Mock Test: Business Laws and Business Correspondence & Reporting(Paper-2) Answers - Dec 2022 | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
ANSWERS 
1. (i) Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration 
is valid if it is expressed in writing and registered under the law for the time being in force for the 
registration of documents and is made on account of natural love and affection between parties 
standing in a near relation to each other. In other words, a written and registered agreement 
based on natural love and affection between the parties standing in near relation to each other is 
enforceable even without consideration. 
 In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love 
and affection between the parties standing in near relation to each other is written but not 
registered. Hence, this transfer is not enforceable.   
(ii)  According to doctrine of Indoor Management, persons dealing with the Company are presumed to 
have read the registered documents and to see that the proposed dealing is not inconsistent 
therewith, but they are not bound to do more; they need not enquire into the regularity of internal 
proceedings as required by M & A. This was also decided in case of Royal British Bank Vs. 
Turquand.  
 In the instant case, Articles of Association of XYZ Private Limited have taken loan from reputed 
bank for ` 60,00,000 by passing Board Resolution while Special Resolution was necessary for 
such amount. Board of Directors gave an undertaking to bank that Special Resolution has been 
passed for such loan. The bank on believing on such undertaking lends the money.  
 On the basis of provisions of doctrine of Indoor Management, the bank can claim the amount of 
his loan from the company. The bank can believe on the undertaking given by board and no need 
to enquire further.  
(iii)  Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give or 
transfer goods what he does not himself own”. Exceptions to the rule and the cases in which the 
Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumerated below: 
(a)  Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or document 
of title to goods would pass a good title to the buyer in the following circumstances, namely; 
(I) if he was in possession of the goods or documents with the consent of the owner; 
(II) if the sale was made by him when acting in the ordinary course of business as a 
mercantile agent; and  
(III) if the buyer had acted in good faith and has at the time of the contract of sale, no 
notice of the fact that the seller had no authority to sell. (Proviso to Section 27). 
Mercantile agent means an agent having in the customary course of business as such agent 
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, 
or to raise money on the security of goods. [section 2(9)] 
(b) Sale by one of the joint owners: If one of the several joint owners of goods has the sole 
possession of them with the permission of the others, the property in the goods may be 
transferred to any person who buys them from such a joint owner in good faith and does not 
Page 2


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
ANSWERS 
1. (i) Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration 
is valid if it is expressed in writing and registered under the law for the time being in force for the 
registration of documents and is made on account of natural love and affection between parties 
standing in a near relation to each other. In other words, a written and registered agreement 
based on natural love and affection between the parties standing in near relation to each other is 
enforceable even without consideration. 
 In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love 
and affection between the parties standing in near relation to each other is written but not 
registered. Hence, this transfer is not enforceable.   
(ii)  According to doctrine of Indoor Management, persons dealing with the Company are presumed to 
have read the registered documents and to see that the proposed dealing is not inconsistent 
therewith, but they are not bound to do more; they need not enquire into the regularity of internal 
proceedings as required by M & A. This was also decided in case of Royal British Bank Vs. 
Turquand.  
 In the instant case, Articles of Association of XYZ Private Limited have taken loan from reputed 
bank for ` 60,00,000 by passing Board Resolution while Special Resolution was necessary for 
such amount. Board of Directors gave an undertaking to bank that Special Resolution has been 
passed for such loan. The bank on believing on such undertaking lends the money.  
 On the basis of provisions of doctrine of Indoor Management, the bank can claim the amount of 
his loan from the company. The bank can believe on the undertaking given by board and no need 
to enquire further.  
(iii)  Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give or 
transfer goods what he does not himself own”. Exceptions to the rule and the cases in which the 
Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumerated below: 
(a)  Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or document 
of title to goods would pass a good title to the buyer in the following circumstances, namely; 
(I) if he was in possession of the goods or documents with the consent of the owner; 
(II) if the sale was made by him when acting in the ordinary course of business as a 
mercantile agent; and  
(III) if the buyer had acted in good faith and has at the time of the contract of sale, no 
notice of the fact that the seller had no authority to sell. (Proviso to Section 27). 
Mercantile agent means an agent having in the customary course of business as such agent 
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, 
or to raise money on the security of goods. [section 2(9)] 
(b) Sale by one of the joint owners: If one of the several joint owners of goods has the sole 
possession of them with the permission of the others, the property in the goods may be 
transferred to any person who buys them from such a joint owner in good faith and does not 
2 
at the time of the contract of sale have notice that the seller has no authority to sell. 
(Section 28) 
(c) Sale by a person in possession under voidable contract: A buyer would acquire a good 
title to the goods sold to him by seller who had obtained possession of the goods under a 
contract voidable on the ground of coercion, fraud, misrepresentation or undue influence 
provided that the contract had not been rescinded until the time of the sale (Section 29). 
(d) Sale by one who has already sold the goods but continues in possession thereof:  If a 
person has sold goods but continues to be in possession of them or of the documents of title 
to them, he may sell them to a third person, and if such person obtains the delivery thereof 
in good faith without notice of the previous sale, he would have good title to them, although 
the property in the goods had passed to the first buyer earlier. A pledge or other deposition 
of the goods or documents of title by the seller in possession are equally valid.  [Section 
30(1)] 
(e) Sale by buyer obtaining possession before the property in the goods has vested in 
him:  Where a buyer with the consent of seller obtains possession of the goods before the 
property in them has passed to him, he may sell, pledge or otherwise dispose of the goods 
to a third person, and if such person obtains delivery of the goods in good faith and without 
notice of the lien or other right of the original seller in respect of the goods in good faith and 
without notice of the lien or other right of the original seller in respect of the goods, he would 
get a good title to them. [Section 30(2)]. 
(f) Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien or 
stoppage in transit resells the goods, the buyer acquires a good title to the goods as against 
the original buyer [Section 54(3)]. 
(g)  Sale under the provisions of other Acts:  
(i)   Sale by an official Receiver or liquidator of the company will give the purchaser a valid 
title. 
(ii)   Purchase of goods from a finder of goods will get a valid title under circumstances. 
(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser. 
(Note: Student can write any four points) 
2. (i)  (a)  It is an implied contract and A must pay for the services of the coolie detailed by him. 
 Implied Contracts: Implied contracts come into existence by implication. Most often the 
implication is by law and or by action. Section 9 of the Act contemplates such implied 
contracts when it lays down that in so far as such proposal or acceptance is made otherwise 
than in words, the promise is said to be implied.  
(b)  Obligation of finder of lost goods to return them to the true owner cannot be said to arise out 
of a contract even in its remotest sense, as there is neither offer and acceptance nor 
consent. These are said to be quasi-contracts. 
 Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is 
created by law under certain circumstances. The law creates and enforces legal rights and 
obligations when no real contract exists. Such obligations are known as quasi-contracts. In 
other words, it is a contract in which there is no intention on part of either party to make a 
contract, but law imposes a contract upon the parties. 
(c)  The above contract is a void contract. 
 Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable 
by law becomes void when it ceases to be enforceable”. Thus, a void contract is one which 
cannot be enforced by a court of law. 
Page 3


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
ANSWERS 
1. (i) Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration 
is valid if it is expressed in writing and registered under the law for the time being in force for the 
registration of documents and is made on account of natural love and affection between parties 
standing in a near relation to each other. In other words, a written and registered agreement 
based on natural love and affection between the parties standing in near relation to each other is 
enforceable even without consideration. 
 In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love 
and affection between the parties standing in near relation to each other is written but not 
registered. Hence, this transfer is not enforceable.   
(ii)  According to doctrine of Indoor Management, persons dealing with the Company are presumed to 
have read the registered documents and to see that the proposed dealing is not inconsistent 
therewith, but they are not bound to do more; they need not enquire into the regularity of internal 
proceedings as required by M & A. This was also decided in case of Royal British Bank Vs. 
Turquand.  
 In the instant case, Articles of Association of XYZ Private Limited have taken loan from reputed 
bank for ` 60,00,000 by passing Board Resolution while Special Resolution was necessary for 
such amount. Board of Directors gave an undertaking to bank that Special Resolution has been 
passed for such loan. The bank on believing on such undertaking lends the money.  
 On the basis of provisions of doctrine of Indoor Management, the bank can claim the amount of 
his loan from the company. The bank can believe on the undertaking given by board and no need 
to enquire further.  
(iii)  Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give or 
transfer goods what he does not himself own”. Exceptions to the rule and the cases in which the 
Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumerated below: 
(a)  Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or document 
of title to goods would pass a good title to the buyer in the following circumstances, namely; 
(I) if he was in possession of the goods or documents with the consent of the owner; 
(II) if the sale was made by him when acting in the ordinary course of business as a 
mercantile agent; and  
(III) if the buyer had acted in good faith and has at the time of the contract of sale, no 
notice of the fact that the seller had no authority to sell. (Proviso to Section 27). 
Mercantile agent means an agent having in the customary course of business as such agent 
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, 
or to raise money on the security of goods. [section 2(9)] 
(b) Sale by one of the joint owners: If one of the several joint owners of goods has the sole 
possession of them with the permission of the others, the property in the goods may be 
transferred to any person who buys them from such a joint owner in good faith and does not 
2 
at the time of the contract of sale have notice that the seller has no authority to sell. 
(Section 28) 
(c) Sale by a person in possession under voidable contract: A buyer would acquire a good 
title to the goods sold to him by seller who had obtained possession of the goods under a 
contract voidable on the ground of coercion, fraud, misrepresentation or undue influence 
provided that the contract had not been rescinded until the time of the sale (Section 29). 
(d) Sale by one who has already sold the goods but continues in possession thereof:  If a 
person has sold goods but continues to be in possession of them or of the documents of title 
to them, he may sell them to a third person, and if such person obtains the delivery thereof 
in good faith without notice of the previous sale, he would have good title to them, although 
the property in the goods had passed to the first buyer earlier. A pledge or other deposition 
of the goods or documents of title by the seller in possession are equally valid.  [Section 
30(1)] 
(e) Sale by buyer obtaining possession before the property in the goods has vested in 
him:  Where a buyer with the consent of seller obtains possession of the goods before the 
property in them has passed to him, he may sell, pledge or otherwise dispose of the goods 
to a third person, and if such person obtains delivery of the goods in good faith and without 
notice of the lien or other right of the original seller in respect of the goods in good faith and 
without notice of the lien or other right of the original seller in respect of the goods, he would 
get a good title to them. [Section 30(2)]. 
(f) Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien or 
stoppage in transit resells the goods, the buyer acquires a good title to the goods as against 
the original buyer [Section 54(3)]. 
(g)  Sale under the provisions of other Acts:  
(i)   Sale by an official Receiver or liquidator of the company will give the purchaser a valid 
title. 
(ii)   Purchase of goods from a finder of goods will get a valid title under circumstances. 
(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser. 
(Note: Student can write any four points) 
2. (i)  (a)  It is an implied contract and A must pay for the services of the coolie detailed by him. 
 Implied Contracts: Implied contracts come into existence by implication. Most often the 
implication is by law and or by action. Section 9 of the Act contemplates such implied 
contracts when it lays down that in so far as such proposal or acceptance is made otherwise 
than in words, the promise is said to be implied.  
(b)  Obligation of finder of lost goods to return them to the true owner cannot be said to arise out 
of a contract even in its remotest sense, as there is neither offer and acceptance nor 
consent. These are said to be quasi-contracts. 
 Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is 
created by law under certain circumstances. The law creates and enforces legal rights and 
obligations when no real contract exists. Such obligations are known as quasi-contracts. In 
other words, it is a contract in which there is no intention on part of either party to make a 
contract, but law imposes a contract upon the parties. 
(c)  The above contract is a void contract. 
 Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable 
by law becomes void when it ceases to be enforceable”. Thus, a void contract is one which 
cannot be enforced by a court of law. 
3 
(ii)  The law provides that a contract should be supported by consideration. So long as consideration 
exists, the Courts are not concerned to its adequacy, provided it is of some value.  The adequacy 
of the consideration is for the parties to consider at the time of making the agreement, not for the 
Court when it is sought to be enforced (Bolton v. Modden).  Consideration must, however, be 
something to which the law attaches value though it need not be equivalent in value to the 
promise made.    
 According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement to which 
the consent of the promisor is freely given is not void merely because the consideration is 
inadequate, but the inadequacy of the consideration may be taken into account by the Court in 
determining the question whether the consent of the promisor was freely given. 
(iii) “Small Limited Liability Partnership [Section 2(ta) of the Limited Liability Partnership Act, 
2008]: It means a Limited Liability Partnership— 
(i)  the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, 
not exceeding five crore rupees, as may be prescribed; and 
(ii)  the turnover of which, as per the Statement of Accounts and Solvency for the immediately 
preceding financial year, does not exceed forty lakh rupees or such higher amount, not 
exceeding fifty crore rupees, as may be prescribed; or 
(iii)  which meets such other requirements as may be prescribed and fulfils such terms and 
conditions as may be prescribed. 
3. (i)  As per Section 29 of Indian Partnership Act, 1932, a transfer by a partner of his interest in the 
firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does 
not entitle the transferee, during the continuance of the firm, to interfere in the conduct of 
business, or to require accounts, or to inspect the books of the firm, but entitles the transferee 
only to receive the share of profits of the transferring partner, and the transferee shall accept the 
account of profits agreed to by the partners. 
In the given case during the continuance of partnership, such transferee Mr. B is not entitled:  
• to interfere with the conduct of the business. 
• to require accounts. 
• to inspect books of the firm. 
 However, Mr. B is only entitled to receive the share of the profits of the transferring partner and 
he is bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the 
accounts. 
(ii)  Particular partnership: A partnership may be organized for the prosecution of a single 
adventure as well as for the conduct of a continuous business.  Where a person becomes a 
partner with another person in any particular adventure or undertaking, the partnership is called 
‘particular partnership’.  
 A partnership, constituted for a single adventure or undertaking is, subject to any agreement, 
dissolved by the completion of the adventure or undertaking. 
(iii) Section 73-75 of Indian Contract Act, 1872: Damage means a sum of money claimed or 
awarded in compensation for a loss or an injury. Whenever a party commits a breach, the 
aggrieved party can claim the compensation for the loss so suffered by him. General damages 
are those which arise naturally in the usual course of things from the breach itself. (Hadley Vs 
Baxendale). Therefore, when breach is committed by a party, the defendant shall be held liable 
for all such losses that naturally arise in the usual course of business. Such damages are called 
Page 4


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
ANSWERS 
1. (i) Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration 
is valid if it is expressed in writing and registered under the law for the time being in force for the 
registration of documents and is made on account of natural love and affection between parties 
standing in a near relation to each other. In other words, a written and registered agreement 
based on natural love and affection between the parties standing in near relation to each other is 
enforceable even without consideration. 
 In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love 
and affection between the parties standing in near relation to each other is written but not 
registered. Hence, this transfer is not enforceable.   
(ii)  According to doctrine of Indoor Management, persons dealing with the Company are presumed to 
have read the registered documents and to see that the proposed dealing is not inconsistent 
therewith, but they are not bound to do more; they need not enquire into the regularity of internal 
proceedings as required by M & A. This was also decided in case of Royal British Bank Vs. 
Turquand.  
 In the instant case, Articles of Association of XYZ Private Limited have taken loan from reputed 
bank for ` 60,00,000 by passing Board Resolution while Special Resolution was necessary for 
such amount. Board of Directors gave an undertaking to bank that Special Resolution has been 
passed for such loan. The bank on believing on such undertaking lends the money.  
 On the basis of provisions of doctrine of Indoor Management, the bank can claim the amount of 
his loan from the company. The bank can believe on the undertaking given by board and no need 
to enquire further.  
(iii)  Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give or 
transfer goods what he does not himself own”. Exceptions to the rule and the cases in which the 
Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumerated below: 
(a)  Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or document 
of title to goods would pass a good title to the buyer in the following circumstances, namely; 
(I) if he was in possession of the goods or documents with the consent of the owner; 
(II) if the sale was made by him when acting in the ordinary course of business as a 
mercantile agent; and  
(III) if the buyer had acted in good faith and has at the time of the contract of sale, no 
notice of the fact that the seller had no authority to sell. (Proviso to Section 27). 
Mercantile agent means an agent having in the customary course of business as such agent 
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, 
or to raise money on the security of goods. [section 2(9)] 
(b) Sale by one of the joint owners: If one of the several joint owners of goods has the sole 
possession of them with the permission of the others, the property in the goods may be 
transferred to any person who buys them from such a joint owner in good faith and does not 
2 
at the time of the contract of sale have notice that the seller has no authority to sell. 
(Section 28) 
(c) Sale by a person in possession under voidable contract: A buyer would acquire a good 
title to the goods sold to him by seller who had obtained possession of the goods under a 
contract voidable on the ground of coercion, fraud, misrepresentation or undue influence 
provided that the contract had not been rescinded until the time of the sale (Section 29). 
(d) Sale by one who has already sold the goods but continues in possession thereof:  If a 
person has sold goods but continues to be in possession of them or of the documents of title 
to them, he may sell them to a third person, and if such person obtains the delivery thereof 
in good faith without notice of the previous sale, he would have good title to them, although 
the property in the goods had passed to the first buyer earlier. A pledge or other deposition 
of the goods or documents of title by the seller in possession are equally valid.  [Section 
30(1)] 
(e) Sale by buyer obtaining possession before the property in the goods has vested in 
him:  Where a buyer with the consent of seller obtains possession of the goods before the 
property in them has passed to him, he may sell, pledge or otherwise dispose of the goods 
to a third person, and if such person obtains delivery of the goods in good faith and without 
notice of the lien or other right of the original seller in respect of the goods in good faith and 
without notice of the lien or other right of the original seller in respect of the goods, he would 
get a good title to them. [Section 30(2)]. 
(f) Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien or 
stoppage in transit resells the goods, the buyer acquires a good title to the goods as against 
the original buyer [Section 54(3)]. 
(g)  Sale under the provisions of other Acts:  
(i)   Sale by an official Receiver or liquidator of the company will give the purchaser a valid 
title. 
(ii)   Purchase of goods from a finder of goods will get a valid title under circumstances. 
(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser. 
(Note: Student can write any four points) 
2. (i)  (a)  It is an implied contract and A must pay for the services of the coolie detailed by him. 
 Implied Contracts: Implied contracts come into existence by implication. Most often the 
implication is by law and or by action. Section 9 of the Act contemplates such implied 
contracts when it lays down that in so far as such proposal or acceptance is made otherwise 
than in words, the promise is said to be implied.  
(b)  Obligation of finder of lost goods to return them to the true owner cannot be said to arise out 
of a contract even in its remotest sense, as there is neither offer and acceptance nor 
consent. These are said to be quasi-contracts. 
 Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is 
created by law under certain circumstances. The law creates and enforces legal rights and 
obligations when no real contract exists. Such obligations are known as quasi-contracts. In 
other words, it is a contract in which there is no intention on part of either party to make a 
contract, but law imposes a contract upon the parties. 
(c)  The above contract is a void contract. 
 Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable 
by law becomes void when it ceases to be enforceable”. Thus, a void contract is one which 
cannot be enforced by a court of law. 
3 
(ii)  The law provides that a contract should be supported by consideration. So long as consideration 
exists, the Courts are not concerned to its adequacy, provided it is of some value.  The adequacy 
of the consideration is for the parties to consider at the time of making the agreement, not for the 
Court when it is sought to be enforced (Bolton v. Modden).  Consideration must, however, be 
something to which the law attaches value though it need not be equivalent in value to the 
promise made.    
 According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement to which 
the consent of the promisor is freely given is not void merely because the consideration is 
inadequate, but the inadequacy of the consideration may be taken into account by the Court in 
determining the question whether the consent of the promisor was freely given. 
(iii) “Small Limited Liability Partnership [Section 2(ta) of the Limited Liability Partnership Act, 
2008]: It means a Limited Liability Partnership— 
(i)  the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, 
not exceeding five crore rupees, as may be prescribed; and 
(ii)  the turnover of which, as per the Statement of Accounts and Solvency for the immediately 
preceding financial year, does not exceed forty lakh rupees or such higher amount, not 
exceeding fifty crore rupees, as may be prescribed; or 
(iii)  which meets such other requirements as may be prescribed and fulfils such terms and 
conditions as may be prescribed. 
3. (i)  As per Section 29 of Indian Partnership Act, 1932, a transfer by a partner of his interest in the 
firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does 
not entitle the transferee, during the continuance of the firm, to interfere in the conduct of 
business, or to require accounts, or to inspect the books of the firm, but entitles the transferee 
only to receive the share of profits of the transferring partner, and the transferee shall accept the 
account of profits agreed to by the partners. 
In the given case during the continuance of partnership, such transferee Mr. B is not entitled:  
• to interfere with the conduct of the business. 
• to require accounts. 
• to inspect books of the firm. 
 However, Mr. B is only entitled to receive the share of the profits of the transferring partner and 
he is bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the 
accounts. 
(ii)  Particular partnership: A partnership may be organized for the prosecution of a single 
adventure as well as for the conduct of a continuous business.  Where a person becomes a 
partner with another person in any particular adventure or undertaking, the partnership is called 
‘particular partnership’.  
 A partnership, constituted for a single adventure or undertaking is, subject to any agreement, 
dissolved by the completion of the adventure or undertaking. 
(iii) Section 73-75 of Indian Contract Act, 1872: Damage means a sum of money claimed or 
awarded in compensation for a loss or an injury. Whenever a party commits a breach, the 
aggrieved party can claim the compensation for the loss so suffered by him. General damages 
are those which arise naturally in the usual course of things from the breach itself. (Hadley Vs 
Baxendale). Therefore, when breach is committed by a party, the defendant shall be held liable 
for all such losses that naturally arise in the usual course of business. Such damages are called 
4 
ordinary damages. However special damages are those which arise in unusual circumstances 
affecting the aggrieved party and such damages are recoverable only when the special 
circumstances were brought to the knowledge defendant. If no special notice is given, then the 
aggrieved party can only claim the ordinary damages. 
 In the instant case, the goods were delivered after the conclusion of the exhibition, therefore 
Seema can recover only the losses arising in the ordinary course of business. Special damages 
are allowed only when the special circumstances are made aware. Since no notice about special 
circumstances was given to railways authorities, she could not recover the loss of profits. 
4. (i)  Delivery - its forms: Delivery means voluntary transfer of possession from one person to 
another [Section 2(2) of the Sale of Goods Act, 1930]. As a general rule, delivery of goods may 
be made by doing anything, which has the effect of putting the goods in the possession of the 
buyer, or any person authorized to hold them on his behalf.  
 Forms of delivery: Following are the kinds of delivery for transfer of possession:  
(i) Actual delivery: When the goods are physically delivered to the buyer. Actual delivery 
takes place when the seller transfers the physical possession of the goods to the buyer or to 
a third person authorised to hold goods on behalf of the buyer. This is the most common 
method of delivery.  
(ii) Constructive delivery: When it is effected without any change in the custody or actual 
possession of the thing as in the case of delivery by attornment (acknowledgement).  
 Constructive delivery takes place when a person in possession of the goods belonging to 
the seller acknowledges to the buyer that he holds the goods on buyer’s behalf.  
(iii) Symbolic delivery: When there is a delivery of a thing in token of a transfer of something 
else, i.e., delivery of goods in the course of transit may be made by handing over 
documents of title to goods, like bill of lading or railway receipt or delivery orders or the key 
of a warehouse containing the goods is handed over to buyer. Where actual delivery is not 
possible, there may be delivery of the means of getting possession of the goods.  
(ii)  Consequences of Non-registration of partnership firm (Section 69 of the Indian Partnership 
Act, 1932): 
 Non-registration of partnership gives rise to a number of disabilities. Though registration of firm is 
not compulsory, yet the consequences or disabilities of non-registration have a persuasive 
pressure for their registration. Following are the consequences: 
(a)  No suit in a civil court by firm or other co-partners against third party:  The firm or any 
other person on its behalf cannot bring an action against the third party for breach of 
contract entered into by the firm. 
(b)  No relief to partners for set-off of claim: If an action is brought against the firm by a third 
party, then neither the firm nor the partner can claim any set-off, if the suit be valued for 
more than ` 100 or pursue other proceedings to enforce the rights arising from any contract. 
(c)  Aggrieved partner cannot bring legal action against other partner or the firm: A 
partner of an unregistered firm (or any other person on his behalf) is precluded from 
bringing legal action against the firm or any person alleged to be or to have been a partner 
in the firm.  
(d)  Third-party can sue the firm: In case of an unregistered firm, an action can be brought 
against the firm by a third party. 
 In the instant case, since the fresh registration has not been taken after introduction of new 
partner S, the firm P & Co. will be considered as unregistered firm. Hence the firm which is 
Page 5


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
ANSWERS 
1. (i) Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration 
is valid if it is expressed in writing and registered under the law for the time being in force for the 
registration of documents and is made on account of natural love and affection between parties 
standing in a near relation to each other. In other words, a written and registered agreement 
based on natural love and affection between the parties standing in near relation to each other is 
enforceable even without consideration. 
 In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love 
and affection between the parties standing in near relation to each other is written but not 
registered. Hence, this transfer is not enforceable.   
(ii)  According to doctrine of Indoor Management, persons dealing with the Company are presumed to 
have read the registered documents and to see that the proposed dealing is not inconsistent 
therewith, but they are not bound to do more; they need not enquire into the regularity of internal 
proceedings as required by M & A. This was also decided in case of Royal British Bank Vs. 
Turquand.  
 In the instant case, Articles of Association of XYZ Private Limited have taken loan from reputed 
bank for ` 60,00,000 by passing Board Resolution while Special Resolution was necessary for 
such amount. Board of Directors gave an undertaking to bank that Special Resolution has been 
passed for such loan. The bank on believing on such undertaking lends the money.  
 On the basis of provisions of doctrine of Indoor Management, the bank can claim the amount of 
his loan from the company. The bank can believe on the undertaking given by board and no need 
to enquire further.  
(iii)  Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give or 
transfer goods what he does not himself own”. Exceptions to the rule and the cases in which the 
Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumerated below: 
(a)  Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or document 
of title to goods would pass a good title to the buyer in the following circumstances, namely; 
(I) if he was in possession of the goods or documents with the consent of the owner; 
(II) if the sale was made by him when acting in the ordinary course of business as a 
mercantile agent; and  
(III) if the buyer had acted in good faith and has at the time of the contract of sale, no 
notice of the fact that the seller had no authority to sell. (Proviso to Section 27). 
Mercantile agent means an agent having in the customary course of business as such agent 
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, 
or to raise money on the security of goods. [section 2(9)] 
(b) Sale by one of the joint owners: If one of the several joint owners of goods has the sole 
possession of them with the permission of the others, the property in the goods may be 
transferred to any person who buys them from such a joint owner in good faith and does not 
2 
at the time of the contract of sale have notice that the seller has no authority to sell. 
(Section 28) 
(c) Sale by a person in possession under voidable contract: A buyer would acquire a good 
title to the goods sold to him by seller who had obtained possession of the goods under a 
contract voidable on the ground of coercion, fraud, misrepresentation or undue influence 
provided that the contract had not been rescinded until the time of the sale (Section 29). 
(d) Sale by one who has already sold the goods but continues in possession thereof:  If a 
person has sold goods but continues to be in possession of them or of the documents of title 
to them, he may sell them to a third person, and if such person obtains the delivery thereof 
in good faith without notice of the previous sale, he would have good title to them, although 
the property in the goods had passed to the first buyer earlier. A pledge or other deposition 
of the goods or documents of title by the seller in possession are equally valid.  [Section 
30(1)] 
(e) Sale by buyer obtaining possession before the property in the goods has vested in 
him:  Where a buyer with the consent of seller obtains possession of the goods before the 
property in them has passed to him, he may sell, pledge or otherwise dispose of the goods 
to a third person, and if such person obtains delivery of the goods in good faith and without 
notice of the lien or other right of the original seller in respect of the goods in good faith and 
without notice of the lien or other right of the original seller in respect of the goods, he would 
get a good title to them. [Section 30(2)]. 
(f) Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien or 
stoppage in transit resells the goods, the buyer acquires a good title to the goods as against 
the original buyer [Section 54(3)]. 
(g)  Sale under the provisions of other Acts:  
(i)   Sale by an official Receiver or liquidator of the company will give the purchaser a valid 
title. 
(ii)   Purchase of goods from a finder of goods will get a valid title under circumstances. 
(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser. 
(Note: Student can write any four points) 
2. (i)  (a)  It is an implied contract and A must pay for the services of the coolie detailed by him. 
 Implied Contracts: Implied contracts come into existence by implication. Most often the 
implication is by law and or by action. Section 9 of the Act contemplates such implied 
contracts when it lays down that in so far as such proposal or acceptance is made otherwise 
than in words, the promise is said to be implied.  
(b)  Obligation of finder of lost goods to return them to the true owner cannot be said to arise out 
of a contract even in its remotest sense, as there is neither offer and acceptance nor 
consent. These are said to be quasi-contracts. 
 Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is 
created by law under certain circumstances. The law creates and enforces legal rights and 
obligations when no real contract exists. Such obligations are known as quasi-contracts. In 
other words, it is a contract in which there is no intention on part of either party to make a 
contract, but law imposes a contract upon the parties. 
(c)  The above contract is a void contract. 
 Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable 
by law becomes void when it ceases to be enforceable”. Thus, a void contract is one which 
cannot be enforced by a court of law. 
3 
(ii)  The law provides that a contract should be supported by consideration. So long as consideration 
exists, the Courts are not concerned to its adequacy, provided it is of some value.  The adequacy 
of the consideration is for the parties to consider at the time of making the agreement, not for the 
Court when it is sought to be enforced (Bolton v. Modden).  Consideration must, however, be 
something to which the law attaches value though it need not be equivalent in value to the 
promise made.    
 According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement to which 
the consent of the promisor is freely given is not void merely because the consideration is 
inadequate, but the inadequacy of the consideration may be taken into account by the Court in 
determining the question whether the consent of the promisor was freely given. 
(iii) “Small Limited Liability Partnership [Section 2(ta) of the Limited Liability Partnership Act, 
2008]: It means a Limited Liability Partnership— 
(i)  the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, 
not exceeding five crore rupees, as may be prescribed; and 
(ii)  the turnover of which, as per the Statement of Accounts and Solvency for the immediately 
preceding financial year, does not exceed forty lakh rupees or such higher amount, not 
exceeding fifty crore rupees, as may be prescribed; or 
(iii)  which meets such other requirements as may be prescribed and fulfils such terms and 
conditions as may be prescribed. 
3. (i)  As per Section 29 of Indian Partnership Act, 1932, a transfer by a partner of his interest in the 
firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does 
not entitle the transferee, during the continuance of the firm, to interfere in the conduct of 
business, or to require accounts, or to inspect the books of the firm, but entitles the transferee 
only to receive the share of profits of the transferring partner, and the transferee shall accept the 
account of profits agreed to by the partners. 
In the given case during the continuance of partnership, such transferee Mr. B is not entitled:  
• to interfere with the conduct of the business. 
• to require accounts. 
• to inspect books of the firm. 
 However, Mr. B is only entitled to receive the share of the profits of the transferring partner and 
he is bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the 
accounts. 
(ii)  Particular partnership: A partnership may be organized for the prosecution of a single 
adventure as well as for the conduct of a continuous business.  Where a person becomes a 
partner with another person in any particular adventure or undertaking, the partnership is called 
‘particular partnership’.  
 A partnership, constituted for a single adventure or undertaking is, subject to any agreement, 
dissolved by the completion of the adventure or undertaking. 
(iii) Section 73-75 of Indian Contract Act, 1872: Damage means a sum of money claimed or 
awarded in compensation for a loss or an injury. Whenever a party commits a breach, the 
aggrieved party can claim the compensation for the loss so suffered by him. General damages 
are those which arise naturally in the usual course of things from the breach itself. (Hadley Vs 
Baxendale). Therefore, when breach is committed by a party, the defendant shall be held liable 
for all such losses that naturally arise in the usual course of business. Such damages are called 
4 
ordinary damages. However special damages are those which arise in unusual circumstances 
affecting the aggrieved party and such damages are recoverable only when the special 
circumstances were brought to the knowledge defendant. If no special notice is given, then the 
aggrieved party can only claim the ordinary damages. 
 In the instant case, the goods were delivered after the conclusion of the exhibition, therefore 
Seema can recover only the losses arising in the ordinary course of business. Special damages 
are allowed only when the special circumstances are made aware. Since no notice about special 
circumstances was given to railways authorities, she could not recover the loss of profits. 
4. (i)  Delivery - its forms: Delivery means voluntary transfer of possession from one person to 
another [Section 2(2) of the Sale of Goods Act, 1930]. As a general rule, delivery of goods may 
be made by doing anything, which has the effect of putting the goods in the possession of the 
buyer, or any person authorized to hold them on his behalf.  
 Forms of delivery: Following are the kinds of delivery for transfer of possession:  
(i) Actual delivery: When the goods are physically delivered to the buyer. Actual delivery 
takes place when the seller transfers the physical possession of the goods to the buyer or to 
a third person authorised to hold goods on behalf of the buyer. This is the most common 
method of delivery.  
(ii) Constructive delivery: When it is effected without any change in the custody or actual 
possession of the thing as in the case of delivery by attornment (acknowledgement).  
 Constructive delivery takes place when a person in possession of the goods belonging to 
the seller acknowledges to the buyer that he holds the goods on buyer’s behalf.  
(iii) Symbolic delivery: When there is a delivery of a thing in token of a transfer of something 
else, i.e., delivery of goods in the course of transit may be made by handing over 
documents of title to goods, like bill of lading or railway receipt or delivery orders or the key 
of a warehouse containing the goods is handed over to buyer. Where actual delivery is not 
possible, there may be delivery of the means of getting possession of the goods.  
(ii)  Consequences of Non-registration of partnership firm (Section 69 of the Indian Partnership 
Act, 1932): 
 Non-registration of partnership gives rise to a number of disabilities. Though registration of firm is 
not compulsory, yet the consequences or disabilities of non-registration have a persuasive 
pressure for their registration. Following are the consequences: 
(a)  No suit in a civil court by firm or other co-partners against third party:  The firm or any 
other person on its behalf cannot bring an action against the third party for breach of 
contract entered into by the firm. 
(b)  No relief to partners for set-off of claim: If an action is brought against the firm by a third 
party, then neither the firm nor the partner can claim any set-off, if the suit be valued for 
more than ` 100 or pursue other proceedings to enforce the rights arising from any contract. 
(c)  Aggrieved partner cannot bring legal action against other partner or the firm: A 
partner of an unregistered firm (or any other person on his behalf) is precluded from 
bringing legal action against the firm or any person alleged to be or to have been a partner 
in the firm.  
(d)  Third-party can sue the firm: In case of an unregistered firm, an action can be brought 
against the firm by a third party. 
 In the instant case, since the fresh registration has not been taken after introduction of new 
partner S, the firm P & Co. will be considered as unregistered firm. Hence the firm which is 
5 
not registered cannot file a case against the third party. Hence the firm P & Co. cannot sue 
X. 
5. (i)  Condition as to merchantability (Section 16(2) of the Sale of Goods Act, 1930):  
 When goods are sold by description and the seller trades in similar goods, then the goods should 
be merchantable i.e. the goods should be fit to use or wholesome or for to consume. However, 
the condition as to merchantability shall consider the following points - 
(i) Right to examine the goods by the buyer. The buyer should be given chance to examine the 
good.  
(ii) The buyer should reject the goods, if there is any defect found in the good. But if the defect 
could not be revealed even after the reasonable examination and the buyer purchases such 
goods, then the seller is held liable. Such defects which cannot be revealed by examination 
are called latent defects. The seller is liable to pay to the buyer for such latent defects in the 
goods. [Section 17] 
 In the instant case, the retailer can claim indemnity from the wholesaler because it was found 
that the retailer had examined the sample before purchasing the goods and a reasonable 
examination on his part could not reveal this latent defect. Under these circumstances , the 
wholesaler was bound to indemnify the retailer for the loss suffered by the latter. 
(ii)  Yes, a non-profit organization be registered as a company under the Companies Act, 2013 by 
following the provisions of section 8 of the Companies Act, 2013. Section 8 of the Companies 
Act, 2013 deals with the formation of companies which are formed to  
• promote the charitable objects of commerce, art, science, sports, education, research, 
social welfare, religion, charity, protection of environment etc.  
Such company intends to apply its profit in 
• promoting its objects and  
• prohibiting the payment of any dividend to its members. 
The Central Government has the power to issue license for registering a section 8 company. 
(i) Section 8 allows the Central Government to register such person or association of persons 
as a company with limited liability without the addition of words ‘Limited’ or ‘Private limited’ 
to its name, by issuing licence on such conditions as it deems fit.  
(ii) The registrar shall on application register such person or association of persons as a 
company under this section. 
(iii) On registration, the company shall enjoy same privileges and obligations as of a limited 
company.  
6. (i)  Quasi Contracts: Under certain special circumstances, obligation resembling those created by a 
contract are imposed by law although the parties have never entered into a contract. Such 
obligations imposed by law are referred to as ‘Quasi-contracts’. Such a contract resembles with a 
contract so far as result or effect is concerned but it has little or no affinity with a contract in 
respect of mode of creation. These contracts are based on the doctrine that a person shall not be 
allowed to enrich himself unjustly at the expense of another. 
The following are the cases which are deemed as Quasi Contract:  
(a) Claim for necessaries supplied to persons incapable of contracting (Section 68 of the 
Indian Contract Act, 1872): If a person, incapable of entering into a contract, or anyone 
whom he is legally bound to support, is supplied by another person with necessaries suited 
to his condition in life, the person who has furnished such supplies is entitled to be 
reimbursed from the property of such incapable person.