Contract & Allied (Contract, Sale of Goods, Partnership) · Subject Test 1
Contract & Allied (Contract, Sale of Goods, Partnership) Test 1 — Questions & Solutions
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A flick knife was displayed in a shop window with a price ticket. The shopkeeper was prosecuted under a statute making it an offence to 'offer for sale' such knives. Applying the principle of Fisher v. Bell, which statement is correct?
aThe display was merely an invitation to offer, so no 'offer for sale' had occurred.
bThe display was an offer to sell that very knife, so the offence was made out.
cThe display was an offer to sell knives of that description, so the offence was made out.
dWhether it was an offer depended on whether a customer had actually entered the shop.
Answer: A
Display of goods with a price tag in a shop window is only an invitation to offer, not an offer (Fisher v. Bell). Hence there was no 'offer for sale' and no offence, the omission being for Parliament to cure.
In a self-service store, a customer picks an article off the shelf and places it in the basket. Following Pharmaceutical Society of Great Britain v. Boots Cash Chemists, at what point and by whom is the offer made?
aThe display is the offer; acceptance occurs when the customer leaves the shop.
bThe customer makes the offer at the cash desk; the store accepts by accepting the price.
cThe display on the shelf is the offer; the customer accepts by putting the article in the basket.
dThe contract is concluded the moment the customer picks up the article from the shelf.
Answer: B
In Boots the display of goods is only an invitation to offer; the customer offers to buy at the cash counter and the shopkeeper accepts there — which is why the sale was under the pharmacist's supervision.
Mrs Carlill used a smoke ball as directed and still caught influenza, then sued for the advertised £100 reward. The company argued the advertisement was a mere puff incapable of acceptance. Why did the court (Carlill v. Carbolic Smoke Ball Co.) hold a contract existed?
aBecause every advertisement quoting a price is automatically an offer.
bBecause Mrs Carlill had communicated her acceptance to the company before using the ball.
cBecause the advertisement, with the bank deposit shown as proof of sincerity, was a definite offer to the world accepted by performance.
dBecause the company's silence after her letter amounted to acceptance.
Answer: C
The wording was an unmistakable promise, and the deposit of £1000 evidenced sincerity; it was an offer to the world that Mrs Carlill accepted by performing the stipulated conditions, requiring no prior communication of acceptance.
Wrench offered to sell his farm for £1,000. Hyde replied offering £950, which Wrench refused; Hyde then purported to accept the original £1,000. Applying Hyde v. Wrench, is there a contract?
aYes, because Hyde ultimately agreed to the exact price Wrench first named.
bYes, because Wrench never expressly revoked the £1,000 offer.
cNo, because an offer to sell land can never be accepted by letter.
dNo, because the counter-offer of £950 destroyed the original offer, which could not later be revived.
Answer: D
A counter-offer (£950) is an implied rejection that extinguishes the original offer (Hyde v. Wrench); the offer being dead, Hyde could not revive it by a later acceptance.
To an offer to sell iron, the buyer telegraphed: 'Please wire whether you would accept forty for delivery over two months, or if not, longest limit you would give.' The seller treated this as a rejection and sold elsewhere. Per Stevenson v. McLean, what was the legal character of the telegram?
aA mere inquiry that did not reject or destroy the original offer.
bA counter-offer that destroyed the original offer.
cAn absolute acceptance of the original offer.
dA revocation by the buyer of his own earlier offer.
Answer: A
Unlike Hyde v. Wrench, the telegram contained no counter-proposal; it was a mere request for information that left the offer alive and capable of acceptance (Stevenson v. McLean).
Dodds signed an offer to sell a house adding 'this offer to be left over until Friday 9 a.m.' Before Friday, Dickinson learnt the property had effectively been sold to another. Applying Dickinson v. Dodds, could Dodds withdraw before Friday?
aNo, because he had expressly promised to keep the offer open until Friday.
bYes, because the promise to keep it open was a nudum pactum unsupported by consideration.
cNo, because the offer was in a signed writing.
dYes, but only if he gave Dickinson formal written notice of revocation.
Answer: B
A promise to keep an offer open is not binding without consideration (a mere nudum pactum); Dodds remained free to revoke before acceptance, and Dickinson knew of the sale (Dickinson v. Dodds).
Felthouse wrote to his nephew, 'If I hear no more about him, I consider the horse mine at £30 15s.' The nephew never replied but told an auctioneer to keep the horse out of the sale. Per Felthouse v. Bindley, was a contract formed by the nephew's silence?
aYes, because the nephew inwardly intended his uncle to have the horse.
bYes, because the uncle had prescribed silence as the mode of acceptance.
cNo, because silence cannot constitute acceptance and nothing was communicated to the uncle.
dNo, because the price was not certain.
Answer: C
Silence does not amount to acceptance; the nephew, though intending to sell, did nothing to communicate assent, so no property passed (Felthouse v. Bindley).
A person finds and returns a lost wallet without any prior promise of reward; afterwards the owner, pleased, promises to pay him Rs 500. Considering In Re McArdle and the concept of past consideration under the Indian Contract Act, which is correct?
aThe promise is enforceable because returning the wallet is good consideration.
bThe promise is enforceable as an executed consideration.
cThe promise is void because consideration was inadequate.
dThe act being wholly past and not at the owner's desire, it is not consideration under Section 2(d).
Answer: D
Where the act is done voluntarily, before and unconnected with any promise, it is past consideration; under Section 2(d) an act is consideration only if done 'at the desire of the promisor' (cf. In Re McArdle).
Durga Prasad built a market at the Collector's request and later got the shopkeepers to agree to pay him a commission. The shopkeepers refused. Applying Durga Prasad v. Baldeo, why was the agreement unenforceable?
aBecause the expense was incurred at the Collector's desire, not the shopkeepers' desire, so there was no consideration moving from them.
bBecause the consideration was inadequate.
cBecause the agreement was not in writing and registered.
dBecause a commission on goods sold cannot be valid consideration.
Answer: A
The market was built at the Collector's desire, not the shopkeepers'; nothing was done 'at the desire' of the promisors, so there was no consideration under Section 2(d), nor did Section 25(2) apply (Durga Prasad v. Baldeo).
A mother gifted a zamindari to her daughter by registered deed, conditioning the gift on the daughter continuing to pay an annuity to the mother's brothers; the daughter executed a kararnama to the brothers but later refused to pay. On the brothers' suit (Chinnaya v. Venkataramaya), what is the position under the Indian Contract Act?
aThe brothers cannot sue because no consideration moved from them.
bThe brothers can sue, because under Section 2(d) consideration may move from any person (here the mother) and the gift and agreement form one transaction.
cThe brothers cannot sue because they were strangers to the contract.
dThe agreement is void for want of registration.
Answer: B
Under Section 2(d) consideration may move from 'any person'; the deed of gift and the daughter's agreement were one transaction, so the consideration (mother's gift) supported the daughter's promise, and the brothers could sue (Chinnaya v. Venkataramaya).
Subscribers put their names to a fund to build a Howrah town hall knowing the trustees would, on the faith of the subscriptions, contract with a builder; one subscriber then refused to pay. Following Kedar Nath Bhattacharji v. Gorie Mohamed, why was the subscription recoverable?
aBecause a promise to a charity is always enforceable.
bBecause the agreement was registered for natural love and affection.
cBecause the trustees, on the faith of the subscriptions, undertook a liability to the contractor, which was the consideration.
dBecause the subscriber's signature alone bound him irrespective of consideration.
Answer: C
Unlike an ordinary donation, the trustees incurred a definite obligation to the contractor on the faith of the subscriptions; that undertaking was the consideration for the subscriber's promise (Kedar Nath Bhattacharji v. Gorie Mohamed).
A minor mortgaged his houses to a moneylender, who paid him part of the loan; the minor's guardian then sued to declare the mortgage void, and the lender claimed restitution of the money. Applying Mohori Bibee v. Dharmodas Ghose, which statement is correct?
aThe contract was voidable, so the minor had to restore the money under Section 64.
bThe lender could recover the loan as a 'necessary' under Section 68.
cThe mortgage was valid because the minor had misrepresented his age.
dThe contract was void ab initio, and Sections 64 and 65 did not apply to allow restitution.
Answer: D
An agreement by a minor is void ab initio under Section 11; the question of void or voidable presupposes a contract, so Sections 64 and 65 (which assume a contract between competent parties) gave the lender no restitution (Mohori Bibee v. Dharmodas Ghose).
A indemnifies B against any loss B may suffer from a suit brought by C in respect of a certain sum. C sues B; B has not yet paid C and no decree has been passed. B claims indemnity from A. Which is correct as to when the indemnity-holder may enforce the indemnity?
aThe indemnity-holder may compel the indemnifier to place him in a position to meet the liability even before he actually discharges it, once his liability has become absolute
bThe indemnifier is liable only after the indemnified has actually paid and discharged the loss out of his own pocket
cAn indemnity-holder can never sue until a final decree is satisfied
dThe indemnifier is liable only for losses caused by the indemnifier's own conduct, not that of a third party
Answer: A
Though s.124 read literally requires 'loss caused', the settled rule (Gajanan Moreshwar v. Moreshwar Madan) is that an indemnity-holder need not first pay; once his liability is absolute he may require the indemnifier to put him in funds to meet it.
A bargains to indemnify a police officer against the consequences of a seizure of property which, on the facts known to both parties, is necessarily tortious. The officer seeks to enforce the indemnity. Which statement reflects the law?
aThe indemnity is valid because seizure by an officer is presumptively lawful
bThe indemnity is invalid because a bargain to save a person harmless from the consequences of a necessarily unlawful act is itself unlawful
cThe indemnity is enforceable as the loss arose from a third party's act
dThe indemnity is valid since illegality depended on extrinsic facts unknown to the parties
Answer: B
A bargain to indemnify against the consequences of an act necessarily unlawful, on facts known to the parties, is void; it is valid only where illegality depends on extrinsic facts unknown to the parties (Arnold v. Clifford).
A lends money to B on the guarantee of C. After the loan is advanced, A, without C's knowledge, agrees with B to extend the time for repayment and to charge a higher rate of interest. C did not consent to this. What is C's position as surety?
aC remains fully liable as the variance benefited the principal debtor
bC is liable only to the extent of the original rate of interest
cC is discharged because the creditor varied the terms of the contract between the creditor and the principal debtor without the surety's consent
dC is discharged only if the variance actually prejudiced him in fact
Answer: C
Under s.133, any variance made without the surety's consent in the terms between the creditor and principal debtor discharges the surety as to transactions subsequent to the variance (Bonar v. Macdonald).
C, an existing creditor of B, threatens to prosecute B for an alleged misappropriation unless a guarantee is furnished. S, B's father, gives a guarantee for the debt to avert the prosecution; the agreement to abstain from prosecution is the real consideration. Is the guarantee enforceable?
aYes, because advancing of a guarantee is always supported by lawful consideration
bYes, because past debt is good consideration for a guarantee
cNo, because a father cannot guarantee a son's debt
dNo, because the guarantee was obtained by stifling a criminal prosecution and is opposed to public policy
Answer: D
A guarantee whose consideration is the creditor's promise to abstain from prosecuting an offence (stifling prosecution) is opposed to public policy and void under s.23, even though guarantees are ordinarily founded on lawful consideration (cf. Central Bank of India v. Multi Block).
A guarantees to B, a tea-dealer, payment for tea supplied to C 'up to ₹5,000 worth at any one time' for so long as A's letter stands. B supplies tea over several months; C pays for some lots and defaults on later ones. A claims his guarantee was satisfied once ₹5,000 worth had been supplied and paid for. How is this guarantee best characterised?
aA continuing guarantee extending to a series of transactions subject to the ₹5,000 ceiling at any one time
bA specific guarantee exhausted on the first ₹5,000 supply
cAn indemnity rather than a guarantee
dA void guarantee for uncertainty of amount
Answer: A
Under s.129, a guarantee extending to a series of transactions is a continuing guarantee; a ceiling 'at any one time' fixes the limit of liability but does not make it specific (Kay v. Groves; Nottingham Hide Co. v. Bottrill).
S guarantees C's overdraft with a bank. The bank, holding additional security (goods pledged by C), releases that pledged security to C without S's consent. To what extent is S the surety affected?
aS is wholly discharged regardless of the value of the security released
bS is discharged to the extent of the value of the security so released or lost
cS is not affected because the security was the principal debtor's own property
dS becomes entitled to the security but his liability is unchanged
Answer: B
Under s.141 a surety is entitled to the benefit of every security the creditor has against the principal debtor; if the creditor parts with or loses such security without the surety's consent, the surety is discharged to the extent of its value (Wulff v. Jay).
On default by the principal debtor, the surety pays the whole guaranteed debt to the creditor. What is the surety then entitled to as against the principal debtor and the securities?
aOnly a contribution of a rateable share from the debtor
bNothing, because payment was voluntary
cTo be invested with all the rights which the creditor had against the principal debtor, including securities, whether or not the surety knew of them
dOnly those securities of which the surety had notice at the time of the guarantee
Answer: C
Under s.140 (subrogation) and s.141, a surety who pays is invested with all the creditor's rights and securities against the principal debtor, even securities the surety did not know existed.
A delivers a horse to B, a livery-stable keeper, to be kept for hire. B is bound to take care of the horse. By which standard of care is a bailee's obligation measured under the Contract Act?
aThe bailee is an absolute insurer of the goods
bA gratuitous bailee owes no duty of care at all
cThe bailee is liable only for fraud, never for negligence
dThe bailee must take as much care as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value
Answer: D
Section 151 lays down a uniform standard for all bailees: the care a man of ordinary prudence would take of his own goods of the same bulk, quality and value; s.152 exempts him for loss despite such care.
Q21Sale of Goods Act, 1930
P consults a motor-car dealer for a car 'suitable for touring purposes'. The dealer recommends a particular make, which P buys. The car proves unfit for touring. The contract contains a clause guaranteeing the car for 12 months against mechanical defects and 'excluding every other guarantee or warranty'. Can P reject the car?
aYes, because suitability for touring was a condition, not a warranty, and the clause excluded only warranties
bNo, because the exclusion clause excludes every guarantee and warranty
cNo, because caveat emptor applies once a specific car is chosen
dYes, but only by claiming damages while keeping the car
Answer: A
In Baldry v Marshall (1925) 1 KB 260, suitability for touring went to the root of the contract and was therefore a condition under S.12(2); since the clause excluded only warranties, the buyer could reject the car.
Q22Sale of Goods Act, 1930
A sells seed to B as 'common English sainfoin' under a clause stating the seller gives 'no warranty, express or implied, as to growth, description or any other matter'. The seed delivered is the inferior 'giant sainfoin'. B has already sown/accepted it and can no longer reject. What is the legal effect of the exclusion clause?
aIt protects the seller because the term has become a mere warranty after acceptance
bIt does not protect the seller; B may recover damages because correspondence with description is a condition that remains a condition for liability purposes
cIt is void, so B can rescind and recover the price
dIt bars all relief since B accepted and used the goods
Answer: B
Wallis v Pratt (1911) AC 394 — 'once a condition, always a condition'; loss of the right to reject converts the remedy but not the term, so the exclusion of warranties does not bar damages for breach of the condition as to description (S.15).
Q23Sale of Goods Act, 1930
In an ordinary commercial contract for the sale of goods, which stipulation is, unless a contrary intention appears, NOT deemed to be of the essence of the contract under Section 11?
aStipulation as to the time of delivery of goods
bStipulation as to the time of shipment forming part of the description
cStipulation as to the time of payment of the price
dStipulation as to the place of delivery
Answer: C
Section 11 provides that, unless a different intention appears, stipulations as to time of payment are not deemed to be of the essence of a contract of sale; whether any other time stipulation is of the essence depends on the terms.
Q24Sale of Goods Act, 1930
A contract for sale of canned fruit requires the goods to be packed in cases each containing 30 tins. The correct total quantity is delivered, but a substantial number of cases contain only 24 tins each, though the overall count is right. Can the buyer reject the whole consignment?
aNo, because the total number of tins delivered is correct
bNo, because packing is only a warranty
cYes, but only the non-conforming cases may be rejected
dYes, because the goods do not correspond with the description, the mode of packing being part of the description
Answer: D
Re Moore & Co. v Landauer & Co. (1921) 2 KB 519 — mode/type of packing forms part of the description under S.15; deviation entitles the buyer to reject the whole, even though the total quantity matches.
Q25Sale of Goods Act, 1930
A buyer, an antiques dealer, attends an auction, inspects and buys a set of napkins and table cloths described as 'dating from the 17th century'. They are in fact an 18th-century set; the discrepancy could not be detected by casual examination. Can the buyer reject them?
aYes, because it was still a sale by description and the goods did not correspond with it
bNo, because the buyer saw and identified the goods, so caveat emptor applies
cNo, because a dealer in antiquities is presumed to rely on his own skill
dYes, but only as a breach of warranty entitling damages
Answer: A
Nicholson & Venn v Smith Marriott (1947) 177 LT 189 — even where goods are seen, it is a sale by description if the buyer relied on the description and the deviation was not apparent; the breach of the S.15 condition allowed rejection.
Q26Sale of Goods Act, 1930
A seller sells tins of condensed milk bearing labels that infringe a third party's trade mark; the buyer is forced by customs to remove the labels and resell at a loss. For which breach(es) is the seller liable?
aOnly breach of the implied warranty of quiet possession
bBreach of the implied condition of right to sell, the warranty of quiet possession, and merchantable quality
cOnly breach of the condition of merchantable quality
dNo breach, since the seller owned the goods
Answer: B
Niblett Ltd. v Confectioners' Materials Co. (1921) 3 KB 387 — though the seller owned the goods, the third party's superior right meant no 'right to sell' under S.14(a); the buyer also recovered for breach of quiet possession and of merchantable quality (S.16(2)).
Q27Sale of Goods Act, 1930
A buyer goes to a chemist and asks for a hot-water bottle for a 'special case' without specifying it. The bottle bursts in ordinary use and injures the buyer's wife. The seller argues 'hot-water bottle' is a mere trade description and no particular purpose was made known. Is the seller liable under S.16(1)?
aNo, because the buyer did not disclose the special case
bNo, because the proviso for goods sold under a trade name applies
cYes, because a particular purpose may appear from the very description of the article and reliance on the seller's skill was shown
dNo, because caveat emptor applies to a self-selected article
Answer: C
Priest v Last (1903) 2 KB 148 — a particular purpose can appear from the very description of an article like a hot-water bottle; the buyer relied on the chemist's skill, so the implied condition of fitness under S.16(1) was breached.
A contracts with B that A will pay B Rs. 10,000 if B's house is burnt. Which essential feature distinguishes this contingent contract under Section 31 from an ordinary reciprocal-promise contract?
aThe performance is to be made in instalments
bConsideration moves only from the promisor
cThe contract must be in writing and registered
dThe contract depends on an uncertain future event that is collateral to the contract
Answer: D
Under Section 31, the defining features of a contingent contract are the uncertainty and futurity of the event and that the uncertain event must be collateral to the contract; reciprocal promises are not contingent as they are not collateral to each other.
A makes a contract with B to sell a horse to B at a specified price if C, to whom the horse has first been offered, refuses to buy him. When can B enforce this contract?
aOnly when and after C refuses to buy the horse
bImmediately on making the contract
cOnly after a reasonable time has elapsed
dNever, because the contract is void for uncertainty
Answer: A
Under Section 32, a contingent contract to do something if an uncertain future event happens cannot be enforced unless and until that event happens; here the contract is enforceable only when C refuses to buy.
A contracts to pay B a sum of money when B marries C. C dies without being married to B. What is the legal effect on the contract under Section 32?
aThe contract is enforceable against C's heirs
bThe contract becomes void
cThe contract is voidable at B's option
dB may recover damages for breach from A
Answer: B
Under Section 32, if the uncertain event on which a contingent contract depends becomes impossible, the contract becomes void; C's death makes the marriage impossible, voiding the contract.
A agrees to pay B a sum of money if a certain ship does not return. The ship sinks. When can the contract be enforced under Section 33?
aOnly after a year from the date of contract
bIt cannot be enforced as the event has not happened
cIt can be enforced when the ship sinks, the return becoming impossible
dIt becomes void on the sinking of the ship
Answer: C
Under Section 33, a contingent contract to do something if an uncertain event does not happen may be enforced when the happening of that event becomes impossible; the sinking makes the ship's return impossible, so the contract is enforceable.
A agrees to pay B a sum of money if B marries C; but C marries D. Under Section 34, what is the position of the contingent event (B's marriage to C)?
aIt remains valid until C's death
bIt is enforceable immediately against A
cThe contract is merely voidable at A's option
dIt is to be considered impossible, although it is possible that D may die and C may afterwards marry B
Answer: D
Under Section 34, where the contingent event is the future conduct of a living person, it is deemed impossible when that person does something rendering it impossible to so act otherwise than under further contingencies; C marrying D makes B's marriage to C impossible.
A promises to pay B a sum of money if a certain ship returns within a year. The ship is burnt within the year. Under Section 35, what is the effect?
aThe contract becomes void
bThe contract is enforceable when the year expires
cThe contract is voidable at B's option
dB may claim the money on a quantum meruit basis
Answer: A
Under Section 35, a contingent contract to do something if a specified uncertain event happens within a fixed time becomes void if, before the time fixed, the event becomes impossible; burning the ship within the year makes its return impossible.
Q34Performance, discharge & frustration
A contracts to pay B Rs 2 lakh if B's house is burnt; B pays Rs 5,000 per year as premium. Under Section 32 of the Indian Contract Act, when does A's obligation to pay become enforceable?
aImmediately on conclusion of the contract, the premium being consideration
bOnly if and when B's house is actually destroyed by fire
cOn the expiry of one year, whether or not the house is burnt
dOnly after a court declares the contingency to have occurred
Answer: B
Section 32 states that contingent contracts to do anything if an uncertain future event happens cannot be enforced unless and until that event has happened; the insurer's liability arises only when the insured event (fire) occurs.
Q35Performance, discharge & frustration
In Ramzan v. Hussaini (AIR 1990 SC 529), the seller agreed to execute the sale deed on the day the buyer redeemed a subsisting mortgage on the house. The buyer sued for specific performance 14 years after redeeming. How did the Supreme Court treat the agreement and the limitation point?
aNot a contingent contract; limitation ran only from the date of the suit notice
bA contingent contract that could never be enforced because no date was fixed
cA contingent contract under Section 31, with limitation running from the date the buyer redeemed the mortgage, so the suit was time-barred
dA void agreement for uncertainty under Section 29
Answer: C
The Supreme Court held the agreement a typical contingent contract under Section 31, the contingency being redemption of the mortgage; limitation started running on that date, rendering the 14-year-later suit barred.
Q36Performance, discharge & frustration
A agrees to pay B a sum of money if B marries C. C marries D. Which provision and result correctly describes the position?
aSection 35 — the contract continues until a fixed time expires
bSection 56 — the agreement was void from the outset as impossible
cSection 32 — the contract is merely suspended until C is again unmarried
dSection 34 — the event is deemed to have become impossible, so the contract becomes void
Answer: D
Section 34 deems a contingency depending on a living person's future conduct impossible when that person does something rendering it impossible to so act; C marrying D makes B's marriage to C impossible, voiding the contract.
Q37Performance, discharge & frustration
In Ganga Saran v. Firm Ram Charan Ram Gopal (AIR 1952 SC 9), the seller had agreed to supply cotton bales 'as soon as they are supplied to us by the Victoria Mills' and pleaded the contract was contingent on the mill supplying him. The Supreme Court held that:
aThe words were merely descriptive of the goods and the process of delivery; the obligation was absolute, not contingent
bThe words made delivery contingent on the mill's supply under Section 32, so the seller was excused
cThe contract was frustrated under Section 56 when the mill failed
dThe contract was void for impossibility from inception
Answer: A
Following Harnandrai Fulchand, the Court held that 'as soon as they are supplied' merely described the goods and the process of delivery; a merchant may bind himself to procure goods at all events, so the obligation was unconditional, not contingent.
Q38Performance, discharge & frustration
Which of the following statements about supervening impossibility (frustration) under Section 56 of the Indian Contract Act is correct?
aFrustration depends on the choice or election of the aggrieved party, like rescission for breach
bSection 56 is a rule of positive law; on frustration the contract is dissolved automatically and the matter is not left to the parties' intention
cIndian courts must, like English courts, decide frustration by searching for an implied term
dSection 56 applies equally to executed and executory contracts
Answer: B
In Satyabrata Ghose v. Mugneeram Bangur and Naihati Jute Mills the Supreme Court held Section 56 lays down a positive rule of law; frustration dissolves the contract automatically and does not depend on the parties' intention or election.
Q39Performance, discharge & frustration
In Satyabrata Ghose v. Mugneeram Bangur and Co. (AIR 1954 SC 44), land under a development scheme was requisitioned for war purposes and the company pleaded frustration. The Supreme Court held the contract was NOT frustrated mainly because:
aThe buyer had already taken conveyance of the plot
bFrustration cannot apply to any contract relating to immovable property
cThe requisition orders were temporary, no time-frame for the development work had been fixed, and the war was already on when the contract was made
dThe company had expressly assumed the risk of requisition in the contract
Answer: C
The Court found the requisition temporary in nature, no time-frame had been stipulated for the work, and the war was on when the contract was made, so the requisition did not strike at the root of the bargain; hence no frustration.
Q40Breach & remedies, damages (S73–75)
In Hadley v. Baxendale, the carrier delayed delivery of the broken mill shaft and the miller claimed loss of profits for the period the mill stayed shut. The court disallowed the loss of profits. The principle this case established, later codified in Section 73 of the Indian Contract Act, is that:
aA party in breach is liable for all consequences, however remote, that in fact flow from the breach
bLoss of profit can never be recovered in a contract of carriage
cDamages must always be a genuine pre-estimate fixed in the contract
dDamages recoverable are only those arising naturally in the usual course, or such as were in the contemplation of both parties at the time of the contract
Answer: D
Hadley v. Baxendale, (1843–60) All ER Rep 461, codified in S. 73: compensation is for loss arising naturally in the usual course of things, or which the parties knew at the time of contract to be likely to result; loss of profit was disallowed as the special circumstances were not communicated.
Q41Breach & remedies, damages (S73–75)
A delivers to B, a common carrier, a machine to be conveyed without delay to A's mill, informing B that the mill is stopped for want of the machine. B unreasonably delays delivery, and in consequence A loses a profitable government contract. Under the illustrations to Section 73, A is entitled to recover:
aThe average profit lost from the mill being idle during the delay, but not the loss of the government contract
bBoth the lost mill profits and the loss of the government contract
cOnly nominal damages, since loss of profit is always too remote
dThe loss of the government contract only, since that was the real loss
Answer: A
Illustration to S. 73: where the carrier knew the mill was stopped, the loss of mill profits during delay is recoverable, but the loss of the government contract (a special circumstance not communicated) is too remote.
Q42Breach & remedies, damages (S73–75)
A contracts to pay a sum of money to B on a specified day. A fails to pay, and B, in consequence of not receiving the money, is unable to pay his own debts and is totally ruined. Under the illustration to Section 73, A is liable to pay B:
aNothing, because failure to pay money is not a breach attracting Section 73
bOnly the principal sum, together with interest up to the day of payment, and nothing for the ruin
cDamages for B's total ruin, since it flowed directly from the non-payment
dThe principal plus exemplary damages as a deterrent
Answer: B
Illustration (n) to S. 73: on default in payment of money, A is liable only for the principal sum with interest up to the day of payment; B's ruin is a remote and indirect loss not recoverable.
Q43Breach & remedies, damages (S73–75)
The Explanation to Section 73 of the Indian Contract Act, dealing with the estimation of loss arising from breach, embodies which principle?
aDamages for mental distress are recoverable in every commercial contract
bPenalty stipulated in the contract is always recoverable in full
cIn estimating loss, the means which existed of remedying the inconvenience caused by non-performance must be taken into account
dLiquidated damages need not be proved if a sum is named in the contract
Answer: C
The Explanation to S. 73 codifies the duty to mitigate: in estimating loss, the means available of remedying the inconvenience caused by non-performance must be taken into account.
Q44Breach & remedies, damages (S73–75)
In Murlidhar Chiranjilal v. Harishchandra Dwarkadas, canvas was contracted to be delivered f.o.r. Kanpur for transport to Calcutta, where prices were higher. The seller defaulted. The Supreme Court held the buyer's damages were to be measured by:
aThe difference between the contract price and the Calcutta market price on the date of breach
bThe buyer's lost re-sale profit in Calcutta, which both parties knew
cThe full Calcutta selling price as expectation interest
dThe difference between the contract price and the Kanpur market price on the date of breach, which the buyer failed to prove
Answer: D
Murlidhar Chiranjilal v. Harishchandra Dwarkadas, AIR 1962 SC 366: as the contract was f.o.r. Kanpur and goods could be re-sold anywhere, the measure was the Kanpur market price on the date of breach; the buyer failed to prove it and got no damages.
Q45Breach & remedies, damages (S73–75)
In Union of India v. M/s Commercial Metal Corpn, the seller short-supplied goods and contended that the buyer could claim nothing as the buyer had made no fresh purchase. On the 'breach-date rule', the Delhi High Court held:
aDamages equal the difference between contract price and market price on the date of breach, even if the buyer never went into the market
bThe buyer must actually re-purchase substitute goods before claiming any damages
cOnly nominal damages are payable where no re-purchase is shown
dDamages are measured by the price the seller demanded for the increase
Answer: A
Union of India v. M/s Commercial Metal Corpn, AIR 1982 Del 267: under the breach-date rule, the buyer recovers the difference between contract and market price on the date of breach without having to actually buy substitute goods; the law does not penalise the buyer's inaction.
Q46Indian Partnership Act, 1932 (+ LLP basics)
A firm of sugar merchants has three partners. One of the partners, on behalf of the firm, accepts a deposit of money from X without express authority, while another partner of the same firm purchases a consignment of sugar on credit. Which of the following best states the legal position regarding the firm's liability?
aThe firm is bound by both acts because every partner is an agent of the firm
bThe firm is bound by the purchase of sugar but not by the acceptance of deposit
cThe firm is bound by the acceptance of deposit but not by the purchase of sugar
dThe firm is bound by neither act as both require express authority
Answer: B
Under Sec. 19, implied authority extends only to acts done in the usual way of the kind of business carried on by the firm; purchase of sugar is within a sugar merchant's implied authority, but accepting deposits (a banking act) is not, so the firm is not bound by it.
Q47Indian Partnership Act, 1932 (+ LLP basics)
In Higgins v Beauchamp, B (a sleeping partner) and M carried on the business of cinematograph theatre proprietors. M borrowed money from the plaintiff stating it was for the partnership but misappropriated it. The plaintiff sued B. On what ground was B held NOT liable?
aBecause the plaintiff knew of the restriction in the partnership deed
bBecause B was a sleeping partner and sleeping partners are never liable
cBecause the business was a non-trading one and borrowing was not within a partner's implied authority
dBecause M had misappropriated the money rather than using it for the firm
Answer: C
In Higgins v Beauchamp the cinematograph theatre business was held to be a non-trading firm; borrowing is not within the implied authority of a partner in a non-trading firm, so the firm was not bound by the loan.
Q48Indian Partnership Act, 1932 (+ LLP basics)
A partnership deed restricts a partner's authority to borrow money beyond Rs. 5,000. Ignoring this, a partner borrows Rs. 50,000 from a lender who has no knowledge of the restriction, for a purpose within the ordinary course of the firm's trading business. What is the firm's liability under Sec. 20?
aThe firm is not liable as the partner exceeded the contractual restriction
bThe firm is liable only up to Rs. 5,000, the permitted limit
cThe lender can recover only from the borrowing partner personally
dThe firm is liable for the whole Rs. 50,000 because the lender did not know of the restriction
Answer: D
Under Sec. 20, a contractual restriction on a partner's implied authority does not bind a third party who deals with the firm without knowledge of the restriction (Motilal v Unnao Commercial Bank); the firm is therefore liable for the full amount.
Q49Indian Partnership Act, 1932 (+ LLP basics)
In Tower Cabinet Co. v Ingram, after Ingram retired, Christmas (the continuing partner) placed an order using old notepaper bearing both names, without Ingram's knowledge or authority. Tower Cabinet sued Ingram on the doctrine of holding out. The court held Ingram NOT liable principally because:
aMere negligence in not destroying old notepaper is not 'knowingly suffering' himself to be represented as a partner
bIngram had given public notice of his retirement
cTower Cabinet already knew that Ingram had retired
dHolding out cannot apply once a partner has retired from the firm
Answer: A
Under the doctrine of holding out (Sec. 28), liability requires that the person 'knowingly' suffered himself to be represented as a partner; Lynskey J held that mere carelessness in not destroying old notepaper, the representation having been made by Christmas without Ingram's knowledge, did not satisfy this requirement.
Q50Indian Partnership Act, 1932 (+ LLP basics)
A, B and C are partners. A transfers his entire interest in the firm to T by way of an absolute assignment, while the firm continues. Which of the following CANNOT be claimed by T during the continuance of the firm?
aTo receive the share of profits of the transferring partner A
bTo inspect the books of the firm and require accounts
cTo accept the account of profits agreed to by the partners
dTo get the benefit of any increase in A's share of profits
Answer: B
Under Sec. 29(1), during the continuance of the firm a transferee of a partner's interest cannot interfere in the conduct of the business, require accounts, or inspect the books; he is only entitled to receive the transferring partner's share of profits and must accept the partners' agreed account.
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