time barred cannot be realized.
Comment on the plea of A.
Ans. Rules for appropriation of payments; when the debtor has not given any express instructions for
appropriation and nor any implied circumstances exit which indicate the intention of the debtor as
to appropriation of payment, then the appropriation shall be done at the discretion of the creditor.
The creditor may at his discretion appropriate the amount received, against any lawful debt or
interest outstanding or even against a time barred debt. Thus, B has validly appropriated 500 against
the time barred debt of 1000. The plea of A is not sustainable.

3. X, Y and Z are partners of software business jointly promise to pay ` 30,000 to A. Over a period of
time Y became insolvent, but his assets are sufficient to pay one-forth of his debts. Z is compelled to
pay the whole. Decide whether Z is required to pay whole amount himself to A In discharging joint
promise?
Ans. According Section 43 of Indian Contract Act, 1872 when two or more persons make a joint promise,
the promisee may, in absence of express agreement to the contrary, compel any one or more of such
joint promisers to perform the whole of the promise. Further, if any one of two or more joint
promisors makes default in such contribution, the remaining joint promisors must bear the loss
arising from such default in equal shares. Therefore, in this case, Z is entitled to receive 2,500 from
Y’s assets and 13,750 from X

4. A agreed to sell 10 tons of wheat to B. No time of delivery has been fixed. At 11 P.M. A takes a truck
of wheat to B at his house. Is It a valid tender?
Ans. Tender for performance to be valid must be given at a proper place & time; here the tender is not
valid, thus B can rightfully refuse to accept the tender of performance.

5. Krish, Kamya and Ketan are partners in a firm. They jointly promised to pay ` 6,00,000 to Dia. Kamya
become insolvent and her private assets are sufficient to pay 1/5 of her share of debts. Krish is
compelled to pay the whole amount to Dia. Examining the provisions of the Indian Contract Act,
1872, decide the extent to which Krish can recover the amount from Ketan
Ans. The liability of joint promisors is joint & several. The promisee can sue any one of the joint promisors
for the performance of the entire promise. Such a joint promisor on performance of the promise
 1.102 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

shall be entitled to claim contribution from the other joint promisors. Further in the event of
insolvency of any of the joint promisors, the loss due to non-contribution shall be borne by the other
joint promisors equally.
Thus, in this case Dia can rightfully claim the entire amount from Krish. Since Kamya has become
insolvent, ` 40,000 is only recoverable from her estate & ` 2,80,000 is recoverable from Ketan.

6. X received certain goods from Y & promised to pay ` 60,000. Later on, X expressed his inability to
make payment Z, who is known to X, pays ` 40,000 to Y on behalf of X However, X was not aware of
the payment. Now Y is intending to sue X for the entire amount of ` 60, 000. Can Y do so? Advice.
Ans. When a promisee accepts performance of a promise from a third person, he cannot afterwards
enforce it against the promisor. Thus, performance of a promise by a stranger to contract, if accepted
by the promisee, results in discharge of promisor to that extent, even the latter has neither authorised
nor ratified the act of the third party.
Thus, in the given case by accepting payment of ` 40,000 from Z, Y shall be now entitled to sue X
only for the balance amount of ` 20,000. X shall be discharged upto the extent of ` 40,000.

7. Mr. Ramaswamy of Chennai placed an order with Mr. Shah of Ahmedabad for supply of urid daal on
10.11.2006 at a contracted price of ` 40 per kg. The order was for the supply of 10 tonnes within a
months' time viz., before 09.12.2006. On 04.12.2006 Mr. Shah wrote a letter to Mr. Ramaswamy
stating that the price of urid daal was sky rocketing to ` 50 Per. Kg. and he would not be able to
supply as per original contract. The price of urid daal rose to ` 53 on 09.12.06 Advise Mr. Ramaswamy
citing the legal position.
Ans. Increase in price of urid daal - does not amount to supervening impossibility (Sec. 56). Mr. Shah
committed breach of contract. If Ramaswamy waits till 09.12.2006 - Mr. Shah shall be liable to pay
damages to Mr. Ramaswamy. The amount of damages shall be 10 tons @ ` 13 per kg (i.e., difference
between the contract price and price as on 09.12.2006), i.e. ` 1,30,000. However, if some supervening
impossibility arises before 09.12.2006 (e.g., imposition of ban on trading in urid daal by the
Government), the contract shall become void, and consequently, Mr. Shah shall not be liable to pay
any damages. If Ramaswamy repudiates the contract on 04.12.2006 Mr. Shah shall be liable to pay
damages to Mr. Ramaswamy. The amount of damages shall be 10 tons@ ` 10 per kg (i.e., difference
between the contract price and price as on 04.12.2006), i.e. ` 1,00,000.

8. S, a singer, contracts with M, the manager of a theatre, to sing at the letter's theatre for two evenings
in every week during the next two months. M engages to pay her ` 300 for each evening's
performance. On the seventh evening, S wilfully absents herself from theatre. M, in consequence,
wants to rescind the contract and claim compensation for the loss suffered by him through the non-
fulfilment of the contract by S. Advise.
Ans. M shall be entitled to rescind contract and claim compensation from S because of breach of contract
on the part of S. (Sec. 75 of the Indian Contract Act).
 Chapter 2 – The Indian Contract Act, 1872 1.103

9. X borrows `1,000 from Y and agrees to repay the amount with interest at 12% at the end of six
months. The contract further provides that in case of default in repayment, the interest will be
payable at the rate of 70% from the date of default. What is the nature of this stipulation, and what
is the right of Y
Ans. This stipulation is the nature of penalty. Y is entitled only to recover such compensation as the Court
considers reasonable (but not exceeding 70% of interest).

10. A bank wrongfully dishonoured a cheque of ` 1,000 belonging to Dhanna Seth (a Millionaire). He
says that his credit has come down to the level of Mofat Lal (a person having only a few thousand
rupees) as his cheque of ek hazar, i.e., one thousand has been dishonoured wrongfully by the bank.
Advice Dhanna Seth.
Ans. Dhanna Seth can claim exemplary damages from the bank for wrongful dishonour of cheque.

11. A enters into a contract with B for supplying 800 tonnes of iron ore within 4 months. A fails to make
the delivery in time owing to difficulty In transport. But he admitted the availability of iron ore in the
market at a higher price. Can A take the plea of impossibility of performance? Give reasons.
Ans. No. Difficulty of performance should be distinguished from impossibility of performance. Section 56
of the Indian Contract Act only declares those contracts void which become impossible of execution.
Thus, A is not discharged on grounds of impossibility of performance.

12. 'X' entered into a contract with 'Y' to supply him 1,000 water bottles @ ` 5.00 per water bottle, to be
delivered at a specified time. Thereafter, 'X' contracts with 'Z' for the purchase of 1,000 water bottles
@ ` 4.50 per water bottle, and at the same time told 'Z' that he did so for the purpose of performing
his contract entered into with 'Y'. 'Z' failed to perform his contract in due course and market price of
each water bottle on that day was ` 5.25 per water bottle. Consequently, 'X' could not procure any
water bottle and 'Y' rescinded the contract. Calculate the amount of damages which 'X' could claim
from 'Z' In the circumstances? What would be your answer if 'Z' had not informed about the 'Y's
contract? Explain with reference to the provisions of the Indian Contract Act, 1872.
Ans. BREACH OF CONTRACT- DAMAGES: Section 73 of the Indian Contract Act, 1872 lays down that
when a contract has been broken, the party who suffers by such breach is entitled to receive from
the party who has broken the contract compensation for any loss or damage caused to him thereby
which naturally arose in the usual course of things from such breach or which the parties knew when
they made the contract to be likely to result from the breach of it.
The leading case on this point is "Hadley v. Baxendale" in which it was decided by the Court that the
special circumstances under which the contract was actually made were communicated by the
plaintiff to the defendant, and thus known to both the parties to the contract, the damages resulting
from the breach of such contract which would reasonably contemplate, would be the amount of
injury which would ordinarily follow from the breach of contract under these special circumstances
so known and communicated.
The problem asked in this question is based on the provisions of Section 73 of the Indian Contract
Act, 1872. In the instant case 'X' had intimated to 'Z' that he was purchasing water bottles from him
for the purpose of performing his contract with 'Y'. Thus, 'Z' had the knowledge of the special
 1.104 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

circumstances. Therefore, 'X' is entitled to claim from 'Z’ ` 500/- at the rate of 0.50 paise i.e. 1000
water bottles x 0.50 paise (difference between the procuring price of water bottles and contracted
selling price to 'Y') being the amount of profit 'X' would have made by the performance of his contract
with 'Y'.
If 'X' had not informed 'Z' of 'Y's contract, then the amount of damages would have been the
difference between the contract price and the market price on the day of default. In other words, the
amount of damages would be ` 750/- (i.e. 1000 water bottles x 0.75 paise).

13. Mr. JHUTH entered into an agreement with Mr. SUCH to purchase his (Mr. SUCH's) motor car for
` 5,00,000/- within a period of three months. A security amount of ` 20,000/- was also paid by Mr.
JHUTH to Mr. SUCH in terms of the agreement. After completion of three months of entering into
the agreement, Mr. SUCH tried to contact Mr. JHUTH to purchase the car in terms of the agreement.
Even after lapse of another three month period, Mr. JHUTH neither responded to Mr. SUCH, nor to
his phone calls. After lapse of another period of six months. Mr. JHUTH contacted Mr. SUCH and
denied to purchase the motor car. He also demanded back the security amount of ` 20,000/· from
Mr. SUCH. Referring to the provisions of the Indian Contract Act, 1872, state whether Mr. SUCH is
required to refund the security amount to Mr. JHUTH.
Also examine the validity of the claim made by Mr. JHUTH, if the motor car would have destroyed by
an accident within the three month's agreement period.
Ans. Breach of contract, the aggrieved party has a right to rescind the contract & claim restitution &
damages if any. Further where any security deposit has been made under the contract, the same shall
stand forfeited incase of breach of contract.
Thus, in the given case Mr. Juth is responsible for breach of contract. Mr. such, the aggrieved party
can claim damages if any sustained by him. However, Mr. Juth is not entitled to refund of ` 20,000/-
Security deposit which shall now stand forfeited on account of his failure to fulfil the contract.
However, if the car had been destroyed by an accident within 3 months agreement period, then the
contract would have been discharged by supervening impossibility due to destruction of subject
matter and is such a case Jhuth would have been entitled to refund of security amount, (since the
security amount can be forfeited only when contract is not fulfilled an account of breach by a party.)
 Chapter 2 – The Indian Contract Act, 1872 1.105

UNIT 5 - BREACH OF CONTRACT AND ITS REMEDIES

SHORT NOTES
1. Anticipatory Breach of a Contact. (2000 – May, 5 Marks)
Ans. Anticipatory breach: When a party to a contract refuses to perform his part of the contract, before
the due date of performance, it is known as anticipatory or constructive breach of contract. This may
happen in the following two ways:
(i) By express renunciation: Here a party to a contract expressly renounces his obligation under
the contract. before the due date of performance. For example, A agrees to deliver a particular
horse to B on 1st May. Before 1st May, (say on 20th April), A informs B that he shall not deliver
the horse on 1st May. This is an express repudiation of the contract.
(ii) Implied repudiation: Here a party by his own act disables himself from performing the
contract i.e. he acts in such a manner that it becomes impossible for him to perform his
promise. In the example given above, if A sells that very horse to C on 20th April, he breaks the
contract by his conduct.
Rights of the promise: In case of anticipatory breach of contract, the promisee has the
following rights:
(i) He may treat the contract as repudiated and sue the other party for damages for the
breach of contract without waiting until the due date of performance. In this case the
promisee will be absolved from further performance of his promise.
(ii) He may decide to wait till the due date of performance and then hold the defaulting
party liable for consequences of the breach. If the promisee decides to wait till the due
date of performance, the contract remains alive for the benefit of both the parties and
he runs the following risks: ·
1. The party who has previously expressed his intention not to perform the contract
may change his mind and perform the contract on the due date of performance.
The promisee will be bound to accept this performance.
2. The parry who has previously expressed his intention not to perform the contract
may take the advantage of any supervening circumstances which would justify him
in declining to complete it.

2. Liquidated damages. (1996 – May, 5 Marks)

Ans. Liquidated damages: Sometimes the parties to a contract, at the time of making the contract agree
to the amount of compensation payable in the event of the breach of the contract. The amount of
compensation payable, which has been agreed may be either liquidated damages or penalty. A
liquidated damage is a fair and genuine pre-estimate of probable damage for an anticipated breach
of contract. If it appears at the time of entering into a contract, the amount of damage likely to follow
from a breach was uncertain and the parties, to avoid uncertainty and the expense of proving
damages in a court, agreed at the particular amount, that sum would be described as liquidated
damages.
 1.106 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

Liquidated damages differ from penalty and the difference is maintained in English Law but in India
the courts do not observe such distinction and it is left to the courts to decide. This will be evident
from Section 7 4 of the Indian Contract Act, 1872.

3. Quantum Meruit: (1997 – May, 5 Marks)

Ans. Quantum Meruit: The phrase 'quantum meruit' literally means "as much as is earned" or according
to the quantity of work done." When a person has begun the work and before he could complete it,
the other party terminates the contract or does something which make it impossible for the other
party to complete the contract, he can claim for the work done under the contract. He may also
recover the value of the work done where the further performance of the contract becomes
impossible. The claim on quantum meruit must be brought by a party who is not in default. However,
in certain cases, the party in default may also sue for the work done if the contract is divisible.
Following are the cases in which a claim on quantum meruit may arise:
(i) Where the work has been done and accepted under a contract which is subsequently
discovered to be void, in such a case, the person who has performed the part of the contract
is entitled to recover the amount for the work done and the party, who receives and accepts
the benefit under such contract, must make compensation to the other party. (Section 65).
(ii) Where, a person does some act or delivers something to another person with the intention of
receiving payments for the same (i.e. non-gratuitous act), in such a case, the other person is
bound to make payment ii he accepts such services or goods, or enjoys their benefit (Section
70).
(iii) The compensation for the work done may be recovered on the basis of quantum meruit. Where
the contract is divisible and a party performs part of the contract and refuses to perform the
remaining part, in such a case, the party in default may sue the other party who has enjoyed
the benefits of the part performance.

4. Vindictive and Nominal damages (2002 – May, 5 Marks)

Ans. Damages for the breach of a contract are given by way of compensation for loss suffered, and not
by way of punishment for wrong inflicted. Vindictive damages have no place in the law of contract
because they are punitive by nature. But in case of (a) breach of a promise to marry, and (b) dishonour
of a cheque by a banker wrongfully when he possesses sufficient funds to the credit of the customer,
the court may award vindictive damages.
Whereas is nominal damages where the injured party has not in fact suffered any loss by reasons of
the breach of a contract, the damages recoverable by him are nominal. These damages merely
acknowledge that the plaintiff has proved his case and won.

5. Remedies available to an aggrieved party on the breach of contract. (2002 – Nov., 5 Marks)
Ans. Following are the remedies available to an aggrieved party on breach of contract.
(i) Suit for damages.
(ii) Rescission of contract by the other party: When a contract is broken by one party, the other
party may treat the contract as rescinded. In such a case he is absolved of all his obligations
under the contract and is entitled to compensation for any damages that he might have
suffered.
 Chapter 2 – The Indian Contract Act, 1872 1.107

(iii) Suit upon Quantum Meruit: The phrase 'quantum meruit' literally ''' means "as much as is,
earned" or "according to the quantity of work done". When a person has begun the work and
before he could complete it, the other party terminates the contract or does something, which
make it impossible for the other party to complete the contract, he can claim for the work done
under the contract. He may also ·recover the value of the work done where further performance
of the contract becomes impossible. The claim of quantum meruit must be brought by a party
who is not in default.
(iv) Suit for specific performance: Where damages are not an adequate remedy in the case of
breach of contract, the court may be at its discretion on a suit for specific performance direct
a party in breach, to carry out his promise according to the terms of the contract.
(v) Suit for injunction: Where a party to a contract is negotiating the terms of a contract, the
court may be issuing an 'injunction order' restrain him from doing what he promised not to
do.

DISTINGUISH BETWEEB

1. What kinds of damages may be awarded in case of breach of the contract under the law of contract?
(1997 – Nov., 10 Marks)
Ans. Damages: Remedy by way of damages is the most common remedy available to the injured party.
This entitles the injured party to recover compensation for the loss suffered by it due to the breach
of contract, from the party who causes the breach. Sections 73 to 75 of the Contract Act incorporate
the provisions in this regard. The damages which may be awarded to the injured party may be of the
following kinds:
(i) Ordinary damages: When a contract has been broken, the party who suffers by such breach
is entitled to receive, from the party who has broken the contract, compensation for any loss
or damage caused to him
Ordinary damages, which naturally arose in the usual cause of things from such breach. or
which the parties knew. when they made the contract, to be likely to result from the breach of
it.
Such compensation is not to be given for any remote and indirect loss or damage sustained
by reason of the breach. [Section 73 of the Contract Act and the rule in Hadley vs. Baxendale
(1854) [Ex. 341].
(ii) Special damages: Where a party to a contract receives a notice of special circumstances
affecting the contract, he will be liable not only for damages arising naturally and directly from
the breach but also for special damages.
(iii) Vindictive or exemplary damages: These damages may be awarded only in two cases:
(a) for breach of promise to marry because it causes injury to his or her feelings; and
(b) for wrongful dishonour by a banker of his customer's cheque, because in this case the
injury due to wrongful dishonour to the drawer of cheque is so heavy that it causes loss of
credit and reputation to him. A business man whose credit has suffered will get exemplary
damages even if he has sustained no pecuniary loss. But a non-trader cannot get heavy
damages in the like circumstances. unless the damages are alleged and proved as special
damages. [Gibbons vs. West Minister Bank (1939) 2 K.B. 882].
 1.108 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(iv) Nominal damages: Nominal damages are awarded where the plaintiff has proved that there
has been a breach of contract but he has not in fact suffered any real damage and the injury is
nominal.

2. Remote and indirect losses are not recoverable. (1999 – May, 5 Marks)
Ans. Section 73 of the Indian Contract Act, (1872) deals with the compensation for loss or damages caused
by breach of contract: In this relation. the basic rule is that damages must not be too remote. The
remote damages and indirect losses are those which are either far away in time or widely separated
from usual course of things of contract. They are in the nature of distant indirect losses. They are not
reasonably foreseeable by a normally reasonable man. The Supreme Court has ruled that remote or
indirect loss or damages sustained by reason of the breach will not entitle the party to any
compensation (Karsands (v) Saran Engineering Co. AIR 1965 SC 1981). Thus, the person who has
committed the breach is liable for reasonably foreseeable losses. those that a normally prudent
person would have had reason to foresee as probable consequences of future breach. A defaulting
person is not liable for those damages which are not reasonably foreseeable. Thus, remote damages
are not recoverable. Non-fulfilment of emotional expectations due to non-performance of a contract
is a kind of remote damage being widely separated from the usual things of the contract.

3. What remedies are available to an aggrieved party on the breach of contract?

(1999 – Nov., 5 Marks)
Ans. Remedies for breach of contracts: When a contract is broken, the injured party becomes entitled
to any one or more of the following remedies:
(a) Rescission of the contract: with the result that the injured party is freed from all his
obligations under the contract.
(b) Suit for damages: Damages are monetary compensation awarded to the injured party by
Court for loss or injury suffered by him. Section 73 of the Indian Contract Act, 1872 has laid
down the rules as to how the amount of compensation is to be determined. Damages may be
nominal or ordinary or special or exemplary damages or damages for deterioration caused by
delay.
(c) Suit upon Quantum Meruit: A right to sue on a quantum meruit (as much as earned) arises
when a contact performed by one party, has become discharged by the breach of contract by
the other party. It is based on implied promise arising from acceptance of benefit by the party.
(d) Suit for specific performance contract: Where damages are not an adequate remedy in the
case of breach of contract, the court may in its discretion on a suit for specific performance
direct the party in breach, to carry out his promise according to the terms of the contract,
(e) Suit for an injunction: Where a party to a contract is negotiating the terms of a contract, the
court may by issuing an 'injunction order' restrain him from doing what he promised not to
do.
 Chapter 2 – The Indian Contract Act, 1872 1.109

4. Damages are "Compensatory" and "Not Penal". (2000 – May, 5 Marks)

Ans. Damages (ordinary or special) are given by way of compensation for loss suffered and not by way of
punishment for wrong inflicted. The fundamental basis of awarding damages is compensation for
pecuniary loss which naturally flows from the breach of contract. The object is to put the injured
party in the same position, so far as money can do it, as if he had not been injured.
Hence, vindictive or exemplary or exemplary damages have no place in the law of contract because
they are punitive by nature. But in case of breach of a promise to marry and dishonour of a cheque
by a banker wrongfully even when sufficient funds are there to the credit of customers account, the
court may award exemplary damages.

5. When a claim for Quantum Meruit arises? (2001 – Nov., 5 Marks)

Ans. A claim for quantum meruit shall arise under the following circumstances:
1. When the contract is discovered to be unenforceable (Section 65, Indian Contract Act, 1872)
i.e. when the agreement is discovered to be void or becomes void, any person receiving benefit
under such an agreement or contract is bound to restore it.
2. When one party abandons or refuses to perform the contract. When there is a breach of
contract, the aggrieved party is entitled to claim reasonable compensation for what he has
done under the contract.
3. When a contact is divisible, and the party in default, has enjoyed the part performance, the
party in default may sue on quantum meruit.
4. When an indivisible contract for lump sum is performed but badly, the person who has
performed can claim the lump sum less deduction for bad workmanship.
 1.110 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

UNIT 6 - CONTINGENT AND QUASI CONTRACTS

SHORT NOTES
1. Contingent Contract. (1995 – Nov., 5 Marks)
Ans. Contingent Contract: A contingent contract is a contract to do or not to do something, if some
event, collateral to such contract, does or does not happen. (Section 31 of the Indian Contract Act).
It is a contract in which the performance becomes due only upon the happening of some event which
may or may not happen.
For example. A contracts to pay B ` 10,000 if B's house to burnt. This is a contingent contract. The
following characteristics of contingent contracts can be printed out:
1. The performance of a contingent contract depends upon the happening or non-happening of
some uncertain future event.
2. Contingent Contracts may be subject to a condition precedent or subsequent.
3. The event on which the performance is made to depend upon is an event collateral to the
contract. The event should neither be a performance promised, nor the consideration for the
promise.
4. The contingent event should not be the mere will of the promiser.
5. The happening of the event is uncertain.
Rules:
Section 32: Contingent contract cannot be enforced until the relevant event has happened.
Section 33: It can be enforced on non-happening of such event, if it becomes impossible.
Section 34: The event is considered impossible when a person does some act so as to make it
impossible.
Section 35: If time fixed for an event to occur expires, it becomes impossible.
Section 36: Contingent agreement based on happening of impossible events are void.

DISTIGUISH BETWEEN
1. Wagering agreement and Contingent contract. (1998- May, 5 Marks)
Ans. Wagering agreement and Contingent contract: Agreement by way wager are void, according to
Section 30. In a wagering agreement, two parties have opposite views regarding an uncertain event,
and they stipulate that upon the determination of the event in a certain way the parties shall win or
lose from each other, a certain sum of money and the parties have no other interest in the event
except winning or loosing a bet.
According to Section 31 of the Indian Contract Act, 1872 a contingent contract is a contract to do or
not to do something, if some event collateral to such contract, does or does not happen. Contracts
of Indemnity or of insurance are of this type. But however, there is difference between the wagering
agreements and contingent contract which may be enumerated as follows:
(i) A wagering agreement consists of reciprocal promises whereas a contingent contract may not
contain reciprocal promises.
(ii) In a wagering agreement the uncertain event is the sole determining factor, while in a
contingent contract the event is only collateral.
 Chapter 2 – The Indian Contract Act, 1872 1.111

(iii) A wagering agreement is essentially of a contingent nature whereas a contingent contract may
not be of a wagering nature.
(iv) A wagering agreement is void whereas a contingent contract is valid.
(v) In a wagering agreement, the parties have no other interest in the subject matter of the
agreement except the winning of losing of the amount of the wager. In other words, a wagering
agreement is a game of chance. This is not so in case of a contingent contract.

2. Distinguish between wagering agreement and contract of insurance. (2018- May, 2 Marks)
Ans. Contract of Insurance:
Sr.
Contingent Contracts Wagering Contracts
No.
1. It is a contract to do or not to do something It is a promise to give money or money's
if an event collateral to main contract worth on an uncertain event happening or
happens or does not happen. not happening.
2. It may not be wagering in nature. It is essentially contingent in nature
3. It is valid. It is void.
4. It may not contain reciprocal promises. It does consists of reciprocal promise.

DESCRIPTIVE QUESTIONS
1. Explain the term ‘Quasi Contract and state their characteristics. Illustrate your answer by giving
example. (1994 – Nov. 10 Marks)
Ans. Quasi Contracts: Under certain special circumstances obligation resembling those created by a
contract are imposed by law although the parties have never entered into a contract. 'Such
obligations imposed by law are referred to as 'Quasi-contracts'. Such a contract resembles with a
contract so far as result or effect is concerned but it has little or no affinity with a contract in respect
of mode of creation. These contracts are based on the doctrine that a person shall not be allowed to
enrich himself unjustly at the expense of another. The salient features of a quasi-contract are:
1. It does not arise from any agreement of the parties concerned but is imposed by law.
2. Duty and not promise is the basis of such contract.
3. The right under it is always a right to money and generally, though not always, to a liquidated
sum of money.
4. Such a right is available against specific person(s) and not against the whole world.
5. A suit tor its breach may be filed in the same way as in case of a complete contract.
Section 68 to 72 of [the Indian Contract Act, deals with the following types of quasi-contracts]:
1. Claim for necessaries supplied to a person incapable of contracting (Sec. 68). If a person
incapable of entering into a contract or anyone whom he is legally bound to support, is
supplied with necessaries suited to his condition in life by another person the supplier is
entitled to recover the price from the property of the incapable person.
Example: (a) A supplies B, a lunatic, or a minor, with necessaries suitable to his condition in
life. A is entitled to be reimbursed from B's property.
 1.112 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

2. Reimbursement of person paying money due by another, in payment of which he is

interested. A person who is interested in the payment of money which another is bound by
law to pay, and who therefore pays it, is entitled to be reimbursed by the other (Sec. 69).
Example: B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable
by A to the government being in arrear, his land is advertised for sale by the Government.
Under the revenue law, the consequence of such sale will be the cancellation of B's lease. B, to
prevent sale and the consequent of his own lease, pays to the government the sum due from
A. A is bound to make good to B the amount so paid.
3. Obligation of person enjoying benefit of non-gratuitous act. Where a person lawfully does
anything for another person, or delivers anything to him, not intending to do so gratuitously,
and such other person enjoys the benefit thereof, the latter is bound to make compensation
to the former in respect of, or to restore, the thing so done or delivered (Sec. 70).
Example: A, a tradesman, leaves goods at B's house by mistake, B treats the goods as his own.
He is bound to pay A for them.
4. Responsibility of finder of goods. A person who finds goods belonging to another and takes
them into his custody, is subject to the same responsibility as a bailee (Sect. 71).
5. Liability of persons to whom money is paid, or thing delivered by mistake or under
coercion. A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it. (Sec. 72).
Example: A and B jointly owe 100 rupees to C. A pays the amount to C and B, not knowing this
fact, pays 100 rupees over gain to C. C is bound to repay the amount to B.
6. Quantum meruit. In addition to the above types of quasi contracts expressly provided in the
Act, a claim can also be made on the basis of quantum meruit. Where a person has rendered
some service to another under the circumstances which indicate that it is to be paid for though
no remuneration was fixed, the law implies a promise to pay for the amount of the work actually
done. It means payment in proportion to the amount of work done.

2. A contract of indemnity is a contingent contract. (1996 – May, 5 Marks)

Ans. A contract of indemnity is a contingent contract: The statement is correct in the sense that a
contract of indemnity is one by which one party promises to save the other from the loss caused to
him by the conduct of the promissor himself or by the conduct of any other person. A contingent
contract is a contract to do or not to something if some event collateral to such contract does or
does not happen. From the above definitions, it can be seen that both contracts are conditional
contracts. Their performance depends upon some contingency which is uncertain. A contract of
indemnity is really a part of the general class of contingent contracts. It is entered into with the object
of protecting the promisee against any anticipated loss. The contingency upon which the whole
contract of indemnity depends is the happening of loss.
 Chapter 2 – The Indian Contract Act, 1872 1.113

3. Explain the meaning of 'Contingent Contracts' and state the rules relating to such contracts.
(1997 – May, 10 Marks)
Ans. Essential characteristics of a contingent contract: A contract may be absolute or contingent. A
contract is said to be absolute when the promisor undertakes to perform the contract in any events.
A contingent contract, on the other hand "is a contract to do or not to do something, if some event,
collateral to such contract does or does not happen" (Section 31). It is a contract in which the
performance becomes due only upon the happening of some event which may or may not happen.
For example, A contracts to pay B ` 10,000, if he is elected President of a particular association. This
is a contingent contract. The essential characteristics of a contingent contract may be listed as
follows:
(i) There must be a contract to do or not to do something.
(ii) The performance of the contract must depend upon the happening or non-happening of some
event.
(iii) The happening of the event is uncertain.
(iv) The event on which the performance is made to depend upon is an event collateral to the
contract i.e. it does not form part of the reciprocal promises which constitute the contract. The
event should neither be a performance promised, nor the consideration for the promise.
(v) The contingent event should not be the mere will of the promisor. However, where the event
is within the promisor's will, but not merely his will, it may be a contingent contract.
The rules regarding the contingent contract are as follows:
(1) Contingent contract dependent on the happening of an uncertain future event cannot be
enforced until the event has happened. If the event becomes impossible, such contracts
become void. (Section 32).
(2) Where a contingent contract is to be performed if a particular event does not happen, its
performance can be enforced only when happening of that event becomes impossible. (Section
33).
(3) If a contract is contingent upon, how a person will act at an unspecified time the event shall be
considered to become impossible, when such person does anything which renders it
impossible that he should so act within any definite time or otherwise than under further
contingencies. (Section 34, 35).
(4) The contingent contracts to do or not to do anything if an impossible event happens, are void
whether or not the fact is known to the parties. (Section 36)

4. The duties and liabilities of a finder of goods are treated at par with bailee. (1999 – Nov., 5 Marks)
Ans. Duties and Liabilities of finder of goods: The duties and liabilities of a finder of goods are treated
at par with bailee. A person who finds goods belonging to another and takes them into his custody,
is subject to the same. responsibility as a bailee. (Section 71 of the Indian Contract Act, 1872). He is
bound to take as much care of the goods as a man of ordinary prudence would, under similar
circumstances, take of his own goods of the same bulk, quality and value. He must also take all
necessary measures to trace its true owner. If he does not take, he will be guilty of wrongful
conversion of the property. Till the owner is found out, the property in the goods will vest in the
finder and he can retain the goods as his own against the whole world except the real owner. He can
sell the goods in the following cases:
 1.114 CA-Foundation/B. Laws by Prof. Sanjay M. Joshi

(a) where the owner cannot with reasonable diligence be found; or.
(b) when found, he refuses to pay the lawful charges of the finder; or
(c) if the thing is in danger of perishing or losing greater part of its value.
(d) if the lawful charges amount to 2/3 of the value of the thing.

5. What is Contingent Contract? Discuss the essentials of Contingent Contract as per the Indian
Contract Act, 1872. (2018 – Nov., 7 Marks)
Ans. A Contingent Contract is a contract to do or not to do something, if some event, collateral to such
contract, does or does not happen. Contracts of insurance, indemnity and guarantee fall under this
category.
The essential constituents of a contingent contract are:
(a) The performance of a contingent contract would depend upon the happening or non-
happening of some event or condition.
Example: A promises to pay ` 50,000 to B if it rains on first of the next month.
(b) The event referred to is collateral to the contract. The event is not part of the contract. The
event should be neither performance promised non a consideration for a promise.
(c) The contingent event should not be a more will of the promisor. The event should be
contingent in addition to being the will of the promisor.
(d) The event must be uncertain. Where the event is certain or bound to happen, the contract is
due to be performed, then it is not a contingent contract.

CASE STUDIES
1. Z rent out his house situated at Mumbai to W for a rent of ` 10,000 per month. A sum of ` 5 lakh,
the house tax payable by Z to the Municipal Corporation being in arrears, his house is advertised for
sale by the corporation. W pays the corporation, the sum due from Z to avoid legal consequences.
Referring to the provisions of the Indian Contract Act, 1872 decide whether W is entitled to get the
reimbursement of the said amount from Z.
Ans. Quasi Contract give a right to recover money paid for another; W is entitled to reimbursement from
Z since he is an interested party.

2. A agrees to pay B `5,000 If he marries C. C dies before the marriage. Can B recover the amount?
Ans. No, agreement has become void due to death.

3. A supplied necessaries of life to the wife of a lunatic. Can he get the payment? If yes, how?
Ans. Yes, out of the property of the lunatic, if any. [Claim for necessaries of life supplied to an incompetent
person or his dependent.]

4. A promises to pay B ` 1 lakh if B's ship does not return. When can this promise be enforced?
Ans. If the ship is destroyed or sunk, since the contract is contingent upon non-happening of a specific
future uncertain event [i.e. non-returning of ship].
 Chapter 3 – The Indian Partnership Act, 1932 2.1

CHAPTER

The Indian Partnership Act, 1932 2

UNIT 1 - GENERAL NATURE OF A PARTNERSHIP

SHORT NOTES
1. Sub-partnership. (1994 – Nov., 4 Marks)
Ans. Sub-partnership: This is a partnership within a main partnership. Where one of the members of a
firm, agrees to share the profits received by him with a stranger, there arises what is called a 'sub-
partnership' between such third person and the partner. Such a third party is in no sense a partner
in the original firm and has no right. Also, such partners are not counted for the limits of partners in
a firm. His rights and liabilities are only referable to the contract with the main partner. A sub-partner
is a transferee within the meaning of Section 29 of the Partnership Act (Venkataraman (v) Venkataram
(1944).

2. Partnership at will. (1995 - May, 4 Marks)

Ans. Partnership at will: The definition of partnership at will has been given under Section 7 of the
Partnership Act, 1932. It lays down that where no provision is made by contract between the partners
for the duration of their partnership, or for the determination of their partnership, the partnership if
"Partnership at will". Accordingly, a partnership is deemed to be a partnership at will when'.
(i) No fixed period has been agreed upon for the duration of partnership, and
(ii) There is no provision made as to the determination of the partnership in any other way. Such
partnership has no fixed date of termination therefore, death or retirement of a partner does
not affect the existence of such partnership.
Section 43(1) provides that "where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all the other partners of his intention to dissolve the firm". The firm is
dissolved from the date of notice or date of communication of the notice.
However, if the freedom to dissolve the firm at will is curtailed by agreement, say, if the agreement
provides that the partnership can be dissolved by a mutual consent of all the partners only, it will not
constitute a 'partnership at will'.

3. Doctrine of "Holding Out". (1995 - Nov., 4 Marks)

Ans. Doctrine of "Holding Out": The doctrine of 'holding out' is based on the principle of 'estoppel'
which says that where a person by his words or conduct has wilfully led another person to believe
that certain set of circumstances or facts exists, and that other person has acted on that belief, then
he is estopped from denying the truth of such statements subsequently. The doctrine of holding out
also requires certain type of affirmative or positive act on the part of the person being represented.
 2.2 CA-Foundation Law by Prof. Sanjay M. Joshi

Thus, if a person either by his conduct or statement leads another person to believe that a certain
person is his agent, then he is estopped from saying that such a person is not his agent. The idea
here is to protect the interests of persons who acted in good faith.
The doctrine of 'holding out' is applicable in the case of partnership also. Section 28 of the Indian
Partnership Act imposes liability on such person who is not partner but knowingly by statement,
whether oral or written or by conduct makes another person to believe that he is a partner and
another person, in good faith and believing on such statement or conduct enters into a contract or
transaction with the firm.

4. Actual partner and sub-partner. (1999 - May, 5 Marks)

Ans. Actual partner and sub-partner: A person who becomes a partner, by an agreement and is actively
engaged in the conduct of the business of the partnership is known as the actual partner. He is the
agent of the other partner in the ordinary course of the business of the firm. He binds himself and
the other partners, so far as third parties are concerned, for all the acts which he does in the ordinary
course of the business and in the name of the firm. Whereas when a partner agrees to share his
profits derived from the firm with a third person, that third person is known as a sub-partner. A sub-
partner is in no way connected with the firm and cannot represent himself as a partner of the firm.
He has no rights against the firm nor is he liable for the acts of the firm.

5. Partner by estoppel. (2001 – Nov., 5 Marks)

Ans. Partner by estoppel: Under Section 28 of the Indian Partnership Act, 1932, when a person represents
himself or knowingly permits himself to be represented as a partner in a firm (when in fact he is not)
he is liable, like a partner in the firm to anyone who on the faith of such representation has given
credit to the firm.
It may be noted that where a retiring partner does not give a public notice of his retirement and the
continuing partners still use his name as a partner on letter-heads and bills etc., he will be personally
liable, on the ground of holding out, to third parties who give credit to the firm on the faith that he
is still a partner.

DISTINGUISH BETWEEN
1. Briefly explain the difference between Partnership and a Firm. (1994 – Nov., 5 Marks)
Ans. Difference between Partnership and a Firm: Section 4 of the Indian Partnership Act states "persons
who have entered into partnership with one another are called individually "partners' and collectively
'a firm' and the name under which their business is carried on is called the 'firm name"'. Thus, a firm
is collection of partners while partnership merely an abstract legal relation between the partners. The
two apparently seem to be one and the same, but are different in the following sense:
(1) Partnership is a relationship which subsists between persons but a firm is a short of entity. So,
the same relation of partnership exists in all the partnership firms.
(2) Partnership is an invisible tie which binds the partners together and the firm is the visible form
of those partners who are thus bound together.
 Chapter 3 – The Indian Partnership Act, 1932 2.3

2. Briefly explain the difference between Partnership and Joint Stock Company.
(1995 - Nov., 5 Marks)
Ans. Partnership and Joint Stock Company:
(a) Personality: A firm is not legal entity whereas a company is a juridical person distinct from its
members. Agency: In the case of a firm. every partner is an agent of other partners as well as
of the firm but in case of company, members are not agents of the company.
(b) Agency: In the case of a firm, every partner is an agent of other partners as well as of the firm
but in case of company, members are not agents of the company.
(c) Profits: Profits of a firm is distributed among the partners according to deed of partnership.
But in the case of company, distribution of profit is optional as the company may or may not
declare dividends.
(d) Liability: In firm, the liability of partners is unlimited but in a company, liability is always limited
to the amount of shares.
(e) Property: Property of firm is joint estate of all the partners whereas in a company, property
belongs to company and not of shareholders.
(f) Transfer of share: In the case of partnership transfer of a partner's right is not possible without
the consent of all the partners. though his interest can be assigned to a third party who has a
right to share in profits but has no other rights. but in the case of a public company, shares are
transferable and quoted on stock exchange.
(g) Management: In partnership management is by partners, but in a company, Board of Directors
do the management, shareholders only attend in genera! meetings to vote.
(h) Number of members in partnership is minimum two and maximum 50 but in case of a private
company the minimum is two and maximum 50 excluding past and present employees. And in
the case of a public company, it is 7 and no restriction on the maximum.

3. Briefly explain the difference between Partnership and Co-ownership. (1996 – May, 5 Marks)
Ans. Partnership and Co-ownership:
1. Mode of creation: Partnership is the result of an agreement. Co- ownership may or may not
arise from agreement; and it may also a rise by status.
2. Business: Necessary for partnership. Co-ownership can exist without business.
3. Nature of Interest: Partnership involves community of interest whereas co-ownership may
not necessarily involve any such interest.
4. Transfer of interest: A partner cannot transfer his share to a stranger without the consent of
the other partners. A co-owner can.
5. Number of Members: In partnership, the number of partners cannot exceed the statutory
limit. In co-ownership there is no limit on maximum number.
6. Authority of Members: A partner is the agent of his co-partners. A co-owner is not the agent
of the other co-owners.
7. Partition of Property: A partner cannot sue for the partition of partnership property in specific
but he can sue his co-partners for the dissolution of the firm and accounts. A co-owner can
sue for the partition of the property.
8. Lien for expenses: A partner has a lien on the partnership property for expenses incurred by
him on such property on behalf of the firm; a co-owner has no such lien.
 2.4 CA-Foundation Law by Prof. Sanjay M. Joshi

4. Briefly explain the difference between Partnership and Club. (1996 – Nov., 5 Marks)
Ans. A partnership and a Club: The two can be distinguished as below:
1. Definition / Meaning: A club is an association of persons formed with the object not to earn
profit, but to promote some beneficial purposes such as improvement of health or providing
recreation for the member etc. A partnership on the other, hand is an association of persons
also, but formed for earning profits from a business carried on by all or any one of them acting
for all. These persons share the profit so earned as per their agreement.
2. Relationship: Persons forming a club are called members, while persons forming a partnership
are called partners. Members of a club are not an agent for the other member's while a partner
is an agent for other partners.
3. Interest in the property: A member of a club has no interest in the property of the club in the
manner a partner has in the property of the firm.
4. Dissolution: A member leaving a club shall not affect the existence of the club, while
retirement of a partner from the firm does effect the existence of the firm.

5. Briefly explain the difference between Partnership and an Association. (1997- May, 5 Marks)
Ans. Distinction between a Partnership and an Association: The two terms can be distinguished on
the following basis:
(i) Meaning: Partnership means and involves setting up relation of agency between two or more
persons who have entered into a business for gains, with the intention to share. the profits of
such a business.
An association is a body of persons who have come together for mutual benefit such as
resident's association of a particular area or for rendering service to the society such as a
charitable or religious 'society say a dispensary or a temple etc.
(ii) Sharing of profits: A partnership is set up to share the profits of a business, while an
association is not set up for sharing the profits. The intention of the association is not to carry
on ·a business by the members of the association for earning profits.
(iii) Mutual Agency Trust: A partnership is based on mutual trust and is carried on by mutual
agency, which is not so in the case of an association.
(iv) Dissolution: Retirement or death of a particular partner may dissolve a firm but retirement or
death of a member of an association does not dissolve the association.

6. Briefly explain the difference between Partnership and Hindu undivided family.
(1998 – May, 5 Marks)
Ans. Following are the differences between Partnership and Joint Hindu Family:
1. Creation: The relation of partnership is created necessarily by an agreement, whereas Joint
Hindu Family is established by law. A person becomes a member of a Joint Hindu Family by
birth.
2. Death: Death of a partner brings about dissolution of partnership. But the death of a member
of a Joint Hindu Family does not give rise to dissolution of the family business.
3. Management: In a Joint Hindu Family, only karta has the right to manage the business. In
partnership, all the partners have the right to take the part in the management of the firm.
 Chapter 3 – The Indian Partnership Act, 1932 2.5

4. Liability: The liability of partners in a partnership concern is unlimited, ·joint and several. The
liability of members of a Joint Hindu Family except the Karla is limited only to the extent of
their share in the business of the family.
5. Calling for accounts: On the partition of joint Hindu Family a member is not entitled to ask
for the accounts of the family business. But a partner can bring a suit against the firm for
accounts on the dissolution of the firm.
6. Governing Law: A partnership is governed by the Indian Partnership Act, 1932, while Joint
Hindu Family is governed by Hindu Law.
7. Minor's Position: A minor can be a member of a Hindu Joint Family, but a minor cannot be a
partner in a firm. However, he can be admitted to the benefits of partnership with the consent
of all the partners.

7. Briefly explain the difference between Sleeping partner and nominal partner.(1998- Nov., 5 Marks)
Ans. Sleeping Partner and Nominal Partner: A sleeping partner ls one who is neither an active partner
nor known to outsiders. In reality he is a partner in the firm. He contributes his share of capital and
gets his share of profits, but he does not take active part in the conduct of the business of the firm.
He is liable to the third parties for all the acts of the firm, whether his existence is known to the third
parties at the time of making the contract.
A Nominal Partner is one who has no real interest in the business of the firm. He is not entitled to
share the profits and also dose not contribute any capital. He also does not take part in the conduct
of the business off the firm. He lends his name only and his name is used in the firm like an actual
partner and is liable for all acts of the firm.

DESCRIPTIVE QUESTIONS
1. Sharing in the profits is not conclusive evidence in the creation of partnership. – Comment.
(1995 – Nov., 5 Marks)
Ans. Evidence of Partnership: Partnership, generally, is an agreement (contract) between two or more
competent persons to carry on some business and distribute/share the profits of such business.
Section 6 of the Indian Partnership Act prescribes the test to determine the existence of partnership.
To determine whether a group of persons is a firm and its members are partners or not, their real
relation must determined on the basis of relevant facts. (Moore v. Daris (1879) 11 Ch. D. 261]. The
parties to a partnership contract do not become partners simply on the basis that they have been
described, in the deed, as partners. [Abdulla v. Alladia (1927) 8 Lahore, 310].
Sharing in the profit of the firm is a prima facie evidence of establishment of partnership but it is not
a conclusive proof. As per the provision of Section 4 of the Indian Partnership Act, sharing of profits
is not the sole determining fact. Other tests are also required to be applied. (Cox v. Hicman). A person
may share in the profits of a business without being a partner. A creditor sharing in the profits does
not become a partner Explanation II of Section 6 of the Indian Partnership Act also makes it clear
that a creditor is not a partner. Similarly a servant, an agent, widow or child of the deceased partner,
may receive a share in the profits. But they do not become partner. Thus, the real thing to be seen in
such cases is whether they are participating in the business of the firm in the capacity of partners
and represent each other in the said capacity. [Malomach & Co. v. Court of Wards (1872) LR 2 CP
419].
 2.6 CA-Foundation Law by Prof. Sanjay M. Joshi

2. Law of partnership is an extension of law of agency. - Comment (1998 – Nov., 5 Marks)

Ans. Law of partnership is an extension of law of agency: The concluding portion of the definition of
partnership as given in Section 4 of the Act is very important for this quotation as it says that the
business may be carried on "by all or any of them for all". Thus, it is clear that the Act does require
that the business should be carried on by all or it may be carried on by any of them on behalf of all
of them. This clearly establishes the implied agency, the partner who is conducting the affairs of the
business is considered as agent of the remaining partners. The relationship between partners is
governed by the law of agency.
Section 18 of the Partnership Act provided, "Subject to the provisions of this Act, a partner is the
agent of the firm for the purposes of the business of the firm".
In carrying on the business of the firm, partners act as agents as well as principals. While the relation
between the partners inter se is that of principals, they are agents of one another in relation to third
parties for purposes of business of the firm.
Every partner has a two-fold character, he is an agent of the other partners (because other partners
are bound by his acts) and also, he himself is the principal (because he is bound by the acts of other
partners). The liability of one partner for the acts of his co-partners is in truth the liability of a principal
for the acts of his agent. This concept of mutual agency is, in fact, · the true test of the existence of
partnership. This relationship of principal and agent distinguishes a partnership business from co-
ownership, Joint Hindu family business as well as an agreement to share profits of the business.
From the above we can conclude that the law of partnership is an extension of the law of principal
and agent.

3. Who may be partner of a firm? (1998 – Nov., 5 Marks)

Ans. Section 4 of the Indian Partnership Act, defines partnership. This definition lays stress on an
agreement between persons. These persons should be those, who are competent to contract as per
provisions of Sec. 11 of the Indian Contract Act i.e., these persons must have capacity to contract,
meaning by they are capable of entering into a valid contract.
Section 11 defines capacity to contract as follows: "Every person is competent to contract who is
of the age of majority according to the law to which he is subject, and who is of sound mind, and is
not disqualified from contracting by any law to which he is subject. "Those who do not have capacity
to contract cannot be a partner. However, a minor under Section 30 of the Indian Partnership Act
can be admitted to the benefits of the partnership firm with the consent of all the partners.
Thus, to be a partner, a person must be (1) a major, (2) of sound mind, and (3) should not be
disqualified from contracting by any law.

4. True test of partnership is mutual agency. - Comment (1999 - May, 5 Marks)

Ans. According to Section 4 of the Indian Partnership Act, 1932, three elements of the firm appear from
the definition of the partnership. They are - (i) there must be an agreement entered into by all the
persons concerned (ii) the agreement must be to share the profits of a business; and (iii) the business
must be carried on by all or any of the person concerned, acting for all, All these elements must be
present before a group of persons can be held to be partners.
 Chapter 3 – The Indian Partnership Act, 1932 2.7

The third element shows that the business must be carried on by the partners or some of them acting
for all. This element very clearly brings out the fundamental principle that partners when carrying on
the business of the firm are agents as well as principals; an implied agency flows from their
relationship with the result that every partner who conducts the business of the firm is in doing so
deemed in law to be the agent of all the partners. The essence of a partnership is that each of the
partners is the agent of the others for the purpose of carrying on the partnership business. This test
is known as the test of mutual agency and is the most distinctive test of partnership. Failure by one
partner to take part in the management of the business does not have the result that he is not
carrying on business as an partner.
Thus, sharing the profits of a business though an essential element, would not be in itself sufficient
to constitute partnership, Besides sharing the profits of a business it is also necessary to show that
the business was conducted on his behalf. Therefore, the true test of partnership is mutual agency
rather than sharing profits. If this element is lacking there will be no partnership.

5. Partnership is an association of persons, who have agreed to share the profits of a business carried
on by all or any one of them acting for all. - Comment (2001 – Nov., 5 Marks)
Ans. This statement deals with the definition of partnership as laid down by Section 4 of the Indian
Partnership Act, 1932. The definition lays down the essential elements which must be fulfilled for
making a partnership. Accordingly,
1. there must be an agreement between the persons associating to form a firm.
2. the agreement must be to carry on a business i.e. there must be a business.
3. The agreement must be to share the profits of the business, equally or in agreed proportion.
However, sharing of profits is only a prima facie test of partnership since there may be persons
who share profits and yet may not be termed as partners e.g. a widow of a deceased partner
or a loan creditor getting a share of profits over and above ·the interest charged by him.
4. The business must be carried in by all or it may be carried by one of them on behalf of all. This
element establishes a relationship of mutual agency between the persons known to be partners
of the business firm. It is the agency relationship which binds all the partners to each other.
Partnership is primarily an extension of the law of agency.

6. What is the conclusive evidence of partnership? State the circumstances when partnership is not
considered between two or more parties. (2018 – May, 4 Marks)
Ans. The business must be carried on by all the partners or by anyone or more of the partner acting for
all. This is the cardinal principle of the partnership law. An act of one partner in the course of the
business of the firm is in fact an act of all partners. It may be noted that the true test of partnership
is mutual agency rather than sharing of profits. If the element of mutual agency is absent, then there
will be no partnership.
Sharing of profits is an essential element to constitute a partnership, but it is only a prima facie
evidence and not conclusive evidence. Conclusive evidence of existence of partnership is only
mutual agency.
The receipt of profit share by one person of a business, does not itself make him a partner with the
persons carrying on the business. Such cases are:
 2.8 CA-Foundation Law by Prof. Sanjay M. Joshi

1. by a servant or agent as remuneration.

2. by a widow or child of a deceased partner, as annuity.
3. by a lender of money to persons engaged or about to engage in any business.
4. by a previous owner or part owner of the business.

CASE STUDIES
1. R is not a partner in a particular firm. But, he represents himself or knowingly permits himself to be
represented as a partner of that particular firm to Sanjay, who on the faith of such representation
gives credit to the firm. Is R liable as a partner in the firm?
Ans. Partner by estoppel / holding out is one represents himself or knowingly permits himself to be
represented as a partner in a firm, where in fact he is not as such a partner. When a third party on
the faith of such a representation contracts with the alledged firm, then such a person shall be held
liable as a partner by estoppels/holding out, to such a third party.
In the given case R, not being a partner, represents himself / knowingly represents himself to be a
partner in the firm and Sanjay on the faith of such representation gives credit to the firm.
Thus, applying the above stated provisions R shall be regarded as a Partner by estoppel / holding
out and he shall be liable in respect of this contract.

2. A, B and C are partners in a firm carrying on money leading business. D, a customer, deposits his
jewellery with the firm for safe custody. A and B sell this jewellery and misappropriate the money.
C, being a sleeping partner, have no knowledge about this sale. Now, D files a suit against all the
three partners. Can C be held liable? Give reasons.
Ans. According to the provisions of the Indian Partnership Act, 1932, a sleeping or a dormant partner shall
have the same liabilities as the active partners, even though he does not take part in the conduct of
business of partnership firm. Thus, a dormant partner shall be liable for the acts of the firm to the
third parties.
In the given case, A, B, the other partners of the firm have misappropriated the jewellery received by
him from their customer D, in the ordinary course of conduct of business of the firm.
Thus, applying the above stated provisions, D is rightfully entitled to sue all the three partners,
including Mr. C, the dormant partners, irrespective of the fact that he had no knowledge of such
misappropriation.

3. Ratan Tata, a retired businessman of repute, assumed the honorary presidentship of the business of
XYZ & Associates, a partnership firm, carrying on the business of trading in steel pipes, on the request
of the partners. Mr. Warren Buffet lent a sum of ` 50,00,000 to the firm, relying on Ratan Tata's
association with the firm. Later the firm defaulted in repayment of the loan. Warren Buffet decides
to sue Ratan Tata & the other partners. Comment on the validity of his decision in the context of the
provisions of the Indian Partnership Act, 1932.
Ans. Partner by Holding out; When a person by his express words or conduct represents himself to be a
partner in the firm, where in fact he is not as such a partner. Then if a third party on the faith of such
representation contracts with the alledged firm, then such a person shall be held liable as partner by
holding out to such a third party in the given case. Ratan Tata assumes the honorary presidentship
of XYZ & Associates and there by, his conduct, represents himself as a partner in the said firm. Warren
Buffet lends a sum of ` 50,00,000 relying on this representation.
 Chapter 3 – The Indian Partnership Act, 1932 2.9

Therefore applying the above stated provisions it can be concluded that Ratan Tata will be regarded
as a Partner by Holding out despite holding honorary presidentship and shall be held liable along
with the other partners by Warren Buffet. Thus, the action of Warren Buffet are legal & valid under
the provision of the Indian Partnership Act, 1932.

UNIT 2 - RELATIONS OF PARTNERS

SHORT NOTES
1. Liability of an incoming partner. (1997 – May, 5 Marks)
Ans. An incoming partner is not liable for any act of the firm done prior to his admission as a partner. This
is because the old partners were not the agents of the new partners at the time when they acted. By
a mutual agreement, the new partners may agree with the old partners to be liable for the past
liabilities of the firm. However, the creditors of the firm cannot sue the new partner for their past
debts because there is no privity of contract between the creditors and the new partner. Similarly,
the acts of the old partner cannot be ratified by the new partner because he was not in existence as
a principal at the time when acts were done. He is liable for the acts of the old firm only if the new
firm assumes the liabilities of the old firm and the creditors accept the new firm as their debtor and
discharge the old firm from his liability.

2. Right to remuneration of a partner (1998 – Nov., 5 Marks)

Ans. Right to remuneration of partner: The general rule is: [No partner is entitled to receive any
remuneration in addition to his share in the profits of the firm for taking part in the business of the
firm. But this rule can always the varied by an express agreement, or by a course of dealings, in which
event the partner will be entitled to remuneration. Thus, a partner can claim remuneration even in
the absence of a contract, when such remuneration is payable under the usage of the firm. Similarly,
a partner on whom the whole conduct of the business has been cast by reason of the other partner's
willful neglect of the business to which the latter ought to attend, can claim compensation for the
undue labor and trouble being imposed upon him) (Krishnamachriar vs. Sankara saha 91920).

3. Minor in partnership. (1999 – Nov., 5 Marks)

Ans. Minor in Partnership: A minor cannot become a partner, as he is not competent to contract. But if
all the partners agree, he can be admitted to the benefits of partnership. Such minor has a right to
his agreed share of the profits; he cannot take part in management, and he can have access to inspect
and copy the accounts of a firm but not to books of the firm. On attaining majority, he has to elect
whether he wants to continue as a partner or not within a period of 6 months of his attaining majority.
He fails to give such notice he shall become a partner in the firm on the expiry of the said six months.
If the minor becomes a partner of his own willingness, his position is as follows:
(a) his rights and liabilities as a minor will continue upto the date on which he becomes a partner.
(b) he becomes personally liable to third parties for all acts of the firm since he was admitted to
benefits of partnership. .
(c) his share in the property and profits of the firm remains the same as to which he was entitled
as a minor.
 2.10 CA-Foundation Law by Prof. Sanjay M. Joshi

4. Explain briefly the duties of a Partner in Partnership. (2000 - May, 5 Marks)

Ans. Duties of Partner [Indian Partnership Act, 1932]:
1. To work for the greatest common advantage. [Section 9)
2. To be just and faithful [Section 9)
3. To render true accounts. [Section 9]
4. To give full information. [Section 9]
5. To indemnify for frauds [Section 10]
6. To indemnity for willful neglect. [Section 13 (f)]
7. To share losses. (Section 13 (b)]
8. To attend diligently without remuneration. [Sections 12 (b) and 13 (a)]
9. To hold and use property of the firm exclusively for the purpose of business. [Section 15]
10. To account for private profits from transactions of firm etc. and from competing business.
(Section 16]
11. To act within authority.
12. Not to assign his rights. [Section 29]
13. To be liable jointly and severally. [Section 25]

DESCRIPTIVE QUESTIONS
1. When can a partner be expelled? (1994 – Nov., 5 Marks)
Ans. According to the provisions of Section 33 of Indian Partnership Act a partner cannot be expelled
from a firm by any majority of the partners. As such the law as a general rule gives no power to
partners to expel a partner. This rule is subject to certain exceptions.
Exceptions:
(i) Where it is provided in the Partnership Act.
(ii) Where it is by an order of the Court, for misconduct etc.
(iii) Where it is warranted by dissolution of the firm.
However, the expulsion is subject to the following conditions:
(a) The right to expel a partner is available by an express agreement between the partners.
(b) The power must have been exercised by a majority of partners in good faith.
(c) The expelled partner was given reasonable notice and opportunity to explain his position and
to remove the cause of his expulsion. (Carmichael vs. Evans 1904).
The position of the expelled partner is same as that of a retiring partner.

2. A partner is an agent of the firm as well as of all the other partners. (1995 - May, 5 Marks)
Ans. A partner is an agent of the firm as well as of all the other partners: The concluding portion of
the definition of partnership as given in Section 4 of the Partnership Act says that the business may
be carried on by all or any of them acting for all. This clearly establishes the implied agency, the
partner who is conducting the affairs of business is considered as the agent of the remaining partners.
In carrying on the business of the firm, partners act as agents as well as principals. While the relation
between the partners inter se is that of principals, they are agents of one another in relation to third
parties for the purpose of the business of the firm.
 Chapter 3 – The Indian Partnership Act, 1932 2.11

Section 19(1) of the Partnership Act provides that "……… the act of a partner which is done to carry
on, in the usual way, business of the kind carried on by the firm, binds the firm." From this it is clear
that every partner has the implied authority to bind the firm provided they relate to the business of
the firm and are done by him in the name of the firm and in the usual course of the business of the
firm.
In partnership every partner has a two-fold character, he is an agent of the other partners (because
other partners are bound by his acts) and also he himself is the principal (because he is bound by
the acts of other partners). The liability of one partner for the acts of his co-partners is in fact the
liability of a principal for the acts of his agent. This concept of mutual agency is, in fact, the true test
of existence of partnership.

3. Discuss briefly the rights of a partner in a firm. (1995- May, 10 Marks)

Ans. The mutual rights and duties of the partners of a firm may be determined by contract between the
partners, and such contract may be expressed or implied by a course of dealing. In the absence of
any express agreement among partners, their rights and duties are governed by the Partnership Act.
Rights of the partners in partnership firm are discussed hereunder:
(i) Participation in management [(Section 12 (a)]: Every partner has a right to take part in the
conduct of the business.
(ii) Right to be consulted: Any difference arising in connection with the business may be decided
by a majority of the partners and every partner 'has a right to express his opinion before the
matter is decided.
(iii) Access to books [(Section 12 (d)]: A partner has a right to have access to and inspect and
copy any of the books of the firm.
(iv) Sharing of profits [(Section13 (b)]: Partners are entitled to share equally in the profit earned.
(v) Interest on capital [(Section 13 (c)]: A partner is entitled to interest on advance made by
him over and above his capital at the rate of 6% per annum. However, where the partnership
agreement provides for the payment of interest at a certain rate such interest shall be payable
only out of profits if any, earned by the firm.
(vi) Making use of Partnership property [(Section 15)]: Every partner is entitled to use the
property of the firm exclusively for the purpose of the business of the firm.
(vii) Indemnification [(Section 13 (c)]: A partner is entitled to be indemnified by the firm in
respect of payments made and liabilities incurred by him under certain circumstances.
(viii) Agent of the firm [(Sections 18 and 19)]: Because of the agency relationship every partner
has implied authority to bind the firm by his own act in the conduct of the. business of the firm.
(ix) Dissolution of the firm [(Section 43, 44 and 46)]: A partner is entitled ·to dissolve the firm
under certain conditions. A partner has a right to. have the business wound up after dissolution.
(x) Authority in emergency [(Section 21)]: A partner has authority in. an emergency to do all
such acts as required for the purpose of protecting the firm from loss.
(xi) Retirement [(Section 32)): Every partner has a right to retire from the partnership firm subject
to the nature of partnership.
(xii) Not to be expelled [(Section 33 (1)]: Every partner has a right to continuance in the
partnership. No partner can be expelled except in good faith.
 2.12 CA-Foundation Law by Prof. Sanjay M. Joshi

(xiii) No new partner to be introduced [(Section 31 (1)]: Every partner has a right to prevent
admission of a new partner to the firm.
(xiv) Carrying on competing business [(Section 36)): Unless otherwise agreed, an outgoing
partner may carry on a business competing with that of the firm and may advertise such
business. But he cannot use the name and representation of the firm.
(xv) Sharing profits by outgoing partner [(Section 37)]: An outgoing partner can claim
subsequent profits or interest at the rate of 6% p.a. If final accounts have not been settled.
(xvi) Share in the partnership property: On the dissolution of the firm every partner or his
representative has a right to have the property applied in the payment of debts and liabilities
of the firm and to have surplus distributed among the partners.

4. Point out the circumstances where a partner cannot exercise his implied authority.
(1995 – Nov., 10 Marks)
Ans. Limitation on Implied Powers of Partners: A partner is deemed to be an agent of the firm so far as
the business of the firm is concerned (Section 18 of the Indian Partnership Act). In view or this, acts
of a partner which are done for the purpose of running the business in usual way, bind the firm and
the authority of a partner to do such acts is known as implied authority [Higins v. Beucamp (1914)
All E.R. 937]. This implied authority is available to every partner of the firm and need not be reduced
to writing in the deed of partnership.
The exercise of implied authority must be in accordance with the provisions of Section 19. Section
19 points out that implied authority can be· exercised only in relation to those acts which have a
direct relation with the business of the firm. Further, the manner in which the authority is exercised
must be similar to that which is required for the business to be carried on by the firm.
Further, Sections 19(2) and 20 of the Indian Partnership Act impose certain limitations on the
implied authority of a partner. In view of these provisions, a partner cannot exercise his implied
authority in relation to the following acts:
1. Reference of firm's disputes to arbitration
2. Opening bank account for the firm in his own name
3. To compromise fully or partly in a suit or to abandon any claim
4. To withdraw proceedings or part thereof, instituted in the Court on the part of the firm
5. To admit any liability in a proceeding against the firm
6. To acquire immovable property for the firm
7. To transfer immovable property of the firm
8. To participate in any partnership for the firm.
A partner can do any of the above acts provided he is expressly authorised to do that or the usage
or custom of the trade permits them. For example, a partner may open a bank account on behalf of
the firm in his own name if he is expressly authorised to do so by all the partners of the firm.
Section 20 provides that the implied authority of partner may be decreased or increased through
contract. But if such restrictions are imposed on the implied authority of a partner by mutual
agreement they will not be binding on third parties dealing with the firm unless they have knowledge
of the restrictions.
 Chapter 3 – The Indian Partnership Act, 1932 2.13

5. When is the firm liable for the acts of a partner. (1995 – Nov., 5 Marks)
Ans. Liability of the firm: Apart from the liability of the partners in the firm sometimes a firm may also
be held liable in the following ways:
(i) where, by the wrongful act or omission of a partner acting in the ordinary course of the
business of a firm, or with the authority of his partners, loss or injury is caused to any third
parties, or any penalty is incurred, the firm is liable therefore to the extent as the partner
(Section 26).
(ii) where a partner acting within his apparent authority receives money or property from a third
party and misapplies it, or [Section 27 (1)].
(iii) where a firm in the course of its business receives money or property from a third party, and
the money or property is misapplied by any of the partners while ii is in the custody of the firm,
the firm is liable to make good the loss [Section 27(2)].

6. What are the rights and duties of a minor in relation to partnership business?
(1996 – May, 10 Marks)
Ans. Rights and Duties of a minor in relation to partnership: A minor in real terms is not a partner in
a partnership firm. His minority is a disqualification for him to become a partner, since an agreement
with a minor is void ab-initio. But Section 30 of the Indian Partnership Act provides that though a
minor cannot be a partner in a firm, he with the consent of all the partners for the time being, may
be admitted to the benefits of partnership by an agreement executed by his guardian on his behalf
with the other partners. Section 30 states that rules, which govern the rights and liabilities of a minor
admitted to the benefits of partnership.
These are:
1. A minor has a right to his agreed share of the profits and share of the property of the firm.
2. He has a right to have access to, inspect and copy the accounts of the firm.
3. He can sue the partners for accounts or for payment of his share. But he can exercise this right
only when he severs his connection with the firm and not otherwise. The amount of his share
in such a case shall be determined as upon a dissolution.
4. The minor is not liable personally to third parties for the debts of the firm, but his liability is
limited only upon his share in the partnership assets and profits.
5. The minor is not entitled to take part in the conduct of the business as he has no representative
capacity to bind the firm.
6. On attaining majority or on knowing that he had been admitted to the benefits of partnership,
whichever date be later, the minor must decide within six months whether he would or would
not like to become a partner in the firm. He has to give public notice of his decision. If he does
not give public notice, to this effect, he is treated to be a partner in the firm.
7. When a minor elect to remain as a partner or fails to give public notice of not remaining as a
partner in the firm, he comes personally liable to the third parties for all the debts and
obligations of the firm with retrospective effect i.e. from the date of his being admitted to the
benefits of partnership.
8. Where the minor elects not to be a partner in the firm, his rights and liabilities continue to be
those a minor upto to the date of his giving public notice and shall not be liable for any acts
of the firm done after the date of the public notice.
 2.14 CA-Foundation Law by Prof. Sanjay M. Joshi

9. If after attaining majority but before electing to become a partner the minor represents or
knowingly permits himself to be represented as a partner in the firm, he will be personally liable
to the person who has on the faith of such representation granted credit to the firm on the
ground of 'holding out'.

7. Explain the rights of an outgoing partner. (1996 – May, 5 Marks)

Ans. Rights of an Outgoing partner: Under Sections 36 and 37 of the Partnership Act, an outgoing
partner enjoys the following rights:
1. An outgoing partner may carry on business competing with that of the firm and he may
advertise such business but subject to a contract to the contrary, he cannot use the name of
the firm or represent himself as carrying on the business of the firm or solicit customers of the
firm he has 'left. [Section 36 (1)]. However, the partner may agree with his partners that on his
ceasing to be so, he will not carry on a business similar to that of the firm within a specified
period or within a specified local limit.
2. On the retirement of a partner he has the right to receive his share of the property of the firm,
including goodwill.
3. An out going partner, where the continuing partners carry on the business of the firm with the
property of the firm without any final settlement of account, with him, is entitled to claim from
the firm such shares of the profits made by the firm, since he ceased to be a partner as
attributable to the use of his share of the property of the firm. In the alternative, he can claim
interest at the rate of 6% per annum on the amount of his share in firm's property (Section 37).
4. If by a contract between the partners, an option has been given to the surviving partners to
purchase the interest of the out going partner and the option is duly exercised, the out going
partner will not be entitled to any further share or the profits.

8. Implied authority of a partner can be extended or restricted. (1996 - Nov. 5 Marks)

Ans. Implied authority of partner can be extended or restricted: Section 20 of the Indian Partnership
Act authorises the partners of a firm to extend or restrict the implied authority but only by a contract
between them. In spite of such restriction if a partner does, on firm's behalf, any act which falls within,
his implied authority, the firm will be bound unless the person with whom he is dealing is aware of
the restriction or does not know or believe the partner to be a partner. Thus, a third party is not
affected by such a limitation of a partner's implied authority unless he has actual notice of it. To take
an example, A is a partner of a firm. He borrows from B ` 1,000 in the name of the firm but in excess
of his authority and utilises the same in paying off the debts of the firm. Here, the fact that the firm
has contracted debts suggests that it is a trading firm and as such it is within the implied authority
of A to borrow money for the business of the firm. This implied authority may be restricted by a
agreement between him and other partners. Now if B. the lender is unaware of this restriction
imposed on A, the firm will be liable to pay the money to B: On the contrary, if B is aware of this
restriction, the firm will be absolved of its liability to repay the amount to B. One important point in
this connection is that the restriction or extension of implied authority must be done with the consent
of all the partners. Any one partner, or even a majority of the partners, cannot restrict or extend the·
implied authority.
 Chapter 3 – The Indian Partnership Act, 1932 2.15

9. What are the rights of transferee of a Partner's Share? (1996 – Nov., 10 Marks)
Ans. Rights of transferee of a Partner's Share: No person can be introduced as a partner in a firm
without the consent of all the partners. Therefore, a partner cannot by transferring his own interest
make anyone else a partner in his place with his co-partners if they do not agree. According to
Section 29 of the Partnership Act, 1932, a share in a partnership is transferable like any other property,
but as the partnership relationship is based on mutual confidence, the assignee of a partner's interest
by sale, mortgage or otherwise cannot enjoy the same rights and privileges as the original partner.
The rights of a transferee are:
1. During the continuance of partnership: He is entitled to receive the share of the profits of the
transferring partner and he is bound to accept the profits as agreed to by the partners i.e. he
cannot challenge the accounts.
2, (a) On dissolution of the firm or on retirement of the transferring partner he is entitled to
receive the share of the assets of the firm to which the transferring partner was entitled
and
(b) for the purpose of ascertaining the share to an account as from the date of dissolution.
The Supreme Court has held that the assignee will enjoy only the rights to receive the
share of the profits of the assignor and account of profits agreed to by other partners
[Narayanappa Vs. Krishnappa (1966) 2 M.L.J. S.C. 60].

10. "The relationship of arises from an agreement and not from status." (1997 – May, 5 Marks)
Ans. A partnership is the result of a contract and cannot arise by status is sufficiently emphasised by
Section 4 of the Indian Partnership Act itself by use of word "partnership is the relation between the
persons who have agreed to share the profits of a business". It is clear from the definition that the
partnership is of contractual nature. It springs from an agreement. The same point is further stressed
by the opening words of Section 5 that the relation of partnership arises from contract and not from
status.
Unlike in the case of sole proprietorship and joint Hindu Family business, the legal heirs do not
automatically become partners on the death of a partner. A fresh agreement will have to be made.
Thus, from the above it is clear that partnership always arises out of a contract and not from status.

11. What is meant by the term. 'property of a partnership firm'? (1997 - May 5 Marks)
Ans. Normally, the partners by an agreement are free to determine as to what shall be the property of the
firm and what shall be treated as a separate property of one or more of the partners. But when there
is no such agreement and in order to know whether a certain property is the property of the firm or
not it has to be ascertained from the source from which the property has been acquired, the purpose
for which it was acquired, and the manner in which it has been dealt with. According to Section 14
of the Partnership Act, when there is no contract to the contrary, the property of the firm includes:
(i) All properties, rights and interests originally brought to the stock of the firm.
(ii) The property acquired by purchase or otherwise by or for the firm.
(iii) The property acquired with the money belonging to the firm.
(iv) The goodwill of the business of the firm.
 2.16 CA-Foundation Law by Prof. Sanjay M. Joshi

However, if a partner's property is used for the purchase of the business of the firm, it does not
automatically because the property of the firm. It can become the property of the firm if the partners
have an intention to manage it so. For example, a piece of land which has bought in the name of one
partner but is paid for by the firm shall be deemed to be the property of the firm unless there is an
intention to the contrary.

12. Notice to an acting partner is the notice to the firm. (1997 – Nov., 5 Marks)
Ans. Notice to an acting partner: Section 24 of the Partnership Act, 1932 lays down that the notice to a
partner, who habitually acts in the business of the firm of any matter relating to the affairs of the firm
operates as notice to the firm, except in the case of a fraud on the firm committed by or with the
consent of that partner.
The rule embodied in this section is an instance of the application of the general principals of agency
to partnership. Accordingly, the notice to one is equivalent to the notice to the rest of the partners
of the firm. This notice must be actual and not constructive. It must be received by a working partner
and not by a dormant or sleeping partner. It must further relate to the firm's business. Only then it
would constitute a notice to the firm. Notice to a clerk or agent of the firm operates as notice to the
firm.
But the provisions of this section would not lie in the case of fraud, whether active or tacit. Thus, the
knowledge of a partner as to a particular defect in the goods which he is buying for the firm will be
knowledge of the firm, although the other partners are, in fact, not aware of the defect. The only
exception is in the case of fraud. If, therefore, the purchasing partner, in collusion with seller, has
conspired to conceal the existence of the defect from the other partners, the rule will not operate
and the other partners would be entitled on the defect being discovered by them, to reject the goods.

13. What are the rights and duties of a partner after a change in the constitution of the firm?
(1997 - Nov. 5 Marks)
Ans. Rights and duties of a partners after a change in the constitution of the firm (Section 17): A
change in the constitution of the firm may be in one of the four ways, namely:
(i) Where a new partner or partners come in; (ii) Where one partner or partners go out;
(iii) Where the partnership concerned carries on business other than the business of the firm;
(iv) Where the partnership business is carried on after the expiry of the term fixed for the purpose.
This section lays down the following provisions as regards to rights and duties after the change
in the constitution of the firm:
(a) Change in the constitution of the firm: Where a change occurs in the constitution of a firm,
the mutual rights and duties of the partners in the reconstituted firm remain the same as they
were immediately before the change, as far as may be.
(b) Business continued after expiration of the term: Where a firm constituted for a fixed term
continues to carry on business after the expiry of that term, the mutual rights and duties of the
partners remain the same as they were before the expiry, so far as they may be consistent with
the incidents of Partnership at will; and
(c) In case of additional undertaking: Where a firm constituted to carry out one or more
adventures or undertakings carries out other adventures or undertakings the mutual rights and
duties of the partners in respect of the other adventures or undertakings are the same as those
in respect of the original adventures or undertakings. But the above provisions are however
subject to the contract between the partners.
 Chapter 3 – The Indian Partnership Act, 1932 2.17

14. "The power to expel partner must be exercised in good faith". (1998 – May, 2 Marks)
Ans. The power to expel partner must be exercised in good faith: A partner may not be expelled from
a firm by a majority of partners except in exercise, in good faith, of powers conferred by the contract
between the partners. It is thus, essential that:
(i) the power of expulsion must have existed in a contract between the partners:
(ii) the power has been exercised by a majority of the partners; and
(iii) it has been exercised in good faith.
If all these considerations are not present, the expulsion is not deemed to be in Bonafide interest of
the business of the firm.
The test of good faith as required under section 33(1) includes three things:
(a) that the expulsion must be in the interest of the partnership,
(b) that the partner to be expelled is served with a notice -.
(c) that he is given an opportunity of being heard. If a partner is otherwise expelled, the expulsion
is null and void. The only remedy, when a partner misconducts in the business of the firm is to
seek judicial dissolution.
The provisions of Section 32 regarding retirement of a partner are also apply to an expelled partner
as if he was a retired partner [Section 22(2)].

15. What are the mutual duties of partners in a partnership firm to regulate the relations between the
partners? (1998 – May, 10 Marks)
Ans. Duties of Partners: Following duties should be observed by the partners to regulate the relations
between the partners:
(i) To observe good faith: A partnership contract is a contract of absolute good faith and
therefore Section 3 of the Partnership Act, 1932 lays down that partners are bound (a) to carry
on the business of the firm to the greatest common advantage; (b) to be just and faithful to
each other and (c) to render to any partner or his legal representative an account and full
information of all things affecting the firm.
(ii) To attend to his duties diligently [Sections 12(b) and 13 (a)]: Every partner is bound to
attend diligently to his duties in conducting the business of the firm. He has no right to receive
any remuneration for taking part in the conduct of the business.
(iii) To indemnify for fraud (Section 10): A partner shall be held liable to make good any loss
caused to the firm by his fraud in the conduct of the business. It is an absolute provision and
is not subject to the terms of the contract between the partners. A clause in the deed of
partnership exempting a particular partner from liability to the firm for loss caused by his fraud
shall be invalid and unenforceable.
(iv) To indemnify for willful Neglect [Section 13 (f)]: Every partner is liable to the firm for any
loss caused to it by his willful neglect in the conduct of the business. The partners can contract
themselves out of this liability except in case of fraud.
(v) To share losses [Section 13(b)]: Each partner is liable to contribute for firm's losses equally
in the absence of any contract to the contrary.
 2.18 CA-Foundation Law by Prof. Sanjay M. Joshi

(vi) To hold and use property for the firm (Section 13): The property of the firm is the· property
of all the partners, and therefore, each partner should hold and use property of the firm
exclusively for the purposes of the firm.
(vii) To account for private profits [Section 16 (a)]: A partner shall be liable to account for and
pay to the firm any private profits derived from the transactions of the firm or from the use of
the property or goodwill of the firm.
(viii) To account for the profits of a competing business [Section 16 (b)]: If a partner carries on
business of the same nature as and competing with that of the firm, then he must account for
and pay to the firm all profits made by him in, the business. The firm will not be liable for any
loss.
(ix) To act within authority: A partner is bound to act within the scope of his actual or apparent
authority. In case, he exceeds his authority and the other partners do not ratify his unauthorised
acts, he will be liable to the other partners for the loss that they may suffer on account of his
such acts.
(x) Not lo assign his rights (Section 29): A partner cannot assign his rights or interest in a
partnership firm to an outsider, so as to make the outsider a partner in the firm's business
without the consent of other partners. In case such an assignment has been made the assignee
cannot during the continuance of the firm, interfere in the conduct of the business, or require
accounts or inspect the books of the firm. The transferee will be only entitled to receive the
share of profits of the transferring partner, and the transferee shall accept the account of profits
agreed to by the partners.
(xi) To the liable jointly and severally (Section 25): Every partner is liable, jointly with all the
other partners and also severally for all the acts of the firm done while he is a partner. A retired
partner continues to be liable for the debts of the firm incurred till he gives public notice of his
retirement.
(xii) Duties after a change in the firm (Section 17): Rights and duties of the partners of a firm,
unless otherwise agreed upon shall remain the same as they were in the beginning even after
a change in the constitution of the firm or on the expiry of the term of the firm or even when
the firm has taken up additional ventures after the complete of the work tor which the firm was
constituted.

16. Explain clearly the meaning of implied authority of a partner in a partnership firm. State the matters
for which a partner does not have implied authority. (1999 – May, 10 Marks)
Ans. Meaning of Implied Authority of a Partner: The authority of a partner means the capacity of a
partner to bind the firm by his act. This authority may be express or implied. Where the authority to
a partner to act is expressly conferred by an agreement, it is called express authority. But where there
is no partnership agreement or where the agreement is silent, 'the act of a partner which is done to
carry on, in the usual way, business of the kind carried on by the firm, bind the firm'. [Section 19(1)
Indian Partnership Act, 1932].
The authority of a partner to bind the firm by his acts is called implied authority. It is subject
to the following conditions:
1. The act done by the partner must relate to the normal business of the firm.
 Chapter 3 – The Indian Partnership Act, 1932 2.19

2. The act must be such as is done within the scope of the business of the firm in the usual way.
3. The act must be done in the name of the firm, or in any other manner expressing or implying
an intention to bind the firm (Section 22).
Matters for which no Implied Authority is available to a Partner:
1. to submit a dispute relating to the business of the firm to arbitration.
2. to open a bank account on behalf of the firm in his own name.
3. compromise or relinquish any claim or portion of a claim by the firm.
4. withdraw a suit or proceeding filed on behalf of the firm.
5. admit any liability in a audit or proceeding against the firm,
6. acquire immovable property on behalf of the firm.
7. transfer immovable property belonging to the firm, or
8. enter into partnership on behalf on the firm (Section 19(2)).

17. Describe the position of a minor. who has been admitted to the benefits of partnership, on attaining
majority. (1999 – May, 5 Marks)
Ans. Position of a Minor in Partnership: Under Section 11 of the Indian Contract Act, 1872. a minor's
agreement is void. In view of this a minor and a major cannot enter into an agreement of partnership.
Thus. a person who is minor may not be a partner in a firm but under Section 30 of the Indian
Partnership Act, 1932, he may be admitted to the benefits of partnership with the consent of all the
partners for the time being.
Section 30 of the Indian Partnership Act provides that the minor who has been admitted to the
benefits of partnership, has to decide whether he shall remain a partner or shall leave the firm and
this decision is to be taken by him within six months of his attaining majority, or his obtaining
knowledge that he had been admitted to the benefits of partnership, whichever date is later. If he
decides to sever his connection with the firm, he must give a public notice of his such intention. If he
does not give such public notice, it must be presumed that he has opted to become a partner in the
firm.
If the minor becomes a partner of his own willingness or by his failure to give the public notice within
specified time, his rights and liabilities are as follows:
1. he becomes personally liable to third parties for all acts of the firm done from the date when
he was admitted to the benefits of the firm.
2. his share in the property and the profits of the firm remains the same to which he was entitled
as a minor.
If the minor decides to sever his connection with the firm, his rights and liabilities shall be as
follows:
(i) his rights and liabilities continue to those of a minor up to the date of giving public notice.
(ii) his share shall not be liable for any acts of the firm done after the date of the notice.
(iii) he shall be entitled to sue the partners for his share of the property and profits.
 2.20 CA-Foundation Law by Prof. Sanjay M. Joshi

18. Explain the position of a person who had been admitted to the benefits of partnership as a minor,
after attaining majority. (2000 – May, 5 Marks)
Ans. Position of a minor in partnership after attaining majority: Partnership is a relation resulting from
a contract, and a minor's agreement is altogether void. A minor, being incompetent to contract,
cannot become a partner. But he can be admitted to the benefits of an already existing partnership,
if all the partners agree to admit him. Such a minor is not personally liable nor his separate property
and profits will be liable.
Within six months of his attaining majority or when he comes to know of his being so admitted,
whichever date is later, he has to elect whether he wants to continue his relation and become a full-
fledged partner or sever his connection with the firm. He may give a public notice of his election to
continue or discontinue, but if he fails to give any public notice within this period, he will be deemed
to have elected to become a partner in the firm. A minor who thus becomes a partner, will become
personally liable for all debts and obligations of the firm incurred since the date of his admission to
the benefits of the partnership.

19. Transferee of a partner's interest cannot exercise the rights of the transferring partner.
(2000 – Nov., 5 Marks)
Ans. Section 29 the Indian Partnership Act, 1932, states the rights of transferee of a partner's share. A
share in a partnership is transferable like any other property, but as the partnership relation is based
upon mutual confidence, the assignee of a partner's interest by sale, mortgage or otherwise cannot
enjoy the same rights and privileges as the original partner. The Supreme Court in Narayanappa v.
Krishnappa has held that the assiganee will enjoy only the rights to receive the share of the profits
of the assignor and account of profits agreed to by other partners.
The rights of such a transferee are:
1. During the continuance of partnership, such transferee is not entitled to:
(a) interfere with the conduct of the business;
(b) require accounts or
(c) inspect books of the firm.
He is only entitled to receive the share of the profits of the transferring partner and he is bound
to accept the profits as agreed to by the partners; i.e. he cannot challenge the accounts.
2. On the dissolution of the firm or on the retirement of the transferring partner, the transferee
will be entitled, against the remaining partners:
(a) to receive the share of the assets of the firm to which the transferring partner was entitled,
and
(b) for the purpose of ascertaining the share, to an account as from the date of the
dissolution.
Thus, transferee of a partner's interest cannot exercise the rights of the transferring partner.
 Chapter 3 – The Indian Partnership Act, 1932 2.21

20. Discuss the rights of a Partner in a Partnership Firm. (2000 – Nov., 10 Marks)
Ans. Discuss the rights of a Partner in a Partnership Firm: Where there is no specific agreement or
where the agreement is silent on a certain, the relations of partners to one another as regards their
rights are governed by the provisions of the Indian Partnership Act, 1932 as contained in Sections 9
to 17.
These are:
1. Right to take part in business: Subject to any contract between the partners, every partner
has right to take part in conduct of the business of the firm. [Section 12 (a)]
2. Right to be consulted: Every partner has an inherent right to be consulted in all matters
affecting the business of the partnership before any decision is taken by the partners. Where
there is any difference of opinion among the partners as to ordinary matters connected with
the business, it may be settled, subject to contract between the partners, by a majority of the
partners. [Section 12 (c)]
3. Right of access to account: Subject to contract between the partners, every partner has a
right to have access to and inspect and copy any of the books of the firm. [Section 12 (d)].
4. Right to share in profit: In the absence of any agreement, the partners are entitled to share
equally in the profits earned and are liable to contribute equally to the losses sustained by the
firm. [Section 13 (b)]
5. Right to interest on capital: The partnership may contain a clause as to the right of the
partners to claim interest on capital at a certain rate. Such interest, subject to contract between
the partners, is payable only out of profits, ii any, earned by the firm. [Section 13 (c)]
6. Right to interest on advances: Where a partners makes, for the purposes of the business of
the firm any advance beyond the amount of capital, he is entitled to interest on each advance
at the rate of 6 percent per annum. [Section 13 (d)]
7. Right to be indemnified: Where a partner incurs any liability in the ordinary course of the
partnership business, or in an emergency, for the purpose of protecting the firm from loss, the
firm must indemnify such partner. [Sections 13 (e) and 21]
8. Right to the use of partnership property: Subject to contract between the partners, the
property of the firm must be held and used by the partners exclusively for the purposes of the
business of the firm. No partner has a right to treat it as his individual property. [Section 15]
9. Right of partner as agent of the firm: Every partner for the purposes of the business of the
firm is the agent of the firm. And subject to the provisions of the Indian Partnership Act, the
act of a partner which is done to carry on, in the usual way, business of the kind carried on by
the firm, binds the firm. [Sections 18 and 19]
10. No new partner to be introduced: Every partner has a right to prevent the introduction of
new partner unless the consents to that or unless there is an expression them in the contract
permitted such introduction [Section 31 (1)]
11. No liability before joining: A person who is introduced as a partner into the firm is not liable
for any act of the firm done before he became a partner [Section 31 (2)].
12. Right to retire: A partner has a right to retire with the consent of all the other partners, or in
accordance with an expression agreement between the partners, or where the partnership is
at will, by giving notice to all the other partners. of his intention to retire. [Section) 32 (1)).
 2.22 CA-Foundation Law by Prof. Sanjay M. Joshi

13. Right not to be expelled: A partner has a right not to be expelled from the firm by any majority
of the partners, save in the exercise; in good faith of powers conferred by the contract between
the partners. [Section 33 (1)]
14. An outgoing partner can claim subsequent profits or interest @6% per annum till final accounts
are settled.

21. What are the liabilities of an outgoing Partners? (2000 – Nov., 5 Marks)
Ans. An outgoing partner or a retiring partner continues to be liable to third party for acts of the firm after
his retirement until public notice of his retirement has been given either by himself or by any other
partner. But the retired partner will not be liable to any third party if the latter deals with the firm
without knowing that the former was a partner. [Sections 32 (3) and (4) Indian Partnership Act, 1932].
The liability of a retired / outgoing partner to the third parties continues until a public notice of his
retirement has been given. Regarding his liability for the acts of the firm done before his retirement,
he remains liable for the same, unless there is an agreement made by him with the third party
concerned and the partners of the reconstituted firm. Such an agreement may be implied by course
of dealings between the third party and the reconstituted firm after he had knowledge of the
retirement [Section 32(2)]

22. What are the legal provisions relating to expulsion of a partner under the Indian Partnership Act?
(2001 – May, 5 Marks)
Ans. According to Section 33 of the Indian Partnership Act, 1932 a partner may be expelled from
partnership subject to the following three conditions:
(i) the power of expulsion of a partner should be conferred by the contract between the partners.
(ii) the power should be exercised by a majority of the partners.
(iii) the power should be exercised in good faith.
If all these conditions are not present, the expulsion is not deemed to be in the bonafide interest of
the business of the firm.
The test of good faith is:
(a) that the expulsion must be in the interest the partnership.
(b) that the partner to be expelled is served with a notice.
(c) that he is given an opportunity of being heard.
Irregular expulsion: Where the expulsion of a partner takes place without the satisfaction of the
conditions given above, the expulsion is irregular. The expelled partner may in such a case either (i)
claim reimbursement as a partner or (ii) sue for the refund of his share of capital and profits in the
firm. An irregular expulsion is wholly ineffectual and inoperative. The expelled partner, in such a case,
does not cease to be a partner.
Regular expulsion: Where a partner is expelled subject to the satisfaction of the conditions as above,
his expulsion would be regular.
The rights and liabilities of an expelled partner are the same as those of a retiring partner [Section
33 (2)].
 Chapter 3 – The Indian Partnership Act, 1932 2.23

23. Explain clearly the meaning of the term "Authority of a partner". State the acts which fall within the
'Implied Authority' of a partner. (2002 – May, 10 Marks)
Ans. Meaning: The Authority of a partner means the capacity of a partner to bind the firm by his acts.
This authority may be express or implied. Where the authority to a partner to act is expressly
conferred by an agreement, it is called express authority.
But where there is no partnership agreement or where the agreement is silent, the authority
conferred on a partner by the provisions of Section 19 of the Indian Partnership Act is called implied
authority.
Implied authority covers those acts of partners which fulfill the following conditions:
1. The act doe by the partner must relate to the normal business of the firm. [Section 19(i))
2. The act must be such as is done within the scope of the business of the firm in the usual way.
3. The act must be done in the name of the firm, or in any other manner expressing or implying
an intention to bind the firm. (Section. 22).
Acts falling within the implied authority of a partner: In a trading firm, i.e., a firm which depends
for its existence on the buying and selling of goods, the implied authority of a partner has been held
to include.
1. Purchasing goods, on behalf of the firm, in which the firm deals or which are employed in the
firm's business.
2. Selling goods of the firm.
3. Receiving payment of the debt due to the firm and giving receipts for them.
4. Settling accounts with the persons dealing with the firm.
5. Engaging servants for the partnership business.
6. Borrowing money on the credit of the firm.
7. Drawing, accepting, endorsing bills and other negotiable instruments in the name of the firm.
8. Pledging any goods of the firm for the purpose of borrowing money.
9. Employing a solicitor to defend an action against the firm for goods supplied.

24. What is the position of a minor in a partnership firm before his attaining the age of majority.
(2002 – May, 5 Marks)
Ans. The position of a minor in a partnership before attaining the age of majority (Indian
Partnership Act, 1932):
Rights:
1. A minor has a right to such share of the property and of profits of the firm as may have been
agreed upon.
2. He has a right to have access to and inspect and copy any of the accounts, but not books of
the firm. (Section 30(2)).
3. When he is not given his due share of profit, he has a right to file a suit for his share of the
property of the firm but he can do so only if he wants to sever his connection with the firm.
(Section 30(4)).
 2.24 CA-Foundation Law by Prof. Sanjay M. Joshi

Liabilities:
1. The liability of a minor partner is confined only to the extent of his share in the profits and
property of the firm. Over and above this, he either personally liable nor his private estate liable.
[Section 30(3)].
2. A minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm
vests in the Officials Receiver or Official Assignee.

25. "Though a minor cannot be a partner in a firm he can nonetheless be admitted to the benefits of
partnership."
(I) Referring to the provisions of the Indian Partnership Act, 1932, state the rights which can be
enjoyed by a minor partner. (2018 – Nov., 4 Marks)
(II) A. State the liabilities of a minor partner both:
(i) Before attaining majority and
(ii) After attaining majority. (2 Marks)
OR
B. State the legal position of a minor partner after attaining majority:
(i) When he opts to become a partner of the same firm.
(ii) When he decides not to become a partner. (2 Marks)
Ans. (I) The rights enjoyed by a minor partner are:
(i) A minor partner has a right to his agreed share of the profits and of the firm.
(ii) He can have access to, inspect and copy the accounts of the firm.
(iii) He can sue the partners for accounts or for payment of his share but only when severing
his connection with the firm and not otherwise.
(iv) On attaining majority, he may within 6 months elect become a partner or not to become
a partner. If he elects to become a partner, then he is entitled to the share to which he
was entitled as a minor. If he does not, then his share is not liable for any acts of the firm
after the date of the public notice served to that effect.
(II) The liabilities of a minor partner:
(i) Before attaining majority:
(a) The liability of the minor is confined only to the extent of his share in the profits
and the property of the firm.
(b) Minor has no personal liability for the debts of the firm incurred during his minority.
(c) Minor cannot be declared insolvent but if the firm is declared insolvent his share in
the firm vests in the official Receiver/Assignee.
(ii) After attaining majority:
Within 6 months of his attaining majority or on his obtaining knowledge that he had
been admitted to the benefits of partnership whichever date is later, the minor partner
has to decide whether he shall remain a partner or leave the firm.
OR
 Chapter 3 – The Indian Partnership Act, 1932 2.25

(II) The legal position of a minor partner after attaining majority:

(i) When he opts to become a partner of the same firm. If the minor becomes a partner on
his own willingness or by his failure to give the public notice within specified time, his
rights and liabilities as given in section 30(7) are as follows:
(i) He becomes personally liable to third parties for all acts of the firm done since he was
admitted to the benefits of partnership.
(ii) His share in the property and the profits of the firm remains the same to which he was
entitled as a minor.
(ii) When he does not become a partner:
(i) His rights and liabilities continue to be those of a minor upto the date of giving public
notice.
(ii) His share shall not be liable for any acts of the firm done after the date of the notice.
(iii) He shall be entitled to sue the partners for his share of the property and profits. It may
be noted that such minor shall give notice to the registrar that he has or has not become
a partner.

PRACTICAL QUESTIONS
1. X, Y and Z are partners in a Partnership Firm. They were carrying their business successfully for the
past several years. Spouses of X and Y fought in ladies’ club on their personal issue and X's wife was
hurt badly. X got angry on the incident and he convinced Z to expel Y from their partnership firm. Y
was expelled from partnership without any notice from X and Z. Considering the provisions of the
Indian Partnership Act, 1932, state whether they can expel a partner from the firm. What are the
criteria for test of good faith in such circumstances? (2018 – May, 6 Marks)
Ans. A partner may not be expelled from a firm by any majority of the partners, except in exercise of good
faith of power conferred by contract between the partners. If all these conditions are not present,
the expulsion is not deemed to be in bonafide interest of the business of the firm.
The test of good faith as required includes three things:
(a) The expulsion must be in the interest of the partnership.
(b) The partner to be expelled is served with a notice.
(c) He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
Having regard to above we can say that expulsion of partner ‘Y’ by X & Z is not in accordance with
the provision of Indian Contract Act and thus not valid.

2. Mr. A, Mr. B and Mr. C were partners in a partnership firm M/s ABC & Co., which is engaged in the
business of trading of branded furniture. The name of the partners was clearly written along with the
firm name in front of the head office of the firm as well as on letter-head of the firm. On 1st October,
2018, Mr. C passed away. His name was neither removed from the list of partners as stated in front
of the head office nor from the letter-heads of the firm. As per the terms of partnership, the firm
continued its operations with Mr. A and Mr. B as partners. The accounts of the firm were settled and
the amount due to the legal heirs of Mr. C was also determined on 10th October, 2018. But the same
 2.26 CA-Foundation Law by Prof. Sanjay M. Joshi

was not paid to the legal heirs of Mr. C. On 16'h October, 2018, Mr. X, a supplier supplied furniture
worth ` 20,00,000 to M/s ABC & Co. M/s ABC & Co. could not repay the amount due to heavy losses.
Mr. X wants to recover the amount not only from M/s ABC & Co., but also from the legal heirs of
Mr. C.
Analyse the above situation in terms of the provisions of the Indian Partnership Act, 1932 and decide
whether the legal heirs of Mr. C can also be held liable for the dues towards Mr. X.
(2018 - Nov. 3 Marks)
Ans. According to the facts of this case the situation existent clearly indicates the application of Section
37 of the Indian Partnership Act, 1932 according to which where any member of a firm has died or
otherwise ceased to be partner and the surviving or continuing partners carry on the business of the
firm without any final settlement of the accounts as between them and the outgoing partner of his
estate, then in the absence of a contract to the contrary, the outgoing partner or his estate is entitled
at the option of himself or his representatives to such share of the profits made since he ceased to
be a partner as may be attributable to the use of his share of the property of the firm or to interest
at the rate of six percent per annum on the amount of his share in the property of the firm.
In this case since there has been no decisive settlement of accounts between the heirs of Mr. C and
Mr. A & Mr. B so it's pretty clear that the interest of the heirs of Mr. C is still existent in the profits
and property of the firm and Mr. X wants to recover the amount not only from Mis ABC & Co. but
also from the legal heirs of Mr. C he is justified in claiming such a recovery and his claim is legal and
just according to the provisions of Section 37.

3. Mr. M, Mr. N and Mr. P were partners in a firm, which was dealing in refrigerators. On 1 st October,
2018, Mr. P retired from partnership, but failed to give public notice of his retirement.
After his retirement, Mr. M, Mr. N and Mr. P visited a trade fair and enquired about some refrigerators
with latest techniques. Mr. X, who was exhibiting his refrigerators with the new techniques was
impressed with the interactions of Mr. P and requested for the visiting card of the firm. The visiting
card also included the name of Mr. P as a partner even though he had already retired. Mr. X supplied
some refrigerators to the firm and could not recover his dues from the firm. Now, Mr. X wants to
recover the dues not only from the firm, but also from Mr. P.
Analyse the above case in terms of the provisions of the Indian Partnership Act, 1932 and decide
whether Mr. P is liable in this situation. (2018 – Nov., 3 Marks)
Ans. According to the facts of this case it can be easily concluded that the contention of Mr. X for recovery
of his dues from all the partners including Mr. P is quite justified and legal on ground of the provision
under Section 32 of the Indian Partnership Act that states a retiring partner continues to be liable to
third party for acts of the firm after his retirement until public notice of his retirement has been given.
In this case no such notice has been given by Mr. P of his retirement and so he cannot escape the
liability incurred by the firm in its business dealing with Mr. X.
 Chapter 3 – The Indian Partnership Act, 1932 2.27

CASE STUDIES
1. A, B and C are partners of a partnership firm ABC & Co. The firm is a dealer in office furniture. A was
in charge of purchase and sale, B was in charge of maintenance of accounts of the firm and C was in
charge of handling all legal matters. Recently through an agreement among them, it was decided
that A will be in charge of maintenance of accounts and B will be in charge of purchase and sale.
Being ignorant about such agreement, M, a supplier supplied some furniture to A, who ultimately
sold them to a third party. Referring to the provisions of the India Partnership Act, 1932, advise
whether M can recover money from the firm.
What will be your advice in case M was having knowledge about the agreement?
Ans. The acts of a partner which are performed by him for the purpose of carrying on the business of the
firm, in the usual way shall be binding on the firm. Further the partners may by contract between
them impose certain restrictions on the implied authority of a partner. However, such a restriction
shall be effective against a third party provided the third party has knowledge of such a restriction.
Thus, if am restriction on the implied authority of a partner has been imposed, the firm shall be
bound by the act of such a partner which falls outside of the scope of his actual restricted authority
provided the third party has no knowledge of such restriction on the authority,
Thus, M can recover the money from the firm since he is not aware of the restrictions on the implied
authority of A and he is acting in good faith.
However, if M had the knowledge of restriction he cannot recover the money from the firm.

2. A, B and C are partners in a firm called ABC Firm. A; with the intention of deceiving D, a supplier of
office stationery, buys certain stationery on behalf of the ABC Firm. The stationery is of use in the
ordinary course of the firm's business. A does not give the stationery to the firm, instead brings it to
his own use. The supplier D, who is unaware of the private use of stationery by A, claims the price
from the firm. The firm refuses to pay for the price, on the ground that the stationery was never
received by it (firm). Referring to the provisions of the Indian Partnership Act, 1932 decide:
(i) Whether the Firm's contention shall be tenable?
(ii) What would be your answer if a part of the stationery so purchased by A was delivered to the
firm by him, and the rest of the stationery was used by him for private use, about which neither
the firm not the supplier D was aware?
Ans. The firm is liable for the acts of a partner within the scope of his implied authority. Further if the
partner receives any money or property from a third person in the course of business of the firm &
misapplies it or where a firm in the course of business receives money or property and the same is
misapplied by a partner while in the custody of the firm, the firm shall be liable to compensate the
third party.
Further it is a duty of the partner to indemnify the firm for the loss sustained by it due to his fraud
or misconduct
(i) Thus, Firms contention is not valid and it shall be bound to pay the price irrespective of the
fact of not having received the stationery.
(ii) Where the stationery has been delivered to the firm and then it is used by A for private purpose,
then also the firm shall be bound to make payment to D.
In both the above cases the firm can sue A for the loss sustained by it due to A's misconduct.
 2.28 CA-Foundation Law by Prof. Sanjay M. Joshi

3. Ram & Co. a firm consists of three partners A, B and C having one third share each in the firm.
According to A and B, the activities of C are not in the interest of the partnership and thus want to
expel C from the firm. Advise A and B whether they can do so quoting the relevant provisions of the
Indian Partnership Act, 1932.
Ans. Rules with respect to expulsion;
Thus A & B can expel C, provided the power of expulsion is conferred by the partnership deed and
the expulsion is being done in good faith, in the interest of the firm, after affording C a reasonable
opportunity of being heard and a notice with respect to the same is served on C.

4. Ram, Mohan and Gopal were partners in a firm. During the course of partnership, the firm ordered
sunrise Ltd. to supply a machine to the firm. Before the machine was delivered, Ram expired. The
machine, however, was later delivered to the firm. Thereafter, the remaining partners became
insolvent and the firm failed to pay the price of machine to Sunrise Ltd.
Explain with reasons:
(i) Whether Ram's private estate is liable for the price of the machine purchased by the firm?
(ii) Against whom can the creditor obtain a decree for the recovery of the price?
Ans. Where under a contract between the partners, firm is not dissolved by death of a partner, & the
remaining partners continue to carry on the business of the firm, then the estate of the deceased
partner shall not be liable for any acts of the firm done after his death. Thus, the estate of the
deceased partner shall not be liable for the liabilities of the firm arising after his death.
In the given case order for supply of machine is given to sunrise Ltd. by the firm during the lifetime
of Ram, which does not result in creation of any liability. The machine is delivered subsequent to
death of Ram.
(i) Thus, Ram's estate shall not be liable for the price of machinery.
(ii) The creditor shall have a right of action against the surviving partners & recover the amount
from the partnership assets and the partners' assets since they have become insolvent.

UNIT 3 - REGISTRATION AND DISSOLUTION OF FIRM

DISTINGUISH BETWEEN
1. Distinguish between 'Dissolution of firm' and 'Dissolution of partnership'. (2002 - Nov., 4 Marks)
Ans. Dissolution of firm Vs. Dissolution of Partnership:
Sr.
Dissolution Firm Dissolution of Partnership
No.
1. It necessarily involves dissolution of It may or may not involve dissolution of firm.
partnership.
2. Involves final closure of books of firm. Does not involve final closure of the books.
3. Firm may be dissolved by order of Court. Dissolution of partnership is not ordered by
Court.
4. It involves winding up of the firm. It involves reconstitution of the firm.
 Chapter 3 – The Indian Partnership Act, 1932 2.29

DESCRIPTIVE QUESTIONS
1. A retiring partner is required to give a public notice under the Partnership Law.
(1994 – Nov., 5 Marks)
Ans. A retiring partner is required to give a public notice under the partnership law: The law imposes a
duty on the retiring partner to give public notice of his retirement. Public notice of this kind raises a
presumption that those dealing with the firm including past and present customers have come to
known that a particular partner has retired.
Sec. 32(4) provides that notice of retirement can be given either by the retired partner himself or by
any partner of the continuing firm or by the firm itself. In the case of a registered firm, the notice
must be given to three places, namely, the Registrar of Firms, the Official Gazette and at least one
vernacular newspaper circulating in the district where the firm has its place or principal place of
business. Where the firm is not registered, it is enough that the matter is announced in at least one
vernacular newspaper circulating in the district where the firm has its place or principal place of
business.
If the retiring partner fails to give such a notice then he continues to be liable for the acts of the acts
of the firm even after his retirement and similarly, the firm will be bound by the acts of the retired
partner done after retirement. This is based on the principle of holding out.
A retired partner will not be liable to any third party who deals with the firm without knowing that
he was a partner. It is for this reason that no public notice need be given when a dormant of sleeping
partner retires.

2. State briefly the consequences of non-registration of a partnership firm. (1994 – Nov., 10 Marks)
Ans. Consequences of Non-Registration of the Firm: Partnership is the result of an agreement between
two or more persons. It need not necessarily be registered. Registration is optional and there is no
penalty for non-registration of the firm. Yet
Section 69 of the Partnership Act imposes certain limitations on an unregistered firm, and
these limitations compel a firm to get itself registered. Following consequences will result from
the non-registration of the firm:
(i) No suit by Partners: A partner of an unregistered firm cannot sue the· firm or any of his
present or past co-partners for the enforcement of any right arising from a contract conferred
by the partnership act.
(ii) No suit by a Firm: A firm cannot sue a third party for the enforcement of any right arising
from a contract (Puranmal Ganga Ram Vs. Central Bank of India, 1993).
(iii) No right of set off: An unregistered firm or any partner thereof cannot claim a set off in a
proceeding instituted against the firm by a third party of enforce a right arising from a contract.
This right of set-off; however, is not affected if the claim of set-off is for less than < 100 in
value.
Exceptions: Non-registration of a firm does not, however, affect the following rights, namely:
(a) The right of third parties to sue the firm or any partner.
(b) The right of partners to sue for the dissolution of the firm or for the accounts of a dissolved
firm or for the realisation of the property of a dissolved firm.
 2.30 CA-Foundation Law by Prof. Sanjay M. Joshi

(c) An Official Receiver or Assignee of a Court acting for an insolvent partner of an unregistered
firm may bring a suit for the realisation of the property of an insolvent partner.
(d) The right of firm or partners of firm having no place of business in India.
(e) The right to sue or claim a set-off if the value of suit does not exceed ` 100.
(f) Non-registration will not affect the enforcement of rights arising otherwise than out of a
contract, e.g., for an injunction against wrongful infringement of a trade mark, trade name or
patent of the firm.
(g) A partner can bring a suit for damages for misconduct against another partner.

3. Dissolution of a partnership is different from the dissolution of a firm. (1995 - May, 5 Marks)
Ans. Dissolution of partnership is different from the dissolution of a firm: According to Indian
Partnership Act there is a firm distinction between dissolution of firm and dissolution of partnership.
Dissolution of the firm may not necessarily mean dissolution of a partnership as in the case of
dissolution of a partnership the firm may continue with some of the remaining partners. According
to Section 39, the dissolution of partnership between all the partners of a firm is called the
"dissolution of the firm". The words "between all the partners" as stated in this Section are very
important. This means that the firm is said to be dissolved only when each and every member of the
firm ceases to carry on the business in partnership. Thus, where one or more partners cease to be
partners in the firm while other remain, as in the case of retirement or expulsion of a partner, the
partnership is dissolved but the firm may not be dissolved, the remaining partners may continue to
carry on the business of the firm.
The follows that the dissolution of a firm necessarily involves the dissolution of partnership whereas
dissolution of partnership does not necessarily involve the dissolution of a firm.

4. When shall a retired partner be discharged from his liabilities for the acts of the firm before
retirement? (1995 – May, 5 Marks)
Ans. Liability of a retiring partner: The retiring partner remains liable to the creditors for the acts of the
firm done before and up to the date of his ·retirement. The retiring partner is also liable to third
parties for all transactions of the firm begun but unfinished at the time of his retirement. On
retirement of a partner, his co-partners may agree to release him from such debts as were existing
up to the date of his retirement. But even then the retiring partner continues to be liable to creditors.
A retiring partner can be released only if (a) the remaining partners agree to release him and a due
notice about his retirement is given; (b) the creditor has expressly or impliedly agreed to release the
retiring partner and to accept the reconstituted firm as his debtor.
Example: A, B and C are partners and D is their creditor, B retires. A and C agrees to release B from
the liability. D also agrees with B and the reconstituted firm of A and C to release B. B is discharged
from liability to D. The law imposes a duty on the retiring partner to give public notice of his
retirement. If the retiring partner fails to give such a notice then he continues to be liable for the acts
of the firm even after his retirement and similarly, the firm will be bound by the acts of the retired
partner done after retirement. This is based on the principle of holding out.
A retired partner will not be liable to any third party who deals with the firm without knowing that
he was a partner. It is for this reason that no public notice need be given when a dormant or sleeping
partner retires.
 Chapter 3 – The Indian Partnership Act, 1932 2.31

5. Non-registration of partnership creates disabilities. (1996 – May, 5 Marks)

Ans. Non-registration of partnership: The Indian Partnership Act does not make the registration of firm
compulsory nor does it impose any penalty for non-registration. Section 69 of the Partnership Act,
however, gives rise to certain disabilities on the ground of non-registration which are as follows:
1. The firm or any other person on its behalf cannot bring an. action against the third party for
the breach of contract entered into by the firm, unless the firm is registered and the persons
suing are or have been shown in the register of firms as partners in the firm.
2. If an· action is brought against the firm by a third party, then neither the firm not the partner
can claim any set-off, if the suit be valued for more than ` 100 or pursue other proceedings to
enforce the rights arising from any conduct. .
3. A partner of an unregistered firm is not allowed from bringing legal action against the firm or
any person alleged to be or to have been a partner in the firm. But such a person may sue for
dissolution of the firm or for accounts and realisation of his share in the firm's property where
the firm is dissolved.
Non-registration of a firm does not affect the right of third parties against the firm or its partners or
the power of an official assignee, Receiver. of Court under the Presidency Towns Insolvency Act, 1920
to realise the property of an insolvent partner.

6. What is the procedure of giving public notice of any matter in respect of Partnership Firms?
(1996 – Nov., 5 Marks)
Ans. Procedure of public notice: In every case where the public notice of any matter in respect of
partnership firms is required to the given under the Partnership Act, 1932, it must be given by
publication in the official gazette and in at least one vernacular newspaper circulating in the district
where the firm of which it relates has its place or principal place of business.
In the case of registered firm, apart from the aforesaid notification, a notice is also required to be
served on the Registrar of firms under Section 63 where the matters relate to (a) the retirement or
expulsion of a partner, or (b) dissolution of the firm, or (c) the election, on attaining majority, to be
or not to be a partner, by a person who as a minor was admitted to the benefit of partnership.
If notice of retirement is published only in local newspaper but not given to Registrar of firms and in
Government Gazette, it is not sufficient to absolve retiring partner from liability to third parties.

7. Define 'Partnership' and state the procedure for its registration. (1997 – May, 10 Marks)
Ans. Partnership is the relation between persons who have agreed to share the profits of a business carried
on by all or any one of them acting for all. (Section 4).
The above definition of the Partnership given by the Indian Partnership Act, lays down three
important elements.
(i) It must be a result of an agreement between two or more persons;
(ii) The agreement must be to share the profits of the business; and
(iii) The business must be carried on by all or any of them acting for all.
All the above elements must co-exist before a partnership can come into existence. Thus, existence
of an agreement, a business, sharing of profits and mutual agency form a core part of the existence
of a partnership.
 2.32 CA-Foundation Law by Prof. Sanjay M. Joshi

Procedure for Registration: The firm has to file a statement in the prescribed form either in person
by post with the prescribed fee, with the Registrar of the Firms of the area in which the firm is situated
or is to be situated.
The Statement is to state the following particulars:
(i) The firm's name.
(ii) The principal place of business.
(iii) The name of its other places of business.
(iv) The date of joining of each partner.
(v) The names in full and the permanent addresses of the partners, and
(vi) The duration of the firm.
When the Registrar is satisfied that the above-mentioned provisions have been complied with, he
shall record an entry of this statement in the register (called the Register of Firms) and shall file the
statement.
The registration shall be completed only when the firm receives a certification of Registration.
However, registration is deemed to be complete as soon as the application in the prescribed form
and with the prescribed fee with necessary details concerning the particulars of the partnership is
delivered to the Registrar. The recording of an entry in the Register of firms is a routine duty of
Registrar.

8. Explain the meaning of 'dissolution of a partnership firm'. When a dissolution of a firm takes place?
(1997- Nov., 10 Marks)
Ans. Dissolution of a firm means the discontinuation of the legal relation existing between all the partners
of the firm. But when only one of the partners retires or becomes incapacitated from acting as a
partner due to death, insolvency or insanity, the partnership, i.e. the relationship between such a
partner and others is dissolved, but the rest may decide to continue. In such cases, there is in practice
no dissolution of the firm. The particular partner goes out, but the remaining partners carry on the
business of the firm. In the case of dissolution of firm, on the other hand, the whole firm is dissolved.
The partnership terminates as between each and every partner of the firm.
Section 39 of the Indian Partnership Act, defines it as follows: ''The dissolution of partnership
between all the partners of a firm is called the dissolution of the firm". Thus, the business is stopped
and the relations between all the partners come to an end.
When a dissolution of a firm takes place?
Dissolution of a firm may take place in the following manner (Sections 39-44):
1. As a result of any agreement between all the partners, this is called dissolution by agreement.
2. By the adjudication of all the partners, or of all the partners but one, as insolvent, this is known
as compulsory dissolution.
3. By the business of the firm becoming unlawful, this is known as compulsory dissolution.
4. As per the agreement, upon happening of any of the following contingencies:
(a) Completion of time; .
(b) completion of the venture for which it was entered into;
(c) death of a partner;
(d) insolvency of partner.
 Chapter 3 – The Indian Partnership Act, 1932 2.33

In case of death of a partner, the number of the partners if do not exceed two, the firm is to be
dissolved. In case the number of partners is more than two, the firm may continue even after
the death of one partner, provided other partners agree to do so.
5. By a partner giving notice of his intention to dissolve the firm, in case of partnership at will and
the firm being dissolved as from the date mentioned or from the date of the communication
of the notice; and
6. By intervention of court in case of:
(i) a partner becoming of unsound mind;
(ii) permanent incapacity of a partner;
(iii) misconduct of a partner affecting the business;
(iv) willful persistence breach of agreement by a partner;
(v) transfer or sale of the whole interest of partner;
(vi) improbability of the business being carried on save at a loss;
(viii) the court being satisfied on other equitable grounds that the firm should be dissolved.

9. What will be the consequences in relations of partners of a partnership firm resulting from:
(i) Insolvency of partner, and
(ii) Death of a partner? (1998 - May, 5 Marks)
Ans. Consequences of Insolvency and death of a partner:
(i) Insolvency of a partner (Section 34): When a partner in a firm is adjudicated and insolvent.
He ceases to be a partner on the date of the order of adjudication whether or not the firm is
thereby dissolved. His estate (which thereupon vests in the official assignee) ceases to be liable
for any act of the firm done after the date of the order, and the firm also is not liable for any
act of such a partner after such date(whether or not under a contract between the partners the
firm is dissolved by such adjudication).
(ii) Death of a partner (Section 35): Where under a contract between the partners the firm is not
dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of
the firm done after his death (Section 35),
Ordinarily, the effect of the death of a partner is the dissolution of the partnership, but the rule
in regard to the dissolution of the partnership by death of a partner is subject to a contract
between the parties and the partners are agree that the death of one will not have the effect
of dissolving the partnership as regards the surviving partners unless the firm consists of only
two partners [Commissioner of Income Tax v. G.S Mill, AIR (1966) S,C. 24].
Section 35 deals with the situation where the firm continues its business without dissolution
and lays down that, in such a case, the estate of a deceased partner is not to be held liable for
any act of the firm done after his death. Proviso to Section 45 lays down an incidental rule
applicable to a case where the death of a partner has caused dissolution of the firm,
In order that the estate of a deceased partner may be absolved from liability for the future
obligations of the firm, it is not necessary to give any notice either to the public or the person
having dealings with the firm.
 2.34 CA-Foundation Law by Prof. Sanjay M. Joshi

10. State the matters for which a partner of partnership firm required to give 'Public Notice' under the
provision of the Indian Partnership Act, 1932. State also the consequences for not giving a public
notice where it is required to be given under the Partnership Act. (1998 – Nov., 10 Marks)
Ans. Public Notice: As per the requirements of Section 72 of the Indian Partnership Act, 1932 a public
notice has to be given:
1. On the retirement or expulsion of a partner from a registered firm.
2. On the dissolution of a registered firm.
3. On the election to become or not to become a partner in a registered firm by a minor on his
attaining majority.
Consequences of not giving public notice as required above;
1. If a minor admitted to the benefits of partnership under Section 30 fails to give public notice
within 6 months of his attaining majority or of his obtaining knowledge that he had been
admitted to the benefits of partnership, whichever date is later, that he has elected to become
or not to become a partner in the firm, he shall become a partner in the firm on the expiry of
the said 6 months and is liable as a partner of the firm.
2. If a retiring partner does not give a public notice of the retirement from the firm under Section
32; he and the other partners shall continue to be liable as partners to third parties for any act
done by any of them which would have been an act of the firm if done before the retirement.
3. If in case of expulsion of a partner from the firm a public notice is not given, the expelled
partner and the other partners shall continue to be liable to third parties dealing with the firm
as in the case of a retired partner. (Section 33).
4. If a public notice is not given on dissolution of a registered firm, the partners shall to be liable
to third persons of any act done by any of them which would have been an act of the firm if
done before the dissolution (Section 45). When public notice is given of the dissolution of a
firm, no partner shall have authority to bind the firm except for certain specific purposes as
given in Section 47. According to this section, after the dissolution of a firm. the authority of
each partner to bind the firm and their mutual rights and obligations of the partners shall
continue:
(i) so far as may be necessary wind up the affairs of the firm; and
(ii) to complete transactions begun but unfinished at the time of the dissolution.

11. Dissolution of a Partnership Firm by the intervention of the Court. (2002 - May, 5 Marks)
Ans. Dissolution of a firm by the intervention of the Court: A firm can be dissolved by the intervention
of the Court on the following grounds:
(i) A partner becoming of unsound mind;
(ii) Permanent incapacity of a partner to perform his duties as such.
(iii) Misconduct of a partner affecting the business.
(iv) Willful or persistent breaches of agreement by a partner.
(v) Transfer or sale of the whole interest of a partner.
(vi) Improbability of the business being carried on save at a loss.
(vii) The Court being satisfied on other equitable grounds that the firm should be dissolved.
 Chapter 3 – The Indian Partnership Act, 1932 2.35

12. State any four grounds on which Court may dissolve a partnership firm in case any partner files a suit
for the same. (2018 – Nov., 4 Marks)
Ans. The four grounds as mentioned under Section 44 on which the Court can dissolve a partnership firm
are:
(a) Insanity / Unsound mind: Where a partner (not a sleeping partner) has become of unsound
mind, the Court may dissolve the firm on a suit of the other partners or by the next friend of
the insane partner.
(b) Permanent incapacity: When a partner other than the partner suing has become in any way
permanently incapable of performing his duties as partner, then the Court may dissolve the
firm.
(c) Misconduct: Where a partner, other than the partner suing, is guilty of conduct which is likely
to affect prejudicially the carrying on of business the Court may order for dissolution of the
firm, by giving regard to the nature of business
(d) Persistent breach of agreement: Where a partner other than the partner suing, willfully or
persistently commits breach of agreements relating to the management of the affairs of the
firm or the conduct of its business, or otherwise so conduct himself in matters relating to the
business that it is not reasonably practicable for other partners to carry on the business ln
partnership with him.

CASE STUDIES
1. ABC & Associates, an unregistered firm purchased some goods worth ` 2000 from 'R' in whose favour
a cheque was issued which was dishonoured. At the same time the firm sold some other goods to
'R' amounting to ` 1200. Later 'R' sued some the firm for recovery of ` 2000. The firm contended that
since 'R' owned ` 1200 to the firm, the said amount should be adjusted against the claim of ` 2000.
Is R's suit maintainable against the firm? Further comment on the validity of the contention made by
the firm.
Ans. The right of a third party to file a suit against an unregistered firm remains unaffected. Therefore, the
suit filed by R against the firm is maintainable. An unregistered firm cannot claim a set-off exceeding
`100. Therefore, the contention of the firm to set-off `1200 shall not be held valid. Only a set-off of
` 100 shall be permissible.

2. X entered into partnership in an existing firm-RST Associates for a period of 10 years and paid
` 5,00,000 as premium. The firm was dissolved after expiry of 3 years because of insolvency of a
partner. X now claims the refund of premium. Advise X as to his rights. Would your answer be
different if the firm is dissolved on account of misconduct of X?
Ans. In case of premature dissolution of the firm, the partner paying the premium shall be entitled to
claim a refund of unexpired part of premium. Thus, in this case X shall be entitled to refund of
` 3,50,000 (5,00,000 / 10  3 = 1,50,000; 5,00,000 – 1 50,000 = 3,50,000) as the unexpired premium.
Refund of premium is not permitted where the premature dissolution of the firm is taking place on
account of misconduct of the partner paying the premium. Thus, if firm is being dissolved on account
of X's misconduct he shall not be entitled to refund of premium.
 2.36 CA-Foundation Law by Prof. Sanjay M. Joshi

3. P, X, Y and Z are partners in a registered firm A & Co. X died and P retired. Y and Z filed a suit against
W in the name and on behalf of firm without notifying to the Registrar of firms about the changes in
the constitution of the firm. Is the suit maintainable?
Ans. A registered firm can sue a third party. If a partnership firm continues to carry on business after the
death of a partner or if a partner retires from the firm, then if the firm is registered, then such changes
in constitution of the firm must also be updated from time to time with the registrar of firm. However,
non-compliance in this regard does not result in disabilities for the firm since the firm is a registered
one. Thus, the right of the firm to sue the third party shall remain unaffected even if changes are not
notified to the registrar. Thus, the suit is maintainable since the suit is filed in the name & on behalf
of firm & the firm is a registered one.
 Chapter 4 – The Sale of Goods Act, 1930 3.1

CHAPTER

The Sale of Goods Act, 1930 3

UNIT 1 - FORMATION OF THE CONTRACT OF SALE

SHORT NOTES
1. Contract of sale. (1996 – May, 5 Marks)
Ans. Contract of Sale: It is a contract whereby the seller transfer or agrees to transfer the property in
goods to the buyer for a price [Section 4(1). (Sales of Goods Act, 1930).
The following elements must co-exist to constitute a contract of sale:
1. There must be atleast two parties.
2. The subject matter must necessarily be 'goods'.
3. A price in money (not in kind) should be paid or promised.
4. A transfer of property must take place.
5. The sale may be absolute or conditional.
6. Other essential elements of a valid contract must be present.
Also, the contract of sale includes both 'Sale' as well as 'agreement to sell'.

2. Formalities of a contract of sale. (1998 – May, 5 Marks)

Ans. Formalities of contract of Sale: Except where specifically required by any law, no particular form is
necessary to constitute a valid contract. The agreement may be express or may be implied from the
conduct of the parties. Section 5 of the Sale of Goods Act, 1930 lays down the rule as to how a
contract of sale may be made and has nothing to do with the transfer or passing of the property in
the goods.
A contract of sale may be made in any of the following modes:
1. There may be immediate delivery of the goods; or
2. There may be immediate payment of price, but it may be agreed that the delivery is to be made
at some future date; or
3 There may be immediate delivery of the goods and an immediate payment of price; or
4. It may be agreed that the delivery or payment or both are to be made in instalments; or
5. It may be agreed that the delivery or payment or both are to be made at same future date.

3. Essentials of appropriation of goods. (1998 – Nov, 5 Marks)

Ans. Essentials of Appropriation of goods: Appropriation of goods involves selection of goods with the
intention of using them in performance of the contract and with the mutual consent of the seller and
the buyer.
The essentials are:
(a) The goods should conform to the description and quality stated in the contract.
(b) The goods must be in a deliverable state.
 3.2 CA-Foundation Law by Prof. Sanjay M. Joshi

(c) The goods must be unconditionally (as distinguished from an intention to appropriate)
appropriated to the contract either by delivery to the buyer or his agent or the carrier.
(d) The appropriation must be made by:
(i) the seller with the assent of the buyer, or
(ii) the buyer with the assent of the seller.
(e) The assent may be express or implied.
(f) The assent may be given either before or after appropriation.

4. 'Goods' in a Contract of Sale. (2001 – May, 5 Marks)

Ans. "Goods" in a Contract of Sale: In the Sales of Goods Act, 1930, 'Goods', means every kind of
movable property, i.e. property of every description (except immovable property), actionable claims
and money and includes stocks, shares, growing crops, grass and things attached to or forming part
of the land e.g. growing trees, machinery fixed or embedded in earth, which were agreed to be
severed before sale or under the contract of sale. [Section 2(7)].
Goods can be of the following types:
1. Existing i.e. which are in existence at the time of sale.
2. Future goods i.e. which are in the process of manufacturing or production or acquisition by the
seller after the contract of sale.
3. Specific i.e. which have been identified at the time of sale.

5. Classification of goods in a contract of sale. (2002 – Nov, 5 Marks)

Ans. Goods forming subject matter of the contract of sale may be classified as under:
(i) Existing Goods
(a) specific goods
(b) unascertained goods
(c) ascertained goods.
(ii) Future Goods
(iii) Contingent Goods
Existing Goods are those which are in actual existence at the time of contract of sale. The seller is the
owner of goods or he has the possession of such goods.
Existing goods may be of the following three types:
(i) Specific Goods: Goods which have either been identified and agreed by the parties at the time
of contract of sale.
(ii) Ascertained Goods are those identified only after the formation of a contract of sale. When
unascertained goods are identified and agreed upon by the parties, the goods are called
Ascertained goods.
(iii) Unascertained Goods are those not specifically identified at the time of contract of sale. They
are described by the description or sample only.
(iv) Future Goods are those which are not in existence at the time of contract. These goods are to
be acquired or produced by the seller after the contract of sale is made. It is an agreement to
sell and not sale.
(v) Contingent goods are like future goods. The acquisition of the goods by the seller depends
upon the uncertain contingencies which may or may not happen e.g. goods will be supplied if
ship arrives.
 Chapter 4 – The Sale of Goods Act, 1930 3.3

DISTINGUISH BETWEEN
1. Distinguish between A 'Sale' and a contract of 'Bailment'. (1995 – May, 5 Marks)
Ans. Sale and Bailment: A 'bailment' is the delivery of goods for some specific purpose under a contract
on the condition that the same goods are to be returned to the bailor or are to be disposed off
according to the directions of the bailor whereas, a contract of sale of goods is a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for a price.
The difference between bailment and sale may be clearly understood studying the following:
(a) In a sale the property in goods is transferred from the seller to the buyer. But in bailment, there
is only transfer of possession of goods from the bailor to the bailee for any of the reasons like
safe custody, carriage etc. In bailment, the bailee must return the goods to the bailor on the
accomplishment of the purpose for which the bailment was made. But there is no question of
return of goods in a contract of sale.
(b) In a sale the consideration is the price' in terms of money where as the bailment may be
gratuitous or non-gratuitous.

2. Distinguish between Sale and Hire-purchase Agreements. (1995 – Nov, 5 Marks)

Ans. Sale and Hire Purchase Agreements: A contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract
of sale between one part-owner and another. [Section 4(1) Sale of Goods Act]. A contract of sale may
be absolute or conditional. [Section 4(2)].
A hire purchase agreement is a contract whereby the owner of the goods lets them on hire to another
person called hirer on payment of rent to be paid in instalments and upon an agreement that when
a certain number of such installments is paid, the ownership in goods will pass on to the hirer. The
hirer may return the goods at any time without any obligation to pay the balance rent. It is not a
contract of sale but only a bailment and the property - in the goods remains in the owner during the
continuance of the bailment.

3. Distinguish between Existing goods and Contingents goods. (1997 – May, 5 Marks)
Ans. Existing Goods and Contingent Goods:
The two terms can be distinguished on the following basis:
1. Meaning: Goods which are physically in existence and which are in seller’s ownership or
possession at the time of entering of contract of sale are called existing goods. While goods,
the acquisition of which by seller depends upon an uncertain contingency are called contingent
goods. They are a type of future goods. Future goods are the goods to be manufactured,
produced or acquired after the making of contract.
2. Type: A contract for the sale of contingent goods is always an agreement to sell while existing
goods can be subject matter of sale as well as agreement of sell.
3. Classification: Existing goods may be classified as specific, ascertained or unascertained goods
while there cannot be any such classification of contingent goods.
 3.4 CA-Foundation Law by Prof. Sanjay M. Joshi

4. Briefly explain the distinguish between Future goods and Contingent goods. (1999 – May)
Ans. Future Goods and Contingent Goods: Those goods which are yet to be manufactured or produced
or acquired by the seller after the making of the contract of sale, are called, ''future goods". Thus,
future goods are not in existence at the time of the contract of sale or if they are in existence they
have not yet been acquired by the seller by that time. When a present sale is made for some future
goods, it is in fact not sale but an agreement to sell. (Section 2(6) and 6(3) of the Sale of Goods Act,
1930).
According to Section 6(2) of the Sale of Goods Act, contingent goods are goods the acquisition of
which by the seller depends upon a contingency which may or may not happen. They are also a type
of future goods and therefore, a contract for sale of contingent goods operate as an agreement to
sell.
Contingent goods are different from future goods in the sense that the procurement of contingent
goods is dependent upon an uncertain event, whereas the obtaining of future. goods does not
depend upon any such uncertainty.

5. Point out any four major differences between a sale and an agreement to sell.
(1999 – Nov., 5 Marks)
Ans. Difference between a sale and an agreement to sell: According to Section 4 of the Sale of Goods
Act, 1930, a contact of goods is a contract whereby the seller transfers or agrees to transfer the
property in the goods to the buyer for a price, whereas under an agreement to sell, the transfer of
the property in the goods is to take place at a future date.
• In a sale, the seller can sue the buyer for the price of the goods, but in an agreement to sell,
the aggrieved party can sue for damages only and not for price.
• In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the
liability remains with the seller if it is agreement to sell.
• In sale, seller's breach gives the buyer to sue for damages and also remedy of recovery the
goods from third parties who bought them. But in an agreement to sell, buyer's remedy is for
a suit of damages.

6. Distinguish between sale and agreement to sell under the Sale of Goods Act.
(2000 May, 10 Marks)
Ans. Sale and Agreement to sell distinguished:
(a) A sale implies an agreement plus a conveyance (transfer) of property. In an agreement to sell,
there is no conveyance, the conveyance takes place at a future date.
(b) In a sale, the property in the goods passes to the buyer and risk also passes to the buyer. In
agreement to sell, since property does not pass to the buyer, risk also does not pass to the
buyer.
(c) A sale is an executed contract. An agreement to sell is an executory contract.
(d) In a sale, the seller can sue the buyer for the price of the goods. In an agreement to sell, the
aggrieved party can sue for damages only and not for the price, unless the price was payable
at a stated date.
 Chapter 4 – The Sale of Goods Act, 1930 3.5

(e) In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the
liability remains with the seller, where the transaction only amounts to an agreement to sell.
(f) In an agreement to sell, the seller, being still the owner, may dispose of the good as the likes
and the buyer's remedy would be to file a suit for damages. In a sale however, the seller's
breach gives the buyer the double remedy, a suit for damages against the seller, and the
remedy of recovering of goods from third parties who bought them.
(g) In a sale, in case of default by buyer, seller can sue the buyer for price even if goods are in his
possession and can resell the goods. In an agreement to sell, the seller's remedy in case of
default, is to sue for damages for breach and not the price even though the goods are in the
possession of the buyer.
(h) In case of sale, if the seller becomes insolvent, while the goods are still in his possession, the
buyer shall have a right to claim the goods from the official receiver or assignee. In case of
agreement to sell, when the seller becomes insolvent, the buyer's remedy is to claim rateable
dividend from the estate of the insolvent seller for the price paid and not for the goods, since
property in them still rests with the seller. If the buyer becomes insolvent, the seller can refuse
to deliver the goods to the official receiver or assignee unless the price is paid to him, in the
case of agreement to sell. In the case of sale, in the absence of right of lien over the goods, the
seller must deliver the goods to the official receiver/assignee of the buyer and is entitled to
rateable dividend only from the estate of the insolvent buyer.

7. Differentiate between Ascertained and Unascertained Goods with example. (2018- Nov, 4 Marks)
Ans. The basic point of distinction between ascertained and un-ascertained goods with example can be
discussed as under:
Ascertained goods are those goods which are identified in accordance with the agreement after the
contract of sale is made. This term is not defined in the act but has been judicially interpreted. In
actual practice the term 'ascertained' goods is used in the same sense as 'specific' goods' when from
a lot or out of large quantity of unascertained goods, the number or quantity contracted for is
identified. such identified goods are called ascertained goods.
Example: A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these
bales were selected and set aside. On selection the goods, becomes ascertained. In this case, the
contract is for the sale· of ascertained goods, as the cotton bales to be sold are identified and agreed
after the formation of the contract.
Un-ascertained goods are the goods which are not specifically identified or ascertained at the time
of making oi the contract.
They are indicated or defined only by description or sample.
Example: If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his
shop, it is a sale of un-ascertained goods because it is not known which packet is to be delivered. As
soon as a particular packet is separated from the lot, it becomes ascertained or specific goods.
 3.6 CA-Foundation Law by Prof. Sanjay M. Joshi

DESCRIPTIVE QUESTIONS

1. A contract of sale is not avoided even on account of breach of condition. (1996 – May, 5 Marks)
Ans. Contract of sale not avoided on breach of condition: Section 13 of the Sales of Goods Act, 1930
provides certain circumstances where under a condition is treated as a warranty and hence the
contract of sale is not avoided even on account of breach of a condition. In the following cases this
rule is applicable:
1. Where the buyer altogether waives the performance of the condition. A party may for his own
benefit waive a stipulation.
2. Where the buyer elects to treat the breach of the condition as one of a warranty. In such a case
he may only claim damages instead of repudiating the contract.
3. Where the contract is non-severable and the buyer has accepted either the whole goods or
any part thereof.
4. Where the fulfillment of any condition or warranty is excused by law by reason of impossibility
or otherwise.

2. The rule in sale of goods is "none can give or transfer what he does not himself possess". Are there
any exceptions to this rule? Discuss. (1996 – Nov., 5 Marks)
Ans. Exceptions to the Rule 'none can give or transfer what he does not himself has':
Section 27 of the Sale of Goods Act, states the above rule, i.e. 'None can give or transfer what he
does not himself has'. However, the rule subject to the following exceptions stated under Sections
28-30 of the Act.
These are:
1. By estoppel: Where the owner is estoppel by the conduct from denying the seller's authority
to sell, the transferee will get a good title as against the true owner and the above rule shall
not apply.
2. Sale by a mercantile agent: Sale by a mercantile agent to goods or document of title to goods
under the following conditions.
(a) the agent has the possession of goods with the consent of the owner,
(b) he sells them in the ordinary course of business,
(c) the buyer buys is good faith.
3. Sale by one of the joint owners: When one of the several owners having the possession of
the goods sells them out and the buyer buys in good faith.
4. Sale by a person in possession under voidable contract: When the· seller who has obtained
the possession of the goods under a voidable contract and has not rescinded the contract till
the time of such sale, sell such goods.
5. Sale by one who has already sold the goods but continues in possession thereof: Under
these circumstances, if the seller sells the goods and the buyer buys in good faith without
notice of the previous sale. Similarly, a pledge or other disposition of the goods or documents
of title by the seller in possession are equally valid.
6. Sale by buyer obtaining possession before the property in the goods has vested in him, if sells,
pledges or otherwise disposes such goods to a person who in good faith and without notice
of the lien or other right of the original seller in respect of the goods, devolves a good title to
such person.
 Chapter 4 – The Sale of Goods Act, 1930 3.7

7. Sale by an unpaid seller: An unpaid seller who had exercised his right of stoppage in transit,
sells such goods again, the buyer of such goods acquires a good title to the goods as against
the original buyer.
8. Sale under the provisions of the other Acts:
(a) Sale by, an official receiver or liquidator of the company.
(b) Purchase of goods from a finder of goods.
(c) Sale by a pawnee under default of pawnor.

3. Describe the conditions implied in a contract for sale of goods by -

(i) Description, and
(ii) Sample. (1997- May, 10 Marks)
Ans. (i) Sale by description: Where there is a contract for sale of goods by description. there is an
implied condition that the goods shall correspond with the description. If the description of
the article is different in any respect, the other party is not bound to take it.
The sale of goods by description may include:
1. Where the buyer has not seen the goods and relied on their description given by the
seller.
2. Where the buyer has seen the goods but he relies not on what he has seen but what was
stated to him and the deviation of the goods from the description is not apparent.
3. The packing of the goods may some times be a part of the description.
(ii) Sale by Sample: In the case of contract for sale by sample, there is an implied condition that-
1. The bulk shall correspond with the sample in quality.
2. The buyer shall have a reasonable opportunity of comparing the bulk with the sample.
3. The goods shall be free from any defect rendering them unmerchantable which would
not be apparent on a reasonable examination of the sample. This implied condition
applies only to latent defects, i.e., defects which are not discoverable on a reasonable
examination of the sample. The seller is not responsible for the defects which are patent
i.e. visible by examination of the goods. In such a case, there is no breach of condition as
to merchantability.
Section 15 of the Sale of Goods Act also provides that if the sale is by sample as well as
by description, the goods must correspond both with the sample and with the
description.

4. How the price of the goods may be ascertained in case of sale of goods? (1997 – Nov., 5 Marks)
Ans. Ascertainment of Price: The meaning of the price and the rule regarding ascertainment of the price
of the goods is contained in Sections 2(10), 9 and 10 of the Sale of Goods Act respectively, as follows:
'Price means' the monetary consideration for sale of goods. The price may be fixed by the contract
or agreed to be fixed in a manner provided by the contract, e.g., by a valuer or determined by the
cause of dealings between the parties. When it can not be fixed in any of the above ways, the buyer
is bound to pay to the seller a reasonable price. What is a reasonable price is a question of fact in
each case (Section 9).
Section 10 provides for the determination of price by a third party. Where there is an agreement of
sell goods on the terms that price has to be fixed by the third party and he either does not or cannot
make such valuation, the agreement will be void. In case the third party is prevented by the default
 3.8 CA-Foundation Law by Prof. Sanjay M. Joshi

of either party from fixing the price, the party at fault. will be liable to the damages to the other party
who is not at fault. However, a buyer who has received and appropriated the goods must pay a
reasonable price for them in any eventuality.

5. In a sale of goods 'goods' sold must be of merchantable quality. (1998 – Nov., 5 Marks)
Ans. Goods Must be of merchantable Quality: It is one of the implied conditions that the goods sold to
a customer must be of merchantable quality. Section 16(2) of the Sale of Goods Act provides: Where
goods are bought by description from a seller who deals in goods of that description (whether he is
the manufacturer or producer or not), there is an implied condition that the goods are of
merchantable quality. The expression "merchantable quality" though not defined in the Act,
nevertheless connotes goods of such a quality and in such condition that a man of ordinary prudence
would accept them as goods of that description. Goods should also be such as are commercially
saleable under the description by which they are known in the market at their lull value. II goods are
of such a quality and in. such a condition that a reasonable person acting reasonably. would accept
them alter having examined them thoroughly, they are of merchantable quality.
Sub-section (2) of Section 16 further provides that where the buyer has examined the goods, there
is an implied condition as regards defects, which such examination ought to have revealed. [Proviso
to Section 16(2)].

6. What is meant by delivery of goods under the Sale of Goods Act, 1930? State various modes of
delivery. (2018 – May, 4 Marks)
Ans. Delivery means voluntary transfer of possession from one person to another. It may be made by
doing anything, which has the effect of putting the goods, in the possession of the buyer, or any
person authorized on his behalf.
Various modes of delivery are as follows:
(i) Actual delivery: Physical delivery of goods to buyer.
(ii) Constructive delivery: When it is effected without change in the custody or actual possession.
(iii) Symbolic delivery: Where there is a delivery of a thing in token of a transfer of something
else.

CASE STUDIES
1. A sells a laptop computer to B with a stipulation that payment should be made within 3 days. B
makes the payment after 7 days of the contract.
Ans. Stipulations as to the time for payment of price is not of essence; A cannot avoid the contract on the
grounds of the breach of stipulation as to time of payment of price.

2. A agrees to sell two of his cars to B at a price to be fixed by C. He immediately gives delivery of first
car. C refuses to fix the price. A asks for the return of the car already delivered while B claims the
delivery of the second car too. Decide.
Ans. The buyer B shall pay a reasonable price to A for the car already taken, As regards the second car,
the contract becomes void.
 Chapter 4 – The Sale of Goods Act, 1930 3.9

UNIT 2 - CONDITIONS AND WARRANTIES

SHORT NOTES
1. Rule of 'caveat emptor'. (1996 – Nov., 5 Marks)
Ans. Rule of Caveat Emptor: In olden days, goods were sold on the foot paths and therefore, the buyer
had the opportunity to see the goods himself and decide whether they suit to his purpose or the
quality of goods is satisfactory to his requirements. Therefore, the rule of "caveat Emptor'' prevailed.
The rule meant, 'let the buyer beware', he should see and satisfy himself about the condition and the
purpose for which he requires the goods, the seller shall not be duty bound to tell the buyer about
the suitability of the goods as regards quality or fitness for the use by the buyer. If therefore, while
making purchases of goods the buyer depend upon his own skill and makes a bad choice, he must
blame himself only and not the seller, of course in the absence of any misrepresentation or fraud or
guarantee by the seller. The rule of caveat emptor is laid down in the opening lines of Section 16,
which states that "subject to the provisions of this Act or of any other law for the time being in force,
there is no implied warranty on condition as to quality or fitness for any particular purpose of goods
supplied under a contract of sale.
Things have changed now. The buyers depend upon the sellers for their purchases in majority of the
cases so far as the quality and fitness and suitability for the purpose are concerned. Therefore, this
rule is now subject to certain exceptions.

2. Implied warranties in a contract of sale. (1999 – May, 5 Marks)

Ans. Implied Warranties in a contract of sale:
(i) Warranty of quiet possession [Section 14(b)] Sale of Goods Act: In a contract of sale, unless
there is a contrary intention, there is an implied warranty that the buyer shall have and enjoy
quiet possession of the goods. If the buyer is in any way disturbed in the enjoyment of the
goods in consequences of the seller's defective title to sell, he can claim damages from the
seller.
(ii) Warranty of freedom from encumbrances [Section 14(c)]: The buyer is entitled to a
warranty that the goods are not subject to any change or right in favour are not subject to any
change or right in any way disturbed by reason of the existence of any charge or encumbrances
on the goods in favour of any third party, he shall have a right to claim damages for breach of
this warranty.
(iii) Warranty as to quality or fitness by usage of trade [Section 16(4)]: An implied warranty as
to quality or fitness for a particular purpose may be annexed by the usage of trade.
(iv) Warranty to disclose dangerous nature of goods: Where a person sells goods, knowing that
the goods are inherently dangerous or they are likely to be dangerous to the buyer and that
the buyer is ignorant of the danger, he must warn the buyer of the probable danger, otherwise
he will be liable for damages.
 3.10 CA-Foundation Law by Prof. Sanjay M. Joshi

DISTINGUISH BETWEEN
1. Condition and Warranty. (1998 – May, 5 Marks)
Ans.
Condition Warranty
(1) A condition is essential to the main (1) It is only collateral to the main purpose of
purpose of the contract. the Contract.
(2) The aggrieved party can repudiate the (2) The aggrieved party can claim only
contract or claim damages or both in the damages in case of breach of warranty.
case of breach of condition.
(3) A breach of condition may be treated as (3) A breach of warranty cannot be treated as
a breach of warranty a breach of condition.

DESCRIPTIVE QUESTIONS
1. When the doctrine of 'Caveat Emptor' does not apply to the sale of goods? (1994 – Nov., 5 Marks)
Ans. The term Caveat Emptor means let the buyer beware; i.e. it is the duty of the buyer to select the
goods of his requirement. The seller is in no way responsible for the bad selection of the buyer and
not bound to disclose the defects in the goods which is selling. If the goods turn out to be defective,
the buyer cannot hold the seller responsible. This is known as the doctrine of 'Caveat Emptor'. This
doctrine is however, subject to the following exceptions:
1. Where the buyer makes it known to the seller the particular purpose for which the goods are
required, so as to show that he relies on the seller's skill or judgement and the goods are of a
description which is in the course of seller's business to supply, it is the duty of the seller to
supply such goods as are reasonably fit for that purpose.
2. Where the goods are sold by description there is an implied condition that the goods shall
correspond with the description. (Section 15).
3. Where the goods are bought by description from a seller who deals in goods of that description
there is an implied condition that the goods shall be of merchantable quality. But where the
buyer has examined the goods this rule shall apply if the defects were such which ought to
have been revealed by an ordinary examination (Section 16(2)).
4. Where the goods are bought by sample, this rule of Caveat Emptor does not apply if the bulk
does not correspond with the sample (Section 17).
5. Where the goods are bought by sample as well as description, the rule of Caveat Emptor is not
applicable in case the goods do not correspond with both the sample and description (Section
15).
6. An implied warranty or condition as to quality or fitness for a particular purpose may be
annexed by the usage of trade 'and if the seller deviates from that, this rule of Caveat Emptor
is not applicable.
7. Where the seller sells the goods by making some misrepresentation or fraud and the buyer
relies on it or when the seller actively conceals some defect in the goods so that the same could
not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor
will not apply. In such a case the buyer has a right to avoid the contract and claim damages.
 Chapter 4 – The Sale of Goods Act, 1930 3.11

2. When can a 'Condition' be treated as a 'Warranty' under the Sale of Goods Act?
(1995 – May, 10 Marks)
Ans. A stipulation in a contract of sale may be either a condition or a warranty. A condition is a stipulation
essential to the main purpose of the contract, the breach of which gives right to the aggrieved party
to terminate the contract while a warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives the aggrieved party a right to claim for damages. But in some
cases, a condition may be treated as warranty as given in Section 13 of the Sale of Goods Act. The
effect is that the buyer cannot repudiate the contract but has to be satisfied with damages only. Such
cases are discussed hereunder:
1. Waiver by Buyer: Where a contract of sale is subject to any condition to be fulfilled by the
seller. the buyer may (a) waive the condition, or (b) elect to treat the breach of the condition
as a breach of warranty. The buyer has the option to accept the goods and claim damages
from the seller. If he once decides to waive the condition, he cannot afterwards insist on its
fulfillment.
Example: A agrees to buy from B, ten bags of wheat as per sample. B delivers the wheat, but
it was not according to the sample. A has a right to reject the goods, but he may decide to
accept the goods and treat this breach of condition as a breach of warranty.
2. Acceptance of goods by buyer: Where a contract of sale is not severable, i.e., it is indivisible
and the buyer has accepted the goods or part thereof, the breach of any condition is to be
treated as a breach of a warranty. In such a case it is not left at the option of the buyer. But if
the contract is divisible then even though the buyer has accepted a part of the goods, he can
still reject the remaining goods.
Now the question arises as to when the buyer can be said to have accepted the goods. In this
connection Section 42 provides that the buyer is deemed to have accepted the goods:
(a) when he intimates to the seller that he has accepted them or;
(b) when he does any act in relation to the goods which is inconsistent with the ownership
of seller or;
(c) when, after the lapse of a reasonable time, he retains the goods without intimating to
the seller that he has rejected them.
Example: A purchased 10 bags of rice from B according to the sample. When the goods were
delivered, A resold the rice to P. P rejected the goods on the ground that it was not according to
sample. Now A also wants to avoid the contract. Here A will not succeed because by reselling the
goods to P, A has accepted the goods. Now he is to treat this breach of condition as a breach of
warranty and be content with damages only.

3. What are the implied conditions in case of sale by sample? (1995 – Nov., 5 Marks)
Ans. Sale by sample (Section 17 of Sale of Goods Act) A contract of sale is a contract for sale by sample
where. there is a term in the contract, express or implied, to that affect. In the case of a contract for
sale by sample there is an implied condition:
(i) that the bulk shall correspond with the sample in quality;
(ii) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
 3.12 CA-Foundation Law by Prof. Sanjay M. Joshi

(iii) that the goods shall be free from any defect, rendering than unmerchantable, which· would
not be apparent on reasonable examination of the sample. This condition is applicable only
with regards to defects which could not be discovered by an ordinary examination of. the
goods (Drummond and Sons vs. Van Inger).

4. State the law relating to sale by description. (1996 – May, 5 Marks)

Ans. Implied conditions in a sale by description: The law relating to 'Sale by description' is contained
in Section 15 of the Sale of Goods Act, 1930.
1. Though the Act has not defined the term 'description', a sale is deemed to be made by
description:
(a) where class or kind of goods has been specified e.g., Egyptian cotton.
(b) where goods are described by its characteristics for identification e.g., dimensions for
steel.
2. In a sale by description, there is an implied condition that goods shall correspond with
description (by statement or representation as regards goods by its identity, place of origin or
mode of packing etc.) alone made by the buyer, which is essential for deciding either
acceptance or rejection of goods by the buyer.
This implied condition goes to the root of the contract and the breach of its entitles the buyer
to reject whether he is able to inspect them or not.

5. What is meant by the doctrine of 'Caveat Emptor'? State the circumstances under which the doctrine
is not applicable. (1998 – Nov., 10 Marks)
Ans. Caveat Emptor: In the case of sale of goods, the doctrine applicable is "Caveat Emptor" which means
"Let the buyer beware". When sellers display their goods in the open market. it is for the buyers to
make a proper selection or choice of the goods. If the goods turn out be defective he cannot hold
the seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is
not bound to disclose the defects in the goods which is selling. It is the duty of the buyer to satisfy
himself before buying the goods that the goods will serve the purpose for which they are being
bought. If the goods turn out to be defective or do not serve his purpose or if he depends on his
own skill or judgement, the buyer cannot hold the seller responsible. The rule of Caveat Emptor is
laid down in the opening lines of Section 16, which states that "subject to the provisions of this Act
or of any other law for the time being in force, there is no implied warranty or condition as to the
quality of fitness for any particular purpose of goods supplied under a contract of sale".
Exceptions: The doctrine of Caveat Emptor is, however, subject to the following exceptions;
1. Where the buyer makes known to the seller the particular purpose for which the goods are
required, so as to show that he relies on the seller’s skill or judgement and the goods are of a
description which is in the course of seller's business to supply, it is the duty of the seller to
supply such goods as are reasonably fit for that purpose [Section 16(1 )].
2. In case where the goods are purchased under its patent name or brand name, there is no
implied condition that the goods shall be fit for any particular purpose {Section 16(1)).
3. Where the goods are sold by description there is an implied condition that the goods shall
correspond with the description.
 Chapter 4 – The Sale of Goods Act, 1930 3.13

4. Where the goods are bought by description from a seller who deals in goods of that description
there is an implied condition that the goods shall be of merchantable quality. The rule of Caveat
Emptor is not applicable. But where the buyer has examined the goods this rule shall apply if
the defects were such which ought to have been revealed by ordinary examination [Section
16(2)).
5. Where the goods are bought by sample, this rule of Caveat Emptor does not apply if the bulk
does not correspond with the sample [Section 17].
6. Where the goods are bought by sample as well as description, the rule of Caveat Emptor is not
applicable in case the goods do not correspond with both the sample and description [Section
15].
7. An implied warranty or condition as to quality or fitness for a particular purpose may be
annexed by the usage of trade and if he seller deviates from that, this rule of Caveat Emptor is
not applicable.
8. Where the seller sells the goods by making some misrepresentation or fraud and the buyer
relies on it own or when the seller actively conceals some defect in the goods so that the same
could not be discovered by the buyer on a reasonable examination, then the rule of Caveat
Emptor will not apply. In such case the buyer has a right to avoid the contract and claim
damages.

6. What are the implied conditions in a Contract of Sale? (2001 – May, 5 Marks)
Ans. It is open to the parties to include in their contract any number of conditions -and warranties. But in
addition to what the contract may provide, the law implies every sale of goods a number of
conditions. They are read with every contract of sale. They are known as implied conditions. They are
stated as under:
(i) Condition as to title (Section 14): It is an implied condition in every sale that the seller has
right to sell. That means the title of the seller is perfect.
(ii) Sale by description: Section 15 lays down the condition that where the sale is by description
the goods must correspond with description. If the goods does not correspond with the
description the sale may be set aside.
(iii) Sale by description as well as be sample (Section 15): Section 15 further provides that "if
the sale is by sample as well as by description, the delivery of goods should correspond to
description as well as sample.
(iv) Goods supplied must be fit for buyers purposes: If the buyer has disclosed the purpose it
should be fit for his purpose otherwise the contract may be set aside (Section 16 (i)).
(v) Goods supplied should be of mercantile quality: It is an implied condition of sale that goods
must be of mercantable quality (Section 16(2)).
It is open to the parties to include any express condition in their contract. But an express
condition does not negative a condition implied by the Sale of Goods Act, 1930.
 3.14 CA-Foundation Law by Prof. Sanjay M. Joshi

7. When shall a condition be treated as a warranty? (2002 – May, 5 Marks)

Ans. A condition shall be treated as a warranty in the following cases:
1. Voluntary wavier of condition: Where a contract of sale is subject to any condition to be
fulfilled by the seller, the buyer may (a) wave the condition, or (b) elect to treat the breach of
the condition as a breach of warranty [Section 13(1)]. If the buyer once decides to waive the
condition, he cannot afterwards insist on its fulfilment.
2. Acceptance of goods by buyer: If the contract of sale is not severable and the buyer has
accepted the goods or part there of, the breach of any condition to be fulfilled by the seller
can only be treated as a breach of warranty, unless there is a term of the contract, express or
implied, to the contrary. [Section 13(2)].
The provisions of Section 13 of the Sale of Goods Act, 1930 do not affect the cases where the
fulfilment of any condition or warranty is excused by law by reasons of impossibility or otherwise.
[section 13(3)].

CASE STUDIES
1. A purchased a hot-water bottle from a retail chemist. The chemist informed him that the bottle was
specially meant for holding hot water. At the time of use, the bottle burst as soon as the hot water
was poured into it and injured A's wife. Comment on remedies available to A under the Sale of Goods
Act, 1930.
Ans. Breach of implied condition as to fitness and quality of goods; A can claim damages.

2. D bought a Colour TV from M/s. Kaka Enterprises for a sum of ` 40,000. The TV set was defective
right from the beginning and it did not work inspite of repairs by the expert mechanics. What is the
remedy available to D?
Ans. Breach of condition as to merchantability; D shall be entitled to return the T.V. and claim damages.

3. Ram consults Shyam, a motor-car dealer for a car suitable for touring purposes to promote the sale
of his product. Shyam suggests 'Maruti' and Ram accordingly buys it from Shyam. The car turns out
to be unfit for touring purposes. What remedy Ram is having now under the Sale of Goods Act, 1930?
Ans. Breach of implied condition as to quality & fitness of goods and their unsuitability for buyers
purpose. Ram is entitled to rescind the contract and claim damages if any, along with a refund of
price.

4. For the purpose of making uniform for the employees, Mr. Yadav brought dark blue coloured cloth
from Vivek, but did not disclose to the seller the purpose of said purchase. When uniforms were
prepared and used by the employees the cloth was found unfit. However, there was evidence that
the cloth was fit for caps, boots carriage lining. Advise Mr. Yadav whether he is entitled to have any
remedy under the Sale of Goods Act, 1930?
Ans. Condition as to fitness & quality for buyer's purpose. This implied condition applies to a contract
only when:
(i) the purpose of buyer's purchase is known to the seller,
(ii) when the buyer relies on seller's skill & judgment &
(iii) Seller deals in the goods in his usual course of business.
 Chapter 4 – The Sale of Goods Act, 1930 3.15

In the given case since the buyer - Mr. Yadav, has not communicated to the seller- Vivek, the purpose
of purchasing the cloth, therefore the implied condition as to quality & fitness of the cloth for buyer's
purpose does not apply & hence Mr. Yadav is not entitled to any remedy against Vivek, under the
Sale of Goods Act, 1930.

UNIT 3 - TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS

SHORT NOTES
1. Documents of Title to Goods. (1994 – Nov., 5 Marks)
Ans. Documents of title to goods: A document of title to goods is one which' enables its possessor to
deal with the goods described in it as if he were the owner. It is used in the ordinary course of
business as proof of the possession or control of goods. It authorises, either by endorsement or
delivery, its possessor to transfer or receive goods represented by it [Sec. 2(4)]. It symbolises the
goods and confers a right on the purchaser to receive the goods or to further transfer such right to
another person. This may, be done by mere delivery or by proper endorsement and delivery. But
such document is not a negotiable instrument, for unlike 'a holder in due course (the transferee of
such a document does not acquire a title better than the one held by transferor. Only bona fide
holder of a document of title can enforce his right there under. Some instances of documents of title
to goods are bill of lading, dock warrant, warehouse keeper’s or wharfingers certificate, railway
receipt and delivery order.

2. Symbolic delivery. (1995 - May, 5 Marks)

Ans. Symbolic delivery: Delivery denotes a voluntary transfer of possession from one person to another.
The delivery may be actual (i.e., by an actual transfer of physical custody), or symbolic (i.e., by causing
a change in the possession of the goods without any change in their actual or visible custody). If the
goods are bulky or ponderous or not capable of being actually handed over by the seller to the
buyer, a symbol indicating the transfer of title of the goods may be given which will tantamount to
delivery. For example, A sells to B 100 quintals of wheat lying in the possession of C, a warehouseman.
A makes over to B, an order to C, called a delivery order, to transfer the wheat to B and C accepts
such an order by transferring the wheat in his books to B. This would bs construed as a symbolic
delivery to B. In such a case complete access to the goods is essential otherwise it will not be a
symbolic delivery (Sanders vs. Maclean 1883).
Thus, in symbolic delivery the goods remain where they are, but the means of obtaining possession
of goods is delivered. Other examples of symbolic delivery are bill of lading or railway receipt,

3. Kinds of Delivery of Goods. (1997 - Nov., 5 Marks)

Ans. Kinds of Delivery of Goods: Delivery means voluntary transfer of possession by one person to
another [(Section 2(2)). As a general rule delivery of goods may be made by doing anything which
has the effect of putting the goods in the possession of the buyer or any person authorised to hold
them on his behalf. Delivery may be of three kinds which may be enumerated as follows:
(i) Actual delivery: It is actual when the goods themselves are delivered to the buyer.
 3.16 CA-Foundation Law by Prof. Sanjay M. Joshi

(ii) Constructive delivery: When it is effected without any change in the custody or actual
possession of the thing as in the case of delivery by attornment (acknowledgment) e.g. where
a warehouseman holding the goods of A agrees to hold them on behalf of B, at A's request.
(iii) Symbolic delivery: When there is a delivery of a thing in token of a. transfer of something
else, i.e., delivery of goods in cause of transit may be made by handing over documents of title
to goods, like bill of lading or railway receipt or delivery order.

DESCRIPTIVE QUESTIONS
1. When may a non-owner of goods validly transfer the title of goods to another person, under the Sale
of Goods Act? (1995 – May, 10 Marks)
Ans. The general rule relating to the transfer of title on sale is that a person cannot pass a better title than
what he himself has. This rule is expressed by the maxim "Nemo dat Quod non habet", which means
"no one can give what he has not got. Since the seller's title is defective the subsequent transferee's
title will also be defective.
This rule has been stated in Section 27 which runs thus "subject to the provisions of this Act and of
any other law, for the time being in force, where goods are sold by a person who is not the owner
thereof and who does not sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had".
Section 27 to Exceptions to this rule: 30 lay down the situations in which Nemo dat rule does not
apply. These are as follows:
(i) Title by estoppel (Section 27): Where the true owner by his conduct or by act or omission
causes the buyer to believe that the seller has the authority to sell the goods and induces the
buyer to buy them, he cannot afterwards set up seller's want of title or authority to sell as
defence. He shall be estopped or precluded from denying the authority of the seller to sell. The
buyer in such a case gets a better title than that of the seller.
(ii) Sale by mercantile agent: Where the mercantile agent is, with the consent of the owner, in
possession of goods or of a document of title to the goods, any sale made by him shall be
valid as if he is the owner of the goods, provided he has acted in good faith and has not, at the
time of the contract of sale, noticed that the seller has no authority to sell.
(iii) Sale by a join owner (Section 28): If one of the several joint owners of goods has the sole
possession of them by permission of the owners, the property in the goods is transferred to
any person who buys them from such joint owner in good faith and has not at the time of the
contract of sale noticed that the seller has no authority to sell.
(iv) Sale by person in possession under voidable contract (Section 29): When the seller of
goods has obtained possession thereof under a voidable contract, but the contract has not
been rescinded at the time of the contract of sale, the buyer acquires a good title to the goods
provided he buys them in good faith and without notice of the seller's defective title.
(v) Seller in possession after sale [Section 30(1 )]: Where a seller having sold the goods
continues to be in possession of the goods or documents of title to the goods, he may resell
the goods and the new buyer will get a good title over the goods provided he acts in good
faith, without notice of the prior sale, and obtains possession of the goods or documents of
title to the goods.
 Chapter 4 – The Sale of Goods Act, 1930 3.17

(vi) Resale by unpaid seller: Where an unpaid seller while after exercising his right resells the
goods, the buyer acquires a good title thereto as against the original buyer, not-withstanding
that no notice of resale has been given to the original buyer.
(vii) Sale by finder of lost goods: Under certain circumstances, a finder of goods may sell them
and convey a good title to the purchaser (Section 169 of Indian Contract Act).
(viii) Sale under order of the Court: A transferee under a Court sale gets a good title
notwithstanding the title or authority of his transferor.

2. Describe the rules relating to passing of property in the sale of goods. (1995 – Nov., 10 Marks)
Ans. Passing or transfer of property constitutes the most important element and factor to decide legal
rights and liabilities of sellers and buyers. Passing of property implies passing of ownership. If the
property has passed to the buyer, the risk in the goods sold is that of buyer and not of seller, though
the goods may still be in the seller's possession.
The primary rules relating to the passing of property in the sale of goods are:
(1) No property in the goods is transferred to the buyer, unless and until the goods are ascertained.
(2) Where there is a contract for sale of specific of ascertained goods, property passes to the buyer
at the time when parties intend to pass it. For the purpose of ascertaining intention of the
parties regard shall be had to the terms of contract, conduct of parties, and circumstances of
the case. Where the intention of the parties cannot be ascertained, rules contained in Sections
20 to 24 shall apply.
For specific goods: Where there is an unconditional contract for the sale of specific goods in a
deliverable state, property in the goods passes to the buyer when the contract is made (Section 20).
Deliverable state means such a state that the buyer would under the contract be bound to take
delivery of the goods. If the goods are not in a deliverable state, property does not pass until such a
thing is done to put the goods in a deliverable state. This 'something' may mean packing the goods,
testing, polishing, filling in casks etc. It should be noted that the property shall not pass when the
goods are made in deliverable state but shall pass only when the buyer has notice of it (Section 21).
But where they are in deliverable state, but the seller is bound to weight. measure, test or do some
other act or thing for the purpose of ascertaining the price, the property does not pass until such act
or thing is done. When the seller has done his part the property passes even if the buyer has to do
something for his own satisfaction. (Section 22).
Unascertained goods: Until, goods are ascertained, there is merely an agreement to sell. The
ascertainment of goods and their unconditional appropriation to the contract are the two pre-
conditions for transfer of property from seller to buyer in case of unascertained goods. A seller is
deemed to have unconditionally appropriated, where he delivers the goods to the buyer or to a
carrier or other bailee for the purpose of transmission to the buyer. (Section 23).
Goods sent on approval or "on sale or return": When the goods are delivered to the buyer on
approval or on sale or return or other similar terms the property passes to the buyer, (i) When he
signifies his approval or acceptance to the seller, (ii) When he does any other act adopting the
transaction, and (iii) if he does not signify his approval or acceptance to the seller but retains goods
beyond a reasonable time. (Section 24).
 3.18 CA-Foundation Law by Prof. Sanjay M. Joshi

3. What are the rules regarding delivery of goods? (1996 – May, 10 Marks)
Ans. Rules regarding delivery of goods: The Sale of Goods Act prescribes the following rules of delivery
of goods:
(i) Effect of Part delivery: A delivery of part of goods, taking place in the course of the delivery
of the whole, has the same effect for the purpose of passing the property in such goods as
delivery of the whole. But such part delivery, with the intention of severing it from the whole
will not operate as a delivery of the remainder, it will be construed as part delivery only. (Section
34)
(ii) Buyer to apply for delivery: The seller of the goods is not obliged to deliver them until the
buyer has applied for delivery, unless otherwise agreed. (Section 35)
(iii) Place of delivery: If there is no contract to the contrary, goods must be delivered at the place
where they were at the time of sale, and the goods agreed to be sold are required to be
delivered at the spot which they were lying at the time the agreement to sale entered into, or
if not then in existence, at the place where they would be manufactured or produced. [Section
36(1)].
(iv) Time of delivery: When the time of sending the goods has not been fixed by the parties, the
seller must send them within a reasonable time. [Section 36(2)].
(v) Goods in possession of a third party: Where the goods at the time of sale are in possession
of a third person, there is no delivery unless and until such third person acknowledges to the
buyer that he holds the goods on his behalf. The issue or transfer of any document of title to
goods operates as delivery, symbolic in character, even ii the goods are in the custody of a
third person. [Section 36(3)].
(vi) Time for tender of delivery: Demand or tender of delivery may be treated as ineffectual unless
made at a reasonable hour. What is a reasonable hour is a question of fact. [Section 36(4)]
(vii) Expenses for delivery: The expenses of and incidental to putting the goods into a deliverable
state must be borne by the seller, in the absence of a contract to the contrary. [Section 36(5)].
(viii) Delivery of wrong quantity: In case of tender of lesser quantity of goods, the buyer may
either accept the same and pay for it at the contract rate or reject it. [Section 37(1)]. In case of
excess delivery the buyer may accept or reject the delivery, if he accepts the whole of the goods,
he shall pay for them at the contract rate. [Section 37(2)]. In case the seller makes a delivery of
the goods contracted mixed with goods of a different description, the buyer may accept the
relevant goods and reject the rest or reject the whole [Section 37(3)]. Mixing of goods with
inferior quality does amount to a defective delivery (Hemerein v. Firm Radha Krishan Naraindas
AIR 1949 Nag. 178).
(ix) Instalment deliveries: Unless otherwise agreed, the buyer is not bound to accept delivery in
instalments. The rights and liabilities in cases of delivery by instalments and payments there
for may be determined by the parties by contract. (Section 38)
(x) Delivery to carrier: Subject to the terms of contract, the delivery of the goods to the carrier
for transmission to the buyer, is prima facie deemed to be delivery to the buyer. [Section 39(1)].
(xi) Deterioration during transit: Where goods are delivered at a distant place, the liability for
deterioration necessarily incidental to the course of transit will fall on the buyer, though the
seller agrees to deliver at his own risk. (Section 40).
 Chapter 4 – The Sale of Goods Act, 1930 3.19

(xii) Buyer's right to examine the goods: Where goods are delivered to the buyer, who has. not
previously examined them, he is entitled to a reasonable opportunity of examining them in
order to ascertain whether they are in conformity with the contract. Unless otherwise agreed,
the seller is bound, on request to afford the buyer a reasonable opportunity of examining the
goods. (Section 41)

4. Explain the law relating to passing of risk in case of the sale of goods. (1996 – Nov., 5 Marks)
Ans. Passing of the risk in the property to the buyer of goods: The general rule is, "Unless otherwise
agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but
when the property therein is transferred to the buyer, the goods are at the buyer's risk whether
delivery has been made or not. (Section 26).
However, Section 26 also lays down in exception to the rule that 'risk follows ownership’. It provides
that where delivery of the goods has been delayed through the fault of either buyer or seller, the
goods are at the risk of the party in fault as regards any loss which might not have occurred but for
such fault.
Thus, in ordinary circumstances, risk is borne by the buyer only when the property in the goods
passes over to him. However, the parties may by special agreement stipulate that 'risk' will pass
sometime after or before the 'property' has passed.

5. Delivery of the goods and payment of the price are concurrent conditions. (1997 – Nov., 5 Marks)
Ans. The law in this regard is laid down in Section 32 of the Sale of Goods Act, 1930. The section says that
unless otherwise agreed the delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the
buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange
for possession of goods.
The general rule is that the obligations of the seller to deliver and that of the buyer to pay are implied
concurrent conditions in the nature of mutual conditions precedent, and that neither can enforce
that contract against the other without showing performance or offering to perform or readiness
and willingness to perform his own promise.
This section lays down the rule as regards what are known as reciprocal promises to be
simultaneously performed: In such a case no promisor need perform his promise unless the promisee
is ready and willing to perform his reciprocal promise [Pandurang vs. Dadabhay (1902) 26 Born. 643].

6. When the property in the goods passes to the buyer in case of the delivery of the goods to the buyer
on approval basis? (1998 – Nov., 5 Marks)
Ans. Goods Delivered on Approval Basis: (Passing of the property). According to Section 24 of the Sale
of Goods Act, 1330, the property in the goods passes to the buyer in case of the goods to the buyer
on approval basis in the following manner:
1. when he signifies his approval or acceptance to the seller, or
2. does any other act adopting the transaction, or
3. if without signifying his approval or acceptance the buyer retains the goods without giving
notice of rejection, then, if time fixed for the return of goods, on expiry of such time, and if no
time is fixed, on the expiration of reasonable time.
 3.20 CA-Foundation Law by Prof. Sanjay M. Joshi

7. Risk prima facie passes with the property in the goods. (1999 – May, 5 Marks)
Ans. Section 26 of the Sale of Goods Act, 1930 lays down the general rule that "risk prima facie passes
with the property". In other words, risk always follows ownership and the owner has to bear the
burden or loss. Thus, whoever is the owner, carries the risk. The goods remain at the seller's risk until
the ownership therein is transferred to the buyer and the goods are at buyer's risk when their
ownership is transferred to him whether the delivery has been made to him or not.
However, there are following exceptions to the general rule that risk prima facie passes with the
property:
1. ii the parties have by a special agreement stipulated that the risk will pass sometime after or
before the ownership has passed.
2. where the delivery of the goods has been delayed due to the fault of either the seller or the
buyer, in such cases the goods are at the risk of that party who is responsible for such fault as
resulted in loss of any kind. The defaulting party will bear the loss.
3. Sometimes trade customs may put the ownership and risk separately on two parties.

8. When the property in specific or ascertained goods passes to the buyer? (2000 – May, 10 Marks)
Ans. Transfer of property in specific or ascertained goods to the buyer [Sale of Goods Act, 1930]:
Passing of property implies passing of ownership when property is transferred to the buyer, the risk
of destruction or deterioration of the goods sold is that of the buyer and not of the seller, though
the goods may still be in the seller's possession.
(a) Where there is a contract for the sale of specific or ascertained goods, the property in the
goods is transferred to the buyer at such time as the parties to the contract intend it to be
transferred (Section 19).
(b) In an unconditional contract of sale of specific goods in a deliverable state. The property in the
goods passes to the buyer when the contract is entered into. It is not affected by the time of
payment of price or the. time of delivery of the goods of both (Section 20).
(c) Where there is a contract tor sale of specific goods and the seller is bound to do something to
the goods tor putting them in a deliverable state, the property does not pass until such thing
is done and the buyer has notice there of (Section 21).
(d) Where there is a contract tor sale of specific goods in a deliverable state, but the seller is bound
to weight, measure, test or do some other act or thing for ascertaining the price, the property
does not pass till such act or thing is done and the buyer has notice thereof (Section 22).

9. State the rules of the Sale of Goods Act, relating to the delivery of goods:
(i) when it is given in instalments.
(ii) when it is in excess of Contracted quantity. (2000 – Nov., 10 Marks)
Ans. Rules of Sale of Goods Act, 1930 Relating to the Delivery of Goods:
(i) Where delivery of goods is given in instalments: Unless otherwise agreed upon, the buyer
of the goods is not bound to accept delivery by instalments. However, under a contract, the
goods sold may be delivered in instalments. In such a case each instalment shall be treated
separately and paid for.
 Chapter 4 – The Sale of Goods Act, 1930 3.21

In the following two cases, there will be a breach of such a contract:

1. where the seller makes the delivery or makes defective delivery of one or more
instalments; or
2. where the buyer neglects or refuses to take delivery of one or more instalments.
In each such breach, it will depend upon the terms of the contract and the circumstances
of the case whether:
(a) the whole contract is repudiated; or
(b) it is a severable breach giving rise to claim for compensation, but · not a right to
treat the whole contract as repudiated. (Section 38)
(ii) Where delivery of goods is given in excess of contracted quantity: Section 37(2) of the Act,
Sale of Goods Act, 1930 deals with such a case.
Where the seller makes a delivery to the buyer or to his agent of the excess quantity of goods
than contracted for the buyer:
(a) may accept the agreed quantity and reject the rest; or
(b) he may reject the whole lot.
(c) he may accept the whole lot even, and in such a case has to pay for the whole quantity
at the contract rate.

10. State the rules as to passing of the property, when goods are delivered on approval in a Contract of
Sale. (2001 - May, 10 Marks)
Ans. Section 24 of Sale of Goods Act, 1930 lays down rules as to passing of property when goods are
delivered on approval or "on return". In such cases property in goods passes either by acceptance or
by failure to return.
(i) By acceptance: The property in goods passes when buyer signifies his acceptance or approval
or otherwise adopts the transaction. Acceptance means acceptance of that part of the contract
which makes him the purchaser absolutely. That will be some act which signifies that he intends
to be the absolute purchaser. If he does some act which will be right only if he were the
absolute purchaser that signifies an acceptance or adoption with in the statute where a person
pawned the goods, he had no power to demand returning the goods unless he repaid the
amount advanced by the Pawnee.
(ii) By failure to return (Section 24(2): The second circumstance in which the property in goods
passes to buyer, is when the latter fails to return the goods within reasonable time or if a time
has been fixed on the expiration of that time. Till the expiry of such time, goods remains the
property of the seller.
Where a horse was delivered to the defendant on terms that he should try it for eight days and
then return it if he did not like it. The horse died on third day without the fault of the defendant.
The seller could not recover the price from the defendant, the horse being still his property
when it perished (Elphick v. Barnes (1880) SCPD. 32).
On failure to return with in the specific time, the property passes to the buyer and the seller
may then sue for price. Where no time is fixed, the goods should be returned with in reasonable
time, or else they become the property of the buyer. What is reasonable time in a question fact
in each case.
 3.22 CA-Foundation Law by Prof. Sanjay M. Joshi

11. Risk in the goods sold passes with the delivery of goods to the buyer. (2001 – Nov., 5 Marks)
Ans. Risk in the goods sold passes with the delivery of the goods to the buyer:
Risk prime facie passes with ownership and not delivery. Passing of the risk is not very much related
to the delivery of goods. Unless otherwise agreed upon, the goods remain at sellers’ risk until
property therein has passed to the buyer. After passing of the property to the buyer, the goods
remain at buyer’s risk. Thus, risk is more related to the passing of the title than to delivery of the
goods. The goods may be in the possession of the buyer but the title upon them may be with the
seller. Thus, unless as agreed upon, the goods remain at seller's risk subject to the following two
qualifications:
1. Delivery of the goods has been delayed by the fault of the buyer or the seller. In this case risk
will be in the party to the default, and
2. Duties and liabilities of the seller or the buyer as bailee of goods for the other party remain
unaffected even where the risk has passed generally.
However, parties may by special agreement stipulate about passing of the risk.

12. Transfer of property when goods are sold on approval. (2002 – May, 5 Marks)
Ans. Goods on Approval: Under Section 24 of the Sale of Goods Act, 1930 when goods are delivered to
the buyer on approval, the ownership in such goods passes to the buyer in any of the following
situations:
1. When the buyer signifies his approval or acceptance to the seller.
2. When the buyer does some act which amounts to adoption of the transaction, i.e. the
acceptance of the goods.
3. When the buyer fail to return the goods on the fixed time, namely, retains it beyond the fixed
time without notice of rejection.
4. When no time has been fixed for the return of goods and the buyer retains the goods beyond
reasonable time without giving notice of rejection. Reasonable time is a question of fact and
hence will depend on facts and circumstances of every case.

13. Meaning of Constructive Delivery (2002 – May, 5 Marks)

Ans. Meaning of Constructive Delivery: Where a third person (e.g., a bailee) who is in possession of the
goods of the seller at the time of the sale acknowledges to the buyer that he holds the goods on his
behalf, there takes place a delivery by attornment or constructive delivery [Section 36(3)]. Sale of
Goods Act, 1930.
This may happen in the following cases:
(a) Where the seller in possession of the goods agrees to hold them on behalf of the buyer.
(b) Where the buyer is in possession of the goods and the seller agrees to the buyer's holding the
goods as owner.
(c) Where the third person in possession of the goods acknowledges to the buyer that he holds
them on his behalf.
 Chapter 4 – The Sale of Goods Act, 1930 3.23

14. What is meant by Constructive Delivery? (2002 – Nov., 5 Marks)

Ans. Constructive Delivery of goods:
Delivery may be actual or constructive: In actual delivery actual transfer of physical custody takes
place while in case of constructive delivery, the change in the possession of goods is caused without
any change in their actual and visible custody. For example, A sells to B 100 quintals of wheat lying
in the possession of C, a warehouseman. A makes delivery over to B, by an order to C, called a delivery
order, to transfer the wheat to B, and C accepts such an order by transferring the wheat in his books
to B. This would be considered as a constructive delivery to. Thus, constructive delivery may takes
place in any of the following manner:
(i) the seller in possession of the goods agrees to hold them on behalf of the buyer.
(ii) the buyer is in possession of the goods but the seller agrees to the buyer's holding the goods
as owner.
(iii) a third person is in possession of the goods but acknowledges to the buyer that he holds them
on his behalf.

15. What is appropriation of goods under the Sale of Goods Act, 1930? State the essentials regarding
appropriation of unascertained goods. (2018 – May, 6 Marks)
Ans. Appropriation of goods involves selection of goods with the intention of using them in performance
of the contract and with the mutual consent of the seller and the buyer.
The essentials regarding appropriation of unascertained goods are as follows:
(a) There is a contract for the sale of unascertained goods or future goods.
(b) The goods should confirm to the description and quality stated in the contract.
(c) The goods must be in a deliverable state.
(d) Goods must be unconditionally appropriated.
(e) The appropriation must be made by:
(i) the seller with the assent of the buyer, or
(ii) the buyer with the assent of the seller.
(f) The assent may be express or implied.
(g) The assent may be given either before or after the appropriation.

PRACTICAL QUESTION
1. Mr. D sold some goods to Mr. E for ` 5,00,000 on 15 days credit. Mr. D. delivered the goods. On due
date Mr. E. refused to pay for it. State the position and rights of Mr. D. as per The Sale of Goods Act,
1930. (2018 – May, 6 Marks)
Ans. When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and
the buyer does not within· a reasonable time after such a request take delivery of the goods, he is
liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a
reasonable charge for the care and custody of the goods. Provided that nothing in this section shall
affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a
repudiation of the contract.
Thus, in the given case, Mr. D. can recover damages from Mr. E. and can repudiate the contract as
well.
 3.24 CA-Foundation Law by Prof. Sanjay M. Joshi

2. Mr. G. sold some goods to Mr. H. for certain price by issue of an invoice. but payment in respect of
the same was not received on that day. The goods were packed and lying in the godown of Mr. G.
The goods were inspected by H's agent and were found to be in order. Later on, the dues of the
goods were settled in cash. Just after receiving cash, Mr. G. asked Mr. H. that goods should be taken
away from his godown to enable him to store other goods purchased by him. After one day, since
Mr. H. did not take delivery of the goods, Mr. G. kept the goods out of the godown in an open space.
Due to rain, some goods were damaged.
Referring to the provisions of the Sale of Goods Act, 1930, analyse the above situation and decide
who will be held responsible for the above damage. Will your answer be different, if the dues were
not settled in cash and are still pending? (2018 - Nov., 6 Marks)
Ans. According to the facts of this case it stands pretty much clear to the judgement of an independent
observer that the property in the goods sold by Mr. G. had already passed to Mr. H. after the payment
of dues and the examination of goods by the agent of Mr. H. Hence it can be easily concluded that
the liability for damage suffered by the goods would fall on the buyer i.e. Mr. H. and not Mr. G. since
the transfer of title of the goods had already taken place before the damage occurred.

CASE STUDIES
1. J, the owner of a fiat car wants to sell his car. For this purpose he hands over the car to P, a mercantile
agent for sale at a price not less than ` 50,000. The agent sells the car for ` 40,000 to A, who buys
the car in good faith without notice of any fraud. P misappropriated the money also. J sues A for the
recovery of the car. Decide with reasons whether J would succeed?
Ans. Sale by mercantile agent is valid and binding on the principal provided the agent is in possession of
the goods or documents of title with the consent of the owner, the agent sells the goods while acting
in the ordinary course of business of agency, the buyer should have acted in good faith & the buyer
should not have notice that at the time of sale, the agent had no authority to sell.
In the given case P the agent was in possession of the goods with the consent of J. The car was sold
by P in the ordinary course of business of agency and the car was bought by A in good faith without
notice that agent was not authorised to sell it for ` 40,000. Thus sale is valid and A acquires a good
title to the car & J will not succeed in recovering the car from A. J can only proceed against his agent
lawfully.

2. Mr. Samuel agreed to purchase 100 bales of cotton from Mr. Varun. Out of his large stock sent his
men to take delivery of the goods, they could pack only 60 bales. Later on, there was an accidental
fire and the entire stock was destroyed including 60 bales that were already packed. Referring to the
provisions of the Sale of Goods Act, 1930, explain as to who will bear the loss and to what extent.
Ans. According to the provisions of Section 26 of the Sale of Goods Act, 1930, unless contract to the
contrary is made, the goods remain at the seller's risk until the property therein is transferred to the
buyer. Further the act also states that in case of sale unascertained goods, the property in goods
shall pass on to the buyer only when they are ascertained and appropriated unconditionally to the
contract either by the buyer with the consent of the seller or by the seller with the consent of the
buyer.
 Chapter 4 – The Sale of Goods Act, 1930 3.25

In the given case appropriation with respect to 60 bales of cotton has been done. Therefore, property
in the said 60 bales of cotton stands passed to Mr. Samuel. the buyer. Thus, the loss with respect to
the said 60 bales shall be borne by Mr. Samuel.
In respect of the remaining bales, the loss shall be borne by Mr. Varun since the property in respect
of the same has not been passed to the buyer Mr. Samuel.

3. A offered to sell to B a certain machine for ` 50,000. B refused to buy it unless certain work was done
on it to put it into a running condition. A agreed to do the same but while the machine was being
repaired, it was destroyed without the fault of any person. Can A recover the price from B?
Ans. In case of specific goods the property in goods shall pass on the formation of contract only if the
goods are:
(i) Specific
(ii) Goods are in a deliverable state i.e. the seller has done, all that he is required to do, to put the
goods in such a state that the buyer shall be bound lo take the delivery of the same
(iii) The contract of sale is unconditional.
If the seller is bound to do something in respect of the goods to put them into a deliverable state
and he has yet not done the same, then the property in goods shall pass on to the buyer in the
future, when the seller does what he is required to do and brings the same lo the knowledge of the
buyer,
In the given case the seller A was required to conduct repairs in respect of the machine before B buys
the same. Thus, the passing of property intends to take place when the repairs arc conducted by A
and B has the knowledge of the same. Since the machine is destroyed before repairs could be
completed, the passage of property has not taken place. The risk of loss vests with A and therefore
he cannot recover the price from B.

4. A delivered some jewellery to B on sale or return basis. B pledged the jewellery with C. A want to
claim back the goods from C. Advice.
Ans. Rules for passing of property in case of Sale on approval basis; the ownership has been transferred
to B as he has adopted the contract by pledging it with C. A cannot claim the goods back from C.

5. Referring to the provisions of the Sale of Goods Act, 1930, state the circumstances under which when
goods are delivered to the buyer "on approval" or "on sale or return" or other similar terms, the
property therein passes to the buyer.
Ms. Preeti owned a motor car which she handed over to Mr. Joshi on sale or return basis. After a
week, Mr. Joshi pledged the motor car to Mr. Ganesh. Ms. Preeti now claims back the motor car from
Mr. Ganesh. Will she succeed? Referring to the provisions of the Sale of Goods Act, 1930, decide and
examine what recourse is available to Ms. Preeti.
Ans. Transfer of Property in Sale by Approval:
When goods are delivered on approval (Sec. 24): When goods are delivered to the buyer on approval
or 'on sale or return,' or on other similar terms, the properly therein passes to the buyer:
(i) When he signifies his approval or acceptance to the seller, or
 3.26 CA-Foundation Law by Prof. Sanjay M. Joshi

(ii) When the buyer does any other act adopting the transaction, e.g., pledges the goods or resells
them.
(iii) When the buyer retains the goods, without giving notice of rejection, beyond the time fixed
for the return of goods, or if no time has been fixed, beyond a reasonable time. In short, the
property passes either by acceptance or by failure to return the goods within specified or
reasonable time.
In the given case Ms. Preeti has handed over the car to Mr. Joshi on sale or return basis and afterwards
Mr. Joshi pledges the car with Mr. Ganesh.
Applying the above stated provisions it can be concluded that pledging of the car by Mr. Joshi
amounts lo adoption of the transaction. Thus property in car passes on to Mr. Joshi on pledge and
Ms. Preeti cannot claim back the car. She is only entitled to claim the price of the motor car since the
property therein has passed to Mr. Joshi.

UNIT 4 - UNPAID SELLER

SHORT NOTES
1. Who in an 'unpaid seller'? Discuss briefly, his rights under the Sale of Goods Act.
(1994 – Nov., 10 Marks)
Ans. Unpaid Seller: According to Section 45(a) of the Sale of Goods Act, the seller of goods is deemed
to be an 'Unpaid Seller' when:
(a) the whole of the price has not been paid or tendered and the seller had an immediate right of
action for the price.
(b) a bill of exchange or other negotiable instrument was given as payment, but the same has been
dishonoured.
Any person who is in a position of a seller may exercise the rights conferred upon an 'unpaid seller'
in above said circumstances. For instance, an agent of the seller, to whom bill of lading has been
endorsed, is in the position of seller exercise rights of 'unpaid seller'.
Rights of an unpaid seller: An unpaid seller has been expressly given the rights against the goods
as well as the buyer personally which are discussed as follows:
A right of an unpaid seller against the goods: The unpaid seller has the following rights against
the goods whether the property in the goods has passed to the buyer.
1. Rights of lien (Sec. 47): He has a right of lien on the goods for the price while he is in
possession until the payment or tender of the price of such goods. The right of lien can be
exercised by him in the following cases only: ·
(a) where gods have been sold without any stipulation of credit;
(b) where goods have been sold on credit but the term of credit has expired; or
However, the unpaid seller loses his right of lien under the following circumstances:
(i) when he delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods.
(ii) where the buyer or his agent lawfully obtains possession of the goods.
 Chapter 4 – The Sale of Goods Act, 1930 3.27

(iii) where seller has waived the right of lien.

(iv) By Estoppel i.e. where the seller so conducts himself that he leads third. parties to believe
that the lien does not exist.
2. Right of stoppage in transit: When the unpaid seller has parted with the goods to a carrier
and the buyer has become insolvent, he can exercise this right of asking the carrier to return
the goods back, or not to deliver the goods to the buyer.
However, the right of stoppage in transit is exercised only when the following conditions are
fulfilled:
(a) The seller must be unpaid.
(b) He must have parted with the possession of goods.
(c) The goods are in transit.
(d) The buyer has become insolvent.
(e) The right is subject to provisions of the Act.
3. Right of re-sale: The unpaid seller can exercise the right to re-sell the goods under the
following conditions:
(i) When the goods are of a perishable nature. In such a case the buyer need not be
informed of the intention of resale.
(ii) When the gives notice to the buyer of his intention to re-sell the goods and the buyer
does not within a reasonable time pay or tender the price.

2. Buyer's Rights Against the Seller. (1995 – Nov., 5 Marks)

Ans. (i) Buyer has right to examine the goods purchased by him. Where the goods are delivered to the
buyer which he has not previously examined, he is not deemed to have accepted them unless
and until he has a reasonable opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract [Section 41 (1)].
(ii) Unless otherwise agreed when the seller tenders delivery of goods to the buyer, he is bound,
to afford the buyer a reasonable opportunity of examining the goods for the purpose of
ascertaining whether they are in conformity with the contract [Section 41 (2)].
(iii) Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept
them, having the right so to do, he is not bound to return them to the seller, but it is sufficient
if he intimates to the· seller that he refuses to accept them (Section 43).
(iv) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the
buyer may reject them [Section 37(i)].
(v) If the goods delivered are larger than he contracted, the buyer may accept the goods included
in the contract and reject the rest, or he may reject the whole.
(vi) If the goods ordered have been mixed with goods of different description the buyer may accept
the goods as contracted and reject the rest, or may reject the whole.
(vii) Besides, the buyer has all the rights against the seller in case if there is a violation of any kind
of stipulation or condition or warranty, the contract may be avoided on damages may be
claimed for the loss caused, if any.
 3.28 CA-Foundation Law by Prof. Sanjay M. Joshi

3. Describe the law relating to the "right of resale" available to an unpaid seller in the Sales of Goods
Act, 1930. (1996 – May, 10 Marks)
Ans. Right of resale: This right of resale available to an unpaid seller may be described as follows (Section
54(2), Sale of Goods Act, 1930):
1. Where the goods are of a perishable nature, the unpaid seller may re-sell the goods without
any notice to the buyer.
2. When the unpaid seller has exercised his right of lien or stoppage in transit, he has to give
notice to the buyer of his intention to re-sell. Thereupon, the buyer may pay the price within a
reasonable time. If the buyer does not pay; the unpaid seller can re-sell the goods and recover
from the original buyer the damages for any loss occasioned by his breach of contract. The
original buyer shall not be entitled to any profit which may occur· on re-sale. If, however the
unpaid seller re-sells the goods without notice to the buyer, the unpaid seller shall not be
entitled to recover damages and the buyer shall be entitled to the profit if any, occurring on
the re-sale.
3. Where an unpaid seller who has exercised his right of lien or stoppage in transit resells the
goods, the buyer acquires the good title thereof as against the original buyer, despite the fact
that the notice of resale has not been given by the seller to the original buyer.
4. A re-sale by the seller where a right of re-sale is expressly reserved in a contract of sale has the
effect of rescinding the contract, but it does not prejudice any which the seller may have for
damage against the buyer.

4. What are the remedies available to the buyer, when goods in wrong quantity are delivered to him?
(1997 – May, 5 Marks)
Ans. Wrong quantity may be either short delivery to the buyer a quantity of goods less than he contracted
to sell the buyer may reject them. But if the buyer accepts the goods so delivered he shall pay for
them at the contract price. By accepting the lesser quantity, the buyer is not debarred from suing for
damages on the ground of short delivery.
(a) Short delivery: When the seller delivers to the buyer a quantity of goods less than he
contracted to sell the buyer may reject them. But if the buyer accepts the goods so delivered
he shall pay for them at the contract price. By accepting the lesser quantity, the buyer is not
debarred from suing for damages on the ground of short delivery.
(b) Excess delivery: Where the seller delivers to the buyer a quantity of goods larger than
contracted for the buyer has the option.
(i) to accept the contracted quantity and reject the excess or
(ii) to accept the whole and pay for them at the contract price or
(iii) to reject the whole quantity.
(c) Mixed delivery: Where the seller delivers to the buyer the goods he contracted to sell mixed
with the goods of a different description not included in the contract, the buyer may accept
the goods which are in accordance with the contract and reject the rest, or reject the whole.
When the wrong quantity are delivered the buyer has the option to reject the whole lot and ii
he does so it does not amount to cancellation of the contract. The seller has the right to deliver
the goods contracted for and the buyer shall be bound to accept the same.
 Chapter 4 – The Sale of Goods Act, 1930 3.29

5. Liability of an incoming partner. (1997 – May, 5 Marks)

Ans. An incoming partner is not liable for any act of the firm done prior to his admission as a partner. This
is because the Old partner were not the agents of the new partners at the time when they acted. By
a mutual agreement, the new partners may agree with the old partners to be liable for the past
liabilities of the firm. However, the creditors of the firm cannot sue the new partners for their past
debts, because there is no privily of contract between the creditors and the new partner. Similarly,
the acts of the old partner cannot be ratified by the new partner because he was not in existence as
a principal at the time when acts were done. He is liable for the acts of the old firm only if the new
firm assumes the liabilities of the old firm and the creditors accept the new firm as their debtor and
discharge the old firm from his liability.

6. Describe in brief the rights of the buyer against the seller in case of breach of contract of sale.
(1997 – Nov., 10 Marks)
Ans. Buyer's rights against the seller in case of breach of contract: Sections 57 to 59 & 61 of the Sale
of Goods Act, 1930, proceed to deal with the remedies of a buyer in cases where the seller commits
a breach of the contract. They are as follows:
(i) Damages for non-delivery (Section 57): Where the seller wrongfully neglects or refuses to
deliver the goods to the buyer, the buyer may sue the seller for damages tor non-delivery. In
this case the general rules as regards to the ascertainment of the damages given under Section
73of the Contract Act, 1872 and the rule in Hadley vs. B Baxendale will be applicable.
(ii) Suit for specific performance (Section 58): Where property has passed to the buyer, he also
can exercise another right, i.e. a right to sue for specific performance. In such cases the court
may, in its discretion grant a decree ordering the seller to deliver those specific or ascertained
goods which formed the subject matter of the contract. The remedy is discretionary and will
only be granted if the goods are of specific value or are unique, e.g., a rare book, a picture or
a piece of Jewellery, and the damages are not an adequate remedy.
(iii) Remedy for breach of warranty (Section 59): Where there is a breach of warranty by the
seller, or where the buyer elects or is compelled to treat any breach of a condition on the part
of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty
entitled to reject of the goods; but he may:
(a) set up against the seller the breach of warranty in diminution or extinction of the price;
or
(b) sue the seller for damages for breach of warranty.
The measure of damage for breach of warranty is the estimated loss or damage arising directly
or naturally from the breach, which is prima facie the difference between the value of the goods
at the time of the delivery and the value they would have had it the goods had answered to
the warranty.
(iv) Suit for recovery of price (Section 61): The buyer has a right to recover the money paid to
the seller where the consideration for payment of it has failed. For example. where the buyer
is deprived of goods by their true owner, he may recover the price for breach of the condition
as to title.
 3.30 CA-Foundation Law by Prof. Sanjay M. Joshi

7. Discuss the remedies available to seller against the buyer in case of breach of contract of sale.
(1998 – May, 10 Marks)
Ans. Remedies available to the seller against the buyer: Following remedies are available to the seller
against the buyer in case of the breach of contract of sale:
(i) Suit for price: Where the property in the goods has passed to the buyer or he was wrongfully
neglected or refused to pay for the goods according to the terms of the contract, the seller
may sue him for the price of goods. Further, where the price is payable under the contract on
a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such
price, the seller may sue him for the price even if the property in the goods has not passed and
the goods have not been appropriated to the Contract. (Section 55). For instance, there was a
sale of some quantity of iron to be delivered between 3rd May and 30th June, if the buyer so
required, the price to be paid on the latter date at all cost. By 30th, only a portion of the iron
had been delivered since the buyer did not require any further delivery. In such situation, the
seller would be able to recover the whole price without showing that he had appropriated to
the contract any specific iron to complete the delivery of the remainder. Incidentally, the seller
has a lien on the goods for the price while he is in possession of them. The statement in a
contract of sale that the seller would have the right to resell alter notice will not deprive him of
his legal right to sue for the price of the goods if he so desires.
(ii) Damages for non-acceptance (Section 56): Where the buyer wrongfully neglects or refuses
to accept and pay for the goods, the seller may sue him for damages for non-acceptance.
Some of the rights of an unpaid seller viz., lien stoppage in transit, and resale are additional
rights. These, however, do not compensate the seller for the breach of the contract but simply
protect him from additional loss; the breach of the contract, no doubt remains and the seller
is entitled to be compensated for the same. The above referred remedies under Section 55 and
56 deal with the remedies available to a Seller and may be exercised by him (seller).
(a) If the property in the goods sold has already passed to the buyer, the seller can either
sue for price or for damages for non-acceptance (Section 55(1) and 56].
(b) If the property in the goods sold has not passed the seller's only remedy is to sue for
damages for non-acceptance (Section 56), but the seller can even if the property has not
passed, bring an action for the price if it is "payable on a day certain" and the buyer has
failed to pay such price [Section 55(2)].
(c) When the seller is ready and willing to deliver the goods and requests the buyer to take
delivery, and the buyer does not within a reasonable time after such request take delivery
of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to
take delivery and also for a reasonable charge for the care and custody of the goods. In
this case the seller's right will not be affected where the neglect or refusal of the buyer
to take the delivery amounts to a repudiation of the contract – (Section 44).
(d) The seller’s right of re-sale is available subject to the provisions of Section 54(2) and (4).
(e) How much damages will be awarded to the seller in case of the breach of contract of sale
by the buyer will be reassured according to the provisions of Section 73 and 74 of the
Indian Contract Act, 1872.
 Chapter 4 – The Sale of Goods Act, 1930 3.31

8. Stoppage in transit (1999 – Nov., 5 Marks)

Ans. Stoppage in Transit: (Section 50 Sale of Goods Act, 1930): It is a right of stopping the goods while
they are in transit, resuming possession of them and retaining possession until payment of the price.
This right is exercised by the seller when: ·
(a) he is unpaid.
(b) he may have parted with the possession of goods.
(c) the goods must be in transit.
(d) the buyer must have become insolvent.
(e) the right is subject to provisions of the Act.
The unpaid seller may exercise this right either by taking actual possession of the goods or by giving
notice of is claim to the carrier, or other bailee in whose possession the goods are the right of
stoppage in transit begins when the right of lien ends.

9. State the provisions given under Sale of Goods Act relating to 'Auction Sale'.
(2000 – May, 10 Marks)
Ans. Auction Sale: An 'Auction Sale' is a mode of selling property by inviting bids publicly and the
property is sold to the highest bidder. An auctioneer is an agent governed by the Law of Agency.
When he sells, he is only the agent of the seller. He may, however, sell his own property as the
principal and need not disclose the fact that he is so selling.
Under section 64 of the Sale of Goods Act, 1930 in the case of an auction:
(a) where goods are put for sale in lot, each lot is prima facie deemed to be subject matter of a
separate contract of sale.
(b) the sale is complete when the auctioneer announces its completion by the fall of hammer or
in any other customary manner and until such announcement is made, any bidder may retract
from his bid.
(c) right to bid may be reserved expressly by or on behalf of the seller and; where such a right is
expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the
auction.
(d) where the sale is not notified to be subject to the right of the seller to bid, it shall not be lawful
for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer
knowingly to take any bid from the seller or any person representing him. Any sale
contravening this rule may be treated as fraudulent by the buyer
(e) the sale may be notified to be subject to a reserve or upset price; and
(f) if the seller makes use of pretended bidding to raise the price, the sale if voidable at the option
of the buyer.
 3.32 CA-Foundation Law by Prof. Sanjay M. Joshi

DESCRIPTIVE QUESTIONS
1. When an unpaid seller's right of lien ends, his right to stop the goods in transit begins.
(1995 - May, 5 Marks)
Ans. When an unpaid seller's right of lien ends, his right to stop the goods in transit begins: Line is
the right of an unpaid seller to retain the goods, which are under his actual possession, until the price
due in respect of them is paid or tendered. Lien being a possessor right, when the goods are delivered
to the carrier for the purpose of transmission to the buyer (the possession being imparted by the
unpaid seller), the right of lien comes to an end but so long the goods are in transit, the seller still
has a right to stop them in transit. The right of stoppage means the right to stop further transit of
goods to resume possession over the goods and to retain them until the price is paid.
The right of stoppage in transit arises only when the seller has parted with the possession. of the
goods and the buyer has become insolvent. This right is available only so long the goods are in
transit i.e., they are in possession of a third party, they are neither in the possession of the seller nor
that of the buyer. In this sense it is said that, right of stoppage in transit is an extension of the right
of lien. The point where the right to lien ends, right to stoppage in transit beings.

CASE STUDIES
1. Mr. D Sold some goods to Mr. E for ` 5,00,000 on 15 days credit. Mr. D delivered the goods. On due
date Mr. E refused to pay for it. State the position & rights of Mr. D as per the Sale of Goods Act,
1930.
Ans. An unpaid seller is one who has not yet received the whole of the price under the contract of sale.
When such a seller has transferred the possession of goods to the. buyer, then he cannot exercise
his rights against the goods, he can only exercise his rights against the buyer which are as follows: -
(i) Suit for price: The seller can sue the buyer for the price.
(ii) Suit for damages for non-acceptance: The seller can sue for damages resulting from buyers
refusal to accept & pay for goods.
(iii) Suit for interest: The unpaid seller has a right to sue the buyer for interest on account of delay
in payment of price,
Thus, in the given case Mr. D, the unpaid seller is entitled to all the above remedies against Mr. E.