Contract & Allied (Contract, Sale of Goods, Partnership) · Subject Test 4
Contract & Allied (Contract, Sale of Goods, Partnership) Test 4 — Questions & Solutions
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Durga Prasad, at the request of the District Collector, built a market at his own expense; the shopkeepers who occupied it later agreed in writing to pay him a commission (Durga Prasad v. Baldeo). The agreement was held unenforceable because:
athe expense was incurred at the desire of the Collector, not of the shopkeepers, so there was no consideration moving at the shopkeepers' desire
bthe agreement was not registered
cthe commission was unreasonably high
da commission can never be valid consideration
Answer: A
The court held the market was built at the desire of the Collector and not 'at the desire' of the shopkeepers; nor was it done 'for the promisors' under Section 25(2), so the promise lacked consideration.
Subscribers put their names down to a fund for building the Howrah Town Hall, on the faith of which the commissioners contracted with a builder; a subscriber later refused to pay (Kedar Nath Bhattacharji v. Gorie Mohamed). The subscription was held enforceable because:
aa promise to a charity is always enforceable in India
bthe fund had incurred liability to the contractor on the faith of the subscription, which constituted consideration
cthe subscription was registered under Section 25(1)
dthe subscriber had received a personal benefit from the town hall
Answer: B
The court distinguished an ordinary donation: because the persons in charge undertook an obligation to the contractor on the faith of the subscriptions, that liability was good consideration for the subscriber's promise.
Under Section 25(1) of the Indian Contract Act, an agreement made without consideration is valid (as an exception) only if it is:
aa promise to pay any time-barred debt, whether or not in writing
ba promise to compensate a person for a future service
cin writing and registered, and made on account of natural love and affection between parties standing in a near relation to each other
dany oral family arrangement made to keep peace
Answer: C
Section 25(1) excepts an agreement that is expressed in writing and registered, and made on account of natural love and affection between parties standing in a near relation to each other.
A wife sued on an 'ekrarnama' signed only by her husband promising her maintenance, the recitals of which referred only to ordinary marital quarrels (Smt. Rajlukhy Dabee v. Bhootnath Mookerjee). The court refused to enforce it because:
athe document was unregistered, defeating Section 25(1)
bthe wife had not signed the document
ca husband can never validly contract to maintain his wife
dthe recitals did not disclose any natural love and affection, so it did not qualify as a Section 25(1) exception, and no consideration moved from the wife
Answer: D
The court found the recitals pointed merely to quarrels, not love and affection; with no consideration moving from the wife and no qualifying love and affection, it fell outside Section 25(1).
A mother, by a registered deed of gift, gave her daughter a zamindari subject to the daughter agreeing (by a separate kararnama) to continue an annuity to the mother's brothers; the daughter refused to pay (Chinnaya v. Venkataramaya). The brothers could enforce the promise because:
aunder the wide definition in Section 2(d), the consideration (the gift) moved from the mother, a third person, at the promisor's desire, and the two deeds formed one transaction
bthe brothers had themselves paid consideration to the daughter
cprivity of contract does not exist at all in Indian law
dthe brothers were near relations within Section 25(1)
Answer: A
Relying on the wide Section 2(d) definition, the court treated the gift deed and the kararnama as one transaction, with consideration moving from a third person (the mother) at the desire of the promisor, so the brothers could sue.
Under Section 15 of the Indian Contract Act, which of the following amounts to coercion as interpreted by the courts?
aRefusing to make any offer at all unless one's own price is met
bUnlawfully detaining a person's goods, refusing release unless he agrees to sell part of them
cEntering an agreement merely because a statute compels a party to do so (Andhra Sugars Ltd. v. State of AP)
dA threat to file a true criminal charge that the other party has actually committed (Askari Mirza v. Bibi Jai Kishori)
Answer: B
Section 15 covers committing/threatening an act forbidden by the IPC or the unlawful detaining of property to make a person contract; a true-charge threat and statutory compulsion are not coercion, but unlawful detention of goods is.
Under Section 16(3), once a party seeking to avoid a contract proves the relationship and that the bargain is unconscionable, the burden of proving the absence of undue influence shifts to the dominant party. According to Raghunath Prasad v. Sarju Prasad, what must be established FIRST?
aThat the bargain is unconscionable
bThat the contract caused actual loss
cThat one party was in a position to dominate the will of the other
dThat the dominant party acted in bad faith
Answer: C
The Privy Council held the first thing to be considered is the relations of the parties — whether one was in a position to dominate the will of the other; only then do unconscionableness and the shifting burden arise.
A vendor's sale particulars described the property as let to 'a most desirable tenant' when the tenant was in fact in serious rent arrears and insolvent (Smith v. Land and House Property Corporation). The court held this statement was:
aa mere statement of opinion that can never be a misrepresentation
ba guarantee that the tenant would always pay rent
cirrelevant because both parties had equal knowledge of the tenant
da statement of opinion that, because the vendor knew facts the buyer did not, involved an implied assertion of a material fact and thus amounted to misrepresentation
Answer: D
Bowen LJ held that where facts are not equally known, an opinion by the party who knows the facts best implies an assertion that he knows facts justifying it; calling the tenant 'most desirable' asserted that nothing made him unsatisfactory — a misrepresentation.
Under the Explanation to Section 17 of the Indian Contract Act, mere silence as to facts likely to affect a party's willingness to contract is NOT fraud, EXCEPT where:
ait is the duty of the person keeping silence to speak, or his silence is, in itself, equivalent to speech
bthe contract concerns the sale of immovable property
cthe silent party makes a profit from the transaction
dthe other party fails to ask any questions
Answer: A
The Explanation to Section 17 provides that mere silence is not fraud unless the circumstances make it the duty of the silent person to speak, or unless his silence is in itself equivalent to speech.
A retail store displays a flick-knife in its shop window with a price tag. Under the principle in Fisher v. Bell, the display constitutes:
aAn offer for sale that the customer accepts by entering the shop
bMerely an invitation to offer (invitation to treat)
cAn offer to sell only that very piece on display
dA standing offer to the world at large
Answer: B
In Fisher v. Bell, the display of goods with a price in a shop window is only an invitation to treat, not an offer for sale; the customer makes the offer which the shopkeeper may accept or reject.
In a self-service store, when is the contract of sale concluded according to Pharmaceutical Society of Great Britain v. Boots Cash Chemists?
aWhen the customer enters the store
bWhen the customer picks the article off the shelf and places it in the basket
cWhen the cashier accepts the customer's offer to buy at the cash counter
dWhen the goods are displayed on the shelf with a price
Answer: C
In Boots, the display on the shelf is an invitation to offer; the customer offers to buy at the cash counter and the contract is complete only when the cashier accepts that offer (under the pharmacist's supervision).
X's car stalls on a highway. A passing mechanic says 'I am a car mechanic, let me see', repairs it, and X then promises to pay Rs 200 but later offers only Rs 50. Following the principle in Lampleigh v. Brathwait and In Re Casey's Patents, the promise to pay Rs 200 is:
aUnenforceable, being founded purely on past consideration
bA gift and hence unenforceable
cVoid for want of any consideration whatsoever
dEnforceable, because a past service rendered at the promisor's implied request, understood to be paid for, supports a later promise fixing the amount
Answer: D
Per Lampleigh v. Brathwait and In Re Casey's Patents, where an act is done at the promisor's request and understood to be remunerated, a subsequent promise fixes the amount of reasonable remuneration and is enforceable.
Goods are delivered to the buyer's shipping agents, who put them on board a ship; the goods are then returned to the seller merely for repacking. While they are with the seller for repacking, the buyer becomes insolvent and the unpaid seller refuses to redeliver, claiming a lien. Is the seller's refusal lawful?
aNo, because the lien was lost on delivery to the shipping agents and taking the goods back for repacking does not revive it
bYes, because the seller regained physical possession of the goods, reviving the lien
cYes, because the buyer's insolvency automatically restores the seller's lien
dNo, because a seller can never exercise a lien once the goods have been shipped
Answer: A
Valpy v Gibson [(1847) 4 CB 837]: the lien was lost on delivery to the buyer's shipping agents; the lien revives only if possession is regained by exercising the right of stoppage in transit, not where goods are taken back for another purpose such as repacking, so the refusal was wrongful.
The law of partnership has often been described as an extension of the law of agency. Which provision and proposition best captures the agency character of a partner's position?
aSec. 25 — a partner is the principal of the firm in all its dealings
bSec. 18 — a partner is the agent of the firm for the purposes of the business of the firm
cSec. 28 — a partner is the trustee of the firm's property for third parties
dSec. 30 — a partner is the bailee of the firm's goods for co-partners
Answer: B
Sec. 18 of the Partnership Act: a partner is the agent of the firm for the purposes of the firm's business; partnership embodies mutual agency, each partner being both principal and agent (Bank of Australasia v Breillat).
A partnership deed restricts a partner's authority to draw bills on the firm to a maximum of Rs. 200 each. One partner, to a third party who KNOWS of this restriction, makes two promissory notes for Rs. 1,000 each. Is the firm bound?
aYes, because drawing bills falls within a partner's implied authority and binds the firm regardless of restrictions
bYes, because a restriction under Sec. 20 is a purely internal matter never affecting third parties
cNo, because the third party had knowledge of the restriction on the partner's implied authority
dNo, because making promissory notes is always outside a partner's implied authority
Answer: C
Sec. 20 Partnership Act and Prembhai v Brown [(1873) 10 Bom HC Rep 319]: a restriction on implied authority binds a third party who has actual knowledge of it, so the firm was not liable on the notes drawn beyond the Rs. 200 limit.
A partnership deed barred a partner from borrowing on the firm's behalf. A partner nevertheless borrowed money and accepted a bill of exchange; the lender had no knowledge of the internal restriction. Is the firm liable to the lender?
aNo, because borrowing was expressly forbidden by the partnership deed
bNo, because accepting a bill of exchange is outside any partner's authority
cYes, but only to the extent the borrowed money was actually used for the firm
dYes, because borrowing falls within implied authority and the third party did not know of the Sec. 20 restriction
Answer: D
Sec. 20 Partnership Act and Motilal v Unnao Commercial Bank [(1930) 32 Bom LR 1571]: a contractual restriction on implied authority does not bind a third party ignorant of it, so the firm was liable to the lender who had no notice of the restriction.
Reflecting that notice to an agent is notice to the principal, Sec. 24 of the Partnership Act treats notice to a partner as notice to the firm. In which situation does notice to a partner NOT operate as notice to the firm?
aWhere the partner receiving the notice has himself committed, or consented to, a fraud on the firm in that matter
bWhere the notice is given to a partner who habitually acts in the firm's business
cWhere the matter relates to the affairs of the firm and the notice is actual
dWhere the notice concerns an ordinary trading transaction of the firm
Answer: A
Sec. 24 Partnership Act and Bignold v Westerhouse [(1813) 1 M & S 259]: notice to an acting partner is notice to the firm, except where that partner is himself a party to a fraud on the firm, since a fraudulent agent cannot be presumed to pass the information to his principal.
A and B are the only partners of a firm. B retires, the firm is dissolved as to him, and A continues the business alone. Without A's authority or B's knowledge, A places an order using old firm notepaper still bearing B's name; the supplier sues B on the doctrine of holding out. Is B liable?
aYes, because B negligently failed to destroy the old notepaper
bNo, because B did not 'knowingly suffer' himself to be represented as a partner; the representation was made by A without B's knowledge or authority
cYes, because his name still appeared on the notepaper used for the order
dNo, because the doctrine of holding out can never apply after a partner has retired
Answer: B
Tower Cabinet Co. v Ingram [(1949) 1 All ER 1033] under Sec. 28: liability by holding out requires that the person 'knowingly suffer' himself to be represented as a partner; mere negligence in not destroying old notepaper, the representation being made without his knowledge, does not make the retired partner liable.
A delivers his second-hand car to H, a mercantile agent, only to ascertain whether it can be sold, without authorising a sale. H obtains the car's registration book from A by a trick and sells the car to X, who buys in good faith; X resells down a chain. On A's suit for conversion, which is correct?
aX gets a good title because H was a mercantile agent in possession with consent
bX gets a good title because A is estopped by handing over the car
cX gets no good title because the sale of a second-hand car without the registration book obtained with consent is not 'in the ordinary course of business' of a mercantile agent
dX gets no good title because a mercantile agent can never pass title without express authority to sell
Answer: C
Under the proviso to S.27, Sale of Goods Act, a mercantile agent passes good title only if acting in the ordinary course of business; in Pearson v Rose & Young the registration book was obtained by trick, so the sale was not in the ordinary course and no title passed.
The car owner authorised a mercantile agent to sell subject to a reserve price; the agent sold below the reserve to a bona fide purchaser and misappropriated the proceeds (Folkes v King). What is the position of the purchaser?
aHe gets no title because the agent breached the reserve-price limit on his authority
bHe gets no title because the agent's fraud rendered the owner's consent void
cHe gets no title because misappropriation of proceeds amounts to larceny by a trick nullifying consent
dHe gets a good title, since a consent induced by fraud is still real, and the bona fide purchaser is protected under the mercantile-agent proviso to S.27
Answer: D
In Folkes v King the court held that fraud renders consent voidable not void; the owner's consent to possession was real, so the bona fide buyer from the mercantile agent acting in the ordinary course got a good title under the proviso to S.27, Sale of Goods Act.
Q21Sale of Goods Act, 1930
Seed was sold as 'common English sainfoin' under a clause that the sellers gave 'no warranty express or implied' as to description; the seed delivered was an inferior 'giant sainfoin', discovered only after the buyer had accepted and resold it. On the principle in Wallis v Pratt (1911) AC 394, the buyer:
aCould recover damages, because the term was a condition (correspondence with description) and the exemption clause covered only warranties
bCould reject the goods despite acceptance, the condition surviving as a condition
cCould recover nothing, as the breach had been converted into a warranty which was excluded
dCould rescind, as exemption clauses for description are void under the Act
Answer: A
Correspondence with description is a condition (Sec. 15); 'once a condition always a condition' — though the lost right of rejection meant only damages could be claimed, the breach remained one of condition and was not covered by the clause excluding warranties (Wallis v Pratt).
Q22Sale of Goods Act, 1930
Sellers sold tins of condensed milk bearing labels which infringed a third party's trade mark; customs detained the goods and the buyer had to strip the labels and sell at a loss. In Niblett Ltd. v Confectioners' Materials Co. (1921), which proposition about Sec. 14(a) ('right to sell') is correct?
aThere was no breach, since the sellers owned the goods and could pass property
bThe sellers broke the condition that they had a right to sell, because a superior title (trade mark) meant they could be stopped by process of law from selling
cThe buyer's only remedy was under the warranty of quiet possession
dThe buyer could not complain, having accepted delivery of the tins
Answer: B
'Right to sell' is wider than ability to pass property; though the sellers owned the goods, the trade-mark owner could stop them by law, so they breached the Sec. 14(a) condition (Niblett v Confectioners' Materials).
Q23Sale of Goods Act, 1930
A buyer relying on antique knowledge bought, at auction, a set of napkins described as 'dating from the 17th century'; he saw the set but the discrepancy (it was an 18th-century set) could not be discovered by casual examination. On the reasoning of Nicholson & Venn v Smith Marriott (1947), this was:
aNot a sale by description, since the buyer had seen and inspected the goods
bA sale of specific goods only, governed solely by caveat emptor
cA sale by description, the buyer having relied on the description and the deviation not being apparent, so he could reject
dA sale by sample, the displayed set being the sample
Answer: C
Goods may be sold by description even where seen, if the buyer relied on the description and the deviation was not apparent; the buyer could reject under Sec. 15 (Nicholson & Venn v Smith Marriott).
Q24Sale of Goods Act, 1930
A plaintiff went to a chemist, asked for a hot-water bottle stating he wanted it 'for a special case' without specifying, and was sold an American rubber bottle which later burst on use. In Priest v Last (1903), why was the seller held liable under Sec. 16(1)?
aBecause 'hot-water bottle' is merely a trade name, attracting the proviso
bBecause the rule of caveat emptor has no application to chemists
cBecause the seller had expressly guaranteed the bottle against bursting
dBecause the particular purpose (use as a hot-water bottle) appeared from the very description of the article, and the buyer relied on the seller's skill
Answer: D
A particular purpose may appear from the description itself; asking for a hot-water bottle conveyed the purpose and reliance on the seller's skill, so the implied condition of fitness applied (Priest v Last, Sec. 16(1)).
Q25Sale of Goods Act, 1930
A woollen merchant ordered 'indigo blue cloth' from a manufacturer without disclosing that he intended to resell it to tailors for liveries; the cloth was unsuitable for liveries. On the reasoning of Jones v Padgett (1890), the seller was:
aNot liable, because the particular purpose (liveries) was neither expressly nor impliedly made known, the cloth having many uses
bLiable, because a manufacturer is deemed to know every purpose for which cloth may be used
cLiable, because the buyer impliedly relied on the seller's skill and judgement
dNot liable, since the buyer had examined the cloth before purchase
Answer: A
Where the seller knows only a general purpose and not the buyer's special purpose, supplying goods fit for the general purpose discharges the contract; the liveries purpose was not made known, so no breach of Sec. 16(1) (Jones v Padgett).
Q26Sale of Goods Act, 1930
Of 600 motor horns ordered, the buyer accepted a few and rejected the rest as dented and faulty; the seller argued the defects needed only minor repair and that the buyer must take the conforming ones. In Jackson v Rotax Motor & Cycle Co. (1910), the buyer was held entitled to:
aReject only the dented horns and keep the rest, the contract being severable
bTreat it as one contract and reject the whole, there being a substantial failure to deliver merchantable goods
cRecover damages only, having accepted part of the goods
dNothing, as the defects were minor and reparable
Answer: B
Merchantability under Sec. 16(2) means immediately saleable under the description; where part is defective the buyer may treat it as one contract and reject the whole rather than pick and choose (Jackson v Rotax Motor & Cycle Co.).
Q27Sale of Goods Act, 1930
A retailer bought toy catapults by sample, tested a sample by pulling the elastic and found no defect, then sold one which exploded in a child's hands due to a defect present in the sample but not discoverable on reasonable examination. Under Sec. 17, on the authority of Godley v Perry (1960):
aThe buyer had no remedy, since the bulk corresponded with the sample
bThe buyer had no remedy, having examined the sample and found no defect
cThe goods were unmerchantable by reason of the latent defect not apparent on reasonable examination, so the wholesaler must indemnify the retailer
dThe retailer alone bore the loss, examination being his responsibility
Answer: C
Sec. 17(2) implies a condition that goods be free from a defect rendering them unmerchantable which a reasonable examination of the sample would not reveal; the latent defect made the catapults unmerchantable and the wholesaler had to indemnify the retailer (Godley v Perry).
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?
aNever, because the non-return event is negative and unenforceable
bOnly after a fixed time has elapsed
cOnly if B proves the ship was actually destroyed by accident
dWhen the ship sinks, since the return has then become impossible
Answer: D
Under Sec. 33, a contract contingent on an event NOT happening can be enforced when the happening of that event becomes impossible; the sinking makes the ship's return impossible.
A agrees to pay B a sum of money if B marries C. Before any marriage, C marries D. Under Sec. 34, the marriage of B to C is to be regarded as:
aImpossible, even though D might die and C might later marry B
bMerely delayed until D possibly dies
cA condition subsequent that has now been fulfilled
dStill possible, so the contract remains enforceable
Answer: A
Sec. 34 deems the event impossible when the person concerned does something (C marrying D) that makes acting in the required way impossible within any definite time, though it might happen under further contingencies.
A promises to pay B a sum of money if a certain ship returns within a year. The ship is burnt within the year. What is the effect under Sec. 35?
aThe contract can be enforced as a reasonable substitute for return is presumed
bThe contract becomes void because the specified event cannot now happen within the fixed time
cThe contract is suspended until the year expires
dThe contract is enforceable because the ship's destruction is itself an uncertain event
Answer: B
Under Sec. 35, a contract contingent on a specified event happening within a fixed time becomes void if, before the time fixed, that event becomes impossible (the ship being burnt).
A agrees to pay B Rs. 1,000 if B will marry A's daughter C. Unknown to both parties, C was already dead when the agreement was made. The agreement is:
aVoidable at B's option as he was unaware of C's death
bValid until B discovers C is dead
cVoid, whether or not the parties knew of the impossibility
dEnforceable as a quasi-contract for any expenses incurred
Answer: C
Under Sec. 36, a contingent agreement to do something if an impossible event happens is void, whether or not the impossibility was known to the parties when it was made.
Regarding the plea that a contract is contingent under Sec. 32, which of the following is correct?
aThe court must consider it suo motu and dismiss a premature suit, like limitation under Sec. 3 Limitation Act
bIt need not be pleaded if the contingency appears from the document
cIt can be raised only as a question of law, not of fact
dIt must be specifically pleaded and proved by the party setting it up
Answer: D
Unlike Sec. 3 of the Limitation Act, Sec. 32 casts no duty on the court to act suo motu; the party alleging a contingency must plead and prove it as a question of law and fact (Nemi Chand v. Harak Chand).
Which of the following best states the distinction between Sec. 32 (contingent contracts) and Sec. 56 (frustration)?
aSec. 32 applies when the contract dissolves by its own force; Sec. 56 applies when an outside supervening force destroys it
bSec. 56 leaves dissolution to the intention of the parties; Sec. 32 lays down a rule of positive law
cBoth apply only where the parties expressly provided for the event
dSec. 32 covers impossibility known at the time of contract; Sec. 56 covers impossible events generally
Answer: A
Sec. 32 operates where the contract dissolves by its own force on a stipulated contingency, while Sec. 56 (a rule of positive law) operates where an unforeseen outside force frustrates it (Durga Devi Bhagat v. J.B. Advani & Co.).
Q34Performance, discharge & frustration
A company agreed to develop plots (build roads and drains) and then convey them, taking only small earnest deposits. During WWII the land was requisitioned by the government for military purposes. The buyer later sued for conveyance and the company pleaded frustration. In Satyabrata Ghose v. Mugneeram Bangur & Co., the Supreme Court held the contract was NOT frustrated mainly because:
aThe requisition was permanent and therefore irrelevant
bThe contract fixed no time-frame for the work, the war was already on when the contract was made, and the temporary requisition did not strike at the root of the bargain
cSection 56 does not apply to contracts for sale of land at all
dThe buyer had elected to treat the contract as cancelled
Answer: B
In Satyabrata Ghose v. Mugneeram Bangur & Co., the Court held that since no time-frame was fixed, the war was ongoing at formation, and the requisition was temporary in nature, the change did not affect the fundamental basis of the agreement, so there was no frustration under Section 56.
Q35Performance, discharge & frustration
Which statement best reflects the meaning of the word 'impossible' in the second paragraph of Section 56, as explained in Satyabrata Ghose v. Mugneeram Bangur & Co.?
aIt means strictly physical or literal impossibility of performance
bIt includes performance that has become merely more onerous or expensive
cIt includes performance that is impracticable or useless from the standpoint of the object and purpose the parties had in view
dIt means the parties must have expressly agreed to a discharging condition
Answer: C
In Satyabrata Ghose, the Court held 'impossible' is used in its practical, not literal, sense; performance may be impracticable or useless given the object of the contract where an untoward change totally upsets the foundation of the bargain.
Q36Performance, discharge & frustration
A contracted to manufacture and supply milk containers requiring 'hot dip tin coating' using tin ingots, which both parties knew could only be procured with a release order from the MMTC. The contract did not make the buyer (Union of India) responsible for the release order. The MMTC refused the order. In Punj Sons Pvt. Ltd. v. Union of India, the contract was held to be:
aNot frustrated, because tin ingots were available in the open market
bSubsisting, because the supplier had absolutely guaranteed supply regardless of tin availability
cVoid from the beginning under the first paragraph of Section 56
dFrustrated because performance became impossible owing to non-availability of an essential item (tin ingots), the requirement of which was an implied term of the contract
Answer: D
In Punj Sons Pvt. Ltd. v. Union of India, the Delhi High Court held the requirement of tin ingots (a canalised item obtainable only via release order) was an implied term, and the contract became impossible of performance under Section 56 when the order was refused.
Q37Performance, discharge & frustration
Sellers of ghee for army personnel claimed extra payment over the contractually stipulated rate because of an abnormal rise in prices after WWII began; the goods had already been supplied. In Alopi Parshad & Sons v. Union of India, the Supreme Court held:
aThere is no general liberty for courts to absolve a party merely because performance became onerous; an executed contract cannot be revised on a vague plea of equity
bCourts have a general liberty to absolve a party where performance becomes onerous
cAn abnormal price rise automatically frustrates the contract and justifies a higher rate
dSection 56 applies because the rise in prices was an unforeseen event
Answer: A
In Alopi Parshad & Sons v. Union of India, the Court held performance had not become impossible, the contract was in fact performed at stipulated rates, and there is no general liberty for courts to absolve a party merely because performance became onerous.
Q38Performance, discharge & frustration
A and B agree to a three-year lease of a plot, with the lease deed to be registered within fifteen days; due to the partition of the country the deed was never executed or registered and the lessee could never access the plot. The lessee claims frustration. Following Sushila Devi v. Hari Singh, which is correct?
aSection 56 cannot apply because a completed lease (a transfer of property) is involved
bSection 56 applies because there was only an agreement to lease, not a completed lease, and the object became impossible due to supervening events
cThe agreement is enforceable since time was not of the essence
dThe matter is governed solely by the Transfer of Property Act and frustration is irrelevant
Answer: B
In Sushila Devi v. Hari Singh, the Supreme Court held that since the lease deed was never executed or registered there was only an agreement to lease (an executory contract), which falls within Section 56, and the supervening partition made the object impossible.
Q39Performance, discharge & frustration
A promises to paint a portrait for B but sends his assistant to do the work. B refuses to allow the assistant to perform and the painter alleges breach by B. Under Sections 40 and 41 of the Indian Contract Act, which principle applies?
aB is in breach because performance by a competent third person is always permissible
bB must accept the assistant's performance but may claim damages
cFrom the nature of the case it was the parties' intention that the promisor himself perform, so B was entitled to refuse the assistant's performance
dThe contract is automatically discharged by novation
Answer: C
Section 40 provides that where it appears from the nature of the case that the parties intended the promisor himself to perform (as in a contract for personal skill like painting, per Illustration 2), the promise must be performed personally, so the customer may refuse a substitute.
Q40Breach & remedies, damages (S73–75)
Chiranjilal failed to deliver a railway receipt for canvas to be carried (f.o.r. Kanpur) to Calcutta, where prices were higher. The Supreme Court held the measure of damages was the difference between the contract price and the market price at:
aCalcutta, the destination where the goods were to be sold
bwhichever of Kanpur or Calcutta was higher
cthe date of suit rather than the date of breach
dKanpur, the place of breach, since it was an ordinary resale contract and the buyer could sell the receipt anywhere
Answer: D
Murlidhar Chiranjilal v. Harishchandra Dwarkadas, AIR 1962 SC 366: mere booking to Calcutta did not show the goods were meant for sale only there; market rate at Kanpur (place of breach) governed, and the buyer's failure to prove it defeated the claim.
Q41Breach & remedies, damages (S73–75)
A delivers a machine to B, a common carrier, to be carried without delay to A's mill, informing B that the mill is stopped for want of the machine. B unreasonably delays. A thereby loses a profitable government contract. Under Illustration (j) to Section 73, A may recover:
athe average amount of profit from working the mill during the delay, but not the loss of the government contract
bboth the average mill profit during the delay and the loss on the government contract
cnothing, as loss of profit is always remote
donly the freight charges paid to B
Answer: A
Illustration (j) to Section 73: as the parties knew the mill was idle for want of the machine, average mill profit during delay is recoverable; but the loss of the government contract was not within contemplation and is too remote.
Q42Breach & remedies, damages (S73–75)
In a works contract wrongfully rescinded by the government, the contractor who had begun performance claimed loss of profit. The principle laid down by the Supreme Court was that:
aa contractor can never claim loss of profit, only reimbursement of expenses incurred
ba reasonable expectation of profit is implicit in a works contract, and on wrongful rescission the contractor is entitled to damages by way of loss of profit, the court making a broad evaluation
closs of profit is recoverable only if a liquidated-damages clause exists
dthe contractor must prove each rupee of profit with documentary evidence or get nothing
Answer: B
A.T. Brij Paul Singh v. State of Gujarat, AIR 1984 SC 1703 (followed in Dwarka Das v. State of MP, AIR 1999 SC 1031): loss of profit is implicit and recoverable on wrongful rescission of a works contract, assessed by a broad evaluation (e.g. a reasonable percentage).
Q43Breach & remedies, damages (S73–75)
A car dealer's buyer refused to take delivery; the dealer returned the car to the manufacturer and sold one fewer car overall, in a market where supply exceeded demand. On the dealer's claim for the lost profit margin, the court held:
aonly nominal damages were payable as the car was returned to the manufacturer
bthe dealer recovered the full contract price
cthe dealer recovered the lost profit on the bargain because, demand being limited, the default cost him one sale
dSection 50(3) of the Sale of Goods Act fixed damages at the market–contract price difference
Answer: C
W.L. Thompson Ltd v. R Robinson (Gunmakers) Ltd, (1955) 1 All ER 154: where supply exceeds demand the buyer's default loses the dealer a sale, so loss of the bargain (the fixed profit margin) is recoverable; the s.50(3) prima facie rule yields when there is no available market.
Q44Breach & remedies, damages (S73–75)
Anglia Television incurred substantial pre-contract expenditure (director, designer, stage manager) and then engaged Reed, who repudiated, causing the film to be abandoned. On Anglia's claim for wasted expenditure, Lord Denning held that the plaintiff:
amay claim both loss of profit and wasted expenditure cumulatively
bmay recover only expenditure incurred after the contract was concluded
ccannot recover wasted expenditure at all, only nominal damages
dmay elect to claim wasted expenditure, including pre-contract expense reasonably within the parties' contemplation as likely to be wasted, where loss of profit cannot be proved
Answer: D
Anglia Television Ltd v. Reed, (1971) 3 All ER 690: a plaintiff may elect reliance (wasted expenditure) instead of performance interest, and may include pre-contract expense that the defendant must have contemplated would be wasted on breach.
Q45Breach & remedies, damages (S73–75)
In C. & P. Haulage v. Middleton, the licensee was wrongly excluded from premises ten weeks before the licence could lawfully have been ended, but he returned to his own garage rent-free during that period. The court awarded only nominal damages because:
aa plaintiff cannot use the reliance measure to escape a bad bargain and be placed in a better position than if the contract had been performed, where performance loss is easily assessable
breliance interest can never be claimed where a contract is broken knowingly
cthe licensee had failed to mitigate by finding alternative premises
dfixtures left on the premises offset all his losses
Answer: A
C. & P. Haulage v. Middleton, (1983) 3 All ER 94: reliance interest is unavailable to convert a disadvantageous contract into a profit; where performance-interest loss can be assessed and is nil, only nominal damages are given.
Q46Indian Partnership Act, 1932 (+ LLP basics)
B and M carry on the business of cinematograph theatre proprietors, B being a sleeping partner while M manages. The deed forbids contracting debts except in the usual course of business. M borrows money from a lender, ostensibly for the firm, but misappropriates it. The lender sues B. Is B liable?
aYes, because every partner has implied authority to borrow money for the firm
bNo, because the business of a cinema-theatre firm is non-trading and borrowing is not within the usual course of such business
cYes, because M expressly stated the money was for the partnership
dNo, because B was only a sleeping partner and sleeping partners are never liable
Answer: B
On the facts of Higgins v Beauchamp (1914) 3 KB 1192, the firm being a non-trading one, borrowing is not within a partner's implied authority under Sec. 19, so B is not bound. Sleeping partners are otherwise liable for acts within implied authority.
Q47Indian Partnership Act, 1932 (+ LLP basics)
Christmas and Ingram were partners; Ingram retired and Christmas continued alone. Christmas used the firm's old notepaper bearing both names to order furniture from Tower Cabinet Co., who sued Ingram on the doctrine of holding out. Which statement best reflects the legal position?
aIngram is liable because he negligently failed to destroy the old notepaper
bIngram is liable because public notice of retirement was never given
cIngram is not liable because the representation was made by Christmas without Ingram's knowledge or authority; mere carelessness is not 'knowingly suffering' a representation
dIngram is liable as the order was placed in the firm's name
Answer: C
In Tower Cabinet Co. v Ingram (1949) 1 All ER 1033, Sec. 28 requires that one 'knowingly suffers' himself to be represented as a partner; mere negligence in not destroying old notepaper does not amount to that, so Ingram was not liable.
Q48Indian Partnership Act, 1932 (+ LLP basics)
A registered firm M/s Prayagchand Hanumanmal, doing business at Calcutta, became a partner (along with two individuals) in a newly constituted firm M/s Mahabir Cold Storage at Purnea. The issue was whether a registered partnership firm can itself be a partner in another firm. What did the Supreme Court hold?
aA firm being a separate legal entity can be a partner in another firm
bA firm can be a partner only if it is registered under the Act
cA firm can be a partner provided all its partners consent in writing
dA firm cannot be a partner in another firm, though its partners may be partners in the other firm in their individual capacity
Answer: D
In Mahabir Cold Storage v CIT (AIR 1991 SC 1357), a firm is merely a collective name for its members and is neither a person nor a legal entity, so it cannot be a partner in another firm, though its partners may join in their individual capacity.
Q49Indian Partnership Act, 1932 (+ LLP basics)
A partnership deed of more than two partners contains no clause fixing duration or specifying any mode of determination, but provides that on a partner's death the firm shall continue with his nominee. With respect to whether it is a 'partnership at will', which is correct?
aA provision against dissolution on death (contrary to Sec. 42(c)) is itself a provision for duration/non-determination, so it is not a partnership at will
bAbsence of a fixed term automatically makes every such firm a partnership at will
cA partnership at will cannot be dissolved by notice of a single partner
dSuch a firm can only be dissolved by court decree
Answer: A
Following Chandrika Prasad Agarwal v Vishnu Chandra (1981) All LJ 967, a clause providing that the firm continues despite a partner's death is a contractual provision for the duration/non-determination of the firm, so it is not a partnership at will under Sec. 7.
Q50Indian Partnership Act, 1932 (+ LLP basics)
A firm of three partners A, B and C owes a debt to D. A retires; B and C (with a new partner E) take upon themselves the liabilities of the old firm. D was not a party to this arrangement and has not accepted the new firm as his sole debtor. What is A's position regarding the pre-retirement debt to D?
aA is automatically discharged the moment B, C and E assume the liabilities
bA remains liable to D, because the liability of a retiring partner is discharged only by an agreement (express or implied) with the creditor and the reconstituted firm
cA is discharged only if public notice of his retirement was given under Sec. 32(3)
dA is discharged because D's only remedy is now against the continuing partners
Answer: B
Per Syndicate Bank v R.S.R. Engg. Works (2003) 6 SCC 265 and Sec. 32(2), a retiring partner is discharged of liability to a third party only by agreement with that third party and the reconstituted firm; an arrangement to which the creditor is not a party is res inter alios acta.
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