Past Year Questions: The Indian Contract Act, 1872 | Business Laws for CA Foundation PDF Download

Q1. ABC Infrastructure Ltd. was running business successfully from several years. P was the purchase manager of company. He authorised his agent Q to buy Raw Material on his behalf for construction of Roads in Delhi. He instructed Q to buy only Mazboot Brand of Cement @ ₹ 2,000-2,500 per ton to maintain quality of Roads in Delhi. However, Q bought 1,000 tons of Mazboot Brand of cement from Mr. R a very well-known vendor of ABC Infrastructure Ltd. @ ₹ 3,500/- per ton. Mr. Q has not disclosed the fact to R that he was buying cement for ABC Infrastructure Ltd. When P discovered this aspect, he refused to pay Mr. R and rejects the cement bought by Q on the ground that Q has exceeded the authority. Mr. R suffered a huge loss on account of this transaction. Give your opinion in accordance with provisions from the Indian Contract Act, 1872:
(i) Whether P was bound to pay Mr. R for cement purchased by his agent Mr. Q?
(ii) On the other hand, Q being agent refused to accept any liability to compensate R. In this situation, Whether Mr. R can file a suit against Q?
(7 Marks, May 2025)

Answer: Principal’s liability when agent exceeds authority [Section 227 of the Indian Contract Act, 1872]: When an agent does more than he is authorised to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal. 
Principal not bound when excess of agent’s authority is not separable [Section 228]: Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction.   
When the agent exceeds his authority, misleads the third person in believing that the agent has the requisite authority in doing the act, then the agent can be made liable personally for the breach of warranty of authority. 
When the agent does not disclose the name of the principal, then there arises a presumption that he himself undertakes to be personally liable.   In the instant case, Q violated the instructions of P by buying cement at   ` 3,500 per ton, which is beyond the authorized price limit. Furthermore, Q did not disclose to R that he was buying cement for ABC Infrastructure Ltd.   Therefore, the answers are   
(i) No, P was not bound to pay Mr. R, as the agent Q exceeded his authority, and the deviation was inseparable from the authorized act. 
(ii) Yes, Mr. R can file a suit against Q, as Q is personally liable for the contract made without disclosing about the ABC Infrastructure Ltd.   and exceeding the authority given by the principal. 

Q2. According to provisions of The Indian Contract Act, 1872, define the following terms with reference to contract of guarantee:
(i) Nature and extent of Surety’s Liability
(ii) Discharge of a Contract of Surety by Invalidation of the Contract of Guarantee.
(6 Marks, May 2025)

Answer: (i)  Nature and extent of Surety’s Liability [Section 128 of the Indian Contract Act, 1872] 
(A)  The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.   
(B)  Liability of surety is of secondary nature as he is liable only on default of principal debtor. 
(C) Where a debtor cannot be held liable on account of any defect in the document, the liability of the surety also ceases. 
(D)  A creditor may choose to proceed against a surety first, unless there is an agreement to the contrary.  

(ii)  Discharge of a contract of Surety by the invalidation of the contract of guarantee. 
(A) Guarantee obtained by misrepresentation [Section 142]: Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.   
(B) Guarantee obtained by concealment [Section 143]: Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances is invalid.   
(C) Guarantee on contract that creditor shall not act on it until co-surety joins (Section 144): Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.  

Q3. X was running a business of Car on lease. One fine day, Y came to hire a car for 10 days for his business tour from Delhi to Amritsar. X offered him a Honda city for ₹ 50,000/- for 10 days on a condition that petrol and toll expenses will be borne by him. During the journey, engine of car was choked. Y has to spend ₹ 10,000/- for repair of engine. When he was coming back from Amritsar, brakes of car were not working and a major accident of Y happened due to this. Y was admitted to hospital and paid a bill of ₹ 50,000 on recovery. Y asked X to compensate him charges for car repair and hospital expenses amounting ₹ 60,000/-. X denied for compensation by saying that he was not aware about the engine and brakes fault. Y filed a suit against X for recovery of damages. Give your opinion with reference to provisions of The Indian Contract Act, 1872:
(i) Whether Y can withhold the amount of hire charges ₹ 50,000/- on account of non-payment of damages?
(ii) Whether Mr. X was liable to pay Damage as he was not aware of the fact of faults in car?
(7 Marks, May 2025)

Answer: Bailment: As per Section 148 of the Indian Contract Act, 1872, bailment is the delivery of goods by one person to another for some purpose, upon a contract, that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous bailment (Section 150): If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed. 

Duty to pay necessary expenses in case of non-gratuitous bailment [Section 158]: The bailor is liable to pay the extraordinary expenses incurred by the bailee. 

Bailor’s responsibility to indemnify losses [Section 164]: Bailor must indemnify all the losses and expenses, which bailee has to pay on account of defective goods.

In the instant case, Y took a car on lease from X for 10 days for 50,000. During the journey, Y has to spend  10,000 for repair of the engine and paid  50,000 for hospital expenses due to accident because of fault in brakes of car.  These are the extraordinary expenses and losses and it is the bailor’s duty to bear such expenses and losses. 

Therefore, the answers are:   
(i) Y can withhold the hire charges of  50,000 on account of non payment of damages and claim an additional 10,000, from X. 
(ii) X is liable for the full  60,000 (10,000 repair +  50,000 hospital) as it is the bailor’s duty to supply a car fit for the purpose for which it was hired. 

Q4. (i) Give your opinion with reference to provisions of The Indian Contract Act, 1872: (4 Marks, May 2025)

1. Whether Joint promisor and promisee voluntary discharge their obligation even after death?
2. In case they won’t be able to discharge their obligation, Whether any of the joint promisor may be compelled?
3. What would be the situation in case of default by any one of them?

(ii) What are the effects of Coercion? "Whether Threat to commit suicide is coercion"? Elaborate regarding provisions of The Indian Contract Act, 1872.
(2 Marks)

Answer (i) 1. According to section 42 of the Indian Contract Act, 1872, if two or more persons have made a joint promise, ordinarily all of them during their life-time must jointly fulfil the promise. After death of any one of them, his legal representative jointly with the survivor or survivors should do so. After the death of the last survivor the legal representatives of all the original co-promisors must fulfil the promise. Hence, the legal representative can jointly discharge the obligations of joint promisor and promisee, after their death. 
2.  As per section 43, each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract. Hence, the joint promisor may be compelled. 
3. If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.

(ii) Effects of coercion under section 19 of the Indian Contract Act, 1872
(a) Contract induced by coercion is voidable at the option of the party whose consent was so obtained. 
(b) A person to whom money has been paid or anything delivered under coercion must repay or return it.  
Threat to commit suicide – Whether it is coercion? 
​Suicide though forbidden by Indian Penal Code is not punishable, as a dead man cannot be punished. But Section 15 declares that committing or threatening to commit any act forbidden by Indian Penal Code is coercion. Hence, a threat to commit suicide will be regarded as coercion. 

Q5. With reference to provisions of The Indian Contract Act, 1872 define the following terms: (6 Marks, May 2025)
(i) Quasi-contracts and its salient features
(ii) Responsibility of finder of goods

Answer: (i) Quasi-Contracts: 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.

Salient features of quasi-contracts: 
​(a) In the first place, such a right is always a right to money and generally, though not always, to a liquidated sum of money. 
(b) Secondly, it does not arise from any agreement of the parties concerned, but is imposed by the law; and 
(c) Thirdly, it is a right which is available not against all the world, but against a particular person or persons only, so that in this respect it resembles a contractual right. 

(ii) Responsibility of finder of goods 
​As per section 71 of the Indian Contract Act, 1872, ‘A person who finds goods belonging to another and takes them into his custody is subject to same responsibility as if he were a bailee’. 
Thus, a finder of lost goods has: 
(a)  to take proper care of the property as man of ordinary prudence would take
(b) no right to appropriate the goods and 
(c) to restore the goods if the owner is found.

Q6. Explain the following terms with reference to The Indian Contract Act, 1872: (6 Marks, May 2025)
(i) Pledge by mercantile agent
(ii) Pledge by person in possession under voidable contract
Answer: (i) Pledge by mercantile agent: According to section 178 of the Indian Contract Act, 1872, a mercantile agent, who is in possession of goods or a document of title, with the consent of owner, can pledge them while acting in the ordinary course of business as a Mercantile Agent. 
Such Pledge shall be valid as if were made with the authority of the owner of goods. Provided, Pawnee acted in good faith and had no notice that Pawnor has no authority to pledge. 

(ii) Pledge by person in possession under voidable contract
According to section 178A of the Indian Contract Act, 1872, When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A (contracts where consent has been obtained by fraud, coercion, misrepresentation, undue influence), but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title. 

Q7. Examine the validity of the following agreements under the provisions of The Indian Contract Act, 1872 and justify your answer:
(i) Mrs. Priya pays a sum of ₹ 10,000 to a marriage bureau to provide information about the prospective grooms for her daughter's marriage.
(ii) Bharat agrees with John to sell his white bull. Unknown to both the parties, the bull was dead at the time of agreement.
(iii) Rishabh sells the goodwill of his shop to Omkar for ₹ 10,00,000 and promises not to carry on such similar business within the local limits so long as Omkar carries on like business.
(iv) A property worth ₹ 2,00,000 was agreed to be sold for just ₹ 25,000 by a person of unsound mind.
(7 Marks, Jan 2025)

Answer: (i)  Under Section 10 of the Indian Contract Act, 1872, a valid contract requires free consent, lawful consideration, and a lawful object. In the instant case, the agreement to pay ` 10,000 in exchange for a service (providing information about prospective grooms) is lawful. Hence, the agreement is valid. 

(ii) According to section 20, where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, there is a bilateral mistake. In such a case, the agreement is void. In the instant case, the bull's death (unknown to both parties) constitutes a bilateral mistake regarding the subject matter of the contract. Hence, the agreement is void. 

(iii) Under Section 27, agreements in restraint of trade are void. However, an exception is provided for contracts involving the sale of goodwill. The local limits within which the seller of the goodwill agrees not to carry on similar business must be reasonable.   In the instant case, the restriction is limited to the local area and does not extend indefinitely. Hence, the agreement is valid.

(iv) According to section 12, a contract by a person who is not of sound mind is void. In the instant case, a property worth ` 2,00,000 was agreed to be sold for just ` 25,000 by a person of unsound mind. Hence, the agreement is void.  

Q8. What are the agreements which are held to be opposed to public policy under The Indian Contract Act, 1872. Explain any 6 such agreements.
(6 Marks, Jan 2025)

Answer: Some of the agreements which are held to be opposed to public policy are- 

(1) Trading with enemy: Any trade with person owing allegiance to a Government at war with India without the licence of the Government of India is void, as the object is opposed to public policy. Here, the agreement to trade offends against the public policy by tending to prejudice the interest of the State in times of war. 

(2) Stifling Prosecution: An agreement to stifle prosecution i.e. “an agreement to present proceedings already instituted from running their normal course using force” tends to be a perversion or an abuse of justice; therefore, such an agreement is void. The principle is that one should not make a trade of felony. The compromise of any public offence is generally illegal.
Under the Indian Criminal Procedure Code, there is, however, a statutory list of compoundable offences and an agreement to drop proceeding relating to such offences with or without the permission of the Court, as the case may be, in consideration the accused promising to do something for the complainant, is not opposed to public policy.   

(3) Maintenance and Champerty: Maintenance is an agreement in which a person promises to maintain suit in which he has no interest. 
Champerty is an agreement in which a person agrees to assist another in litigation in-exchange of a promise to hand over a portion of the proceeds of the action. 
(a) It is unreasonable so as to be unjust to other party or 
(b) It is made by a malicious motive like that of gambling in litigation or oppressing other party by encouraging unrighteous suits and not with the bonafide object of assisting a claim believed to be just.   

(4) Trafficking relating to Public Offices and titles: An agreement to trafficking in public office is opposed to public policy, as it interferes with the appointment of a person best qualified for the service of the public. Public policy requires that there should be no money consideration for the appointment to an office in which the public is interested. The following are the examples of agreements that are void; since they are tantamount to sale of public offices. 
(a) An agreement to pay money to a public servant to induce him to retire from his office so another person may secure the appointment is void. 
(b) An agreement to procure a public recognition like Padma Vibhushan for reward is void. 

(5)  Agreements tending to create monopolies: Agreements having for their object the establishment of monopolies are opposed to public policy and therefore void.   

(6) Marriage brokerage agreements: An agreement to negotiate marriage for reward, which is known as a marriage brokerage contract, is void, as it is opposed to public policy

(7) Interference with the course of justice: An agreement whose object is to induce any judicial officer of the State to act partially or corruptly is void, as it is opposed to public policy. 

(8) Interest against obligation: The following are examples of agreement that are void as they tend to create an interest against obligation. The object of such agreements is opposed to public policy. 
(1) An agreement by an agent to receive without his principal’s consent compensation from another for the performance of his agency is invalid. 
(2) A, who is the manager of a firm, agrees to pass a contract to X if X pays to A ` 200,000 privately; the agreement is void. 

(9) Consideration Unlawful in Part: By Section 24, if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.” 
This section is an obvious consequence of the general principle of Section 23. There is no promise for a lawful consideration if there is anything illegal in a consideration which must be taken as a whole. The general rule is that where the legal part of a contract can be severed from the illegal part, the bad part may be rejected and the good one can be retained. But where the illegal part cannot be severed, the contract is altogether void.

Q9. A, B and C jointly promised to pay D a sum of ₹ 6,000. Examine, considering the provisions of The Indian Contract Act, 1872:
(i) Can D compel any of three parties A, B and C to pay him ₹ 6,000?
(ii) C is compelled to pay the whole of the amount to D. Can he recover anything from A and B, when:
(1) Both A and B were solvent.
(2) A is not in a position to pay anything.
(7 Marks, Jan 2025)

Answer: Section 42 of the Indian Contract Act, 1872 requires that when two or more persons have made a joint promise, then, unless a contrary intention appears from the contract, all such persons jointly must fulfil the promise. In the event of the death of any of them, his representative jointly with the survivors and in case of the death of all promisors, the representatives of all jointly must fulfil the promise.   
Section 43 allows the promisee to seek performance from any of the joint promisors. The liability of the joint promisors has thus been made not only joint but “joint and several”. Section 43 provides that in the absence of express agreement to the contrary, the promisee may compel any one or more of the joint promisors to perform the whole of the promise.   
Section 43 deals with the contribution among joint promisors. The promisors, may compel every joint promisor to contribute equally to the performance of the promise (unless a contrary intention appears from the contract). If any one of the joint promisors makes default in such contribution the remaining joint promisors must bear the loss arising from such default in equal shares.   
In the instant case, 
(i) D can compel any of three parties A, B and C to pay him ` 6,000.
(ii)  (a) C can recover the contribution from A and B because A, B and C are joint promisors.   
(b)  A is unable to pay anything, C is compelled to pay the whole. C is entitled to receive ` 3,000 from B.

Q10. Explain with reference to The Indian Contract Act, 1872:
(i) When a contract is said to be induced by "undue influence".
(ii) When a party is deemed to be in a position to dominate the will of another.
(6 Marks, Jan 2025)

Answer: (i) Undue influence (Section 16): According to section 16 of the Indian Contract Act, 1872, “A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and he uses that position to obtain an unfair advantage over the other”. 
(ii)  Position to dominate the will: Relation between the parties exist in such a manner that one of them is in a position to dominate the will of the other. A person is deemed to be in such position in the following circumstances:
(a) Real and apparent authority: Where a person holds a real authority over the other as in the case of master and servant, doctor and patient and etc. 
(b) Fiduciary relationship: Where relation of trust and confidence exists between the parties to a contract. Such type of relationship exists between father and son, solicitor and client, husband and wife, creditor and debtor, etc. 
(c) Mental distress: An undue influence can be used against a person to get his consent on a contract where the mental capacity of the person is temporarily or permanently affected by the reason of mental or bodily distress, illness or of old age.
(d) Unconscionable bargains: Where one of the parties to a contract is in a position to dominate the will of the other and the contract is apparently unconscionable i.e., unfair, it is presumed by law that consent must have been obtained by undue influence. Unconscionable bargains are witnessed mostly in money-lending transactions and in gifts

Q11. What are the conditions to be satisfied for an "Agent’s authority in an emergency" under the provisions of The Indian Contract Act, 1872? (6 Marks, Jan 2025)

Answer: Agent’s authority in an emergency [Section 189 of the Indian Contract Act, 1872]: An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.   
To constitute a valid agency in an emergency, following conditions must be satisfied: 
(i) Agent should not be in a position or have any opportunity to communicate with his principal within the time available.   
(ii) There should have been actual and definite commercial necessity for the agent to act promptly. 
(iii) the agent should have acted bonafide and for the benefit of the principal. 
(iv) the agent should have adopted the most reasonable and practicable course under the circumstances, and
(v) The agent must have been in possession of the goods belonging to his principal and which are the subject of contract. 

Q12. Both a sub-agent and a substituted agent are appointed by the agent, however, there are some points of distinction between the two. Elaborate any 6 points. (6 Marks, Jan 2025)

Answer: Under the Indian Contract Act, 1872, both a sub-agent and a substituted agent are appointed by the agent. But, however, the following are the points of distinction between the two.

Q13. (i) Mr. L let out his residential house to Mr. M for ₹ 50,000 p.m. for a period of one year. According to the Rent agreement, electricity bill will be paid by Mr. L. But Mr. L could not pay electricity dues up to 5 months, due to his financial hardships. The Electricity Board sent the notice of disconnection, if it is not paid within a week's time. To avoid all this, Mr. M paid the electricity bill of ₹ 50,000 with penalty. Later on, L refused to reimburse ₹ 50,000 and argued that he has paid bill voluntarily because of his own interest. Decide with reference to provisions of The Indian Contract Act, 1872 whether Mr. M is entitled to be reimbursed by Mr. L?
(3 Marks, Sep 2024)
(ii) Mr. A offered to sell 25 chairs to Mr. B @ ₹ 1,500 per chair on 12.02.2024. A promised B that he would keep the offer open till 15.02.2024. However, on 13.02.2024, he sold those chairs to Mr. C @ ₹ 1,700 per chair without the knowledge of B. Mr. B communicated the acceptance of the above offer on 14.02.2024. Advise, with reference to provisions of The Indian Contract Act, 1872 whether Mr. B can claim damages from Mr. A?
(2 Marks, Sep 2024)
(iii) Mr. A was running an orphanage. His friend Mr. S, a philanthropist agreed to donate ₹ 2 lakh for treatment of a child, who was suffering from cancer. On emergency Mr. A incurred ₹ 1.5 lakh on treatment of child. Now Mr. S refused to pay. Whether Mr. A can claim ₹ 1.5 lakh from Mr. S with reference to provisions of The Indian Contract Act, 1872?
(2 Marks, Sep 2024)

Answer: (i) According to Section 69 of the Indian Contract Act, 1872, a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.   
In the instant case, Mr. M paid the electricity bill to avoid the disconnection that was pending due to Mr. L's failure to fulfil his contractual obligation. Hence, Mr. M is entitled to be reimbursed   ₹ 50,000 from Mr. L.   

(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal can be revoked at any time before the communication of its acceptance is complete as against the proposer. 
Accordingly, an offer may be revoked by the offeror before its acceptance, even though he had originally agreed to hold it open for a definite period of time. So long as it is a mere offer, it can be withdrawn whenever the offeror desires. 
In the instant case, B cannot claim damages from A because the offer made by A is a mere offer and it can be withdrawn whenever A desires. 

(iii) The general rule is that an agreement made without consideration is void (Section 25 of the Indian Contract Act, 1872).   
However, in the following case, the agreement though made without consideration, will be valid and enforceable. 
Charity: If a promisee undertakes the liability on the promise of the person to contribute to charity, there the contract shall be valid.   In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 

Q14. (i) In case of breach of contract, the court may award compensation or damages. Explain the circumstances when court may award ordinary damages, special damages and liquidated damages under the provisions of The Indian Contract Act, 1872.
(3 Marks, Sep 2024)
(ii) What are the conditions need to be fulfilled to make the following agreements valid without consideration as per the provisions of the Indian Contract Act, 1872?
(A) Agreement made based on natural love and affection
(B) Promise to pay time-barred debts
(3 Marks, Sep 2024)

Answer: (i) Ordinary damages: When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage cause to him thereby, which naturally arose in the usual course of things from such breach, or which the parties know, when they made the contract, to be likely to result from the breach of it. 
Special damages: Where a party to a contract receives a notice of special circumstances affecting the contract, he will be liable not only for damages arising naturally and directly from the breach but also for special damages. 
Liquidated damage is a genuine pre-estimate of compensation of damages for certain anticipated breach of contract. This estimate is agreed to between parties to avoid at a later date detailed calculation and the necessity to convince outside parties. 

(ii) (A) Agreement made based on natural love and affection: Conditions to be fulfilled under section 25(1) of the Indian Contract Act, 1872 
(i) It must be made out of natural love and affection between the parties. 
(ii) Parties must stand in near relationship to each other.   
(iii) It must be in writing. 
(iv) It must also be registered under the law. 
A written and registered agreement based on natural love and affection between the parties standing in near relation (e.g., husband and wife) to each other is enforceable even without consideration.
(B) Promise to pay time barred debts: Where a promise in writing signed by the person making it or by his authorised agent, is made to pay a debt barred by limitation it is valid without consideration [Section 25(3)].

Q15. Raghav found gold and diamond studded wristwatch value approximately ₹ 1,00,000/- on the roadside. He picked it up and then advertised in the newspaper that the true owner thereof can take the watch after showing proper evidence. After waiting for a certain period of time, when the true owner did not turn up, he gifted that wristwatch to his son Mahesh. A few days later, Madhav, the true owner of watch, somehow noticed his watch on wrist of Mahesh. He approached him to collect the same, but Mahesh refused. In the evening, Raghav called Madhav and told him that he incurred ₹ 20,000 to find the true owner if he fails to reimburse him the lawful expenses incurred on finding out the true owner, he will sue him for recovery thereof or retain the possession of the watch with him till recovery. Even he can sell the watch for recovery of expenses. Advise whether the following actions of Raghav were lawful according to provisions of The Indian Contract Act, 1872:
(A) Gifting the wristwatch to his son.
(B) Warning Madhav to sue for recovery of lawful expenses incurred in finding true owner.
(C) Retaining the possession of wristwatch till recovery of lawful expenses.
(D) Selling of wristwatch for recovery of expenses.
(4 Marks, Sep 2024)

Answer: Responsibility of finder of goods (Section 71 of the Indian Contract Act, 1872): A person who finds goods belonging to another and takes them into his custody is subject to same responsibility as if he were a bailee. 
Thus, a finder of lost goods has:   
(i) to take proper care of the property as man of ordinary prudence would take 
(ii) no right to appropriate the goods and   
(iii) to restore the goods if the owner is found. 
The right of finder of lost goods- may sue for specific reward offered [Section 168]: The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him in finding the owner and preserving the goods found. But he has a right to retain the goods against the owner until he receives such compensation. 
When finder of thing commonly on sale may sell it [Section 169]: When a thing which is commonly the subject of sale if lost, if the owner cannot with reasonable diligence be found, or if he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it— (1) when the thing is in danger of perishing or of losing the greater part of its value, or   (2) when the lawful charges of the finder in respect of the thing found amount to two-thirds of its value.
Hence, the answers are: 
(A) Gifting the wristwatch to his son Mahesh is unlawful. Raghav had no ownership rights over the watch and could not legally transfer it to someone else. 
(B) Warning Madhav to Sue for Recovery of Lawful Expenses: Raghav has no right to sue Madhav for the expenses voluntarily incurred by Raghav in finding the owner. 
(C)  Retaining Possession of the Wristwatch Until Recovery of Lawful Expenses: Raghav’s action of retaining the wristwatch until Madhav reimburses him for lawful expenses is valid.   
(D) Selling of Wristwatch for Recovery of Expenses: The watch is not perishable, and the expenses claimed (₹ 20,000) are far below two-thirds of the value of the watch (₹ 1,00,000). Therefore, Raghav does not have the right to sell the watch under these circumstances, and selling the watch would be unlawful.

Q16. Woollen Garments Limited entered into a contract with a group of women in July, 2023 to supply various woollen clothes for men, women and kids like sweaters, monkey caps, mufflers, woollen coats, hand gloves etc. before the commencement of the winter season. The agreement expressly provides that the woollen clothes shall be supplied by the end of October, 2023 before starting of winter season. However, due to the prolonged strike, women group could tender the supplies in March, 2024 when the winter season was almost over. Analysing the situation and answer the following questions in light of the provisions of The Indian Contract Act, 1872:
(A) Whether company can reject the total supply by women group?
(B) Whether company can accept the total supply on request of women group?
(3 Marks, Sep 2024)

Answer: According to section 55 of the Indian Contract Act, 1872, when a party to a contract promises to do certain thing at or before the specified time, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of essence of the contract. 

Effect of acceptance of performance at time other than agreed upon - 
​If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he gives notice to the promisor of his intention to do so. 

In the instant case,   
(A) Woollen Garments Limited is legally entitled to reject the goods due to the failure to meet the delivery deadline, as time was a crucial term of the contract. 
(B) The company cannot accept the total supply on the request of woman group but only when the company i.e. buyer elects to do so. In that case, the company cannot claim compensation for any loss occasioned by the non-performance of the promise (i.e. delay in supply) at the time agreed. 

Q17. In accordance with the provisions of the Indian Contract Act, 1872, answer the following:
(i) Rights of Bailor against any wrong doer (Third Party)
(ii) Duties of the Pawnee
(6 Marks, Sep 2024)

Answer: (i) Suit by bailor & bailee against wrong doers [Section 180 of the Indian Contract Act, 1872]: If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.
(ii) Duties of the Pawnee 
Pawnee has the following duties:
a. Duty to take reasonable care of the pledged goods. 
b. Duty not to make unauthorised use of pledged goods. 
c. Duty to return the goods when the debt has been repaid or the promise has been performed. 
d. Duty not to mix his own goods with goods pledged. 
e. Duty not to do any act which is inconsistent with the terms of the pledge. 
f. Duty to return accretion to the goods, if any.

Q18. Answer the following as per the provisions of the Indian Contract Act, 1872:
(i) 'Agent cannot personally enforce, nor be personally bound by, contracts on behalf of the principal' however there are some exceptions to this general rule, explain.
(4 Marks, Sep 2024)

(ii) State the rights of Indemnity-holder when sued.
(2 Marks, Sep 2024)
Answer (i) Agent cannot personally enforce, nor be bound by, contracts on behalf of principal.
EXCEPTIONS: In the following exceptional cases, the agent is presumed to have agreed to be personally bound:   
(1)  Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad/foreign principal: – When an agent has entered into a contract for the sale or purchase of goods on behalf of a principal resident abroad, the presumption is that the agent undertakes to be personally liable for the performances of such contract. 
(2)  Where the agent does not disclose the name of his principal or undisclosed principal; (Principal unnamed): when the agent does not disclose the name of the principal then there arises a presumption that he himself undertakes to be personally liable.   
(3)  Non-existent or incompetent principal: Where the principal, though disclosed, cannot be sued, the agent is presumed to be personally liable. 
(4)  Pretended agent – if the agent pretends but is not an actual agent, and the principal does not rectify the act but disowns it, the pretended agent will be himself liable. 
(5)  When agent exceeds authority- When the agent exceeds his authority, misleads the third person in believing that the agent he has the requisite authority in doing the act, then the agent can be made liable personally for the breach of warranty of authority. 

(ii) Rights of Indemnity-holder when sued (Section 125 of the Indian Contract Act, 1872): The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor/indemnifier— 
(a) all damages which he may be compelled to pay in any suit 
(b) all costs which he may have been compelled to pay in bringing/ defending the suit and 
(c) all sums which he may have paid under the terms of any compromise of suit.
Q19 Answer the following as per the provisions of the Indian Contract Act, 1872:
 (i) Explain any four differences between Contract of Indemnity and Contract of Guarantee.
(4 Marks, Sep 2024)
(ii) Whether the threat to commit suicide is coercion?
(2 Marks, Sep 2024)

Answer: (i) Distinction between a Contract of Indemnity and a Contract of Guarantee 

(ii) Whether the threat to commit suicide is coercion?
Suicide though forbidden by Indian Penal Code is not punishable, as a dead man cannot be punished. But Section 15 of the Indian Contract Act, 1872 declares that committing or threatening to commit any act forbidden by Indian Penal Code is coercion. Hence, a threat to commit suicide will be regarded as coercion. 

Q20. Explain in brief with reference to the provisions of The Indian Contract Act, 1872, what are the rights enjoyed by Surety against the Creditor, the Principal Debtor and Co-Sureties?
(6 Marks, Jun 2024)

Answer: In terms of the provisions of the Indian Contract Act, 1872, the surety enjoys the following rights: 
(a) Rights against the creditor; 
(b) Rights against the principal debtor; 
(c) Rights against co-sureties. 

Right against the Creditor 
(a) Surety’s right to benefit of creditor’s securities [Section 141]: A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.   
(b) Right to set off: If the creditor sues the surety, for payment of principal debtor’s liability, the surety may have the benefit of the set off, if any, that the principal debtor had against the creditor. 
(c) Right to share reduction:   The surety has right to claim proportionate reduction in his liability if the principal debtor becomes insolvent. 

Right against the principal debtor 
(a) Rights of subrogation [Section 140 of the Indian Contract Act, 1872]: Where, a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.   This right is known as right of subrogation. It means that on payment of the guaranteed debt, or performance of the guaranteed duty, the surety steps into the shoes of the creditor.   
(b) Implied promise to indemnify surety [Section 145]: In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety. The surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but not sums which he paid wrongfully.  

Rights against co-sureties 
“Co-sureties (meaning)- When the same debt or duty is guaranteed by two or more persons, such persons are called co-sureties”   
(a) Co-sureties liable to contribute equally (Section 146): Unless otherwise agreed, each surety is liable to contribute equally for discharge of whole debt or part of the debt remains unpaid by debtor.   
(b) Liability of co-sureties bound in different sums (Section 147): The principal of equal contribution is, however, subject to the maximum limit fixed by a surety to his liability.  Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit. 

Q21. (i) Mr. J entered into an agreement with Mr. S to purchase his house for ₹ 20 lakh, within three months. He also paid ₹ 50,000/- as token money. In the meanwhile, in an anti-encroachment drive of the local administration, Mr. S’s house was demolished. When Mr. J was informed about the incident he asked for the refund of token money. Referring to the relevant provisions of the Indian Contract Act, 1872 state whether Mr. J is entitled to the refund of the amount paid.
(4 Marks, Jun 2024)

Answer: (i)  According to section 56 of the Indian Contract Act, 1872, an agreement to do an act impossible in itself is void. 
Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.   According to section 65 of the Indian Contract Act, 1872, when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it. In the instant case, Mr. J entered into a contract with Mr. S to purchase his house for ` 20 lakh, with a token payment of ` 50,000. The agreement included a condition that the sale would be completed within three months. Before the completion of the sale, the house was demolished by the local administration. This event made it impossible for Mr. S to sell the house to Mr. J as agreed.
In this situation, Mr. J is required to refund ` 50,000 token money paid to Mr. S, as the contract to sell the house has become void due to the demolition of the house by the local administration, as a result of which it becomes impossible to sell the house on the part of S. 

(ii) Rama directs Shyam to sell laptops for him and agrees to give Shyam eleven percent (11%) commission on the sale price fixed by Rama for each laptop. As Government of India put restrictions on import of Laptops, Rama thought that the prices of laptops might go up in near future and he revokes Shyam’s authority for any further sale. Shyam, before receiving the letter at his end, sold 5 laptops at the price fixed by Rama. Shyam asked for 11% commission on the sale of 5 Laptops for ₹ 1 lakh each. Explain under the provisions of The Indian Contract Act, 1872:
(1) Whether sale of laptops after revoking Shyam’s authority is binding on Rama?
(2) Whether Shyam will be able to recover his commission from Rama, if yes, what will be the amount of such commission?
(3 Marks, Jun 2024)

Answer: When termination of agent’s authority takes effect as to agent, and as to third persons [Section 208 of the Indian Contract Act, 1872]: The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.
In the instant case, 
(1)  The revocation of Shyam's authority becomes effective only when it is communicated to and received by Shyam. Since Shyam had not received the revocation letter at the time of selling the laptops, his authority to sell on behalf of Rama was still valid. Hence, the sale of laptops conducted by Shyam is binding on Rama.
(2)  Shyam is entitled to receive his commission for the sales made while he still had the authority to sell. Since he sold the laptops before receiving the revocation, he is entitled to his commission as per the initial agreement with Rama. 
Amount of Commission: Shyam sold 5 laptops at the price fixed by Rama, which is `1 lakh each. The total sales amount to `5 lakh. The agreed commission rate is 11% i.e. ` 55,000.

Q22. "Where a party to a contract refuses altogether to perform, or is disabled from performing his part of it, the other party has a right to rescind it". Discuss this statement and the effects of such refusal under the provisions of The Indian Contract Act, 1872.
(6 Marks, Jun 2024)  

Answer: An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. When the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time for performance has arrived, it is called Anticipatory Breach.   
Anticipatory breach of a contract may take either of the following two ways: 

​(a) Expressly by words spoken or written, and   
(b) Impliedly by the conduct of one of the parties.   
​Section 39 of the Indian Contract Act deals with anticipatory breach of contract and provides as follows:  
“When a party to a contract has refused to perform or disable himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, but words or conduct, his acquiescence in its continuance.” 
​Effect of anticipatory breach: The promisee is excused from performance or from further performance. Further he gets an option:
(1) To either treat the contract as “rescinded and sue the other party for damages from breach of contract immediately without waiting until the due date of performance; 
OR
(2) He may elect not to rescind but to treat the contract as still operative and wait for the time of performance and then hold the other party responsible for the consequences of non-performance. But in this case, he will keep the contract alive for the benefit of the other party as well as his own, and the guilty party, if he so decides on re consideration, may still perform his part of the contract and can also take advantage of any supervening impossibility which may have the effect of discharging the contract.  

Q23. Explain the term Wagering agreement in the light of the Indian Contract Act, 1872. Also, explain some transactions resembling with wagering transaction but which are not void. (6 Marks, Jun 2024)  

Answer: Wagering agreement (Section 30 of the Indian Contract Act, 1872): An agreement by way of a wager is void. It is an agreement involving payment of a sum of money upon the determination of an uncertain event. The essence of a wager is that each side should stand to win or lose, depending on the way an uncertain event takes place in reference to which the chance is taken and in the occurrence of which neither of the parties has legitimate interest.   
Transactions resembling with wagering transaction but are not void 
(i) Chit fund: Chit fund does not come within the scope of wager (Section 30). In case of a chit fund, a certain number of persons decide to contribute a fixed sum for a specified period and at the end of a month, the amount so contributed is paid to the lucky winner of the lucky draw. 
(ii) Commercial transactions or share market transactions: In these transactions in which delivery of goods or shares is intended to be given or taken, do not amount to wagers.
(iii) Games of skill and Athletic Competition: Crossword puzzles, picture competitions and athletic competitions where prizes are awarded on the basis of skill and intelligence are the games of skill and hence such competitions are valid.   
(iv) A contract of insurance: A contract of insurance is a type of contingent contract and is valid under law and these contracts are different from wagering agreements.​​
Q24. What is the meaning of contingent contract? Write briefly its essentials. Also, explain any three rules relating to enforcement of a contingent contract.
(6 Marks, Jun 2024)

Answer: Essentials of a contingent contract 
(a) The performance of a contingent contract would depend upon the happening or non-happening of some event or condition. The condition may be precedent or subsequent.
(b) The event referred to as collateral to the contract. The event is not part of the contract.  The event should be neither performance promised nor a consideration for a promise.   
(c) The contingent event should not be a mere ‘will’ of the promisor. The event should be contingent in addition to being the will of the promisor.   
(d) The event must be uncertain. Where the event is certain or bound to happen, the contract is due to be performed, then it is a not contingent contract. 

Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872) 
“A contract to do or not to do something, if some event, collateral to such contract, does or does not happen”.
Rules Relating to Enforcement of a Contingent Contract: 
​The rules relating to enforcement of a contingent contract are laid down in sections 32, 33, 34, 35 and 36 of the Act.   
(a) Enforcement of contracts contingent on an event happening: Section 32 says that “where a contingent contract is made to do or not to do anything if an uncertain future event happens, it cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void”.   
(b) Enforcement of contracts contingent on an event not happening: Section 33 says that “Where a contingent contract is made to do or not do anything if an uncertain future event does not happen, it can be enforced only when the happening of that event becomes impossible and not before”. 
(c) A contract would cease to be enforceable if it is contingent upon the conduct of a living person when that living person does something to make the ‘event’ or ‘conduct’ as impossible of happening.   Section 34 says that “if a contract is contingent upon as to how a person will act at an unspecified time, the event shall be considered to have become impossible when such person does anything which renders it impossible that he should so act within any definite time or otherwise than under further contingencies”. 
(d) Contingent on happening of specified event within the fixed time: Section 35 says that Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.   
(e) Contingent on specified event not happening within fixed time: Section 35 also says that - “Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired, and such event has not happened or before the time fixed has expired, if it becomes certain that such event will not happen”.   
(f) Contingent on an impossible event (Section 36): Contingent agreements to do or not to do anything, if an impossible event happens are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. 

Q25.  R owns an electronics store. P visited the store to buy a water purifier priced at ₹ 54,000/-. He specifically requested R for a purifier with a copper filter. As P wanted to buy the purifier on credit, with the intention of paying in 9 equal monthly instalments, R demands a guarantor for the transaction. S (a friend of P) came forward and gave the guarantee for payment of water purifier. R sold P, a water purifier of a specific brand. P made payment for 4 monthly instalments and after that became insolvent. Explain with reference to the Indian Contract Act 1872, the liability of S as a guarantor to pay the balance price of water purifier to R.
What will be your answer, if R sold the water purifier misrepresenting it as having a copper filter, while it actually has a normal filter? Neither P nor S was aware of this fact and upon discovering the truth, P refused to pay the price. In response to P’s refusal, R filed the suit against S, the guarantor. Explain with reference to the Indian Contract Act 1872, whether S is liable to pay the balance price of water purifier to R?
(7 Marks, Jun 2024)  

Answer: As per section 126 of the Indian Contract Act, 1872, the contract of guarantee is defined as a contract to perform the promise or discharge the liability of a third person in case of his default.   

In this case, S has given a guarantee for P's payment obligation towards R. When P defaulted after making four monthly instalments and became insolvent, S's liability as a guarantor will come into existence.   

According to Section 128 of the Act, the liability of the surety is co extensive with that of the principal debtor, unless it is otherwise provided by the contract. 

Since P failed to pay the remaining instalments due to insolvency, S, as the guarantor, is liable to pay the balance price of the water purifier to R. In the given situation, S will have to pay the balance amount of ` 30,000 to R. [54,000-(4x6,000)] 

In the second situation, R sold the water purifier misrepresenting it as having a copper filter, while it actually has a normal filter; this changes the situation significantly. 

According to Section 142 of the Act, any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid. Here, guarantee is obtained by means of misrepresentation made by the creditor (R), and therefore the guarantee is invalid.   

Furthermore, under Section 143, any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.​​​