PRACTICE QUESTIONS

1. “All contracts are agreements, but all agreements are not contracts”. Comment?
2. 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.
Whether promise by a father to pay ₹ 1 Lakh if the son passes CA Exams in first attempt
is a valid contract?
Ans: There is no intention to create legal relations as it is a domestic or social
agreement. Father does not receive any consideration. The son cannot sue the father
for recovering ₹1 lakh as there is no contract between the father and the son.
3. X invites Y to dinner. Y accepts the invitation but fails to turn up. Can X sue Y for the
damages?
4. Ans: No,it is domestic agreement and which are not enforceable by law
5. X of Kashmir invites Y of Kanyakumari to stay with him during summer vacation. Y
accepts the invitation and informs X accordingly. When Y reaches X’s house, he finds it
locked and he has to stay in a five star hotel. Can Y claim damages from X?
Ans: No, it is domestic agreement and which are not enforceable by law
6. 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, It is implied contract under imposed by law
7. X agrees to sell his Ambassador car to Y for ₹ 80,000 or ₹ 90,000. Is a contract created
between the two parties?
8. Ans: No, contract is not certain
9. M, a minor borrowed ₹ 1000 from B and agreed to repay it within three months. He failed
to return the amount after stipulated period of time. Can B realize his money from M
through a court of law?
Ans: No, Agreement with minor will be void ab initio [mohiribibi Vs Dharmdas]
10. X promise to obtain an employment for Y in a company and Y promises to pay ₹ 20,000
for this purpose. Is the agreement valid?
Ans: No, it is opposed to public policy agreement
11.Promisor / Promisee: A promises to sell his house to B for ₹ 5,00,000. Here, who is the
Promisor and who is the Promises?
12.Promisor / Promisee: B agrees to buy a house from A for ₹ 5,00,000. Here, who is the
Promisor and who is the Promisee?

[Date] 1
 13.Valid Contract: X invites Y (a Film Actor) to his daughter’s engagement and dinner
party. Y accepts the invitation and promises to attend. X made special arrangement for Y
at the party but he did not turn up. X enraged with Y’s behaviour, wanted to sue for toss
incurred in making special arrangements. X is seeking your advice
14.Valid Contract: A Father promised to pay his son a sum of X 1 Lakh if the son passed CA
Examination in the first attempt Ire son passed the examination in the first attempt, but the
father failed to pay the amount as promised. The son fries a sot for recovery of the amount.
State whether the son can recover the amount under the Indian Contract Act, 1372.

Q 13.

State whether the following agreements are Valid or Hint / Answer:

Void -
1. Kamala promises Ramesh to lend ₹ 50,000 in lieu
of consideration that Ramesh gets Kamala’s
marriage dissolved and himself marries with her.
Practical Question

2. Sohan agrees with Mohan to sell his black horse.

Unknown to both the parties, the horse was dead
at the time of agreement.
3. 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.
4. In an agreement between Prakash and Girish,
there is a condition that they will not institute
legal proceeding against each other without
consent.
5. Ramamurthy, who is a citizen of India, enters into
an agreement with an alien friend.

Q 15. Promisor / Promisee: A promises to sell his house to B for ₹ 5,00,000. Here, who
is the Promisor and who is the Promises?
Q.16.Promisor / Promisee: B agrees to buy a house from A for ₹ 5,00,000. Here, who is
the Promisor and who is the Promisee?
Q 17.Valid Contract: X invites Y (a Film Actor) to his daughter’s engagement and dinner
party. Y accepts the invitation and promises to attend. X made special arrangement for Y
at the party but he did not turn up. X enraged with Y’s behaviour, wanted to sue for toss
incurred in making special arrangements. X is seeking your advice
Q 18 Valid Contract: A Father promised to pay his son a sum of X 1 Lakh if the son
passed CA Examination in the first attempt Ire son passed the examination in the first
attempt, but the father failed to pay the amount as promised. The son fries a sot for
recovery of the amount. State whether the son can recover the amount under the Indian
Contract Act, 1372.

[Date] 2
Q 19 Valid Contract: State with reasons whether the following would amount to Contract
-
(a) J takes a seat in Public Bus.
(b) J tells “M" that N has expressed his willingness to marry her (M)
(c) J bids at a Public Auction
(d) J puts three one rupee coins in the slot of a platform ticket vending machine at the
Railway Station.
(e) A Father and Daughter agrees to go for a morning walk every day.
(f) 'A' agrees to pay 'B' ₹ 1 Lakh if Sun rises in the west next morning. Is the contract
valid?
(g) Threat to publish a defamatory statement against a person to enter into an agreement
Q 20. Valid / Void / Illegal Agreements: State whether the following agreements are
Valid or Void - (RTP)
1. Kamala promises Ramesh to lend ₹ 50,000 in lieu of consideration that Ramesh gets
Kamaia's marriage dissolved arid himself marries with her.
2. Sohan agrees with Mohan to sell his black horse. Unknown to both the parties, the
horse was dead at the time cf agreement
3. Ram sells the Goodwill of his shop to Shyam for ₹ 4,00,000 and promises not to carry
cn such business forever anti anywhere in India.
4. In an agreement between Prakash and Girish, there is a condition that they will not
institute legal proceeding against each other without consent.
5. Ramamurthy, who is a citizen of India, enters into an agreement with an alien friend.
6. A agrees to pay ₹ 100 to B on B stealing the purse of C. B manages to steal the purse
of C and A does not fulfil his promise. Whether court can compel A to pay ₹ 100?

[Date] 3
 OFFER AND ACCEPTANCE
THEORETICAL QUESTIONS:

1. Shambhu Dayal started 'self service’ system in his shop. Smt. Prakash entered in 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. Hint: Display of goods in
the shop for sale is an invitation to offer; but not an offer. An offer from Smt. Prakash to
the cashier. When cashier refused to accept the price it resulted in rejection of offer.
Hence no contract was formed.
2. Define “Offer". State the legal rules regarding a valid offer.
3. State the points of distinction between Offer and Invitation to offer.
4. '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, Hint: Miss Rakhi can claim the reward. [Carlill v.
Carbolic Smoke Ball Co., (1893) 10 B 256]
5. 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.
Hint: (i) Revocation is valid and there is no contract as it has reached before the
letter of acceptance
(ii) Revocation is valid and there is no contract if Ramaswamy opens the telegram
about revocation first and reads it
Revocation is not valid and the contract is formed - if Ramaswamy opens the letter
of acceptance first and reads it.
6. X offered through an advertisement in the Statesman to sell certain “antique” on a
particular day at a particular place in Delhi. In response to the advertisement a person
traveled all the way from Bombay to Delhi and found to his immeasurable annoyance
that the place was locked and there was no such projected sale. He wanted to sue X on
this account. Would it be advisable for him to take this course of action?

[Date] 4
Q7.

Persons entering into Contracts on special terms are deemed to Mukal Datta vs
have impliedly accepted those terms. Indian Airlines

A launderer had given to his customer a receipt for clothes

received for washing. Special conditions for this were printed on
Lily White vs
the reverse of receipt. Held that special conditions were duly
R.Muthuswami
communicated to the customer who had impliedly accepted the
same.

A Transport Carrier accepted goods for transport without any

conditions. Subsequently, he issued a circular to owners of goods
limiting his liability for goods. Since the special conditions were not Raipur Transport
communicated prior to the date of contract for transport, these Co. vs
were not binding on the owners of goods. Ghanshyam

T purchased a Railway Ticket, on the face of which was written -

For Conditions See Back. One condition excluded liability for
injury, however caused. T was illiterate and could not read. She
CASE LAW

Thompson vs
was injured and sued for damages. Held, the Railway Company
LM&L Rly. Co.
had properly communicated conditions to her who had
constructive notice of conditions whether she read them or not.
The Company was not bound to pay any damages.

A passenger deposited a bag in the cloakroom at a Railway

Station. Acknowledgement Receipt given to him carried, on the
face of it, the words "See back". One condition limited the liability
Parker vs South
of Railways for any package to £10. The bag was lost, and
Eastern Rly. Co.
passenger claimed £24 being its value, pleading that he had not
read conditions. Held, passenger was bound by conditions printed
on the back, as the Company gave reasonable notice.

A passenger was travelling with luggage from Dublin to

Whitehaven on a ticket, on the back of which there was a term that
exempted the Shipping Company from liability for loss of luggage.
He never looked at the back of the ticket and there was nothing Henderson vs
on the face of it to draw his attention to the terms on its back. Stevenson
He lost his luggage and sued for damages. Held, he was entitled
to damages as he was not bound by something which was not
communicated to him.

[Date] 5
 Q8

X offered to sell his house to Y Hint / Answer:

for ₹ 50,000. Y accepted the offer
PRACTICAL QUESTION

Revocation of acceptance is valid because the

by e-Mail. On the next day Y sent
Acceptor may revoke his acceptance at any
a Fax revoking the acceptance
time before the letter of acceptance reaches
which reached X before the e-
the Offeror.
Mail. Is the revocation of
acceptance valid? Would it make If the letter of acceptance (e-mail) and the Fax
any difference if both the E-Mail of revocation of acceptance reach at the same
of acceptance and the fax of time, the formation of contract will depend on
revocation of acceptance reach the fact that which of the two is opened first by
X at the same time? Y. If X reads the Fax first, revocation is valid
but if reads the e-mail first, revocation is not
possible.

[Date] 6
 CONSIDERATION
Q1 "No consideration, no contract". State the exceptions to the rule.
Q2 What do you understand by the Doctrine of privity?
Q3 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.
Q 4 A writes a letter to B, his son, wherein he promises to pay ₹ 10,000 to the latter without any
consideration but on account of natural love and affection. Can B enforce the contract? Hint:
Yes, but B can enforce the agreement only if the agreement between him and his father is also
registered as required by the law relating to registration of documents.
Q5 A writes to B, “At the risk of your own life, you saved me from a serious motor accident. I
promise to pay you ₹ 500" A does not pay B. Can B sue A for it?
Hint: Yes, B can sue A and claim ₹ 500.
Q6 S gets into difficulties while swimming in the river Ganges and cries for help. F hears the cry,
removes his coat and dives into water and rescues S. S, who is full of gratitude promises to pay
F ₹ 20,000 but fails to do so. The promise of S is not in writing. Advice F.
Hint: F is advised to file a suit for recovery of ₹ 20,000.

Hint:Yes. Chinnaya v. Rammaya.

(a)

D constructed a market at the instance of District Collector. Occupants of

shops promised to pay D a commission on articles sold through their Durga
shops. Held, there was no consideration because money was not spent Prasad vs
CASE LAW

by Plaintiff at the request of the Defendants, but at instance of a third Baldeo

person viz. the Collector and, thus the Contract was void.

A owed ₹ 20,000 to B. A persuaded C to sign a Pro Note in favour of B. C National

promised B that he would pay the amount. On faith of promise by C, B Bank of
credited the amount to A's account. Held, the discharge of A's account Upper India
was consideration for C's promise. vs Bansidhar

[Date] 7
 CASE LAW

Where a witness who has received summons to appear at a trial, a promise Collins
to pay him anything beyond his expenses is void for want of consideration, vs
because the witness was bound to appear and give evidence. Godfrey

Collins vs
A promised to pay B, who had received summons, to appear at a Trial in a Godfrey,
CASE LAW

civil suit, a certain sum being a compensation for loss of time during his Seshannah
attendance. Held, the promise was without consideration and hence void, Chetti vs
because he was under a duty imposed by law to appear and give evidence. Ramaswami
Chetti

Beneficiary, in whose favour a Trust of other interest in some

immovable property has been created can enforce it even though Madhu Trading
he is not a party to the Contract. Co. vs UOI & Ors.

H sued her father-in-law K to recover ₹ 15,000 being arrears of

allowance called Pin money payable to her by K under an Khwaja
agreement between K and H's father, consideration being H's Muhammad vs
marriage to K's son D. Both H and D were minors at the time of Hussaini Begum
marriage. Held, the promise can be made enforceable by H.
CASE LAW

A husband who was separated from his wife executed a separation

deed by which he promised to pay to the Trustees, all the expenses
Gandy vs Gandy
for her maintenance. Held, the agreement created a trust in favour
of his wife and could be enforced by her.

Provision of marriage expenses of female members of a Joint

Hindu Family, entitles the female member to sue for such expenses Rakhmanbai vs
on a partition between male members. Govind

The assignee of the rights and benefits under a Contract not Kishan Lai
involving personal skills, can enforce the Contract, subject to the Sadhu vs
equities between the original parties. Promila Bala
Dasi

[Date] 8
 PRACTICAL QUESTION PRACTICAL QUESTION

X transferred his house to his daughter M by way of gift. The

Gift Deed, executed by X, contained a direction that M shall Hint / Answer:
pay a sum of ₹ 5,000 per month to N (the sister of the M is liable to pay the
executant). Consequently M executed an instrument in favour annuity to N. [Facts
of N agreeing to pay the said sum. Afterwards, M refused to same as Chinnayya vs
pay the sum to N saying that she is not liable to N because no Ramayya case]
consideration had moved from her. Decide with reasons
whether M is liable to pay the said sum to N.

Vijay gifted the whole of his property to his Daughter on that

she should pay ₹ 200 per month to her uncle (Father’s Hint / Answer:
Brother). Later, she refused to pay her uncle on the ground Vijay's daughter is liable
that she did not receive any consideration from her uncle. Is to pay the monthly sum
she justified? to her uncle. [Facts
same as Chinnayya vs
Ramayya case]

CAPACITY OF PARTES

Q1 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?
Ans :Jeweller is not entitled to recover theamount of diamond set from H - His not
competent to contract and is not liable u/s 68, as the diamond set of ₹10 lacs sold to his wife is
not 1necessities'.?
Q2 X, a minor was studying in M.Com 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 the Indian Contract Act, 1872 decide whether B would succeed.?
Ans: Loan of ₹10,000 is on account of necessities. X’s property is liable to B for ₹10,000
because the person who supplies necessities to the incompetent person is entitled to be
reimbursed from the property of such incompetent person (Sec. 68); But X shall not be
personally liable.
Q3 X supplied necessaries of life to the wife and children of a lunatic. Can X recover the
payment? If so, from, whom?
Ans:X can recover the payment out of the property, if any, of the lunatic.
Q4 "Even if a minor is not competent to a contract, nothing in the Contract Act prevents him
from making the other party bound to the minor". Comment.

[Date] 9
 Ans: Yes. A minor can be a beneficiary and any contract which is for the benefit of the minor
can be enforced by him.
Q6 Mis a minor who broke his right leg in a football match. He engaged D, a doctor to set it.
Does the doctor have a valid claim for his services? Give Reasons.

Dharmodas Ghose, a Minor, entered into a Contract for borrowing

a sum of ₹ 20,000 out of which lender paid him a sum of ₹ 8,000.
The Minor executed mortgage of property in favour of lender.
Subsequently, the minor sued for setting aside mortgage. Privy
Mohiri Bibi vs
Council had to ascertain the validity of mortgage. U/s 7 of Transfer
Dharmodas Ghose
of Property Act, every person competent to Contract is competent
to mortgage. The Privy Council decided that Sec. 10 and 11 of the
CASE LAW

Indian Contract Act make the minor's Contract absolutely void,

hence any money advanced to a Minor cannot be recovered.

A, a Minor makes a Promissory Note in favour of B. On attaining Indran Ramaswamy

majority, he makes out a fresh Promissory Note in lieu of the old vs Anthiappa
one. Neither the original, nor the fresh Promissory Note is valid. Chettiar

A Minor speculated in the Stock Exchange and became liable to

Stock Brokers for £547. Subsequent to attaining majority, he gave
Smith vs King
two bills for £50 each in satisfaction of the original debt. Held he
was not liable on the Bills.

(a)

A Mortgage was executed in favour of a Minor. Held he could get a Raghavachariah

CASE LAW

decree for the enforcement of the Mortgage. vs Srinivas

A Minor under a Contract of Sale delivered goods to the Buyer. Held Abdul Ghaffar vs
he was entitled to maintain a suit for recovery of price. Prem Piare Lai

(a)

S, a Minor, by fraudulently representing himself to be a major,

induced L to lend him £400. He refused to repay it and L sued
Leslie vs Shiell
him for the money. Held, that the Contract was void and S was
not liable to repay the amount due.

Kanhya Lai vs
Minor is not liable on the Promissory Note executed by him.
CASE LAW

Giridhari Lai

Where a Contract is set aside, the Court may direct the minor,
on equitable grounds, to restore the money or property to the
other party. If money could be traced, the Court would, on
equitable grounds, ask the minor for restitution. Sec.30 and 33 Khan Gul vs Lakha
of Specific Relief Act, 1963 provide that in case of a fraudulent Singh
misrepresentation of his age by a Minor, inducing the other
party to enter into a Contract, the Court may award
compensation to the other party.

[Date] 10
 FREE CONSENT

1. "Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud". Comment.
2. State the distinction between Coercion and Undue Influence?
3. ‘A’ applies to a 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. Whether the contract is induced by undue influence?
Decide?
Ans: There is no undue influence. Refer Chapter text since, as between the parties
on equal footing, the Court does not hold a transaction to be unconscionable merely on
the ground of high rate of interest.
4. X threatens to shoot Y if he does not sell his car to him for ₹ 20,000. Y signs the
necessary documents for sale of car. Later on, Y wants to avoid the contract. Will he
succeed? If so, why?
Ans: Y can avoid the contract on the ground of coercion.
5. A and B were sailing in a ship which was on its way from London to Bombay. While the
ship was passing through the Suez Canal, A threatened B to throw him into the sea
unless he agreed to sell his watch for ₹ 100. B agreed to sell the same. After reaching
Bombay, B changed his mind. Can A file a suit against B to get the watch?
6. Ans:No, the consent was obtained by coercion. It is immaterial whether or not the Indian
Penal Code was applicable at the place where coercion was exercised?
7. 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?
Ans: Yes, Threat to commit suicide amounts to coercion.
8. A religious Guru asked his chela (disciple) to transfer his house as a gift to himself on
the promise that he (chela) will go to Heaven in next life if he transferred his house to
him. The chela gifted his house to the Guruji. After that the chela realized that this w'as
useless and he wants his house back. Can he succeed?
Ans: Yes, Guru has exercised undue influence.
9. 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:B can void the contract. In case A knew that watch was made in India, B can also
claim damages. Refer Chapter text 5.5 and 5.6
10. A has two cars, a Flat and an Ambassador. He agreed to sell one of the cars to B. B is
thinking that he is buying Flat car, whereas A is thinking that he is selling Ambassador
car. Is there any contract created?
Ans: No, they do not agree on the same thing in the same sense. Refer Chapter text 5.1

[Date] 11
 11. 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: Yes, Mistake as to quality of the subject-matter. If B alone purchased the rice
thinking it to be old Basmati, he cannot avoid the contract as it will be unilateral mistake
of fact which does not make it voidable.
12. A sold his T.V. set to B representing that it was absolutely new and he never got it
repaired before. Later on it was discovered that it was a repaired T.V. set. B wants to
avoid the contract. Can he do so?
Ans: Yes. There is a fraud.
13. “A mere non-disclosure is no fraud". Comment.
14. P and S being traders enter into a contract. P has private information of a change in
prices which would affect S's willingness to proceed with the contract. Is P bound to
inform?
Ans: No, P is not bound to inform.
15. B is A's daughter and has just come of age. A sells to B a horse. A known to be
unsound. A says nothing to B about the horse’s unsoundness. Does A's silence amount
to a fraud? Is so, why? "If not, why not?
Ans: A's silence in this case amount to a fraud.

R, a Hindu widow, was forced to adopt X under threat that her

husband's corpse would not be allowed to be removed for Ranganayakamma
cremation, unless she adopts X. The adoption is voidable as vs Alwar Setti
having been induced by coercion.
CASE LAW

An agent refused to hand over books of accounts of Principal

unless he (Principal) released him from all liabilities concerning
Muthia vs Karuppan
past transactions. Held, release so given was not binding, being
the outcome of coercion.

A obtained a release deed from his wife and son under a threat of
committing suicide, the transaction was set aside on the ground of Ammiraju vs
coercion. Seshamma

Non-disclosure of the existence of liabilities of the Company amounted to

fraud and anyone who purchased shares on the faith of such Prospectus can Peek vs
CASE LAW

avoid the Contract, since the disclosure would have changed the impression Gurney
and resultant decision of the investors.

Vendor of a piece of land informed a prospective purchaser that it would hold

Bisset vs
2000 sheep. In reality, it could only hold a number less than that. Held, there
Wilkinson
was no misrepresentation as the statement was an opinion, honestly made.

[Date] 12
 X bought shares in a Company on the faith of a prospectus that contained an
untrue statement as to the Directorship of J. X had never heard of J and
Smith vs
hence such statement was immaterial from his view point. X's claim for
Chadwick
damages was dismissed on the ground that the untrue statement had not
induced him to buy the shares.

T bought a Cannon from H. It was defective, but H had plugged it. T did not Horsefull
examine the cannon, but it burst when he used it. Held as the plug had not vs
deceived T, he was liable to pay for the cannon. Thomas

Inference cannot be drawn of fraud from the mere fact of the Plaintiff being a Hajra Bai
lady, old and illiterate. vs Jadav
Bai

Hint / Answer: Refer Point 5

above.
Sohan induced Suraj to buy his Motorcycle saying
PRACTICAL
QUESTION

that it was in a very good condition. After taking the Suraj cannot rescind the Contract,
motorcycle, Suraj complained that there were many as his acceptance to the offer of
defects in the Motorcycle. Sohan proposed to get it Sohan to bear 40% of the cost of
repaired and promised to pay 40% cost of repairs repairs impliedly amount to final
after a few days, the motorcycle did not work at all. acceptance of the sale.[Long v.
Now Suraj wants to rescind the Contract. Decide. Lloyd]

The Vendor of a piece of land told a Hint / Answer: The Vendor says that in
PRACTICAL
QUESTION

prospective purchaser that, in his his opinion the land could support 2000
opinion, the land can support 2000 heads of sheep. This statement is only an
heads of sheep whereas, in truth, the opinion and not a representation and
land could support only 1500 sheep. hence cannot amount to fraud. (Bisset Vs
Does it amount to Fraud? Winkinson)

X bought Shares in a Company on the faith of Hint / Answer: Though the

PRACTICAL

a Prospectus which contained an untrue Prospectus contains an untrue

QUESTION

statement that one Z was a Director of the statement, that untrue statement
Company. X had never heard of Z and the was not the one that induced X to
untrue statement of Z being a Director was purchase the Shares. Hence X
immaterial from his point of view. Can X cannot claim damages. (Smith vs
claim damages on grounds of fraud? Chadwick)

[Date] 13
 VOID AGREEMENTS
1. Point out with reasons whether the following agreements are valid or void:
(i) Sohan agrees with Mohan to sell his black horse. Unknown to both the parties, the
horse was dead at the time of agreement.
(ii) Ramsells the goodwill of his shop to Shyam for ₹4,00,000 and promises not to carry
on such business forever and anywhere in India.
(iii) In an agreement between Prakash and Girish, there is a condition they will not
institute legal proceeding against each other without consent.
(iv) Ramamurthy, who is a citizen of India, enters into an agreement with an alien friend.
Ans:
(i) The agreement is void - There is a bilateral mistake as to the fact, viz. subject
matter of the contract (Sec, 20);
(ii) The agreement is void- It is in restraint of trade; the restrictions on Ram is for
'forever' and for 1anvwhere in India,’ and so the restraint is not reasonable as to the
'duration ’and placeof business (Sec, 27).
(iii) The agreement is void - Since it is in restraint of legal proceedings (Sec. 28).
(iv) The agreement is valid- Since it is not an agreement with an alien enemy.
2. 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: Mr. X cannot recover ₹ 5 lakhs from Mr. Seth as the given agreement restrains
Mr. X from exercising a lawful profession and so this agreement is in restraint of trade
(Sec. 27).
3. A purchased goodwill and business of “Ghantewala Halwai” for ₹ 2 lakhs. Can he restrain
him from carrying on a similar business nearby?
Ans: Yes.
4. A doctor engaged an assistant doctor on the condition that he will not start his practice
within 10 k.m. of his clinic after termination of his service. The assistant starts his practice
next door. Has the doctor any remedy?
Ans: The restriction is not valid since it is an agreement in restraint of trade as it prohibits
after termination of service.
5. A and B deposit ₹100 each with C to abide by the result of a candidate contesting election
to the Parliament. A wins the bet C refuses to pav the amount. Can A recover the amount?
Ans: No.
6. 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.
Hint: No. The agreement is illegal and hence collateral transactions will also be void.

[Date] 14
 7. A let a cab on hire to B, prostitute, knowing that it would be used for immoral purposes. Is
this a valid agreement? Can he recover his due rent?
Hint: This is not a valid contract and as such A cannot recover the rent of his cab.
8. A agrees to pay B ₹ 500 if B assaults C.A pays B an advance of ₹200. B assaults C in
pursuance of the agreement. Can B claim the balance from A? Supposing, immediately
after paying the advance, A repents and asks B not to assault C. Can A claim back the
advance paid to B?
Ans:No, B cannot claim the balance from A. Also, A cannot claim back the amount
already paid in case he changes his mind.
9. X, a physician practicing in New Delhi, took Y as his assistant for three years during which
T agreed not to practice on his own in New Delhi. At the end of the year from the date of
agreement with X, the assistant, Y, left X and began his own independent practice in New
Delhi. Has X any legal remedy against Y?
Ans: Yes, X has got legal remedy against Y. Y can be restrained upto three years as
agreed by the parties.
10. X and Y were rival shopkeepers in the same market place. X agreed to pay ₹10,000 if Y
closes his business in that market. Y closed his business, but X refused to pay the
amount. Can Y claim the amount?
Ans: No. because agreement in restraint of trade is void.

Case Law highlighting Agreements in Restraint of Trade as VALID

Trade Combinations: An Agreement between ice manufacturers not to sell S B Fraser Co.
ice below a stated price and to divide the profits in a certain proportion was vs Bombay Ice
valid u/s 27. Mfg Co

Trade Combinations: Four ginning factories entered into an agreement

fixing a uniform rate for ginning cotton and pooling their earnings to be Haribhai vs
divided between them in certain proportions. Held that the agreement was Sharef AM
valid and enforceable.

Trade Combinations: An Agreement among members of a Crop Society to English Hop

deliver all crops grown by them to the Society which would sell and divide Growers vs
the profit amongst its members is valid. Herring

Agreements during Employment: An Agreement of service by which a

person binds himself during the term of the agreement not to take service Charles vs
with anyone else, directly or indirectly take part in or promote or aid any Macdonald
business in direct competition with that of his Employer is valid.

Minimum Period of Service: Where an Employee undertook to serve his

Employer for a period of 3 years but leaves the service after one year, he Deshpande vs
may be asked to abide by the agreement. Hence the restriction imposed Arvind Mills
held valid.

[Date] 15
 CONTINGENT CONTRACTS AND QUASI CONTRACTS

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: W is entitled to reimbursement from Z u/s 69 of Contract Act since he is an
interested party.
2. 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
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?
Ans :-X is liable to pay to Y the amount paid by Y to the Government.
3. What is the nature of the following contracts:
(i) A contract between P and R provides that the payment of ₹ 5,000 will be made by P to
R after the completion of the construction of house.
(ii) A contract between P and R provides that the payment for the construction of P's
house will be made to R on his production of a certificate from S, an architect, to the
effect that the work has in fact been done according to the plan.
Ans: I) An unconditional or absolute contract. II) A contingent contract.
4. A agrees to pay B ₹5,000 if he marries C. C dies before the marriage. Can B recover the
amount?
Hint:No, agreement has become void due to death.
5. A agreed to purchase some spare parts for his T.V. subject to the approval of his
engineer. Is this a contingent contract? Will your answer by different if the spares are
purchased subject to the approval of A’s wife?
Ans: Yes, it is a contingent contract. However, if the spare parts were purchased subject
to the approval of A's wife, it should not be a contingent contract.
6. A found B's purse on the road. There was an address card in the purse. A did not contract
the true owner on the given address. What is his liability? If the true owner comes to know
about it, point out his right?
Ans: A was under an obligation to find the true owner at the given address in the card. If
the true owner comes to know of it, he can recover the purse and may sue A for wrongful
conversion/possession.
7. A at knife-point asked B to give his purse and wrist watch. Can he claim the purse and
watch?
Ans:Yes, goods delivered under coercion can be recovered (Sec. 72)

[Date] 16
 8. A finds a man B lying unconscious on the road and fetches C, a doctor, to attend to him.
Has C any right to be paid for his services against A or B? Advice C. Hint: C cannot claim
since it is done gratuitously.
9. A and B jointly owe ₹ 100 to C. A pays ₹ 100 to C. B, not knowing it pays C another ₹ 100.
Is C bound to return ₹ 100 received extra by him? Hint: Yes, C is bound to return ₹100 to
B.
10. An insurance company paid money by mistake on a policy which had lapsed. Though the
company was not ignorant of the fact of lapsing, but this was overlooked at the time of
payment. Can the company recover the amount? Hint: Yes, the company can recover the
amount..
11. K was levied a sales tax on his forward transactions in bullion, which he paid. The levy of
this tax was declared ultra virus. K demanded refund of the amount of the sales tax on the
ground that payment was made under a mistake of law. Will he succeed?
Hint: Yes, K will succeed. .
12. A promise to pay B a sum of money if a certain ship returns within a year. The ship is burnt
within the year. Advise B.
Hint: B is advised to treat the contract as void.

W is the wife of H, who is Hint / Answer: Supply of Necessaries to a lunatic or to

PRACTICAL QUESTION

lunatic, purchases a their dependants alone can be recovered from the

Diamond Set of ₹ 10
Lakhs from Beauty property belonging to the lunatic, and even he cannot
Jeweller on credit. be personally made liable. Diamond Set is not a
Referring to the necessaries generally. Hence, the Beauty Jeweller
provisions of the Indian cannot recover the amount of ₹ 10 Lakhs from the
Contract Act, 1872,
decide whether the property belonging to H, neither he can be made
Beauty Jeweller is personally liable.
entitled to claim the
above amount from the (Note: The answer may differ if the Diamond Set is a
property of H. necessary considering the status of living of H and W)

Ramesh instructed Suresh, Hint I Answer:

a Transporter, to send a  In an emergency, an Agent has the authority to do
PRACTICAL QUESTION

consignment of apples to all such acts as a man of ordinary prudence would

Mumbai. After covering half do for protecting his Principal from losses, and acts
which the Principal would have done under similar
the distance, Suresh found circumstances.
that the apples will perish
 Agent handling perishable goods like 'apples' can
before reaching Mumbai. He decide the time, date and place of sale, not
sold the same at half the necessarily as per instructions of the Principal, but
market price. Ramesh sued with the intention of protecting the Principal from
losses. Here, Suresh (Agent) had acted in an
Suresh. Will he succeed? emergency situation and Ramesh (Principal) will
not succeed against him.

[Date] 17
 DISCHARGE AND PREFORMANCE OF CONTRACT
1. Performance of Promise: G, a Singer, agrees with H, the Manager of a Theatre, to sing
two nights every week during the next two months, for which H promises to pay ₹ 1,000
per performance. G performs for one month but does not turn up in the first week of the
second month. Can H terminate the contract? What will be your answer if G turns up in
the second week of the second month and H allowed G's performance that night without
saying anything?
2. Performance of Promise: A received certain goods from B promising to pay ₹ 10,000.
Later on, A expressed his inability to make the payment. C, who is known to A, pays ₹
6,000 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 ₹ 10,000. Can B do so? Advice.[RTP]
3. Performance of Promise: B, the son of A, has inherited the Assets and Liabilities from
his Father after his death. But the Liabilities were more than the Assets. Will B be
responsible to pay the entire amount?
4. Joint Promisors: X, Y and Z are Partners of Software Business, who jointly promise to
pay ₹ 30,000 to A. Over a period of time Y became insolvent, but his assets are sufficient
to pay 1/4th 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.
5. Joint Promisors: Explain the law relating to liability of Joint Promisors in a contract. 'D',
'E' & 'F' who are Partners in a Firm, jointly promised to pay ₹ 1,50,000/- to ‘A’. Later on, 'F'
became insolvent and his private assets are sufficient to pay only 1/5th of his share of
debt. ‘A’ recovers the whole amount from ‘D’ through a legal action. Decide the extent to
which 'D' can recover the amount from 'E'.
6. Joint Promisors: X, Y and Z jointly borrowed ₹ 50,000 from A. The whole amount was
paid to A by Y. Decide 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.
7. Joint Promisees: X, Y and Z jointly sells goods to D for ₹ 18,000. After a week, D pays
the total amount to Y alone. Is D discharged from liability?
8. Joint Promisors: A, B and C jointly borrowed a sum of money from X. A dies. Decide
whether his Legal Representative L would be liable to repay the loan along with B and C.
9. Joint Promisors: X, Y and Z jointly borrow from P ₹ 3,000. The liability is Joint and
Several. Whether P can recover the amount either from X or from Y or from Z or from all
of them jointly?
10. Time as Essence: X agrees to sell 50 tons of some Raw Materials to Y on 20th June. X
delivers the goods on 30th June. Is Y bound to accept the goods?
11. Reciprocal Promises: A sells 500 quintals of Rice to B and B promises to pay the price
on delivery. What is the name of promise in this case?
12. Appropriation of Payments: Where there are two debts one ₹ 500 and another ₹ 700
falling due on the same day and if the Debtor pays ₹ 600, whether the appropriation can
be made pro-rata for the two debts?

[Date] 18
13. Novation: M owes money to N under a contract. It is agreed between M, N and O that N
shall henceforth accept O as his Debtor instead of M. State whether N can claim payment
from O.
14. Impossibility of Performance: The famous singer ‘Lady Gaga’ agreed with Mr. B to hire
for rent his Music Hall for her live music concert on the 31s1 January. The Music Hall
caught fire and was destroyed before the specified date of the Programme. State briefly
the legal position in light of the Indian Contract Act, 1872.
15. Impossibility of Performance: Mr. Vipin is a professional dancer. Mr. Pandey engages
him to dance at a party he is giving for his business associates. But a day prior to the
party Mr. Vipin’s son passes away and he could not perform the dance recital. In case Mr.
Pandey sues Mr. Vipin, does the latter have any protection under the law?
16. Impossibility of Performance: Mr. X agrees to write a book with a publisher but X dies in
an accident. What is the nature of this Contract?
17. Doctrine of Frustration: Akhilesh entered into an agreement with Shekar to deliver him
(Shekar) 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 Shekar. Decide whether Akhilesh can be exempted from the liability.
18. Breach of Contract: Mr. Ramaswamy of Chennai placed an order with Mr. Shah of
Ahmedabad for supply of Urid Dhall on 10th November, at a contracted price of ₹ 40 per
kg. The order was for the supply of 10 tonnes within a month's time, viz. before 9th
December. On 4th December, Mr. Shah wrote a letter to Mr. Ramaswamy 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 9th December. Advice Mr.
Ramaswamy citing the legal position.
19. Compensation for Breach of Contract: PM Ltd., contracts with Gupta Traders to make
and deliver certain machinery to them by 30th June 2017 for' 21.50 Lakhs. Due to labour
strike, PM Ltd. could not manufacture and deliver the machinery to Gupta Traders. Later
Gupta Traders procured the machinery from another manufacturer for' 22.75 lakhs. Gupta
Traders was also prevented from performing a contract which it had made with Zenith
Traders at the time of their contract with PM Ltd. and were compelled to pay
compensation for breach of contract. Calculate the amount of compensation which Gupta
Traders can claim from PM Ltd., referring to the legal provisions of the Indian Contract
Act, 1872. [RTP]
20. Anticipatory Breach: A appointed B to accompany him on a tour for three months from
1st July at a certain Salary. Before 1st July, A told B that B was no more required by him.
Can B sue A?
21. Remedy for Breach: Suraj sold his car to Sohan for ₹ 75,000. After inspection and
satisfaction, Sohan paid ₹ 25,000 and took possession of the Car, and promised to pay
the balance amount within a month. Later on, Sohan refuses to give the balance amount
on the ground that the car was not in a good condition. Advise as to what remedy is
available to him against Sohan. (M 06)
22. Quantum Meruit: A was appointed as a MD by a Company. Later on it was found that
appointment was invalid because the Director appointed him were not eligible. Can A
claim Salary for the time he worked?
23. Quantum Meruit: X contracted to sell 100 kg of Sugar to Y at ₹ 15 per kg on a certain
date. In anticipation X contracted to purchase from Z the same quantity at ₹ 8 per kg. Z

[Date] 19
 does not deliver the Sugar to X. X suffers from loss of ₹ per kg. Can he recover this loss
from Z?
24. Types of Damages: A contracted with B to supply him (B) 500 tons of iron-steel at ₹
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 at ₹ 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?
25. Types of Damages: 'X' entered into a contract with 'Y' to supply him 1,000 Water Bottle
@ ₹ 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. What would be the amount of damages which 'X'
could claim from Z in the circumstances? What would be your answer if Z had not been
informed about the ‘Y’s contract?
26. Types of Damages: M Ltd contracts with Shanti Traders to make and deliver certain
machinery to them by 30lh June 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.
27. Types of Damages: A, a Shopkeeper enters into contract with a Wholesaler of Fireworks
for the supply of crackers of worth ₹ 50,000 on the occasion of the Diwali festival. A also
makes known to the Wholesaler that if he fails to supply the crackers within a reasonable
time, he is expected to suffer a loss during the festive season. A supplies crackers on the
same day of the Festival. State briefly the legal position in the light of the Indian Contract
Act, 1872.
28. Punitive Damages: In case of breach of promise to marry, the damages are awarded
under what type of measurement of damage and what will be taken into account to give
damage?
29. Damages for Inconvenience and Discomfort: Mr. Anand contracts with Mr. Birendra
that, if he (Anand) practices as a Surgeon within Calcutta, he will pay Birendra ₹ 5000.
Later, Anand starts practising as a Surgeon in Calcutta. Discuss the right available to
Birendra with reference to the provisions of the Indian Contract Act, 1872.

[Date] 20
 ANSWER SHEET

In the first situation, H can terminate the contract. If H has allowed G to

perform in the second week of second month without saying anything, by
1. Performance
implication, H has given his assent to the continuance of the contract. H
of Promise
cannot repudiate the contract, but can claim damages from G for failure to
sing in the first week of the second month.

When a Promisee accepts performance of the promise from a third person,

he cannot afterwards enforce it against the Promisor, i.e. Performance by a
2. Performance
Stranger, accepted by the Promisee, produces the result of discharging the
of Promise
Promisor, although the latter has neither authorized nor ratified the act of
the Third Party. Therefore, B can sue A only for ₹ 4000. (Sec.41)

3. Performance
Liability of 'B' is restricted to the extent of the Assets inherited.
of Promise

Z is entitled to receive - (a) from Y’s assets - ₹ 2,500 (1/4lh of ₹ 10,000), (b)
4. Joint
From X - ₹ 13,750 (₹ 10,000 being his own share + ₹ 3,750 being one half
Promisors
share of total loss of ₹ 7,500 due to Y's insolvency)

D can recover ₹ 70,000 from E - being E’s Share of ₹ 50,000 + E's Share
5. Joint
of loss due to insolvency of F ₹ 20,000 [Loss due to insolvency of F = ₹
Promisors
50,000 less amount realized from the estate (1/5lh) ₹ 10,000 - ₹ 40,000]

6. Joint Y can recover the amount from the assets of Z and in case of any shortfall,
Promisors the loss is to be borne by the remaining Promisors equally.

7. Joint No, the right to demand the performance lies with the Joint Promisees
Promisees jointly, unless agreed otherwise.

8. Joint
Yes, L would be liable to repay the loan along with B and C.
Promisors

9. Joint
Yes, P can recover the amount from any one or all of the Promisors jointly.
Promisors

10. Time as
No, because, in commercial deals, time is of essence.
Essence

11. Reciprocal
Reciprocal Promise.
Promise

12. Appropn. of Yes. Appropriation can be made proportionately u/s 61, if neither party
Pymts appropriates specifically.

[Date] 21
 Yes, a contract need not be performed when the parties to the contract
agree to substitute a new contract or rescind it or alter it (Sec.62). In the
13.Novation
given case, Novation has taken place as one of the parties has been
replaced with a Third party. Therefore, N can claim the money from O.

Here, as the Music Hall ceased to exist, it is a case of supervening

14.Impossibility
impossibility and both the parties are excused from the performance of
of Performance
the Contract.

In case of contract of personal service, disability or incapacity to perform,

15.Impossibility caused by an act of God, e.g. illness, constitutes lawful excuse for non-
of Performance performance of the Contract (Robinson Vs. Davison). Hence, Mr. Vipin
has a valid excuse in this case.

16.Impossibility Since, Mr X dies in an accident, Contract stands discharged due to

of Performance impossibility of performance of the Contract.

(a) The performance does not become absolutely impossible on account

of strikes, lock-outs and civil disturbances and the contract in such a
case is not discharged unless otherwise agreed by the parties to the
Doctrine of contract. (Budget Vs Bennington; Jacobs Vs Credit Lyonnais), (b) In
Frustration this case, Mr. Akhilesh could not deliver the bags as promised because
of the strike by the workers. This difficulty in performance cannot be
considered as impossibility of performance and hence, Akhilesh is liable
to Mr. Shekar for non-performance of contract. (Sec.56)

There is a breach of contract. Aggrieved Party Ramaswamy can claim

18.Breach of
the remedy of Damages. Amount of Damages = (₹ 53 - ₹ 40) ₹ 10,000
Contract
kgs = ₹ 1,30,000.

PM Ltd. is obliged to compensate for the loss of ’ 1.25 lakhs (i.e. '22.75
lakhs - ’ 21.50 lakhs) which had naturally arisen due to default in
performing the contract by the specified date.
Regarding the amount of compensation which Gupta Traders were
19.Breach of compelled to make to Zenith Traders, it depends upon the fact whether
contract PM Ltd. knew about the contract of Gupta Traders for supply of the
contracted machinery to Zenith Traders on the specified date. If so, PM
Ltd. is also obliged to reimburse the compensation which Gupta Traders
had to pay to Zenith Traders for breach of contract. Otherwise PM Ltd. is
not liable for that.

20.Anticipatory
Yes, on the basis of anticipatory breach of contract.
Breach

Suraj can proceed against Sohan for the balance amount of ₹ 50,000. In
21.Remedy for
addition, Suraj is also entitled to - (a) Interest on the balance amount for

[Date] 22
 Breach the period of delay, (b) Interest during the pendency of the suit, and (c)
Cost of legal proceedings.

Yes, he is entitled to remuneration for the services rendered on Quantum

22.Quantum Meruit basis.
Meruit

23. Quantum No. This loss amount to special loss which X and Z had not contemplated
Meruit in their contract.

24. Types of
A can claim Ordinary Damages at ? 200/ton and also Special Damages.
Damages

(a) If Z is informed of Y’s Contract: ‘X’ can claim an Ordinary Damages

of ₹ 5.25 - ₹ 4.50 = ₹ 0.75 per Bottle + Special Damages of ₹ 5.25 -
25. Types of ₹ 5 = ₹ 0.25 per Bottle.
Damages
(b) If Z is NOT informed of Y’s Contract: ‘X’ can claim only Ordinary
Damages.

Ordinary Damages: M Ltd shall compensate for the loss of ₹ 12.75 Lakhs
- ₹ 11.50 Lakhs = ₹ 1.25 Lakhs, which had naturally arisen due to default
in performing the contract by the specified date.
26. Types of Special Damages: If M Ltd knew about the contract of Shanti Traders for
Damages supply of the contracted machinery to Zenith Traders on the specified
date, M Ltd shall reimburse the compensation which Shanti Traders had
to pay to Zenith Traders, as Special Damages for breach of contract. If M
Ltd did not know of this transaction, Special Damages would not arise.]

Delay in supply entitles A to claim the loss and get Special Damages in
27. Special
this case, since it has been made known to the parties at the time of the
Damages
contract.

28. Punitive Exemplary/Vindictive/Punitive Damages would be given, taking into

Damages account the injury suffered by the person.

29. Damages for

Birendra is entitled to such compensation, not exceeding ₹ 5,000 as the
Inconvenience
Court considers reasonable.
& Discomfort

[Date] 23
 SALES OF GOODS ACT 1930

Sale Contract for Work and Labour

A Dentist agreeing to supply a full set of Repair of a car and supply of spare parts
artificial teeth with material entirely found by required for such repairs is a contract for work
him is a contract of Sale of Goods. [Lee v. and materials. [Myers & Co. v. Brent Cross
Griffin] Services Co.]

Drawing a portrait and handing it over to the

Sale of a fur coat of special design and colour person who had requested it amounts to
as per customer design and specification is a contract for work and labour even though there
contract of sale notwithstanding the degree of would pass to the customer, materials in the
skilled work and labour involved in its form of canvas and paint. [Robinson v.
production. [Marcel v. Furriers Tapper] Graves]

B hires a piano from H on an agreement that B should pay £ 20 a month

as rent. The stipulation is that if he regularly pays the rent for 36 months
CASE LAW

the piano becomes his property at the end of 36 months. Further it is

provided that B can return the piano at any time and he need not pay Helby vs
any more. This is a Hire Purchase agreement proper. If, however, it is Mathews
agreed that 36 months rent must be paid and that he cannot return the
piano, the agreement is a contract of sale and not a hire-purchase
agreement

State the nature of the transaction in each

of the following cases:
Hint / Answer:
(i) A dentist makes a set of false teeth for
PRACTICAL QUESTION

his patient with materials wholly found by The contract is one for the sale of goods
the dentist and the buyer agrees to pay ₹ (Lee v. Griffin).
2,000 when they are properly fitted into his
mouth.

(ii) A Customer gives his tailor a length of

suiting and requires him to make a suit for The contract is one for work and
him, the lining materials and the buttons to material and not for sale of goods.
be supplied by the tailor.

(iii) A member of a recreation club takes The contract is one for the sale of
home a supply of certain provisions from

[Date] 24
 the club store, the payment to be made goods.
along with the subscription for the month.

(iv) A dealer in bicycles gives a ‘Hercules’ The contract is a sale if the customer
bicycle to a customer on the terms that T cannot terminate the agreement at his
100 should be paid by him then and there will, and is bound to pay the price. It is a
and balance ₹ 375 in five equal monthly hire-purchase agreement if he can
instalments. terminate the agreement at his will and
is not bound to pay the balance
instalments.

A purchased a hot water bottle from a chemist. The bottle burst and
CASE LAW

injured his wife. Held breach of condition as to fitness and thus chemist
was liable for refund of price plus damages. Priest vs Last

G purchased a tweed coat which caused her dermatitis (inflammation of Griffiths vs

the skin) due to her unusually sensitive skin. Held, the seller was not Peter
liable, the cloth being fit for any one with a normal skin. Conway Ltd.

For the purpose of making uniform Hint/ Answer:

for the employees, Bansi Bhaiya
PRACTICAL QUESTION

1. The cloth supplied is capable of being

bought dark blue colored cloth from
applied to a variety of purposes, the
Vivek, but did not disclose to the
Buyer should have told the Seller the
Seller the purpose of said purchase.
specific purpose for which he required
When uniform were prepared and
the Goods, but he did not do so. Hence,
used by the employees, the cloth
the implied condition as to the fitness for
was found unfit. However, there was
the purpose does not apply.
evidence that the cloth was fit for
caps, boots and carriage lining. 2. 2. Hence, the Buyer will not succeed in
Advice Bansi Bhaiya whether he is getting any remedy from the Seller under
entitled to have any remedy? the Sale of Goods Act. [Jones V.
Padgett]

A lady buys synthetic pearls for a high price Hint I Answer:

Practical Question

thinking that they are natural pearls. The seller

The lady has no remedy against the
does not correct her mistake. Has she any
seller as the doctrine of caveat
remedies against the seller? Would your
emptor applies in this case. In the
decision be different if the lady had told the
latter case, she can avoid the
seller: "I think they are natural pearls and,
contract as there is a breach of
therefore, agree to buy them at your price,"
condition as to quality [Sec.16(1)].
and the seller was silent?

[Date] 25
 A, a farmer, simply exhibits oats in his farm. B buys Hint / Answer:
Question
Practical

the oats in the belief that they are old oats. In fact
B cannot return the oats as
they are new oats. B wants to return the oats and
the doctrine of caveat emptor
refuses to pay the price
will apply.

Mr. Jayanth sells and consigns certain Goods to Hint/ Answer

Mr. Srikanth for cash and sends the Railway
1. Mr. Jayanth cannot exercise
PRACTICAL QUESTION

Receipt to him. Mr. Srikanth becomes insolvent

the right of stoppage of
and while the Goods are in transit, he assigns the
Goods in transit, because
Railway Receipt to Mr. Naveen, who does not
the Goods are being taken
know that Mr. Srikanth is insolvent. Mr.Jayanth
by Mr. Naveen in good faith
being an Unpaid Seller wants to exercise his
and for consideration.
rights. Advise whether Mr. Jayanth can exercise
the right of stoppage of Goods in transit. 2. Yes. Mr. Jayanth in this case
can exercise his right of
Would your answer be different if Mr. Naveen
stoppage of gods in transit,
was aware of Mr.Jayanth's insolvency before the
as Mr. Naveen has not acted
assignment of the Railway Receipt in favour of
in good faith. (Sec.27)
Mr. Naveen?

1. Nature of Transaction: State the nature of the transaction in each of the following
cases:
(i). A dentist makes a set of false teeth for his patient with materials wholly found
by the dentist and the buyer agrees to pay ₹ 2,000 when they are properly
fitted into his mouth.
(ii). A customer gives his tailor a length of suiting and requires him to make a suit
for him, the lining materials and the buttons to be supplied by the tailor.
(iii). A member of a recreation club takes home a supply of certain provisions from
the club store, the payment to be made along with the subscription for the
month.
(iv). A dealer in bicycles gives a ‘Hercules' bicycle to a customer on the terms that f
100 should be paid by him then and there and balance 7 375 in five equal
monthly installments.
2. A agrees to sell to B his two second-hand cars on the terms that the price was to
be fixed by C. B takes delivery of one car immediately. C, however, refuses to fix
the price. A asks for the return of the car already delivered whereas B insists on
the delivery of the second car to him for a reasonable price of both the cars.
Decide.

[Date] 26
3. A sold 100 quintals of groundnut oil to B. Before it could be delivered to B, the
Government of India requisitioned the whole quantity lying with A in public interest.
B wants to sue A for breach of contract. Advise B.
4. A hirer, who obtains possession of a refrigerator from its owner under a hire-
purchase agreement, sells the refrigerator to a buyer who buys in good faith and
without notice of the right of the owner. Does this buyer get a good title to the
refrigerator? State reasons for your answer.
5. A lady buys synthetic pearls for high thinking that they are natural pearls. The
seller does not correct her mistake. Has she any remedies against the seller?
Would your decision be different if the lady had told the seller; “I think they are
natural pearls and, therefore, agree to buy them at your price," and the seller was
silent?
6. A lady who knew that she was allergic to a particular hair dye developed
dermatitis as a result of having her hair dyed with that substance. She did not
disclose her allergy to the hair dresser. Is the hair dresser liable for breach of
implies condition?
7. A agreed to sell a second-hand reaping machine B, the buyer, had not seen. The
seller state the machine was new the previous year and had been used to cut 50
acres only. B, however, found that the machine, when it was delivered, was old
and had even been repaired. Can B repudiate the contract?
8. Has the property in the goods passed in the following cases?
(a) B offers for a specific horse ₹ 20,000, the horse to be delivered on 5th January,
and the price to be paid on the 1sl February following.
(b) B order A. a boat-builder, to make him a boat. Whit the boat is being built, B pays
to A money from time to time on account of price.
(c) A, having a quantity of sugar which is more than twenty quintals, contracts to sell
to B ten quintals out of it. Afterwards A puts ten quintals of sugar in sacks and
gives notice to B that the sugar is ready and requires him to take it away, B says
he will take it as soon as he can.
9. A, a jeweler, was entrusted with a diamond by P with the instructions that A
should obtain offers for it, and if any such offer was approved by P, A should sell it
to the offerer. Acting contrary to P’s instructions A sold the diamond to S who
bought it in good faith. Thereafter, A absconded with the price money. Can P
recover the diamond from S?
10. A delivers a gold necklace to B on ‘sale or return1 basis. It is agreed between A
and B that property is not to pass to B till he has paid price of the necklace.
Without paying the price, B sells the necklace to C. Does C get a good title to the
necklace?
11. A offered to sell to B a certain machine for ₹ 50,000. B refused to buy unless
certain work was done on it to put it into a running condition. A replied that B might
take it to a repair shop and have work done, and when the cost of repairs was
known might pay A 7 50,000 less the cost of repair. To this B agreed and took the

[Date] 27
 machine to a repair shop. While being repaired, the machine was destroyed
without any fault of the repairman. Can A recover the price from B?
12. Goods are delivered by A to B on 'sale or return’. They are further delivered by B
to C and then by C to D on similar terms. The goods are stolen while in the
custody of D. Is B liable to A for the loss? if not, who shall suffer the loss?
13. B offers and A accepts ₹ 100 for a stack of firewood standing on A’s premises, the
firewood to be allowed to remain on A's premises till a certain day and not to be
taken away till paid for. Before payment and while the firewood is on A's premises,
it is accidentally destroyed by fire. Who must bear the loss?
14. A finds a costly ring and after making reasonable efforts to discover the owner,
sell it to B, who buys without knowledge that A was merely a finder. Can the true
owner recover the ring from B?
15. In a contract of sale of goods, 200 specified bales of goat-skins containing 60
pieces in each bale were sold. It was necessary for the seller to count them before
delivery. Before counting was completed, the bales were destroyed by fire. Who
should bear the loss, the buyer or the seller?
16. 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
given reasons whether J would succeed. [RTP]

[Date] 28
 ANS SHEET

Question Hint Answer

(i). The contract is one for the sale of goods (Lee v. Griffin).
(ii). The contract is one for work and material and not for sale of
goods.
1. Nature of (iii). The contract is one for the sale of goods.
Transaction
(iv). The contract is a sale if the customer cannot terminate the
agreement at his will, and is bound to pay the price. It is a
hire-purchase agreement if he can terminate the agreement
at his will and is not bound to pay the balance installments.

B shall have to pay for the car already delivered a reasonable price. A
2. Price cannot ask for its return. As regards the second car, B cannot insist on
its delivery to him since the contract has become void (Sec. 10).

The contract becomes void (Sec. 8). It also becomes void because of
3. Void Contract
supervening impossibility (Sec. 56 of the Indian Contract Act).

4. Hire Purchase No, as the hire-purchaser has no title to the refrigerator.

The lady has no remedy against the seller as the doctrine of caveat
5. Caveat Emptor emptor applies in this case. In the latter case, she-can avoid the
contract as there is breach of conditions as to qualify (Sec. 16 (1)).

No. The hair dresser is not liable for the breach of implied condition as
6. Implied to the fitness of the hair dye since that condition extends to the dyeing
condition of the hair of a normal person (Sec. 16 (1); Ingham v. Ernes (1955) 2
Q.B. 366; Griffiths v. Peter Conway, Ltd, (1939) 1 All. E.R. 683.)

7. Implied Yes, as there is a breach of the implied condition that the goods shall
Condition correspond with the description (Sec. 15 :Varley v. Whipp).

(a) The property in the horse would pass to B as soon as the

seller accepts the offer. The fact that the time of delivery and
of payment of price is postponed does not prevent the
property from passing at once.
8. Transfer of
Property (b) No. The property in the boat would pass to B when the boat is
ready and A gives a notice to B to this effect (Sec. 21).
(c) Yes. The property in sugar passes to B when A gives notice
to B (Sec. 21).

9. Sale by
Mercantile No, P cannot recover the diamond from S who bought it in good faith

[Date] 29
 Agent from who is a mercantile agent (Sec. 27).

10. Sale or Return No. C does not get a good title to the necklace as B himself has no title
Basis to the necklace till he pays its price (Weiner v. Smith).

11. Transfer of
Property No. (Refer to Sec. 19)

Yes, B, is liable to A for the loss. B can recover the loss from C. But c
12. Sale or Return
cannot recover the loss from D as between C and D, there is not a sale
basis but an agreement to sell (Sec. 24: Genn v. Winkel).

13. Transfer of B has to bear the loss as the property in goods has been passed on to
Property B, even if the goods are lying in A’s premises.

14. Finder of lost Yes, the true owner can recover the ring from B as it is not a valid sale
and it also does not come under the exceptions when the finder has the
goods right to sell (Sec. 169 of the Indian Contract Act, 1872).

15. Transfer of
Property and The seller (Sec. 22).
Risk

16.Sale by Mercantile P, the agent, was in the possession of the car with J’s consent for the
Agent 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.[Sec.27 Proviso,
Folkes vs King ]

[Date] 30
 INDIAN PARTNERSHIP ACT 1932

Q1.

State whether X and Y are Partners in the following circumstances

1. X agrees with Y to carry passengers by taxi from Delhi to Gurgaon on

following terms, viz., Y is to pay X ₹ 100 per mile, X and Y are to share
Yes
costs of repairing and replacement of cars, and divide equally between
them proceeds of fares received from passengers.

2. X and Y are co-owners of a house let-out to a tenant. X and Y divide the

No
Net Rents (after deduction of incidental taxes, etc.) between themselves.

3. X and Y, the co-owners of a house, use the house as a hotel managed

either by themselves or by a duly appointed manager for their common Yes
profit.

4. X and Y buy 200 bales of cotton, agreeing to share the same between
No
them.

5. X agrees with Y a goldsmith, to buy and furnish gold to Y to be worked up

Yes
by him and sold, and that they shall share in the resulting profit or loss.

6. X and Y agree to work together as carpenters but X shall receive all profit
No
and shall pay wages to Y.

7. X and Y are joint owners of a ship. No

8. X, a publisher, agrees to publish at his own expense a book written by Y

No
and to pay Y half the Net Profit.

Q.2

Hint / Answer: Yes

A and R are carrying on business in
Partnership. In Partnership deed, it is 1. In a trading Firm, power to borrow
PRACTICAL QN

provided that none of the Partners money falls within the usual course of
should borrow money except with business and hence within the implied
the consent of both. A borrowed a authority of a Partner.
sum of ₹ 1,00,000 from S for
business of the Firm without consent 2. Even though the contract provides for
of R. Is the Firm liable? Give reasons consent of both for taking loans, the
for your answer. implied authority of a Partner exercised
in the usual course of business, binds

[Date] 31
 the Firm.
3. Hence the Firm shall be held liable to S.

Q3
PRACTICALQUESTION

A & B are Partners in a Hint / Answer: No

Firm dealing in cloth. A
1. The Firm deals in cloth which is different from
placed an order in the
purchasing of Wheat.
Firm's name and on the
Firm's letter pad for five 2. Unless A had been expressly authorised to purchase
bags of wheat to be wheat on behalf of the Firm, there is no implied authority.
supplied at his residence. Is 3. The Firm is not liable to pay for the wheat. Only A can
the Firm liable to pay the be held liable for his act.
price of wheat?

Q.4

X and Y are Partners of a Trading Firm. They decide that Hint/ Answer: Yes
no Partner shall have the right to buy or sell goods beyond
The act has been done to
PRACTICAL
QUESTION

the value of ₹ 10,000 without the consent of the other

protect the Firm from loss.
Partner. Owing to sudden slump in the market, the prices
crashed.
X in order to save the Firm from loss, sold all the perishable
stock worth ₹ 2,00,000 without consulting Y. Is Firm bound
by X's Act?

Q.5

1.

X, Y and Z are Partners of a Trading Hint/ Answer:

Firm. X who actively participates in the
PRACTICAL QUESTION

Management of the business of the Firm,

(a) The Firm is liable to seller
bought certain goods for the Firm. The because notice to Working
Seller told X about the defect in the Partner operates as a notice to
goods, (a) Is the Firm liable to the seller? the Firm.
(b) Would it make any difference if there (b) The Firm is not liable to the seller
was a collusion between X and the seller
because notice to a Working
to conceal the defect from other
Partners? Partner does not operate as a
notice to the Firm incase of fraud
committed by a Partner and third
party against the Firm.

[Date] 32
Q.6

1.
PRACTICALQUESTI

A, B and C are Partners of an Unregistered Hint/ Answer: No

Firm. D owes this Firm. ₹ 1,000 on a Firm must be registered at the time of
contract. The Firm files a suit against D. instituting the suit. Since in the given
ON

The suit is dismissed for nonregistration of case, a fresh suit is contemplated and at
Firm. The Firm is registered later on. Can this time the Firm is a Registered Firm,
the Firm now successfully bring the suit the Firm will be entitled to institute a valid
against D? suit.

Q.7
PRACTICALQUESTIO

Hint/ Answer: Yes

A & B purchased a taxi to ply in Partnership. They
plied the taxi for a year when A, without the U/s 69, a Partner of an Unregistered
consent of B, disposed of the taxi which brought Firm cannot enforce any of his
the Partnership to an end. B brought an action to contractual or legal rights against
N

recover his share in the sale proceeds. A resisted any other Partner. But non-
B's claim on the ground that the Firm was not registration of a Firm does not affect
registered. Will B succeed in his claim? a Partner's right to seek settlement
of accounts of a dissolved Firm.

Q.8
PRACTICA
LQUESTIO

X, Y and Z are Partners in Unregistered Firm. X Hint/ Answer: Yes

steals the property of the Firm. Y filed a suit
N

against X. X registered Y's claim on the plea that Sec.69(1) prohibits the institution of
the Firm was not registered. Will Y succeed? civil suit and not criminal suit.

Q.9
PRACTICALQUE

X, Y and Z are Partners in a Registered Firm. X

died and D was admitted as a Partner. The Firm Hint/ Answer: No
STION

filed a suit against W in the name and on behalf All Partners at the date of instituting
of Firm without notifying to the Registrar of Firms the suit have not been shown in the
about the changes in the constitution of the Firm. Register of Firms.
Is the suit maintainable?

[Date] 33
 Practical Questions

1. Partnership or Not: Do A and B constitute partnership in the following cases?

(a) A, the licensed proprietor of a theatre, lets the use of it to B for dramatic
entertainments. A manages the theatre and bears all its expenses. He also
incurs certain expenses for advertising and the band. He also collects door
money. He retains half of it and hands over the other half to B.
(b) A and B, co-owners of a house, let it to a paying guest. They divide the net
rent between them.
(c) A, a publisher, agrees to publish at his own expense, a book written by B and
to pay B half the net profits.
(d) A and B separately tender for a contract to cut and remove bamboos from a
certain jungle. They mutually agree that each one of them shall be entitled to a
certain share of the bamboos, no matter whosover is granted the contract, and
each one is entitled to deal with his share of the bamboos as his personal
concern.
(e) A and B are joint owners of a ship. A works on the ship, takes care of the
entire management and meets all the expenses. He takes two-thirds of gross
earnings and pays over the balance to B who does nothing.
2. X, Y and Z enter into a partnership to execute contract works. X secures for the
partnership work estimated to cost' 1 Lakh. He obtains the said order only on
payment of sum of' 5,000 to a person in authority and debits the sum in the
account books as an item of expense. The other partners object of the item. How
would you decide?
3. A, a partner of a firm, borrows money on his own credit by giving his own
promissory note for the same, but he subsequently uses the proceeds of the note
in the partnership concern of his own free will without any reference to the lender
to do so. (a) Is the firm liable for the loan? (b) Would it make any difference if A
borrowed money in the name of the firm, but in excess of his authority?
4. Sis a partner in a firm. He gives notice of his retirement to the other partners but
does not give public notice of it. Thereafter, the firm borrows ₹ 5,000 from a banker
and the banker is able to recover only ₹ 3,000 from the other partners. Can the
banker hold Sliable for the balance of ₹ 2,000 due to him if he is (i) an active
partner. Or (ii) a dormant partner?
5. A and B carry on business in partnership as piece-goods merchants. A finances
the business and is a sleeping partner. B receives certain piece-goods belonging
to C in ordinary course of business. B knows that the goods are a stolen property.
Of the goods so purchased and sold by B, the proceeds of a part of the goods are
entered in the books of the firm. A wants to avoid the liability towards C on the
ground of misconduct by B. Discuss the liability of A and B to C.

[Date] 34
6. P, Q and R were partners in a firm. By his willful neglect and misconduct R
caused serious loss to the business of the firm. After several warnings to R, P and
Q passed a resolution expelling R from the firm. By another resolution they
admitted S as a partner in place of R. R objects to this expulsion as also to the
admission of Q.Is he legally entitled to do so?
7. Secret Profit: Four partners established a partnership for refining sugar. One of
them was a wholesale grocer and had great skill in buying sugar at a right and
proper time for the business. Accordingly the business of selecting and purchasing
sugar was entrusted to him. According to his skill and knowledge, he bought sugar
for himself at a time when he thought that the price are likely to rise. The sugar
rose in value and the firm was in want of same. He sold his own sugar to the firm,
without letting the partners know that it was his sugar that was sold. Is he
accountable to the firm for profit he makes?
8. Registration: A & Co. is registered as a partnership firm in 2015 with A, B and C
partners. In 2016, A dies. In 2017, B and C sue X in the name and on behalf of A &
Co., without fresh registration, (a) Decide whether the suit is maintainable, (b)
Whether your answer would be same if in 2017 B and C had taken a new partner
D and then filed a suit against X without fresh registration? [RTP]
9. Settlement of Accounts: A, B and C are partners in a firm. As per terms of the
partnership deed, A is entitled to 20 percent of the partnership property and profits.
A retires from the firm and dies after 15 days. B and C continue business of the
firm without settling accounts. Explain the rights of A’s legal representatives
against the firm under the Indian Partnership Act, 1932? [RTP]
10. Dissolution: P, Q and R enter into a partnership agreement to ply motor buses on
certain routes for a period of twenty years. The business was run for four years. It
was found that during the four years the business resulted in a loss each year. P,
however, insists on the business being continued for the remaining period. Can P
so insist? If he can state the course, if any, open to Q and R who are not anxious
to run the business.
11. Settlement of Accounts: A and B trade as partners, and it is agreed that profits
should be shared and losses borne equally. On dissolution it is found that A had
advanced more capital than B to the extent of ₹ 10,000. The net assets are only ₹
1,400. How much should B pay to A on account of deficiency of the capital?

Hint Answers to Practical Questions

Question Hint Answer

1. Partnership or
There is no partnership in all the cases
Not

2. Registration Yes, because the action now was for the realization of the assets of a

[Date] 35
 dissolved firm (Sec.69(3).

3. Registration No, as registration pending suit does not cure initial defect (Sec.69).

No. The suit is not maintainable for want of registration of the firm on
4. Registration
the date of institution of the suit (Sec.69)

The payment is illegal and it cannot be said to be an act done in the

5. Implied
normal course of business. As such this sum of ? 5,000 will have to be
Authority borne by X.

6. Implied (a) No. (b) The firm would be liable provided the lender did not know the
Authority limitation of the authority of A (Sec. 18 and 19)

The banker can hold S liable for balance of ₹ 2,000, if S is an active

7. Notice on
partner. No liability attached to S after his retirement, if he is a sleeping
Retirement partner (Sec.32(3).

8. Liability of Both A and B are liable in damages for the value of all the goods of C
Partners [Harruk Chand v. GovindLal, (1901) 10 cal. W.N. 1053 Sec. 26).

In the absence of an express agreement among the partners the

9. Expulsion of a expulsion of R from the firm is irregular and he is entitled to object to his
Partner expulsion (Sec. 33). Similarly, R is entitled to object to the admission of
S (Sec. 31 (1).

10. Secret Profit Yes (Bentley v. Craven, Sec, 16

(a) Yes, suit is maintainable. Fresh registration is not required

11. Registration [Refer Sec.69]. (b) No, suit is not maintainable. D's name has
not been entered in the ROF. [Refer Sec.69]

(Refer Sec.37) A’s Legal representatives shall be entitled, at their

option to -
12. Settlement of (a) the 20% shares of profits (as per the partnership deed), or
Accounts
(b) interest at the rate of 6 % p.a. amount of A’s share in the
property.

A firm may be dissolved with the consent of all the partners or in

accordance with a contract between the partners (Sec.40). If P is not
willing, the partnership cannot be dissolved. But if the business has
13. Dissolution been running at a loss and if it cannot be carried on except at a loss,
the Court may dissolve the firm at the suit of a partner (Sec.44). It
makes no difference even if the partnership is for a fixed period.

14. Settlement of
B should pay A 7 4,300 (Sec.48).
Accounts

[Date] 36
 COMPANIES ACT 2013

S sold his boots business to a newly formed Company for £ 30,000. His
wife, one daughter and four sons took up one share of £1 each. S took
23,000 shares of £1 each and £10,000 debentures in the Company. The
debentures gave S a charge over the assets of the Company as the
consideration for the transfer of the business. Subsequently when the
Company was wound up, its assets were found to be worth £6,000 and
its liabilities amounted to £17,000 of which £10,000 was due to S
(Secured by Debentures) and £7,000 due to Unsecured Creditors. The SolomonvsSolomon
Unsecured Creditors claimed that S and the Company were one and the & Co. Ltd.
same person and that the Company was a mere agent for S and hence
they should be paid in priority to S.
Held, the Company was, in the eyes of the law, a separate person
independent from S and was not his agent. S, though virtually the holder
of all the Shares in the Company, was also a Secured Creditor and was
entitled to repayment in priority to the Unsecured Creditors.

A Company was formed for the purpose of manufacturing aerial

topdressing. Lee, a qualified pilot, held nearly all shares except one in
the Company, and by its Articles was appointed Governing Director and
Chief Pilot. Lee was killed while piloting Company's aircraft, and his
Lee vs Lee
widow claimed compensation under Workmens Compensation Act. The
AirFarmingLimited
Company opposed the claim stating that Lee was not a worker as the
same person could not be Employer and Employee. Held: There was a
valid contract of service between Lee and Company, and Lee was,
therefore, a worker. Mrs. Lee's contention was upheld.

A millionaire earning huge income by dividends and interests formed

4 Private Companies and transferred his investments in exchange of
their Shares. Dividends and Interest Income were handed back to
him as pretended loan. Held, Company was formed purely and Re.
simply as a means of avoiding tax and the Company was nothing DinshawManeckjeePetit
more than Assessee himself. It did no business, but was created
simply as a legal entity to ostensibly receive dividends and interest
and hand them over to the assessee as pretended loans.

1.

Daimler Co.
A Company was incorporated in London for selling tyres manufactured in
Ltd vs
Germany by a German Company. The German Company virtually held the
Continental
entire Share Capital in the English Company. All the Directors were German
Tyre & Rubber
residents. During the First World War, the said Company commenced an
Co. (Great
action for recovery of a trade debt from English Company. It was held that the
Britain) Ltd.
Company was an alien Company and the payment of debt to it would amount

[Date] 37
to trading with the enemy and therefore the Company was not allowed to
proceed with the action.

Home was employed under an agreement that he shall not solicit the
Company's customers or compete with it for a certain period of time after
leaving its employment. After cessation of employment, Horne formed a
Company that carried on a competing business, and allotted the whole of its Gilford Motor
Shares to his wife and an Employee of the Company, who were appointed as Company vs
its Directors. Held, Horne in fact controlled the Company. Its formation was a Horne
mere ’cloak or sham' to enable him to break his agreement with the Company
(Employer - Gilford Motor). An injunction was issued against him and his
Company restraining them from soliciting the customers of Gilford Motor.

The concept of corporate entity was evolved to encourage and promote trade
and commerce but not to commit illegalities or to defraud people. Where, the Delhi
corporate character is employed for the purpose of committing illegality or for Dvlopment
defrauding others, the Court would ignore the corporate character and will Authority vs
look at the reality behind the corporate veil so as to enable it to pass Skipper
appropriate orders to do justice between the parties concerned. Constrn
Company (P)
Ltd.

EXTRA QUESTIONS
1. F, an Assessee, was a wealthy man earning huge income by way of dividend and
interest. He formed 3 Private Companies and agreed with each to hold a block of
investment as an Agent for it. The Dividend and Interest Income received by the
Company was handed back to F as a pretended loan. This way F divides his
income into 3 parts in a bid to reduce tax liability. Decide for what purpose 3
Companies were established. Whether the legal personality of all the 3 Companies
may be disregarded?
2. Anson Ltd, held Equity Shares in Booban Ltd. Later on, Anson Ltd, became a
Subsidiary Company of Booban Ltd. Decide whether it is necessary for Anson Ltd,
to surrender the Equity Shares of Booban Ltd?
3. 40% of the Paid-Up Share Capital of Company A is held by the Central
Government and 11 % by Public Financial Institutions like Life Insurance
Corporation of India and the Unit Trust of India. Is Company A, a Government
Company?
4. The Paid-Up Share Capital of XYZ (Pvt) Ltd is ₹ 20 Lakhs consisting of 2,00,000
Equity Shares of ₹ 10 each fully paid-up. ABC (Pvt) Ltd and its Subsidiary DEF
(Pvt) Ltd are holding 60,000 and 50,000 Shares respectively in XYZ (Pvt) Ltd.

[Date] 38
 Examine whether -
(a) XYZ (Pvt.) Ltd is a Subsidiary of ABC (Pvt) Ltd.
(b) Would your answer be different if DEF (Pvt) Ltd is holding 1,10,000 Shares in
XYZ (Pvt) Ltd and no Shares are held by ABC (Pvt) Ltd in XYZ (Pvt) Ltd?
5. The Paid Up Share Capital of Advanced Casting Pvt Ltd is ₹ 1 Crore consisting of
8,00,000 Equity Shares of ₹ 10 each fully paid up and 2,00,000 Convertible
Preference Shares of ₹ 10 each fully paid up. Quality Forgings Pvt Ltd and
Supreme Engineering Pvt Ltd are holding 3,00,000 Equity Shares and 2,50,000
Equity Shares respectively. Quality Forgings Pvt Ltd and Supreme Engineering Pvt
Ltd are the Subsidiaries of Unique Machineries Pvt Ltd. Examine -
(a) Whether Advanced Casting Pvt. Ltd is the Subsidiary of Unique Machineries
Pvt. Ltd.
(b) Will your answer be different if Unique Machineries Pvt. Ltd controls the
Composition of Board of Directors of Advanced Casting Pvt. Ltd?
6. XYZ Company Private Limited desirous of raising funds through acceptance of
deposits from the public seeks your advise on the matter. You being the Financial
Advisor of the Company, advise the Company whether acceptance of deposits
from the public in the given case be valid under the provisions of the Companies
Act.
7. State whether ABC Private Ltd has fulfilled all the conditions relating to a Private
Company -
 Its AOA stipulate that in case of transfer of Shares by any existing Member, it
shall first be offered to another existing Member.
 Total Number of Members is 209, including 6 present employees & 5 past
employees who continue to hold Shares in the Company.
 Its Articles of Association prohibit invitation to the public to subscribe for any
Shares in or Debentures of, the Company.
8. Fortune Traders Ltd as registered as a Public Company. There are 300 Members
in the Company as noted below -

Directors and their relatives 100

Employees 50

Ex-employees (Shares allotted when they were Employees of the 50

Company)

15 Couples holding Shares jointly in the names of Husband and 30

Wife

Others 70

[Date] 39
 Total Number of Members 300

The Board of Directors of the Company proposes to convert it into a Private

Company. Advise the Board of Directors about the steps to be taken for
conversion into a Private Company including reduction in the number of members,
if necessary.
9. In a Private Limited Company it is discovered that there are, in fact, 215
Members. On an enquiry, it is ascertained that 20 of such Members have been
Employees of the Company in the recent past and that they acquired their Shares
while they were still Employees of the Company. Is it necessary to convert the
Company into a Public Limited Company?
10. A Company was incorporated on 6th October. The Certificate of Incorporation of
the Company was issued by the Registrar on 15lh October. On 10th October, the
Company entered into a contract, which created its contractual liability. The
Company denies from the said liability on the ground that the Company is not
bound by the contract entered into by it prior to obtaining Certificate of
Incorporation. Can the Company be exempted from the said contractual liability?
11. The MOA of a Company was signed by 2 adult members and by a guardian of the
other 5 Minor Members. The Registrar registered the Company and issued under
his hand a Certificate of Incorporation. The Plaintiff contended that - (a) conditions
of registration were not duly complied with, and (b) that there were no 7
Subscribers to the Memorandum. Will the Court uphold his contention?
12. Six out of seven signatures to the MOA were forged. The Company was
registered and the Certificate of Incorporation was issued. Can the registration of
the Company be challenged subsequently on the ground of forgery?
13. The Memorandum of Association of a Company was presented to the Registrar of
Companies for registration and the Registrar issued the Certificate of
Incorporation. After complying with all the legal formalities a Company started a
business according to the Objects Clause, which was clearly an illegal business.
The Company contends that the nature of the business cannot be gone into, as
the Certificate of Incorporation is conclusive. Answer the question whether
Company's contention is correct or not
.

[Date] 40
 Hint Answers to Practical Questions

Question Hint Answer

F, formed the Companies purely for the purpose of avoiding tax and
the Company was nothing more than F himself. The Company did no
1. Lifting ofCorporate business, but was created as legal entity to receive dividends and
Veil interest and hand them over to F as pretended loans. In order to
protect revenue, the Courts shall pierce the Corporate Veil and
punish F, who has defrauded revenue. (Refer Dinshaw Case)]

Refer Sec.464 and Kumar Swami Chettiar Case Decision. Since

two HUFs carry on business, Sec.464 is applicable. United Traders
Association will be regarded as illegal since the number of Members
2. Illegal Association
is 54 (i.e. exceeds 50) and not registered under Companies Act or
any other Indian Law. The illegality of an Illegal Association cannot
be cured by a subsequent reduction in the number of its Members.

Refer Sec.2(45). Only 40% of the Shares of Company A, is held by

Central Government, which is less than 51%. Hence, Company A is
3. Govt Company
not a Government Company. Shares held by PFIs like LIC and UTI
are not to be taken into account.

Issue 1: ABC (Pvt) Ltd, together with its Subsidiary DEF (Pvt) Ltd,
holds 55% (60,000 + 50,000 = 1,10,000 out of 2,00,000) of the Equity
Capital of XYZ (Pvt) Ltd. Hence, XYZ (Pvt) Ltd is a Subsidiary of ABC
(Pvt) Ltd.
4. Holding and Issue 2: A Company which is a Subsidiary of a Subsidiary shall also
Subsidiary be deemed to be the Subsidiary of Holding Company. Hence, on the
basis of majority Shareholding criterion, XYZ (Pvt) Ltd is a Subsidiary
of DEF (Pvt) Ltd. Since DEF (Pvt) Ltd is already a Subsidiary of ABC
(Pvt) Ltd, it follows that XYZ (Pvt) Ltd shall also be a Subsidiary of
ABC (Pvt.) Ltd.

Issue 1:Quality Forgings Pvt. Ltd and Supreme Engineering Pvt. Ltd
are holding Capital amounting to (30,00,000 + 25,00,000) = ₹
55,00,000 of Advanced Castings Pvt. Ltd, out of ₹ 1 Crore Total
Share Capital. As Quality Forgings Pvt. Ltd and Supreme
Engineering Pvt. Ltd are already the Subsidiaries of Unique
5. Holding and Machineries Pvt. Ltd, Unique Machineries Pvt. Ltd will be treated as
Subsidiary holding more than half of the Nominal Value of Equity Share Capital
of Advanced Castings Pvt. Ltd. Hence, Advanced Casting Pvt. Ltd is
a Subsidiary of Unique Machineries Pvt. Ltd.
Issue 2: If Unique Machineries Pvt. Ltd controls the composition of
Board of Directors of Advanced Casting Pvt. Ltd. it will also be
treated as Holding Company. The percentage of shareholding is not

[Date] 41
 required to be analysed in such a case.

Private Limited Companies are not permitted to accept deposits from

6. Pvt vs Public Co Public.

7. Pvt vs Public Co All conditions relating to Private Limited Company are satisfied here.

Effective Number of Members = 185 (Directors and Relatives = 100 +

Joint Members taken as single Members = 15 + Others = 70). Total
Members exclude the present and past Employee Members.
8. Pvt vs Public Co A Private Company cannot have more than 200 Members. In this
case, the Company has only 185 Members. Hence, no further
reduction in membership is called for, in order to convert into a
Private Company.

No. Since the number of Members excluding the Employee Members

9. Pvt vs Public Co is 195, it is not necessary to convert the Company into a Public
Limited Company.

 Refer Jubilee Cotton Mills vs Lewis decision. The Company came

into existence on 6th October, the date of incorporation stated in
the Certificate.
10. Certificate of
Incorporation  Contract entered into by the Company after its incorporation, but
before the issue of Certificate of Incorporation shall be binding on
the Company. Actual date of issue of Certificate is not relevant.
The Company is liable under the contract.
Refer MoosaGoolaArifvsEbrahimGoolaArif decision. The Certificate
of Incorporation is conclusive for all purposes and it prevents any
11. Certificate of
one from alleging that the Company does not exist. The Plaintiffs
Incorporation contention is not valid. However, effect of furnishing false
particulars, etc. for registration, apply in this case.
Registration places the existence of the Company as a legal person,
beyond doubt. Challenging the formation / registration of the
12. Certificate of
Company is irrelevant, since the Certificate of Incorporation is
Incorporation conclusive, once it is issued. However, effect of furnishing false
particulars, etc. for registration, apply in this case.
Refer T V Krishna vs Andhra Prabha P. Ltd decision. The Company’s
13. Certificate of contention is not correct. TheCompany is not entitled to carry on
Incorporation illegal business. Also, effect of furnishing false particulars, etc. for
registration, apply in this case.

[Date] 42