Contract & Allied (Contract, Sale of Goods, Partnership) · Subject Test 3
Contract & Allied (Contract, Sale of Goods, Partnership) Test 3 — Questions & Solutions
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Two fathers each promised to pay a sum to the bridegroom after his marriage; one died before paying and the bridegroom sued the executors. On the principle of Tweddle v. Atkinson / Dunlop v. Selfridge, why does his claim fail?
aBecause he was a stranger to the contract and consideration did not move from him, so he cannot sue (privity).
bBecause the promise was made without consideration.
cBecause marriage cannot be valid consideration.
dBecause the promise was not in writing.
Answer: A
Under privity of contract, only a party from whom consideration moved can sue; the bridegroom, a stranger to the contract and to the consideration, could not enforce it (Tweddle v. Atkinson; Dunlop v. Selfridge).
A 12-year-old, minding his father's shop, agrees to sell a book worth Rs 500 for Rs 100. On the father's return he demands Rs 500. Applying Section 11 and Mohori Bibee v. Dharmodas Ghose, the agreement with the minor is:
aVoidable at the option of the minor only.
bVoid ab initio, as a minor is not competent to contract.
cValid but unenforceable against the minor.
dValid, because necessaries were supplied.
Answer: B
Under Section 11 a minor is incompetent to contract and an agreement with a minor is void ab initio, not merely voidable (Mohori Bibee v. Dharmodas Ghose).
A minor fraudulently represents himself as a major and induces another to contract, then later pleads minority to escape liability. On the rule in Sadiq Ali Khan v. Jai Kishori, can the doctrine of estoppel under Section 115 of the Evidence Act be used against him?
aYes, a minor who lies about his age is estopped from later pleading minority.
bYes, estoppel always overrides the bar of incapacity.
cNo, since a contract with a minor is a nullity, it cannot found a plea of estoppel; substantive law prevails over procedure.
dNo, but only if the other party knew he was a minor.
Answer: C
A contract with a minor being void cannot found a plea of estoppel; Section 11 (substantive law) prevails over Section 115 of the Evidence Act (procedure), so no estoppel applies even where the minor misrepresented his age (Sadiq Ali Khan v. Jai Kishori; Gadigeppa v. Balangowda).
A husband threatens to commit suicide unless his wife executes a deed transferring property to his brother. On the majority view in Chikkam Ammiraju v. Chikkam Seshamma, is this coercion under Section 15?
aNo, because suicide is not punishable under the IPC, hence not 'forbidden'.
bNo, because the threatened harm was to the threatener himself, not to the wife.
cYes, but only because property was unlawfully detained.
dYes, a threat to commit suicide is a threat to do an act forbidden by the IPC, amounting to coercion.
Answer: D
The majority held that the term 'act forbidden by the IPC' is wider than 'punishable', and since abetment and attempt of suicide are punishable, suicide itself is forbidden; thus the threat amounted to coercion under Section 15 (Chikkam Ammiraju v. Chikkam Seshamma).
A borrower seeks to set aside a mortgage taken at 24% compound interest as unconscionable. On the sequence laid down in Raghunath Prasad v. Sarju Prasad for Section 16(3), what must first be established before the burden shifts?
aThat one party was in a position to dominate the will of the other.
bThat the bargain is unconscionable on its face.
cThat actual fraud or misrepresentation occurred.
dThat the transaction was reduced to writing and registered.
Answer: A
Under Section 16(3) the threshold fact is that one party was in a position to dominate the will of the other; only once that is shown does the unconscionability of the bargain and the burden of disproving undue influence arise (Raghunath Prasad v. Sarju Prasad).
A vendor advertised property as let to 'a most desirable tenant' though the tenant was chronically in arrears and insolvent; the buyer sought rescission. On the principle in Smith v. Land and House Property Corporation, why was this a misrepresentation despite being framed as opinion?
aBecause any statement of opinion is automatically a statement of fact.
bBecause the vendor, knowing facts not equally known to the buyer, impliedly asserted facts justifying the opinion.
cBecause the buyer had equal knowledge of the tenant's conduct.
dBecause silence about the tenant amounted to active concealment.
Answer: B
Where the facts are not equally known, a statement of opinion by the party who knows them best impliedly asserts that he knows facts justifying that opinion; the landlord's 'most desirable tenant' was therefore an assertion of fact (Smith v. Land and House Property Corporation).
A flick knife was displayed in a shopkeeper's window with a price ticket, and the shopkeeper was prosecuted under a statute penalising anyone who 'offers for sale' such a knife. On these facts (Fisher v. Bell), the prosecution failed because:
athe shopkeeper had not signed any document of sale
bthe knife was not actually sold to anyone
cthe display of goods in a shop window with a price tag is only an invitation to offer, not an offer for sale
dthe statute did not apply to retail shops
Answer: C
In Fisher v. Bell the court held that, under the ordinary law of contract, the display of an article with a price in a shop window is merely an invitation to treat (offer), not an offer for sale, so no 'offer for sale' was made within the statute.
In a self-service store (following Pharmaceutical Society of Great Britain v. Boots Cash Chemists), at what point and by whom is the offer made?
aThe customer makes the offer when he places goods in his basket, accepted on display
bThe store makes the offer by displaying goods on the shelves, accepted when the customer picks up the item
cNo offer is needed since the displayed price binds the store
dThe customer makes the offer at the cash counter, which the store may accept or reject
Answer: D
The court held the display is only an invitation to offer; the customer makes the offer at the cash counter and the store accepts it there, leaving the customer free to replace items before reaching the cashier.
An advertisement read 'First Come First Served' for fur coats at $1 each. The first person at the counter, a man, was refused on a 'house rule' that the offer was for women only (Lefkowitz v. Great Minneapolis Surplus Store). The court held:
aWhere the advertisement is clear, definite and explicit, leaving nothing open for negotiation, it is an offer, and the advertiser cannot impose new conditions after acceptance
bEvery advertisement is an invitation to offer, so the store could refuse anyone
cThe store could refuse because the customer had not yet paid
dThe 'house rule' was a valid term because it was the store's policy
Answer: A
The Minnesota Supreme Court held the advertisement, being clear, definite and explicit and leaving nothing open for negotiation, was an offer; the advertiser may modify before acceptance but cannot impose new arbitrary conditions after acceptance.
Which statement best reflects the 'objective' approach to formation of agreements, as expressed by Lord Denning?
aA party may escape a contract by proving he privately did not intend to contract
bA contract is formed where, to all outward appearances, there is a contract; the intention is found in the outward expression, not the actual intent in the mind
cThe court looks only at the secret intention in a person's mind
dSubjective intention always overrides what a person actually said and did
Answer: B
The objective theory of contract holds that one looks at what a person said and did, not his secret intention; a man cannot get out of a contract by saying he did not intend to contract if his words show a concluded contract.
Roscorla bought a horse from Thomas; after the sale was complete, Thomas promised that the horse was sound and free from vice (Roscorla v. Thomas). When sued on this promise, Thomas was held not liable because:
athe buyer had not paid the full price
bsoundness can never be a term of any sale of a horse
cthe promise of soundness was supported only by past consideration, the price having already been paid for the earlier sale
dthe promise was not made in writing
Answer: C
Lord Denman CJ held the promise must be co-extensive with the consideration; the price was consideration for the earlier sale 'as is', so the later warranty rested on past consideration and was unenforceable.
Under Section 2(d) of the Indian Contract Act, how does Indian law differ from English common law on past consideration and the source of consideration?
aIndian law, like English law, treats all past acts as no consideration
bIndian law requires consideration to move only from the promisee, never a third person
cIndian law abolishes the requirement of consideration altogether
dUnder Section 2(d) a past act done 'at the desire of the promisor' is valid consideration, and consideration may move from the promisee or 'any other person'
Answer: D
Section 2(d) recognises past action done 'at the desire of the promisor' as valid consideration and allows consideration to move from the promisee 'or any other person', unlike the common-law rule.
P delivers his second-hand car to H, a mercantile agent, only to find out whether it can be sold, without authorising a sale. H tricks P into parting with the registration book, then sells the car (and the book) to a buyer who resells down a chain. P sues the ultimate buyer. Why does P succeed?
aBecause H obtained the car but not the registration book with P's consent, so the sale was not 'in the ordinary course of business'
bBecause a mercantile agent can never pass title to a second-hand car
cBecause H had no express authority to sell, which alone defeats the buyer's title
dBecause the buyer failed to prove he paid value for the car
Answer: A
Pearson v Rose & Young Ltd. [(1950) 2 All ER 1027]: a sale of a second-hand car without the registration book (which H obtained by trick, not with consent) is not in the ordinary course of a mercantile agent's business, so no good title passes under the proviso to Sec. 27.
B, owner of certain shares, instructs his bank (with whom the certificates are deposited) to hand them to a buyer M only against payment. M deceives the bank manager and bolts away with the certificates without paying, then pledges them with another bank for an advance. The pledgee bank claims protection under Sec. 30(2) SOGA. The pledgee's claim fails because—
athe consent under Sec. 30(2) must be a free consent, which was absent
bM never obtained possession with the seller's consent — the manager had no intention to deliver, so it was akin to theft
cshares cannot be the subject of a pledge under Sec. 30(2)
dthe pledgee bank had constructive notice of M's defective title
Answer: B
Central National Bank v United Industrial Bank (AIR 1954 SC 187): consent under Sec. 30(2) need not be free but must be real; the manager had no intention to deliver and M bolted away, so M got possession without consent (as much theft as picking the pocket), and no title passed.
Goods are consigned 'to self' and entrusted to a railway for carriage; the consignor endorses the railway receipts in favour of a bank as security for an advance. The goods are lost in transit and the bank, as endorsee, sues the railway for their value. On the right of a full owner to pledge by transfer of documents of title, the Supreme Court held—
aonly a mercantile agent, not a full owner, can pledge goods by transferring documents of title
ba pledge of goods by transfer of a railway receipt is invalid as the bank never had physical possession
can owner of goods can make a valid pledge by transferring the railway receipts representing the goods, and the endorsee bank could recover their value
dthe bank, being merely a pledgee, had no locus to sue the railway
Answer: C
Morvi Mercantile Bank v Union of India (AIR 1965 SC 155): a full owner may validly pledge goods by transferring the railway receipts representing them; denying to a full owner what is allowed to defective-title owners and mercantile agents would create an incongruity, so the endorsee bank could recover the value as damages.
A rogue obtains a valuable ring from a shopkeeper by impersonating a respectable person and paying with a worthless cheque; before the fraud is discovered he pledges the ring with a bona fide pledgee. The original shopkeeper seeks to recover the ring. What is the legal position?
aThe pledgee gets no title because the contract was void for mistake as to identity
bThe pledgee gets no title because a pledge cannot defeat the true owner's claim
cThe shopkeeper recovers the ring as the cheque's dishonour automatically avoided the sale
dThe pledgee gets a good title, the contract being merely voidable for fraud and not yet rescinded when the ring reached the pledgee
Answer: D
Phillips v Brooks [(1919) 2 KB 243], illustrating Sec. 29 SOGA: the contract was voidable for fraud (not void), and since the goods reached the bona fide pledgee before rescission, the pledgee obtained a good title.
A leaves valuables with his neighbour B for safe custody. B happens to be an auctioneer and sells the valuables by auction to a buyer who acts in good faith. The true owner A sues to recover them. Does the buyer get a good title under the mercantile-agent proviso to Sec. 27?
aNo, because B got possession as a neighbour/bailee for safe custody, not in his capacity as a mercantile agent
bYes, because B is an auctioneer and therefore a mercantile agent
cYes, because the buyer acted in good faith at a public auction
dNo, because an auctioneer can never pass a good title to another's goods
Answer: A
Proviso to Sec. 27 SOGA: the mercantile agent must have possession with consent and in his capacity as a mercantile agent; B held the goods as a neighbour/bailee for safe custody, so no good title passes despite his being an auctioneer.
H, a mercantile agent, sells his own lorry to D, then takes it back from D on a hire-purchase basis. While holding it under that hire-purchase, H sells the lorry to P, falsely claiming to be the owner. H defaults; D seizes the lorry; P sues D to recover it claiming he bought from a mercantile agent. P's claim fails because—
aP did not act in good faith when buying from H
bH, holding the lorry under hire-purchase, was a mere bailee and not a mercantile agent when he sold to P
ca mercantile agent can never sell goods he himself owns
dD's seizure of the lorry was itself wrongful, extinguishing P's claim
Answer: B
Staff Motors Guarantee Ltd. v British Wagon Ltd.: H held the lorry under a hire-purchase as a bailee, not in the capacity of a mercantile agent, so the proviso to Sec. 27 did not apply and P got no title.
Under Sec. 30(2) SOGA, a 'buyer in possession' who obtained the goods with the seller's consent can pass a good title by sale or pledge to a good-faith transferee. Which of the following persons can NOT pass such a title?
aA person who has agreed to buy the goods conditionally
bA person who has bought the goods but left the price partly unpaid
cA person who has taken the goods on hire-purchase
dA person who has agreed to buy and obtained possession with the seller's consent
Answer: C
Helby v Matthews [(1895) AC 471], on Sec. 30(2): a person who takes goods on hire-purchase has not 'agreed to buy' them (he has only an option), so he is not a buyer in possession and cannot pass a good title.
An unpaid seller in possession of the goods delivers them to a carrier for transmission to the buyer; the carrier later delivers them to the buyer. Regarding the seller's right of lien, which statement is correct?
aThe lien continues until the carrier hands the goods to the buyer, then revives on insolvency
bDelivery to the carrier has no effect on the lien, which subsists until the price is paid
cThe lien is lost only when the seller obtains a decree for the price
dDelivery to the carrier puts an end to the lien, but the seller still has the right of stoppage in transit
Answer: D
Sec. 49 SOGA: delivery to a carrier for transmission to the buyer ends the seller's lien (it being a delivery to the buyer), but the seller retains the distinct right of stoppage in transit; merely obtaining a decree does not destroy the lien (Sec. 49(2)).
Q21Sale of Goods Act, 1930
The defendants contract to sell to the plaintiff all the coal ash that may accumulate at a certain pump-house, then unilaterally cancel before any ash accumulates. The plaintiff sues for breach of contract and for the tort of conversion. Which is correct?
aOnly an action for breach of contract (and refund) lies, as it was an agreement to sell future goods
bBoth breach of contract and conversion lie, as property had passed
cOnly an action for the tort of conversion lies
dNo remedy lies, as future goods cannot be the subject of any contract
Answer: A
Union of India v Tara Chand (AIR 1976 MP 101) — a contract for future goods is an agreement to sell; ownership had not passed to the buyer, so no tort of conversion arose and the only remedy was for breach of contract and refund of price.
Q22Sale of Goods Act, 1930
A partnership firm was dissolved and its surplus assets, including certain goods, were distributed among the partners in specie, no money consideration passing. The Sales Tax Officer sought to tax this as a sale. Which proposition correctly states the legal position?
aIt is a sale because property in the goods passed from the firm to individual partners
bIt is not a sale, as the partners were themselves joint owners and no money consideration was paid by any partner to the firm
cIt is a sale because a firm and a partner are distinct persons capable of selling to one another
dIt is an agreement to sell since the distribution was to take effect on dissolution
Answer: B
Under Sec. 4 a sale requires two distinct persons and a money price; in State of Gujarat v Ramanlal & Sons (AIR 1965 Guj 60) the partners were joint owners and could not be both sellers and buyers, and no money consideration passed, so it was not a sale.
Q23Sale of Goods Act, 1930
Defendants contracted to sell to the plaintiff all the coal ash that might accumulate at their pump-house, then unilaterally cancelled. The plaintiff sued for breach of contract and for the tort of conversion. As decided in Union of India v Tara Chand (AIR 1976 MP 101), what is the correct outcome?
aBuyer may sue for both breach of contract and conversion, having become owner
bIt was a completed sale, so the buyer has a right in rem against third parties
cIt was an agreement to sell future goods; the buyer had not become owner, so only an action for breach of contract (and refund) lay, not conversion
dNo remedy lay, as a contract for goods not yet in existence is void
Answer: C
The coal ash was future goods, making it an agreement to sell; since property had not passed to the buyer, the seller committed no tort and the only remedy was for breach of contract and refund of price (Union of India v Tara Chand).
Q24Sale of Goods Act, 1930
Which of the following is NOT 'goods' capable of being the subject-matter of a contract of sale under the Sale of Goods Act, 1930?
aElectric energy supplied and metered to a consumer
bLottery tickets sold before the draw takes place
cStanding timber agreed to be severed before sale
dA claim in respect of a prize already won on a lottery ticket
Answer: D
A claim to a prize is an actionable claim, expressly excluded from 'goods' by Sec. 2(7); whereas electricity (Commr. of Sales Tax v MP Electricity Board), the lottery ticket itself (H. Anraj v Govt. of Tamil Nadu) and severable standing timber are all goods.
Q25Sale of Goods Act, 1930
A lady hired furniture, the price payable in two instalments, the owner having a right to retake it on default; she had no option to return and was compellable to buy. Before paying the last instalment she sold the furniture to a bona fide buyer. On the authority of Lee v Butler (1893), the buyer:
aAcquired a good title, because she was in possession under an agreement to buy, not a hire-purchase
bAcquired no title, because she was a mere hirer with only an option to buy
cAcquired no title, since a hirer can never pass a good title
dAcquired a good title only if the owner had received the first instalment
Answer: A
Because the lady had no option to return and was bound to buy, the transaction was an agreement to buy, not hire-purchase; as a buyer in possession she could pass a good title (Lee v Butler, contrasted with Helby v Mathews).
Q26Sale of Goods Act, 1930
A firm contracted for the fabrication, supply AND erection of rolling shutters, which come into existence as a unit only when their components are fixed and erected on the customer's premises. Following Sentinel Rolling Shutters v Commr. of Sales Tax (AIR 1978 SC 545), the contract is:
aA contract of sale, since finished shutters are delivered to the customer
bA contract for work and labour, as no chattel passes as a chattel — the shutter becomes the customer's property only on erection
cA contract of sale, because supply of materials predominates over labour
dPartly sale and partly work, and divisible for tax
Answer: B
The shutter exists as a unit only when fixed on the premises, so there is no transfer of property in it as a chattel; the contract is one for work and labour, not sale (Sentinel Rolling Shutters v Commr. of Sales Tax).
Q27Sale of Goods Act, 1930
Regarding stipulations as to time under Sec. 11 of the Sale of Goods Act, 1930, which statement is correct?
aBoth time of payment and time of delivery are presumptively of the essence
bTime of payment is always of the essence in commercial contracts
cStipulations as to the time of payment are not deemed to be of the essence unless a different intention appears
dTime of delivery can never be made of the essence by the parties
Answer: C
Sec. 11 provides that, unless a different intention appears, stipulations as to time of payment are not of the essence; whether any other time stipulation (e.g. delivery) is of the essence depends on the terms of the contract.
A minor falsely representing himself to be of full age takes a loan. Following Mohori Bibi v. Dharmodas Ghose, can the lender invoke Sections 64/65 (restitution on a voidable/void contract) against the minor?
aYes, because the contract is voidable at the lender's option
bYes, under Section 65 as the contract subsequently became void
cNo, but the lender may recover the loan as a quasi-contractual debt under Section 70
dNo, because the question whether a contract is void or voidable presupposes an existing contract, which cannot arise with an infant
Answer: D
In Mohori Bibi v. Dharmodas Ghose ((1903) 30 IA 114), the Privy Council held that whether a contract is void or voidable presupposes an existing contract and cannot arise with an infant, so Sections 64 and 65 have no application to an agreement with a minor (which is void ab initio).
Goods are delivered and work is done for a Government department under an arrangement that is not a validly executed contract, and the benefit is voluntarily accepted. On what basis can compensation be claimed, per State of W.B. v. B.K. Mondal & Sons?
aSection 70, as a quasi-contractual obligation where a non-gratuitous act is lawfully done and the benefit is voluntarily enjoyed
bSpecific performance of the implied contract
cDamages for breach of the concluded contract
dSection 68, as supply of necessaries
Answer: A
Under Section 70 (B.K. Mondal & Sons case), where a person lawfully and non-gratuitously does something for another who voluntarily enjoys the benefit, compensation is payable; this is a quasi-contractual obligation, not a claim on any subsisting contract, so specific performance or damages for breach cannot be claimed.
Which provision of the quasi-contract chapter (Sections 68-72) permits a person to be reimbursed from the property of an incapable person (e.g., a minor) for necessaries supplied suited to his condition in life?
aSection 69
bSection 68
cSection 70
dSection 72
Answer: B
Section 68 provides that one who supplies necessaries suited to the condition in life of a person incapable of contracting (or someone the incapable person is legally bound to support) is entitled to be reimbursed from the property of such incapable person, not from him personally.
A agrees to pay B Rs. 5,000 if B succeeds in his pending litigation concerning a parcel of land and then sells that land to A. Which statement best describes the nature of this agreement?
aIt is a reciprocal promise and therefore not a contingent contract
bIt is void because its performance depends on a future uncertain event
cIt is a contingent contract, the success of the litigation being an event collateral to the contract
dIt is void as opposed to public policy because it stakes the outcome of litigation
Answer: C
Under Sec. 31, where A's promise to buy depends on the collateral event of B's success in litigation it is a contingent contract (Ismail v. Dandbhai); a bare reciprocal promise (pay if you sell to me) is not.
In a sale-deed a balance of Rs. 25,000 was to be paid 'as soon as possible but at a time when the vendee is in a position to make the payment.' The Supreme Court/High Court treated this clause as:
aA contingent contract that fails if the vendee never becomes able to pay
bA void agreement for uncertainty as to the time of payment
cA wagering agreement on the vendee's solvency
dAn absolute obligation, the clause merely fixing the time of performance, not a contingency
Answer: D
Reading 'when' (not 'if'), the obligation to pay was absolute and the clause only regulated the mode/time of performance; it was not contingent under Sec. 31 (Sohan Singh v. State Bank of India).
A makes a contract with B to sell a horse if C, to whom the horse has first been offered, refuses to buy it. C dies before refusing. What is the legal position under the Contract Act?
aThe contract becomes void because the contingent event has become impossible
bThe contract may be enforced immediately as C can no longer buy
cThe contract is enforceable when a reasonable time has elapsed
dThe contract is voidable at A's option
Answer: A
Under Sec. 32, if the uncertain future event on which a contract is contingent becomes impossible, the contract becomes void; C's refusal can never now occur.
Q34Performance, discharge & frustration
In Nathulal v. Phool Chand (AIR 1970 SC 546), the seller had first to get his brother's name removed from the revenue records, after which the buyer was to pay the balance; the seller failed to do so for over a year and then terminated the contract. On reciprocal promises, the Supreme Court held:
aThe buyer was in breach for not paying by the appointed date
bWhere obligations are to be performed in sequence, a party cannot demand the other's performance without first performing his own; the buyer, ready and willing, was not in breach
cBoth parties were equally in breach and the contract stood rescinded
dTime was of the essence, so the seller's termination was valid
Answer: B
Under Sections 51-54, where reciprocal promises must be performed in sequence, the party whose performance comes first cannot insist on the other's; since the seller had not removed his brother's name, the willing buyer was not bound to pay and was not in breach.
Q35Performance, discharge & frustration
In National Insurance Co. Ltd. v. Seema Malhotra (AIR 2001 SC 1197), the insured paid the premium by cheque which was later dishonoured, the accident having occurred before dishonour. Applying Sections 51, 52 and 54, the Supreme Court held:
aThe cover note made the insurer absolutely liable regardless of the dishonour
bThe insurer remained liable because it had cancelled the policy only 'with immediate effect'
cWhen the insured's cheque towards premium is dishonoured, the insurer need not perform its reciprocal promise, and the insured cannot claim performance
dSection 56 frustrated the contract on dishonour of the cheque
Answer: C
The Court treated the insurance contract as one of reciprocal promises: the insured promised that the cheque would yield cash; on dishonour the insurer was absolved under Sections 51-54 and the insured could not claim the indemnity.
Q36Performance, discharge & frustration
In Lata Construction v. Dr Rameshchandra Ramniklal Shah (AIR 2000 SC 380), a second agreement provided that the rights under the original flat-purchase contract would stand extinguished 'only on payment' of the entire substituted sum, which the builder never paid. On novation under Section 62, the Court held:
aThe original contract was novated the moment the second agreement was signed, so only a money debt remained
bThe second agreement, lacking consideration, was wholly void
cThe original contract revived automatically because time was of the essence
dNovation requires complete substitution of a new contract; since the original rights were to end only on full payment, which did not occur, those rights survived and the buyer could enforce them
Answer: D
Section 62 requires complete substitution for novation; here the original rights were expressly to be extinguished only on full payment of Rs 9,51,000, and as the builder did not pay, the original contract subsisted and the buyer could still claim deficiency in service.
Q37Performance, discharge & frustration
A agrees to sell his half-undivided share in disputed property to B, undertaking to first get the property partitioned by court and to execute the sale deed one month after the partition decree. The partition suit is dismissed. A claims the sale is a contingent contract that cannot be enforced as the contingency (partition) failed. Following Harbakhsh Singh v. Ram Rattan, which is correct?
aThe contract is not contingent; a present obligation to sell was created and only execution of the sale deed was postponed, so B can enforce it
bThe contract is contingent under Section 31 and cannot be enforced as the partition did not occur
cThe contract is void for impossibility under Section 56 once the partition suit failed
dThe contract is a wager since the parties had no interest in the partition outcome
Answer: A
In Harbakhsh Singh v. Ram Rattan, the court held there is a difference between a present obligation whose performance is postponed and one that arises only on a contingency; obtaining partition was an obligation undertaken for the buyer's benefit, not a condition precedent, so the sale was enforceable.
Q38Performance, discharge & frustration
A contracts to pay B a sum of money if B marries C. C marries D. Under Section 34 of the Indian Contract Act, what is the legal position regarding the contingent event (B marrying C)?
aThe contract remains enforceable because D may die and C may afterwards marry B
bThe event is deemed to have become impossible, even though D may later die and C may marry B
cThe contract is enforceable immediately as C is no longer available
dThe contract becomes voidable at B's option
Answer: B
Section 34 provides that where the contingency is the future conduct of a living person, the event is deemed impossible when that person does something rendering the contemplated act impossible within any definite time; C marrying D makes B's marriage to C impossible, notwithstanding D's possible later death.
Q39Performance, discharge & frustration
A seller agreed to supply cotton bales to a buyer with the term 'We shall go on supplying goods to you of the Victoria Mills as soon as they are supplied to us by the said Mill.' The mill failed to supply and the seller pleaded the contract was contingent on the mill's supply. In Ganga Saran v. Firm Ram Charan Ram Gopal, the Supreme Court held that:
aThe contract was contingent under Section 32 and unenforceable as the mill never supplied
bThe contract was frustrated under Section 56 by the mill's failure
cThe words merely described the goods and the process of delivery; the obligation to supply was absolute and not contingent on the mill
dThe seller was discharged because the parties impliedly agreed to the mill's supply as a condition precedent
Answer: C
In Ganga Saran v. Firm Ram Charan Ram Gopal, the Supreme Court held the words 'as soon as they are supplied to us by the said Mill' only described the goods and indicated the process of delivery; there was nothing surprising in a merchant binding himself absolutely, so the obligation was not contingent.
Q40Breach & remedies, damages (S73–75)
In Maula Bux v. Union of India, security deposits were forfeited by the Government on the contractor's default in supplying potatoes and poultry. On the application of Section 74, the Supreme Court laid down that:
aWhere a sum is named, the named sum is always recoverable without proof of loss
bSecurity deposits can always be forfeited as genuine pre-estimates without proof of loss
cSection 74 never applies to government contracts
dA reasonable forfeiture of earnest money does not fall within Section 74, but where loss can be determined the party claiming compensation must prove the loss suffered
Answer: D
Maula Bux v. Union of India, AIR 1970 SC 1955: forfeiture of a reasonable earnest sum is outside S. 74, but where loss is capable of determination the claimant must prove it; as the Union proved no loss, the forfeited deposits were refunded.
Q41Breach & remedies, damages (S73–75)
In ONGC Ltd v. SAW Pipes Ltd, the contract provided liquidated damages for delayed supply, expressly described as a genuine pre-estimate and not a penalty, and was drafted by experts. Refining the position in Maula Bux, the Supreme Court held that where the terms are clear and the stipulation is a genuine pre-estimate:
aThe stipulated sum may be awarded without proof of actual loss, and it is for the party challenging it to show the estimate is unreasonable or a penalty
bThe aggrieved party must still strictly prove its actual loss in every case before recovering
cSection 74 cannot apply at all to liquidated damages clauses
dOnly nominal damages are recoverable since no loss was independently proved
Answer: A
ONGC Ltd v. SAW Pipes Ltd, AIR 2003 SC 2629: where parties (experts) have agreed clear, unambiguous liquidated damages as a genuine pre-estimate and not a penalty, the sum may be awarded without separate proof of loss, and the burden shifts to the party contending it is unreasonable.
Q42Breach & remedies, damages (S73–75)
In Payzu Ltd v. Saunders, after the seller wrongfully refused further deliveries under a contract on the agreed credit terms, she offered to deliver at the same contract price for immediate cash. The buyer refused, and silk prices rose. On the duty to mitigate, the court held the buyer:
aWas entitled to refuse the offer and recover the full difference between market and contract price
bActed unreasonably in refusing a bona fide offer he could have accepted, and so could not recover the loss he ought to have avoided
cNeed not consider any offer from a party who had breached the contract
dCould recover nothing because the seller's refusal terminated the whole contract
Answer: B
Payzu Ltd v. Saunders, (1919) 2 KB 581: what is reasonable mitigation is a question of fact; in a commercial contract it was reasonable to accept the seller's bona fide offer, so the buyer could not recover loss he would have avoided by accepting it.
Q43Breach & remedies, damages (S73–75)
Hadley sent a broken mill crankshaft through carrier Baxendale, who delayed delivery, keeping the mill shut. Hadley claimed lost profits for the stoppage. The court disallowed the claim primarily because:
aloss of profit can never be recovered for delay by a common carrier
bthe carrier had not been paid enough to assume such a large liability
cthe special circumstance that the mill was wholly stopped for want of this shaft was not communicated to the carrier and would not arise in the great multitude of such cases
dHadley had failed to mitigate by keeping a spare shaft
Answer: C
Hadley v. Baxendale: damages cover loss arising naturally in the usual course or such as both parties reasonably contemplated; the loss of profit here was neither, as the special circumstances were never communicated. Section 73 codifies this rule.
Q44Breach & remedies, damages (S73–75)
Under Section 73, the second paragraph ("Such compensation is not to be given for any remote and indirect loss or damage") read with the Explanation establishes which two requirements for an injured party?
aDamages must be liquidated, and proved in money terms
bPenalty is recoverable, and interest runs automatically
cSpecific performance is the primary remedy, and damages are secondary
dOnly direct, non-remote losses are recoverable, and the party must take into account the means available to remedy the inconvenience (i.e. mitigate)
Answer: D
Section 73 bars remote/indirect loss, and its Explanation requires the means of remedying the inconvenience to be taken into account, embodying the mitigation duty (Murlidhar Chiranjilal v. Harishchandra Dwarkadas, AIR 1962 SC 366).
Q45Breach & remedies, damages (S73–75)
A contracts to sell and deliver 50 maunds of saltpetre to B on 1 January at a fixed price. Before that date, B contracts to resell the same to C at a price higher than the market price on 1 January. A fails to deliver. The compensation payable by A to B is measured by:
athe difference between the market price on 1 January and the contract price, not B's profit on the resale to C
bthe profit B would have earned on his resale to C
cthe full contract price A would have received
dthe price B agreed with C minus the contract price
Answer: A
Illustration (o) to Section 73: in estimating compensation, the market price on 1 January, and not the profit which would have arisen from the sub-sale to C, is taken into account, as the sub-sale was not communicated.
Q46Indian Partnership Act, 1932 (+ LLP basics)
In Bignold v Westerhouse, one partner of a firm of carriers gratuitously allowed a friend's parcel to be carried without payment or special entry, concealing this from the other partners; the parcel was lost. In a suit against the firm, the firm was held not liable because notice to that partner did not operate as notice to the firm. The governing principle is:
aNotice to a sleeping partner is never notice to the firm
bNotice to a partner is notice to the firm except where there is a fraud on the firm committed by or with that partner's consent
cCarriers are exempt from liability for parcels not specially entered
dNotice must always be in writing to bind the firm
Answer: B
Under Sec. 24, notice to a partner who habitually acts in the business operates as notice to the firm except in the case of a fraud on the firm committed by or with that partner's consent; in Bignold the partner was party to the concealment, so his knowledge was not imputed to the firm.
Q47Indian Partnership Act, 1932 (+ LLP basics)
A partnership was constituted for a fixed term. During its subsistence an arbitration proceeding with a third party was begun but remained pending when the fixed term expired and the firm was dissolved. Following Saligram Ruplal Khanna v Kanwar Rajnath, can the arbitration proceeding be completed after dissolution?
aNo, because all authority of partners ends immediately on dissolution
bNo, because 'transaction' in Sec. 47 covers only commercial purchase and sale
cYes, because completing such an unfinished proceeding falls within winding-up under Sec. 47
dYes, but only with fresh consent of every former partner to continue the arbitration
Answer: C
Under Sec. 47, after dissolution the authority and obligations of partners continue so far as necessary to wind up the firm and complete transactions begun but unfinished; the Court held that 'transaction' includes steps in adjudicating a dispute, so the pending arbitration could be completed (Saligram Ruplal Khanna v Kanwar Rajnath).
Q48Indian Partnership Act, 1932 (+ LLP basics)
Under the Limited Liability Partnership Act, 2009, regarding the agency relationship and liability of partners, which statement is correct?
aEach partner is an agent of the LLP and of the other partners, and is jointly and severally liable for all firm debts
bPartners have unlimited liability for all acts of the LLP, exactly as under the Partnership Act, 1932
cOnly the designated partners are agents of the LLP; ordinary partners are not
dA partner is an agent of the LLP but not of the other partners, and is not personally liable merely by being a partner
Answer: D
Under Sec. 26 of the LLP Act, 2009 a partner is the agent of the LLP and not of the other partners; under Secs. 27-28 an obligation of the LLP is solely that of the LLP and a partner is not personally liable merely by reason of being a partner (subject to liability for his own wrongful acts and fraud).
Q49Indian Partnership Act, 1932 (+ LLP basics)
Under the Limited Liability Partnership Act, 2009, in which one of the following situations does the liability of the partners and the LLP become UNLIMITED?
aWhere an act is carried out by the LLP or a partner with intent to defraud creditors or for a fraudulent purpose
bWhere a partner acts negligently in the ordinary course of the LLP's business
cWhere the number of partners falls below two for a period of three months
dWhere the LLP fails to file its annual return for one financial year
Answer: A
Under Sec. 30 of the LLP Act, 2009, where an act is done by the LLP or a partner with intent to defraud creditors or for any fraudulent purpose, the liability of the LLP and the partners who so acted becomes unlimited; ordinarily liability is limited to agreed contribution.
Q50Indian Partnership Act, 1932 (+ LLP basics)
Comparing a Limited Liability Partnership with an ordinary partnership firm under the Indian Partnership Act, 1932, which of the following is a CORRECT distinction?
aAn ordinary partnership is a separate legal entity, whereas an LLP is not
bAn LLP has perpetual succession and no upper limit on the number of partners, whereas an ordinary firm lacks perpetual succession and is restricted as to maximum partners
cRegistration is compulsory for an ordinary partnership but optional for an LLP
dAn ordinary firm can convert into an LLP and an LLP can equally convert back into an ordinary firm at will
Answer: B
An LLP is a body corporate with perpetual succession and no upper limit on partners (Secs. 3 and 6 of the LLP Act, 2009), whereas an ordinary partnership has no perpetual succession and is subject to a maximum number of partners; an LLP is a separate legal entity (the firm is not) and its registration is compulsory (the firm's is optional).
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