Question Bank - 030100601 Business Law With Answer

B.V.
Patel Institute of Business Management, Computer & Information

Technology, Uka Tarsadia University
Question Bank 030100601: Business Law
Unit 1: Legality of object and consideration and void agreement
1 Mark Question
1 What will be effect to an agreement have the object or consideration unlawful?

Ans. Every agreements having unlawful object or consideration are void agreement
2 Give one example for unlawful object or consideration which is forbidden by law
Ans. A promise to obtain for B an employment in the public service and B promises
to pay Rs. 1000 to A. The agreement is void, as its consideration is unlawful.
3 What is maintenance?
Ans. Maintenance is an agreement whereby a person promises to maintain a suit in
which he has no interest.
4 What is the effect to collateral transactions of an illegal agreement?
Ans. An illegal agreement is void and further collateral transaction also become
infected with illegality
5 How you express this Ex tupri cause non oritur action?
Ans. Ex tupri cause non oritur action means no action arises from a base cause
6 What do you mean by illegal agreements?
Ans. An illegal agreement is one which is forbidden by law.
7 M agrees with N for a goods consideration that he will not marry W, this is the
example of which agreement?
Ans. Agreements in restrain of marriage
8 Give any one exceptions in connection with the partnership act under agreement
restraint of trade
Ans.
 Partner’s competing business
 Rights of outgoing partner
 Partner’s similar business on dissolution
 Agreement in restraint of trade by partnership firm
9 Give any one exception to agreement in restraint of legal proceedings
Ans.
 An agreement to refer all future disputes in connection with a contract to
arbitration
 An agreement to refer all present disputed with regard to a contract to
arbitration
10 Give the example of an agreements the meaning of which is uncertain
Ans. A agrees to sell B “a hundred tons of oil”, here kids of oil is uncertain.
B.V. Patel Institute of Business Management, Computer & Information
2 Marks Questions
1 Outline when the consideration or object of an agreement is considered unlawful?

Ans.
Consideration or object is unlawful if:
 If is forbidden by law
 If is of such a nature that if permitted, it would defeat the provisions of any
law
 If is fraudulent
 In involves or implies injury to the person or property of another
 The court regards it as immoral
 It is opposed to public policy
2 What do you mean by legality of object?
Ans. The object or consideration of an agreement must be lawful to make an
agreement a valid contract. Legality of object includes following
 The object of the agreement should be legal
 Consideration for both the parties should be legal
 If the object of an agreement is unlawful, the agreement is unenforceable
 The object and consideration should be lawful, otherwise the agreement
would be void
3 What is trafficking public office?
Ans. Agreement for the sale of transfer of public offices and titles of for the
procurement of a public recognition like Padma Vibhushan or Param Veer Chakra
for monetary consideration are unlawful being opposed to public policy.
4 What are including in agreement interfering with marital duties?
Ans. Such agreement includes followings
I) A promise by married person to marry during the lifetime or after the
death of spouse
II) An agreement in contemplation of divorce.
5 What do you mean by in pari delicto, potior est condition defendentis? Give
example
Ans. In case of equal guilt, the defendant is in a better position than that of a
plaintiff
Example: Ram promise to pay Rahim rs. 5000 if he beats Tita. If Rahim beats Tita,
he can recover the amount from Ram, If he has already paid the amount and
Rahim does nit beat Tita, Rahim cannot recover the amount.
6 In which cases a contract becomes void?
Ans. A contract becomes void in the following cases:

I) A contract becomes void by supervening impossibility or illegality
II) A voidable contract becomes void when the party whose consent is not
freely repudiates the contract
III) A contingent contract to do or not to do something on the happening of an
event becomes void when the event becomes impossible
7 What do you understand by void agreement?
Ans. A void agreement is one “which is not enforceable by law. Such an agreement
does not give rise to any legal consequences and is void ab initio ”
8 What do you mean by wagering agreement?
Ans. A wager is a agreement between two or more parties by which one promise
to pay money or money’s worth on the happening of some uncertain event in
consideration of the other party’s promise to pay if the event does not happen.
9 Give the effect of illegal contract.
Ans.
 Void and do not confer any rights and obligations on the parties concerned,
and
 As a result of this, they are not enforceable in a court of law.
10 Enlist void agreements declared by the Indian Contract Act
Ans.
 Agreements by incompetent parties
 Agreements made under a mutual mistake of fact
 Agreements the consideration or object of which is unlawful
 Agreements the consideration or object of which is unlawful in part
 Agreements made without consideration
5 Marks Questions
1 What do you mean by agreements which interfere with administration of justice?

Ans.
An agreement the aim of which is to interfere with the administrator of justice is
unlawful being opposed to public policy. It may take any of the following forms:
(a) Interference with the course of justice:
An agreement which obstructs the ordinary process of justice is unlawful. Thus, an
agreement for using improper influence of any kind with the judges or officers of
justice is unlawful. But an agreement to refer present or future disputes to
arbitration is valid
(b) Stiffling prosecution:

It is in public interest that if a person has committed a crime, he must be prosecuted
and punished. Here an agreement not to prosecute an offender is an agreement for
stifling prosecution and is lawful. But a compromise in case of compoundable
offences is valid.
(c) Maintenance and champerty:
Maintenance is an agreement whereby a person promises to maintain a suit in
which he has no interest. When a person agrees to help another by money or
otherwise in litigation in which he is not himself interested, it is called maintenance.
In English law, these agreements are void.
When a person helps another in litigation in exchange of a promise to handover a
portion of the fruits of the litigation, if any, it is called champerty. Under English
law, these agreements are void. In Indian law, however, it does not make them
absolutely void. The party helping in litigation shares in the gains in addition to
interest on money advanced or fees for professional services.
Example: P files a suit against Q for the recovery of a house. X promises to advance
Rs. 1000 to P for the cost of litigation and P promises to give X a portion of the,,
house if he is successful in his suit. This is a champertous agreement.
(d) Agreements in restraint of legal proceedings of litigation:
(i) Agreements restricting enforcement of rights: An agreement which wholly or
partly prohibits any party from enforcing his rights under or in respect of any
contract is void to that extent.
(ii) Agreements curtailing period of limitation: Agreements which curtail the period
of limitation prescribed by the law of limitation are void because their object is to
defeat the provisions of law.
(e) Trafficking public offices:
Agreements for the sale or transfer of public offices and titles or for the
procurement of a public recognition like Padma Vibhushan or.Param Veer Chakra
for monetary consideration are unlawful being opposed to public policy.
(f) Agreements tending to create interest opposed to duty:
If a person enters into an agreement whereby he is bound to do something which is
against his public or professional duty, the agreement is void on the ground of
public policy.
(g) Agreements in restraint of parental rights:

A father, and in his absence the mother, is the legal guardian of his/her minor child.
The right of guardianship cannot be bartered away by any agreements. A father is
entitled by law to the custody of his legitimate child. He cannot enter into an
agreement which is inconsistent with his duties arising out of such custody.
(h) Agreements in restraint of personal liberty:
Agreements which unduly restrict the personal freedom of the parties to it are void,
being against public policy.
(i) Agreements in restraint of marriage: Every agreement in restraint of the
marriage of any person other than a minor is void (Section 26). This is because the
law regards marriage and married status as the right of every individual.
(j) Marriage brokerage or brokerage agreements:
An agreements by which a person, for a monetary consideration, promises in return
to procure the marriage of another is void, being opposed to public policy.
(k) Agreements interfering with marital duties:
An agreement which interferes with the performance of marital duties is void. Such
agreements have been held to include the following:
(i) A promise by a married person to marry during the lifetime or after the dealth of
spouse.
(ii) An agreement in contemplation of divorce. For example, an agreement to lend
money to a woman in consideration of her getting a divorce and marrying the
lender.
(l) Agreements to defraud creditors:
An agreement the object of which is to defraud creditors or the revenue authorities
is not enforceable, being opposed to public policy. An agreement by which an
employee gets an expense allowance grossly in excess of the expenses actually
incurred by him is illegal.
(m) Agreements in restraint of trade (Section 27):
An agreement which interferes with the liberty of a person to engage himself in any
lawful trade, profession or vocation and then it becomes void.
The exceptions are: (a) sale of goodwill and (b) partner's agreements and trade
combinations.
2 Explain lawful and unlawful object

Ans.
Object means the purpose or design or motive for which the agreement is entered
into.
The consideration or object of an agreement is lawful, unless:
1. It is forbidden by law (see Secs. 26, 27, 28 and 30) or is. of such a nature that, if
permitted, it would defeat any law.
2. It is fraudulent, or involves or implies injury to the person or property of
another; or the court regards it as immoral, or opposed to public policy.
In each of these cases the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is lawful is void.
Example of unlawful object: A, B and C enter into an agreement for the division
among them of gains acquired, or to be acquired, by them by fraud. The agreement
is void, as its object is unlawful.
The term `legality' may be defined as conformity to law. Therefore, the legality of
object and consideration for a contract means that it must be lawful.
The following seven circumstances which would make an object as well as
consideration unlawful are discussed below:
1. Forbidden by law:
Object or consideration becomes unlawful when it is forbidden by law. An
agreement the consideration or object of which is unlawful is void. `Law' in this
connection means the law for the time being in force in India and, therefore,
includes Hindu and Mohamdan Laws and also principles of unwritten law.
An act is forbidden by law when it is punishable by the criminal, law of the country.
An act is forbidden by law when it is prohibited by special legislation or regulations
made by a competent authority under powers derived from the legislature.
Examples:
(a) A promises B to drop a prosecution which he has instituted against B for
robbery, and B promises to restore the value of things taken. The agreement is void,
as the object is unlawful.
(b) A promises to obtain for B an employment in the public service and B promises
to pay Rs. 1000 to A. The agreement is void, as its consideration is unlawful.
2. Defeat of the provision of law:

If the object or consideration of an agreement is such that, though not directly
forbidden by law, it would defeat the provisions of any law and hence the
agreement is void.
(a) An agreement by a debtor not to raise the plea of limitation is void.
(b) The Hindu Law is defeated by an agreement to give as soon as adoption in
consideration of annual allowance to the natural parents.
3. Fraudulent:
An agreement made for a fraudulent purpose is void. Where the parties agree to
impose a fraud on a third party, their agreement is unlawful. An agreement to
defraud creditors, or to give fraudulent preference to a creditor or to defraud
revenues authorities, or investors in a company are illegal.
Example. Amar promises to pay Rs. 20,000 to Bimal if Bnimal could commit fraud
on Kamal, Bimal agrees to do so. Bimal's agreeing to defraud is unlawful
consideration for Amar's promise to pay. Therefore the agreement is illegal and
void
4. Injurious to person or property:
Injury means wrong, harm or damage. Person means one's body. Property includes
movable and immovable property. If the object or consideration is injurious to the
person or property of another, it is void as it is unlawful. If the object of an
agreement is such that it involves or implies injury to the person or property of
another, the agreement is void. Agreements relating to bonded labour have also
been held to be injurious to person and hence are void.
5. Immoral:
An agreement the object or consideration of which is immoral, e.g. an agreement
between a husband and wife for future separation, is unlawful.
Example: A married woman was given money to enable her to obtain divorce from
her husband and then marry the lender. Held, the agreement was immoral and the
lender could not recover the money.
6. Public policy:
An agreement is unlawful if the court regards it as opposed to public policy. The
term public policy is not clearly defined anywhere and in the words f justice
Burrogh, "Public Policy is a very unruly horse and when once you get astride it, you
never know where it will carry you."

3 What are the agreements under the public policy, in view of Indian contract?
Ans.
Public policy is that principle of law which holds that no citizen can lawfully do that
what has a tendency to be injurious to the public. Any agreement which tends to
promote corruption or injustice or is against the interests of the public is
considered to be opposed to public policy [Ratan Chand Hira Chand v. Askar Nawaz
Jung (1991.) 3 SCC 67]. An agreement is unlawful if the court regards it as opposed
to public policy. A contract which is opposed to public policy cannot be enforced by
either of the parties to it.
Agreements opposed to public policy have been declared as void under Section 23.
The expression `public policy' can be interpreted either in a wide or in a narrow
sense. The freedom to contract-may become illusory, unless the scope of `public
policy' is restricted. In the name of public policy, freedom of contract is restricted by
law only for the good of the community. In law, public policy covers certain
specified topics and they are described as under.
Trading with enemy: It is a well settled principle of law that an agreement

between citizens of two nations at war with each other is void and inoperative. In
India such agreements are allowed where specially permitted by the Government.
Agreement to commit a crime: Where the consideration is an agreement to

commit crime, the agreement is opposed to public policy. The court will not enforce
such an agreement. Similarly, an agreement to indemnify a person against
consequences of his criminal act is opposed to public policy and hence
unenforceable.
Agreements which interfere with administration of justice:

Points are as given in answer of the first question
4 What are the various agreements which have been expressly declared to be void by
the Indian Contract Act?
Ans.
Expressly Declared Void Agreements
1. Agreements in restraint of marriage:
According to Section 26 of the Contract Act, "every agreement in restraint of the
marriage of any person, other than a minor, is void." Every individual enjoys the
freedom to marry. He or she should not be restrained to do so. The restraint may be
either general or partial but the agreement is void. So, an agreement agreeing not to
marry at all a certain person is void. It is interesting to note that a promise to marry
a specific person does not imply any restraint of marriage and hence, it is a valid
contract.
Example: M agrees with N for a good consideration that he will not marry W. It is a
void agreement
2. Agreements in restraint of trade:
The Constitution of India guarantees the freedom of trade and commerce to every
citizen. Section 27 of the Contract Act states, "Every agreement by which anyone
is restrained from exercising a lawful profession, trade or business of any kind, is to
that extent void."
3. Agreement in restraint of legal proceedings (Section 28):
An agreement which prohibits a person from taking judicial proceedings in respect
of any right arising from a contract is void. Thus, where a servant agrees not to sue
for wrongful dismissal is void under this section. At the same time, any limitation of
the time within which he may enforce his rights is void.
4. Agreements the meaning of which is uncertain (Section 29):

Agreements the meaning of which is not certain or capable of being made certain
are void.
Example: A agrees to sell to B "a hundred tons of oil". There is nothing whatever to
show what kind of oil was intended to be sold. The agreement is void for
uncertainty.
5. Agreements by way of wager:

A wager is an agreement between two or more parties by which one promises to
pay money or money's worth on the happening of some uncertain event in
consideration of the other party's promise to pay if the event does not happen.
Agreements by way of wager are void. No suit shall be brought for recovering
anything alleged to be won on any wager or entrusted to any person to abide by the
results of any game or other uncertain event on which any wager is made (Section
30).
Example: A contract by D to pay money to E on happening of a given event in
consideration of E's promise to pay money to D on the event not happening.
6. Agreements contingent on impossible events (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.
Example: M agrees to pay N Rs. 4,000 (as a loan) if two straight lines should enclose
a space. The agreement is void.
7. Agreements to do impossible acts:

An agreement to do an act impossible in itself is void (Section 56, Para 1)
Example: X agrees with Y to discover treasure by magic. The agreement is void. 8.
8. Reciprocal promise to do things legal, and also other things illegal:

Where persons reciprocally promise, first, to do certain things which are legal and
secondly, under specified circumstances, to do certain other, things which are
illegal, the first of promises is a contract, but the second is a void agreement.
Example: A and B agree that A shall sell B a house for Rs. 10,000, but if B uses it as a
gambling house, he shall pay A Rs. 50,000 for it.
5 What are the essentials of wagering agreement? Discuss special cases in wagering
agreements.
Ans.
Following are the essentials of a wagering agreement:
1. Promise to pay money or money's worth. The wagering agreement must
contain this.
2. Uncertain event. The promise must be conditional on an event happening or
not happening. A wager generally contemplates a future event, but it may
also relate to a past event provided the parties are not aware of its result or
the time of its happening.
3. Each party must stand to win or lose. Upon the determination of the
contemplated event, each party should stand to win or lose. An agreement is
not a wager if either of the parties may win but cannot lose or may lose but
cannot win.
4. No control over the event. Neither party should have control over the
happening of the event one way or the other. If one of the parties has the
event in his own hands, the transaction lacks an essential ingredient of a
wager.
5. No other interest in the event. Neither party should have any interest in the
happening or non-happening of the event other than the sum or stake he will
win or lose. Thus, an agreement is not a wager if the party to whom money is
promised on the occurrence of an event has an "interest" in its non-
occurrence. That is why a contract of insurance is not a wagering agreement.

It is necessary to understand special cases in wagering agreements in order to
examine whether they are wagers or not.
Commercial transactions: Agreements for sale and purchase of any merchandise

or share market transactions in which there is good intentions to have legitimate
business are not wagering agreements. If there is bad intention and parties only
wish to gamble on the rise or fall of the market by paying or receiving the
differences in prices, the transaction would be wagering agreement and hence void.
According to Pollock and Mulla, "in order to constitute a wagering contract, neither
party should intend to perform the contract itself, but only pay the differences."
Lotteries: A lottery is a game of chance and therefore the lottery business is a

wagering transaction. Such a transaction is not only void but also illegal since
Section 294-A of the Indian Penal Code declares "conducting of lottery" a
punishable offence. If a lottery is authorized by the government, the only effect of
such permission is that the persons conducting the lottery will not be guilty of a
criminal offence, but remains a wager alright.
Crossword puzzles: Where prizes depend upon a chance, it is treated as a

wagering transaction. A crossword puzzle, in which prizes depend upon
correspondence of the competitor's solution with the prepared solution, is a wager.
But if prizes depend upon skill and intelligence, it is a valid transaction.
Insurance contracts: A contract of insurance is not a wagering agreement as per

the law of insurance. Insurance contracts are valid contracts even though they
provide for payment of money by the insurer on the happening of a future uncertain
event. Insurance contracts differ from wagering agreements mainly in three
respects:
 The policy holder must have an `insurable interest' in the event upon which
the Insurance money becomes payable. In a wagering agreement, there is no
interest to protect. The parties in wagering agreements bet specifically
because they can thereby make some easy money.
 Contracts of insurance are established on actuarial computations of risks,
where-as wagering agreements are a gamble without any logical calculation
of risks.
 Contracts of insurance are regarded as beneficial to the public. But wagering
agreements do not serve any purpose.
6 Discuss objects or consideration unlawful in part.

Ans.
If the object or consideration is partially unlawful, the following rules will apply:
1. If there are several objects but a single consideration, the agreement is void
if any one of the objects is unlawful (Section 24).
2. If there is a single object but several considerations, the agreement is void if

any one of the considerations is unlawful (Section 24).
The two above rules apply to the case where the agreement cannot be
divided into two parts - a part which is legal and a part which is illegal.
Example: A promises to superintendent, on behalf of B, a legal manufacturer
of indigo, and an illegal traffic in other articles. B promises to pay A a salary
of Rs. 4,00,000 a year. The agreement is void. Here a part of the object is legal
and a part is illegal, but there is a single consideration.
3. Where there is a reciprocal promise to do things legal and also other illegal
things, the legal part can be separated from the illegal part. The legal part is a
contract whereas the illegal part is a void agreement (Section 57).
Example: A and B agree that A shall sell a house for Rs. 90,000, but if B uses
it as a gambling house, he shall pay A Rs. 2,50,000 for it. The first part of the
agreement is valid, the second part is invalid.
4. In the case of an alternative promise, one branch of which is legal and the
other is illegal, the legal branch alone can be enforced (Section 58).
Example: A and B agreed that A shall pay Rs. 6,000 for which B shall,
afterwards, deliver to A either rice or smuggled opium. This is a void
contract to deliver rice and a void agreement as to opium.
Agreement in restraint of legal proceedings (Section 28) is void. Such an
agreement is also void under Section 23 because its object is to defeat the
provisions of the Indian Limitation Act.
Unit 2: Performance of Contract, Discharge and Breach of Contract
1 Mark Question
1 When the contract said to be performed?

Ans. A contract said to be performed in following situation

 Actual performance
 Offer to perform
2 By whom contracts must be performed?
Ans.
 Promisor himself
 Agent
 Legal representatives
 Third Person
 Joint promisors
3 Who can demand performance?
Ans. Only promisee can demand performance of the promise under a contract.
4 When alternation is valid?
Ans. Alternation is valid if it is done with the consent of all the parties to the
contract.
5 What do you mean by ‘assign’?
Ans. To assign means to transfer
6 What is novation?
Ans. Novation takes place when a new contract is substituted for an existing
contract.
7 What do you mean by discharge of contract?
Ans. Discharge of contract means cancellation of contract
8 Give alternative name of anticipatory breach of contract
Ans. Constructive breach of contract
9 Who has right to discharge contract in anticipatory breach of contract?
Ans. The arrived party teat it as discharge
10 When the aggrieved party loses his right to sue for damages?
Ans. In case of supervening impossibility
2 Marks Questions
1 What are reciprocal promises?

Ans. “Promises which form the consideration or part of the consideration for each
other, are called reciprocal promises”
2 Give rules for assignment of contractual obligation

Ans.
 Contractual obligations involving personal skill or ability cannot be
assigned
 A promisor cannot assign his liabilities or obligations under a contact
3 When time is of essence to a contract?
Ans. In a contract, in which time is of essence of the contract if there is a failure on
the part of the promisor to perform his obligation within the fixed time.
4 What do you mean by discharge in contract?
Ans. When the parties fulfill their respective obligations, their liability under the
contract comes to end the contract is said to be discharged.
5 What is supervening impossibility? Write an example
Ans. If impossibilities arises subsequent to the formation of a contract. The
contract becomes void.
Example: A music hall was let for a series of concerts on certain days. The hall was
burnt down before the date of the first concert.
6 What is rescission?
Ans. Rescission is cancellation of the contract which takes when all or some of the
terms of contract are cancelled.
7 What is breach of contract?
Ans. When one of the parties repudiates the contract by refusing to perform his
obligations, he is said to have committed a breach of contract.
8 What is anticipatory breach of contract?
Ans. anticipatory breach of contract occurs when a party repudiates his obligation
under the contract before the time for performance us due or when a party by his
own act cripples himself from performing the contract.
In simple words, it is a breach committed before the actual due date of
performance of the contract.
9 What is actual breach of contract?
Ans. Actual breach means breach committed either (i) at the time when the
performance of the contract is due, or (ii) during the performance of the contract
10 What are the consequences of anticipatory breach?
Ans. Arrived party can take following steps
 Can treat the contract as discharged
 Can instantly resort to the legal remedies available to him for breach of
contract, viz. file a suit for damages or specific performance or injunction.
5 Marks Questions
1 State with example the provisions of the Indian Contract Act 1872 relating to
devolution of joint liabilities.
Ans.
Section 43 of the Indian Contract Act 1872 lays down three rules as regards
performance of joint promises:
1. Any one of joint promisors may be compelled to perform. When two or more
persons make joint promise, the promisee may, in the absence of express
agreement to the contrary, compel any (one or more) of such promisors to
perform the whole of the promise.
Example: A, B and C jointly promise to pay D Rs. 3000. D may compel all or any or
either A or B or C to pay him Rs. 3000.
2. Each promisor may compel contribution. 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.
Example: A, B and C are under a joint promise to pay D Rs. 300. A is compelled to
pay the whole amount to D. He may recover Rs. 100 each from B and C.
3. If any one of two or more joint promisors make default in such contribution,
the remaining joint promisors must bear the loss arising from such default in
equal shares.
Example: A, B and C are under a joint promise to pay D Rs. 3000 C is unable to pay
anything and A is compelled to pay the whole sum. A is entitled- to receive Rs. 1500
from B.
According to Section 44, when two or more persons have made a joint promise, a
release of one such joint promisors by the promisee does not discharge the other
joint promisor or joint promisors; neither does it free the joint promisors so
released from responsibility to the other joint promisor or joint promisors.
Example: A, B and C jointly owe a debt to D.D releases A from his liability and files a
suit against B and C for payment of the debt. B and C are not released from their
liability nor is A discharged from his liability to B and C for contribution.
2 State the provision of the India contract act 1872 which deal with the order of
performance or reciprocal promises.
Ans.
Rules Regarding Reciprocal Promises
Rules regarding performance of reciprocal promises are contained in Sections 51,
52, 53, 54 and 57 of the Indian Contract Act 1872.
Section 51: Promisor not bound to perform, unless reciprocal promisee ready and
willing to perform. When a contract consists of reciprocal promises to be
simultaneously performed, no promisor need perform his promise unless the
promisee is ready and willing to perform his reciprocal promise.
Example: A and B contract that A shall deliver goods to B to be paid for by B on
delivery. A need not deliver goods, unless B is ready and willing to pay for the goods
on delivery. B need not pay for the goods unless A is ready and willing to deliver
them on payment.
Section 52: Order of performance of reciprocal promises. Where the order in which
reciprocal promises are to be performed is expressly fixed by the contract, they
shall be performed in that order, and where the order is not expressly fixed by the
contract, they shall be performed in that order which the nature of the transaction
requires.
Example: (a) X and Y contract that X shall build a house for Y at a fixed price. X's
promise to build the house must be performed before Y's promise to pay for it.
(h) A and B contract that A shall make over his stock-in-trade to B at a fixed price
and B promises to give security for the payment of the money. A's promise need not
be performed until the security is given, for the nature of the transaction requires
that A should have security before he delivers up his stock.
Section 53: Liability of party preventing event on which contract is to take effect.
When a contract contains reciprocal' promises, and one party to the contract
prevents the other from performing his promise, the contract becomes voidable at
the option of the party so prevented. The aggrieved party is entitled to
compensation from the other party for any loss which he may sustain in
consequence of the non-performance of the contract.
Example: M and N contract that N shall execute certain work for M for ten thousand
rupees. N is ready and willing to execute the work accordingly, but M prevents him
from doing so. The contract is voidable at the option of N; and if he elects to rescind
it, he is entitled to recover from M compensation for any loss which he has incurred
by its non-performance.
Section 54: Effect of default as to the promise which should be first performed, in
contract consisting of reciprocal promises. When a contract consists of reciprocal
promises, such that one of them cannot be performed, or that its performance
cannot be claimed till the other .has been performed, and the promisor of the
promise last mentioned fails to perform it, such promisor cannot claim the
performance of the reciprocal promise, and must make compensation to the other
party to the contract for any loss which such other party may sustain by the
nonperformance of the contract.
Example: A promises B to sell him one hundred bales of merchandise, to be
delivered next day, and B promises A to pay for them within a month. A does not
deliver according to his promise B's promise not pay need not be performed, and A
must make compensation.
Section 55: Performance of the promise by a party to the contract is essential
within the specified period in order to entitle him to enforce performance from the
other party. Hence, time is the essence of the contract. Section 55 of the Indian
Contract Act 1872 deals with the question of "time as the essence of the contract".
3 State the different ways in which a contract may be said to be discharged and
explain in detail discharge by agreement
Ans.
The different modes of discharging a contract are:
 By performance (Sections 37 and 38)
 By agreement (or consent) (Sections 62 and 63)
 By impossibility of performance (Section 56)
 By lapse of time
 By operation of law
DISCHARGE BY AGREEMENT
A deal is made by an agreement which binds the parties. Of course, by their further
agreement, the contract may be discharged. A contractual obligation may be
terminated by agreement which may be expressed or implied. Sections62 and 63
deal with discharge by agreement. According to Section 62 of the Indian Contract
Act, "if the parties to a contract agree to substitute a new contract for it, or to
rescind or alter it, the original contract need not be performed." In other words, by
agreement of all parties, i.e. promisor and promisee, a contract may be discharged
or its terms altered or a new agreement substituted for it. Whenever any of these
things occur, the old contract is terminated. Discharge by agreement may occur in
any of the following ways:
Novation: Novation takes place when a new contract is substituted for an existing
contract, either between the same parties or between different parties, the
consideration mutually being the discharge of the existing contract. It occurs when
a contract between two parties is rescinded in consideration of a new contract
being entered into on the same terms between one of the parties and a third party.
Novation should take place before the expiry of the time of the performance of the
original contract. If it does not, there would be a breach of contract. If a new
contract is subsequently substituted for the existing contract, it would only be to
adjust the remedial rights arising out of the breach of the old contract. If, for any
reason, the new contract cannot be enforced, the parties can fall back upon the old
contract. When the parties to a contract agree for `novation', the original contract is
discharged and need not be performed. Novation cannot be compulsory; it can only
be with the mutual consent of all the parties. The new contract must be valid and
enforceable. If it is unenforceable, then the original contract revives.
Example: A is indebted to B and B to C. By mutual agreement, B's debt to C and A's
debt to B is cancelled and C accepts A as his debtor. There is novation.
Alteration: Alteration of a contract implies change in one or more of the terms of a
contract. Alteration is valid if it is done with the consent of all the parties to the
contract. In alteration there is change in terms of the contract but not change of
parties.
Example: X enters into a contract with Y for the supply of 1000 bags of wheat at his
godown No. I by the first of next month. Meanwhile, X and Y may alter the terms and
conditions of the contract by mutual consent. A new contact replaces an old one.
Rescission: Rescission is cancellation of the contract which takes place when all or
some of the terms of contract are cancelled. It may happen by mutual consent of the
parties or where one party fails in the performance of his obligation. In such a
situation, the other party may rescind the contract without bias to his right to claim
compensation for the breach of contract. Rescission may be either full or partial.
Total rescission is the discharge of the entire contract. Partial rescission is the
variation of the original contract by (a) rescinding some of the terms of the contract,
or (b) substituting new terms for the ones which are rescinded, or (c) adding new
terms without rescinding any of the terms of the original contract.
Example: A promises to deliver certain quantity of goods to B on a certain date.
Before the date of performance, A and B mutually agree that the contract will not be
performed. The parties have rescinded the contract.
Section 35 of the Specific Relief Act (Act 1 of 1877) provides that, "Any
person interested in a contract in writing may sue to have it rescinded". The court
may award rescission in the following cases:
(i) When the contract is voidable by the plaintiff.
(ii)Where the contract is unlawful for causes not apparent on its face and the
defendant is more to blame than the plaintiff.
(iii) Where a decree for specific performance, e.g. a contract to take a
lease, has been made and the lessee makes default in payment of the any
sums which the court has ordered him to pay.
Remission: Remission is nothing but acceptance of lesser amount or lessor degree
of performance than what was actually mentioned in the contract. It is the will and
pleasure of the promisee to accept and discharge the contract.
Example: X owed an amount of Rs. 1,00,000 to Y. Z offered to pay Rs. 80,000 in
satisfaction of Y's claim on X. Y accepted it. It was held that the acceptance was in
full satisfaction and Y cannot claim the balance Rs. 20,000 from X.
Waiver: Waiver is the abandonment of a right. A party to a contract may waive his
rights. It so, the other party is released from his obligations.
Example: M promised to paint a picture for B's house. Afterwards, B forbade him to
do so. In this case, B has waived his right to claim the performance. Therefore, M is
no longer liable to perform the promise.
Merger: When a superior right and an inferior right coincide and meet in one
agreement and affect the same party, the inferior right vanishes into the superior
right.
Example: A man holding property under a lease buys the property. His rights as a
lessee vanish. They are merged into the rights of ownership which he has currently
acquired
4 Discuss in detail the ‘doctrine of supervening impossibility’.
Ans.
If impossibility arises subsequent to the formation of a contract, the contract
becomes void. It is also called supervening impossibility which may take place in
many ways:
(1) Destruction of the object necessary for the performance of the contract: If
the subject matter of the contract essential to the performance of the
contract is destroyed subsequent to the formation of the contract, without
the fault of either of the parties to the contract, the contract becomes void.
The parties concerned are free from their obligation to perform the contract.
Example: A music hall was let for a series of concerts on certain days. The hall was
burnt down before the date of the first concert. The contract becomes void.
(2) Change of law: The performance of a contract may become unlawful by a
subsequent change of law by the Government. In such a case, the original
contract becomes void.
Example: M sold to N a specific parcel of wheat in a godown. Before the delivery
could be made, the godown was seized by the Government and the entire quantity
was taken away by the Government under statutory power. The delivery being now
legally impossible, the contract was held discharged.
(3) Personal incapacity: Where the performance of a contract depends on the
personal skill of a party, the contract is discharged on the illness or
incapacity or death of that party.
Example: An artist undertook to paint a picture for a certain price. Before he could
do so, he met with an accident and lost his right arm. Held, the artist was discharged
due to disablement.
(4) Non-existence or non-occurrence of a state of things necessary for
performance: Now and then, a contract is made on the basis of continued
existence or occurrence of certain state of circumstances. If there is any
change in the state of things changes or ceases to exist, it is discharged.
Example: A and B contract to marry each other. Before the time fixed for the
marriage, A goes mad. The contract becomes void.
(5) Outbreak of war: A contract entered into during war with an alien enemy is
void ab inito.
Contracts entered into before the outbreak of war are suspended during the war.
However, they may be reviewed after the war.
Example: X contracts to take in goods by ship for Y at a foreign post. X's
government afterward declared war against Y's government. The contract becomes
void.
5 Discuss exception to supervening impossibility
Ans.
EXCEPTIONS TO SUPERVENING IMPOSSIBILITY
(1) Difficulty in performance: A contract can not discharged by the mere fact
that it has become more difficult to perform due to some uncontemplated
events.
Example: A sold a certain quantity of Finland timber to N to be supplied between
July and December. Before any timber was supplied, a war broke out in the month
of November and transport was disorganized so that M could not bring any timber
from Singapore. Held, the difficulty in getting the timber from Singapore did not
discharge M from performance
(2) Commercial impossibility: A contract is not discharged simply because
expectation of higher profits is not realized, or the necessary raw material is
available at an exorbitant price due to outbreak of war, or there is sudden
devaluation of currency.
Example: X promised to send specific quantity of goods from Bombay to Islamabad
in September. Before the goods were sent, a war broke out and there was a sharp
increase in shipping rates. Held, the contract was not discharged
(3) Impossibility due to failure of a third person: When a contract could not be
performed due to the default by a third person on whose work the promisor
relied, it is not discharged.
Example: A, a wholesaler, entered into a contract with B for the sale of a certain
type of garment to be produced by C, a manufacturer of that garment. C did not
manufacture that cloth. Held, A was liable to B for damages
(4) Strikes, lock-outs and civil disturbances: Events like strikes, lock-outs and
civil disturbance do not discharge a contract unless the parties have
specifically agreed in this regard at the time of entering into the contract.
Example: The unloading of a ship was delayed beyond the scheduled date with the
ship owners owing to a strike of dock workers. Held, the ship owners were entitled
to damages, the impossibility of performance being no excuse
(5) Failure of one of the objects: When a contract is entered into for many
objects, the failure of one of them does not discharge the contract.
Example: A agreed to let out a boat to B (i) for viewing a naval review on the
occasion of the coronation of Edward VII, and (ii) to sail round the fleet. Owing to
the King's illness, the naval review was stopped but the fleet was assembled. The
boat, therefore, could be used to sail round the fleet. Held, the contract was not
discharged.
6 Discuss types of breach of contract
Ans.
There are two types of breach of contract.
 Anticipatory breach of contract or constructive breach of contract.
 Actual breach of contract
1. Anticipatory breach of contract: Anticipatory breach of contract occurs when
a party repudiates his obligation under the contract before the time for
performance is due or when a party by his own act cripples himself from
performing the contract. In simple words, it is a breach committed before the actual
due date of performance of the contract.
Examples:
(i) A enters into a contract to supply B with certain merchandise on the first day of
August. Before 1st August, he informed B that he will not be able to supply the
goods.
(ii) S agrees to sing at L's theatre on and from a certain date. Before that date, she
enters into a long-term contract to sing at a different theatre.
Consequences of anticipatory breach: When anticipatory breach occurs, the
aggrieved can take the following steps:
 Can treat the contract as discharged,
 Can instantly resort to the legal remedies available to him for breach of
contract, viz. file a suit for damages or specific performance or injunction.
Anticipatory breach of contract does not by itself discharge the contract. The
contract is discharged only when the aggrieved party selects to treat it as
discharged. If he does not accept the repudiation, the contract continues to exist. If
the repudiation is not accepted and subsequently an event takes place which
discharges the contract legally (e.g. a supervening impossibility), the aggrieved
party loses his right to sue for damages.
Example: A agrees to employ E as a courier, the service to commence from 1st

August. On 1st July, he informs E that his services will not be required. On 11th July,
E files a suit for damages. He is entitled to do so even though the date of
performance of the contract has not arrived. [Houchster v. De La Tour, (1853) 2E &
B 678].
2. Actual breach of contract: Actual breach means breach committed either (i) at
the time when the performance of the contract is due, or (ii) during the
performance of the contract.
The denial of performance may be express or implied or abstaining from doing
something.
Examples:
(i) D agrees to deliver to B, 15 tons of sugar on lst August. He fails to do so on 1st
August. There is a breach of contract by D.
(ii) P agrees to deliver Q 50 tons of wheat on 1st June. On 1st June he tenders
the sugar but Q (for valid reason) refuses to accept delivery. There is a breach
by Q.
Unit 3: The Sales of Goods Act 1930-I
1 Marks Questions
1 When the Indian sales of goods act was came in to force?

Ans. The Indian Sales of goods came in to force on the 1st day of July, 1930
2 List contracts for which ‘The Sales of Goods Act’ is not apply?
Ans.
 Bailment of goods
 Pledge of goods
 Any contract relating to immoval property
 Contract of work and skill
3 Who are buyer and seller?
Ans. ‘Buyer’ means a person who buy goods; ‘Seller’ means a person who sells or
agrees to sell goods.
4 What are ‘Specific goods’?
Ans. Specific goods denotes goods indentified and agreed upon at the time a
contract of sale is made
5 What is a meaning of doctrine caveat emptor incase of sale of goods?
Ans. The doctrine ‘caveat emptor’ means ‘let the buyer beware’
6 On which principle sale of description based?
Ans. “If you contract to sell peas, you cannot compel the buyer to take beans”
7 What is a prime of aim of contract of sale?
Ans. The transfer of property in goods from the seller to the buyer is the prime aim
of a contract of sale.
8 What is ‘possession of goods’?
Ans. Possession of goods implies the custody of goods.
9 How you express phrase ‘nemo dat quo non habet’?
Ans. “No one can give that which one has not got or no one can pass a better title
than what he has”
10 What implies to contract of sale until goods are ascertained?
Ans. Until goods are ascertained, there implies an agreement to sell
2 Marks Questions
1 What is symbolic delivery? Give example

When there is a delivery of a thing in token of a transfer of something else. i.e.
delivery of good in case of transit may be made by handling over documents of title
to goods to buyer, like bill of landing or railway receipt.
2 Give any difference between sale and bailment on the base of transfer of ownership
Ans.
Sale: The property in goods is transferred to the buyer by the seller
Bailment: Transfer of possession takes place from the bailor to the bailee for safe
custody, carriage etc..
3 Which documents are including under document of title to goods? Give the list of
document
Ans. Following documents includes in document if title to goods
 Bill of lading
 Dock warrant
 Warehouse keeper’s certificate
 Wahrfingers certificate
 Railway receipt
 Warrant
4 Explain ‘Condition’ and ‘Warranties’
Ans.
Condition: A condition is a stipulation which is essential to the main purpose of the
contract
Warranties: A warranty is a stipulation which is collateral to the main purpose of
the contract
5 What are implied conditions and warranties?
Ans. Implied conditions and warranties are those which the law incorporates into
the contract unless the parties stipulated to the contrary
6 Give one example for ‘Condition’
Ans. X says to Y, a horse dealer, “I want a horse which can run at a speed of 50 kph.”
The horse dealer points out a specific horse and tells, “This will suit you.” X buys
the horse. Later on, X finds that the horse can run only at a speed of 40 kph.
7 Give three level process of performance of a contract of sale of goods by seller
Ans.
(1) The transfer of property in goods

(2) The transfer of possession of the goods
(3) The passing of risk
8 In which cases seller has a right to reserve the right of disposal?
Ans. The seller has right to reserve the right of disposal in following cases
 Contract is for the sale of specific goods
 Goods are subsequently appropriated to the contract
 Certain conditions are required to be fulfilled
9 What is common rule of transfer?
Ans. The common rule is that “no one can give that which one has not got or no one
can pass a better title than what he has”
10 Is mercantile agent can communicate a good title? Write conditions to be fulfilled
Ans.
(A) The mercantile agent should be in possession of the goods or documents of
title to the goods I his capacity as a mercantile agent and with the consent of
the owner
(B) The mercantile agent should sell the goods while acting as an agent in the
ordinary course of business
(C) The buyer should act in good faith. He should presume that the mercantile
agent has authority to sell goods
5 Marks Questions
1 Distinguish between sale and agreement to sell

Ans.
Basis Sale Agreement to sell
Transfer of property Transfer of properly in It occurs at a future time
goods passes immediately or subject to fulfillment
from the seller to the buyer. of certain conditions.
Nature of contract Executed contract. Executory contract.
Risk of loss The buyer bears loss even if The buyer bears loss
the goods are in the seller's even if the goods are in
possession. the seller's possession.
Rights Jus in rem. The buyer Jus in personam. The
possesses the right to en- buyer owns the right
joy goods against the world against the seller to sue
at large, including the seller. for damages.

Breach of contract In case of breach of contract If the buyer breaches, the
by the buyer, the seller can seller can only sue for
sue even though the goods damages but not the
are still in possession. If the price although the goods
seller breaches, the buyer are in the buyer's
has the legal right to get the possession. If the seller
possession of goods breaches, the buyer's
remedy is to claim
damages for non
performance.
Right to re-sell A seller cannot resell the The buyer who takes the
goods even if he is in goods for consideration
possession of property in without notice of the
goods after sale. If the seller previous agreement, gets
resells, the subsequent a good title. The original
buyer does not get good buyer can sue the seller
title of goods and the first for damages for breach of
buyer can recover the good contract.
title.
Basis Sale Agreement to sell
Buyer's insolvency Official assignee/official Official assignee/official
receiver shall have a right receiver shall have no
over the goods. right over the goods.
Seller's insolvency The buyer being the owner The buyer can only claim
of goods, he can recover the rateable dividend but not
goods from the official the goods or full price.
assignee/ official receiver.
Type Sale means absolute sale. Agreement to sell means
conditional sale
2 What are the essential features of a contract of sale?
Ans.
The following elements must co-exist so as to establish a
contract of sale of goods under the Sale of Goods Act, 1930:
(i) Parties: There should be at least two parties, i.e. buyer and seller. A buyer
means a person who buys or agrees to buy. A seller means a person who sells
or agrees to sell.
(ii) Subject matter: The subject matter of the contract must necessarily be
goods.
(iii) Price: Price means the money consideration for a sale of goods.
(iv) Transfer of property: A transfer of property in goods from the seller to the
buyer must take place. There must be a transfer of general property as
distinguished from special property in goods from the seller to the buyer.
Thus, if A owns certain goods, he has a general property in goods but if he
pledges such goods with B, then B has a special property in the goods.
(v) Absolute or conditional: A contract of sale must be absolute or conditional
[Section 4(2)].
(vi) Essential elements of contract: All essential elements of a valid contract
must be present in the contract of sale.
(vii) Sale and agreement to sell: It includes both `sale' and `agreement to sell'.
(viii) Movable property: Transfer of movable goods is regulated by the Sale of
Goods Act.
(ix) Formalities: Formalities observed are not much stringent in entering into
contract of sale. It does not prescribe any specific form to form a valid
contract of sale. It may be made by simple offer and acceptance. Offer may be
made either by the seller or the buyer. Neither payment nor delivery is
necessary. A contract of sale may be either oral or written. It may be formed
for existing goods or future goods.
3 Distinguish between condition and warranties
Ans.
Condition Warranties
Relation to main purpose: It is Relation to main purpose: It is

essential to the main purpose of the subsidiary to the main purpose of the
contract contract.
Rights of aggrieved party: Breach of Rights of aggrieved party: Breach of

condition gives the aggrieved party warranty entitles the aggrieved party
a right to repudiate the contract and get to claim damages only
damages.
Treating condition as warranty: Under Treating condition as warranty:

certain circumstances, a breach of A warranty cannot become a
condition may be treated as a breach condition.
of warranty.
Legal effect of breach: Breach of Legal effect of breach: Breach of

condition will affect the legality of the warranty will not affect the legality of
contract the contract.
Discharge on breach: In case of Discharge on breach: In case of

breach of condition, the aggrieved breach of warranty, the aggrieved
party is free to discharge his party is not free to discharge his
promise. promise.
Under which circumstances can a breach of condition be treated as a breach of

4
warranty?
Ans.
A buyer can treat the breach of a condition as a breach of warranty. This option has
been given to him under Section 1 3 (1) of the Sale of Goods Act which lays down
that "where a contract of sale is subject to any condition to be fulfilled by the seller,
the buyer may waive the condition or elect to treat the breach of the condition as a
breach of warranty and not as a ground for treating the contract as repudiated."
In the following cases, a contract is not avoided even on account of a breach of
condition:
(i) Where the buyer altogether waives the performance of the condition, a party
may, for his own benefit, waive a stipulation.
(ii) Where the buyer elects to treat the breach of condition as one of a warranty.
That is to say, he may only claim damages instead of repudiating the contract.
(iii) Where the contract is non-severable and the buyer has accepted either the
whole goods or any part thereof. Acceptance means acceptance as envisaged in
Section 72.
(iv) Where the fulfillment of any condition or warranty is excused by law by reason
of impossibility or otherwise.
5 Explain transfer of property in specific goods
Ans.
Section 19(1) provides that "where there is a contract for the sale of specific or
ascertained goods, the property in them is transferred to the buyer at such time as
the parties to the contract intend it to be transferred."
Section 19(2) provides that "for the purpose of ascertaining the intention of the
parties, regard shall be had to the terms of the contract, the conduct of the parties
and the circumstances of the case."
Section 19(3) provides that "unless a different intention appears, the rules
contained in Sections 20, 21, 22 and 24 are rules for ascertaining the intention of
the parties as to the time at which the property in the goods is to pass to the buyer."
Explanation: In case of specific goods, the transfer of property takes place
when the parties intend to pass it. The parties may intend to pass the property at
once at the time of making the contract or when the goods are delivered or when
the goods are paid for. Sections 20, 21 and 22 of the Sale of Goods Act, 1930 are
applied in regard to transfer of specific goods. The rules regarding transfer of
property in specific goods are as follows:
Specific goods in a deliverable state (Section 20): Where there is an
unconditional contract for the sale of specific goods in a deliverable state, the
property in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment of the price or the time of delivery of the
goods, or both, is postponed. Section 20 becomes applicable if two conditions, viz.
deliverable state and unconditional contract, are fulfilled.
Example: A buys a motor cycle for Rs.40,000 on a month's credit and asks the
shopkeeper to send it to his house. The shopkeeper consents to do so. The motor
cycle immediately becomes the property of A.
Specific goods to be put into a deliverable state (Section 21): Where there is a
contract for the sale of specific goods and the seller is bound to do something to the
goods for the purpose of putting them into a deliverable state, the property does not
pass until such thing is done and the buyer has notice thereof. The word `something'
indicates an act like packing, loading, etc. The words `notice thereof' imply the fact
that the goods have been put in a deliverable state must come to the knowledge of
the buyer in some way or other.
Specific goods in a deliverable state, when the seller has to do anything
thereto in order to ascertain price (Section 22): Where there is a contract for the
sale of specific goods in a deliverable state, but the seller is bound to weight,
measure, test or do some other act or thing with reference to the goods for the
purpose of ascertaining the price, the property does not pass until such act or thing
is done and the buyer has notice thereof.
6 Explain transfer of title
Ans.
A true seller can sell and transfer ownership title to the buyer. An absolute owner of
goods can transfer absolutely to the buyer.
Transfer of title is covered in different sections such as 27, 28, 29 and 30 of the Sale
of Goods Act, 1930. They are discussed hereunder.
The common rule is that "no one can give that which one has not got or no one can
pass a better title than what he has." This is expressed in the Latin maxim nemo slat
quo non habet. Hence, in case a seller has a good title to goods, he will pass on the
right title only to the buyer. That is to say, the buyer cannot have a better title to the
goods than the seller himself has. The aim of this rule is to protect the true owner.
Example: X sells some stolen goods to Y, who buys them in good faith. Y will get no
title to that and the true owner has a right to get back his goods from Y.
If this rule is enforced strictly, then the innocent buyer may be put to loss in many
cases. Therefore, to protect the interests of the innocent buyers, certain exceptions
are provided to this rule:
In the following cases, a non-owner can convey better title to the bonafide buyer of
goods for value:
1. Sale by mercantile agent
2. Sale by one of the joint owners
3. Sale by a person in possession under a voidable contract
4. Sale by one who has already sold the goods but continues in possession
thereof
5. Sale by buyer obtaining possession before the property in the goods has
vested in him
6. Effect of estoppels
7. Sale by unpaid seller
8. Sale under the provisions of other Acts.
(a) Sale by an official receiver or official liquidator who will give the purchaser a
valid title.
(b) Purchase of goods from a finder of goods will get a valid title under certain
circumstances (Section 169 of the Indian Contract Act).
(c) A pawnee can pass a better title under certain circumstances (Section 176 of the
Indian Contract Act).
(d) Under the Companies. Act, 1956 a liquidator can pas a better title.
Sale by person not the owner (Section 27): As a rule, a mercantile agent having
an authority to sell goods grants a good title to the buyer.
A mercantile agent can communicate a good title to the buyer although he sells
goods without having any authority from the principal to do so, provided the
following conditions are fulfilled:
(a) The mercantile agent should be in possession of the goods or documents of title
to the goods in his capacity as a mercantile agent and with the consent of the owner.
(b) The mercantile agent should sell the goods while acting as an agent in the
ordinary course of business.
(c) The buyer should act in good faith. He should presume that the mercantile agent
has authority to sell goods.
Sale by one of joint owners (Section 28): If one of several joint owners of goods
has the sole possession of them by permission of the co-owners, the property in the
goods is transferred to any person who buys them of such joint owners in good faith
and has not at the time of the contract of sale notice that the seller has no authority
to sell.
Example: X, Y and Z are three joint owners who own a motor cycle in common. Y
and Z entrust the work of maintaining the motor cycle to X and leave motor cycle in
X's possession. X sells the motor cycle to A. A purchases bonafide for value. A gets a
good title to goods.
Sale by person in possession under voidable contract (Section 29): A person in
possession of goods under a voidable contract which has not been rescinded can
transfer a good title to the buyer who buys the goods in good faith and without
notice of the seller's defect of title. Of course, this exception is limited to contracts of
sale voidable under Sections 19 and 19 A of the Indian Contract Act, 1872, i.e.
voidable on the ground of coercion, fraud, misrepresentation and undue influence.
It does not extend to all voidable contracts.
Sale by seller in possession after sale [Section30(1)]:Where a seller, after
having sold the goods, continues to be in possession of the goods or documents of
title to the goods and again sells (or pledges) them either himself or through a
mercantile agent, he will convey a good title to the buyer (or the pledge) provided
the buyer (or the pledge) acts in good faith and without notice of the previous sale.
Sale by buyer in possession after agreement to buy [Section 30 (2)]:Where a
buyer has agreed to buy the goods and has obtained possession of the same or the
documents of title to them with the consent of the seller, resells or pledges the
goods either himself or through- a mercantile agent, he will convey a good title to
the buyer or the pledge provided the person receiving the goods acts in good faith
and without notice of any lien or other right of the original seller in respect of those
goods. The following conditions must be fulfilled:
(a) The first buyer is in possession of the goods or the title documents.
(b) The transfer is by the buyer or by a mercantile agent.
(c) The person, receiving the same, acts in good faith and without any lien or other
right of the original seller.
Example: B agreed to buy a car if his solicitor approved. B obtained possession of
the car and sold the same to C. But the solicitor, later on, disapproved of the
transaction. It was held that the title had passed to C [Marten v. Whale (1917) 2 K.B.
480].
Unit 4: The Sales of Goods Act 1930- II
1 Marks Questions
1 When is the seller bound to deliver goods?

Ans. Apart from any express contract, the seller of goods is not bound to deliver
them until the buyer applies for delivery
2 Who bare expenses to put goods into a deliverable state?
Ans. The seller bare expenses to put goods into a deliverable state
3 List rules as to delivery of goods
Ans.
 Place of delivery
 Time of delivery
 Goods in the possession of a third person
 Expenses of delivery
4 How delivery of goods to the carrier is treated?
Ans. Delivery of goods to the carrier is treated as delivery to the buyer.
5 How delivery of goods can be made?
Ans.
 Actual delivery
 Symbolic delivery
6 List right of an unpaid seller against the buyer personally
Ans.
 Suit for price
 Suit for damages
 Repudiation of contract
 Suit for interest
7 Give rights of an unpaid seller against the goods in case property in goods has not
passed.
Ans.
 With holding delivery
 Stoppage in transit
8 Give rights of an unpaid seller against the goods in case property in goods has
passed.
Ans.
 Lien
 Stoppage in transit
 Resale
9 When the rights of stoppage in transit can be used? List the condition to be fulfilled
Ans.
 The seller must be paid
 He must have parted with the possession of goods
 The goods are in transit
 The buyer has become insolvent
10 Give alternative name for the rights against the buyer personally
Ans. Right in personam
2 Marks Questions
1 What do you mean by ‘Delivery’?

Ans. Delivery means voluntary transfer of possession from one person to another.
2 What are concurrent conditions?
Ans. The seller shall be ready and willing to give possession of the goods to the
buyer in exchange for price, and the buyer shall be ready and willing to pay the
price in exchange for possession of the goods
3 What are the options available to buyer if larger quantity delivered?
Ans. Options
(1) Accept the contracted goods and reject the balance
(2) Accept the whole bulk
(3) Reject the whole lot
4 What are the options available to buyer if mixed quantity delivered?
Ans. Options
(1) Accept the contracted goods and reject the balance
(2) Reject the whole lot
5 What do you mean by ‘acceptance by buyer’?
Ans. Acceptance is deemed to take place when the buyer
(A) Intimated t the seller that he had accepted the goods, or
(B) Does any act to the goods, which is inconsistent with the ownership of the
seller, or
(C) Retains the goods after the lapse of a reasonable time, without intimating
the seller that he has rejected them
6 Who is an ‘unpaid seller’?
Ans. A seller of goods is deemed to be an unpaid seller when,
(1) The whole of the price has not been paid or tendered;
(2) A bill of exchange or other negotiable instrument has been received as a
conditional payment, and the condition on which it was received has not
been fulfilled by reason of the dishonour of the instrument
7 What is lien?
Ans. Lien means a right which a creditor has to retain possession of goods until
payment of the price.
8 What do you mean by auction sale?
Ans. An auction sale is a method of selling merchandise by inviting bids to the
world at large, and property in merchandise is sold to the highest bidder.
9 What are knockout agreements?

Ans. Buyers join their hands to eliminate competition among themselves at an
auction sale. They agree that they will not raise the bid against each other. Among
the buyers, only one will bid at the auction.
10 List remedies to a buyer for breach of contract of sale
Ans.
 Suit for damages for non delivery of the goods
 Suit for specific performance
 Suit for breach of warranty
 Suit for damages for repudiation of contract by the seller before the due
date
 Suit for interest
5 Marks Questions
1 Explain the term ‘delivery’ as used in a contract of sale and state the rules regarding
valid delivery of goods.
Ans.
According to Section 2(2), `delivery' means voluntary transfer of possession from
one person to another
Place of delivery: In case the contract does not provide, goods sold are to be
delivered at the place at which they are at the time of sale. This is applicable to
specific goods. In case of unascertained goods, goods are to be delivered at the place
at which they are produced.
Time of delivery: As per the contract, if not stipulated, within reasonable time. The
demand for delivery must be made within reasonable hours. What is reasonable is a
matter of fact.
Goods in possession of a third person: Delivery is not effected until the third
party acknowledges that he holds goods on buyer's behalf. This, however, will not
affect transfer of title.
Expenses of delivery: Unless otherwise agreed, the expenses of and incidental to
putting the goods into a deliverable state shall be borne by the seller.
Modes of delivery: Delivery of goods means voluntary transfer of possession of
goods from one person to another. Delivery may be made in any of the following
ways: (i) In actual delivery, goods are physically handed over to the buyer; (ii)
Symbolic delivery takes place only by transfer of document of title, i.e. bill of lading,
railway receipt, etc. to the buyer
Constructive delivery: Goods do not change in hands physically from the seller to
the buyer. Constructive delivery may take place in the following manner:
 Where the seller is in possession of goods and he agrees to hold these goods
on behalf of the buyer.
 Where the buyer is in possession of goods on behalf of the seller before sale.
 Where a third person is in possession of goods and he agrees to hold it on
behalf of the buyer.
Symbolic delivery: Where the goods are bulky and incapable of delivery. For
instance, handing over of the keys of a warehouse. It is a kind of act which has the
effect of putting the goods in possession of the buyer. Goods are not physically
delivered but supporting documents of title or keys are provided to the buyer.
Examples are railway receipt, bill of lading, delivery orders, title deeds, etc.
2 Discuss buyer’s rights and duties.
Ans.
The buyer's rights and duties (Vide Sections 41-44) while performing his part of the
contract of sale are detailed Bird's Eye View hereunder.
Buyer's right of examining the goods (Section 41): Where goods are delivered to
the buyer which he has not previously examined, he is entitled to a reasonable
opportunity of examining them in order to ascertain whether they are in conformity
with the contract [Section 41 (1)]. Unless otherwise agreed, the seller is bound, on
request, to afford the buyer a reasonable opportunity of examining the goods.
Acceptance of delivery of goods: It covers Sections 42, 43 and 44 of the Act.
Acceptance (Section 42): Acceptance is deemed to take place when the buyer (a)
intimates to the seller that he had accepted the goods; or (b) does any act to the
goods, which is inconsistent with the ownership of the seller; or (c) retains the
goods after the lapse of a reasonable time, without intimating the seller that he has
rejected them.
Buyer is not bound to return rejected goods (Section 43): The seller cannot
compel the buyer to return the rejected goods. But the seller is entitled to a notice of
the rejection.
Liability of buyer for neglecting or refusing delivery of goods (Section 44):
When the seller is ready and willing to deliver the goods and requests the buyer to
take delivery, and the buyer does not take delivery within a reasonable time, he is
liable to the seller for any loss occasioned by the neglect or refusal to take delivery,
and also reasonable charge for the care and custody of the goods.
3 Describe remedies available to the buyer against the seller in case if breach of
contract of sale
Ans.
1. Rights of lien (Section 47): The seller has a right of lien on the goods for the
price while he is in possession, until the payment or tender of the price of such
goods. The right of lien can be exercised by him in the following cases only:
(a) Where the goods have been sold without any stipulation of credit.
(b) Where goods have been sold on credit but the terms of credit have expired
(c) Where the buyer becomes insolvent.
Neverthless, the unpaid seller loses his right of lien under the following
circumstances:
(a) When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the goods.
(b) Where the buyer or his agent lawfully obtains possession of the goods.
(c) By estoppel, i.e. where the seller so behaves himself that he leads third parties to
believe that the lien does not exist.
2. Rights of stoppage in transit (Section 50): When an unpaid seller has parted
with the goods to a carrier and the buyer has become insolvent, he can exercise
this right of asking the carrier to return the goods back, or not to deliver the
goods to the buyer. But the right of stoppage in transit is exercised only when the
following conditions are fulfilled:
(a) The seller must be unpaid.
(b) He must have parted with the possession of goods.
(c) The goods are in transit.
(d) The buyer has become insolvent.
(e) The right is subject to the provisions-of the Act.
3. Right of re-sale (Section 54): The unpaid . seller can exercise the right to re-sell
the goods under the following conditions:
(a) When the goods are of a perishable nature. In such a case, the buyer need not be
informed of the intention of re-sale.
(b) When he gives notice to the buyer of his intention to re-sell the goods and the
buyer does not, within a reasonable time, pay or tender the price.
4 Distinguish between right of lien and right to stoppage in transit
Ans.
Right of lien Right of stoppage in transit
Essence: To retain possession Essence: To regain possession.
Possession: The seller should be in Possession: (i) The seller should have
possession of the goods under lien. parted with the pos-session, (ii)
Possession should be with a carrier and
(iii) The buyer has not acquired the
possession
Insolvency: Right of lien can be Insolvency: The right of stoppage is
applicable to all persons, whether applicable to the insol-vent buyer or An
solvent or insolvent. Lien can be unpaid seller can have the right to stop
exercised even when the buyer is able the goods in transit arises only when
to pay but does not pay the buyer is insolvent. Stop page in
transit cannot be exercised.
Ceasing of right of lien: The right of lien Ceasing of right of stoppage: Right of
comes to an end when the possession of stoppage of the goods in transit starts
the goods is surrendered by the seller. when goods have left the possession of
the seller and continues until the buyer
or his agent acquired their possession.
Prerequisite: Possession must be with Prerequisite: The seller must have
the seller. parted with possession.
Commencement: Starts with default of Commencement: Starts. Where lien
the buyer to pay. ends.
5 Describe remedies available to the seller against the buyer in case if breach of
contract of sale
Ans.
These are the rights which an unpaid seller may enforce against the buyer
personally. These right of the seller against the buyer are called right in personam as
against the right in rem (i.e rights against the goods), and are in addition to his
rights against the goods. The right in personam are as follows:
1. Suit for price (Section 55): (a) When a property in goods has passed to the
buyer and the buyer wrongfully refuses to pay for the goods, the seller may sue
him for the price of the goods [Section 55(l)]. (b) When property in the goods
has not passed to the buyer and the goods have not been appropriated to the
contract, if the price is payable on a certain day irrespective of delivery, the
seller may sue the buyer on his wrongful refusal to pay for the price [Section
55(2)].
2. Suit for damages for non-acceptance (Section 56): Where the buyer
wrongfully neglects or refuses to accept and pay for the goods, the seller may sue
him for damages for non-acceptance. As regards measure of damages, Section 73
of the Indian Contract Act, 1982, applies.
Where there is no default of the seller and the buyer wrongfully refuses to
take delivery of the goods within reasonable time, the seller is entitled to recover
from the buyer (i) any loss caused by the buyer's refusal to take delivery; and (ii)
any reasonable charge for the care and custody of the goods (Section 44).
3. Repudiation of contract before due date (Section60): Where the buyer
repudiates the contract before the date of delivery, the seller may treat the
contract as rescinded and sue damages for the breach. This is known as the rule
of anticipatory breach of contract.
4. Suit for interest [Section 61(2)(a)}: Where there is a specific agreement
between the seller and the buyer about payment of interest of the price of goods
from the date on which the payment becomes due, the seller may charge interest
from the buyer. In the absence of any such agreement, the seller may recover the
interest from such date as the seller may notify to the buyer.
6 Write a detailed note on ‘auction sales.
Ans.
An auction sale is a method of selling merchandise by inviting bids to the world at
large, and property in merchandise is sold to the highest bidder. An auctioneer is an
agent governed by the Law of Agency. When he sells, he is only the agent of the
seller. The auctioneer may, however, sell his own property as the principal and need
not disclose the fact he is so selling.
Different provisions of law on auction sale are dealt under Section 64 of the
Sale of Goods Act. According to it, in case of sale by auction, the following rules
apply:
1. Where goods are put up for sale in lots, each lot is prima facie deemed to be
subject matter of a separate contract of sale [Section 64(1)].
2. The sale is complete when the auctioneer announces its completion by the
fall of the hammer or in any other customary manner and until such
announcement is made, any bidder may retract from his bid [Section 64(2)].
3. Right to bid may be reserved expressly by or on behalf of the seller and
where such a right is expressly reserved, but not otherwise, the seller or any
one person on his behalf may bid at the auction [Section 64(3)].
4. Where the sale is not notified to be subject to aright to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself or to employ any
person to bid at such sale, or for the auctioneer knowingly to take any bid
from the seller or any person representing him. Any sale contravening this
rule may be treated as fraudulent by the buyer [Section 64(4)].
5. The sale may be notified to be subject to a reserved or upset price [Section
64(5)].
6. If the seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer [Section 64(6)].

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Patel Institute of Business Management, Computer & Information

Unit 1: Legality of object and consideration and void agreement

1 What will be effect to an agreement have the object or consideration unlawful?

1 Outline when the consideration or object of an agreement is considered unlawful?

Ans. A contract becomes void in the following cases:

1 What do you mean by agreements which interfere with administration of justice?

(b) Stiffling prosecution:

(g) Agreements in restraint of parental rights:

2 Explain lawful and unlawful object

2. Defeat of the provision of law:

never know where it will carry you."

Trading with enemy: It is a well settled principle of law that an agreement

Agreement to commit a crime: Where the consideration is an agreement to

Agreements which interfere with administration of justice:

4. Agreements the meaning of which is uncertain (Section 29):

5. Agreements by way of wager:

6. Agreements contingent on impossible events (Section 36):

7. Agreements to do impossible acts:

8. Reciprocal promise to do things legal, and also other things illegal:

occurrence. That is why a contract of insurance is not a wagering agreement.

Commercial transactions: Agreements for sale and purchase of any merchandise

Lotteries: A lottery is a game of chance and therefore the lottery business is a

Crossword puzzles: Where prizes depend upon a chance, it is treated as a

Insurance contracts: A contract of insurance is not a wagering agreement as per

6 Discuss objects or consideration unlawful in part.

2. If there is a single object but several considerations, the agreement is void if

Unit 2: Performance of Contract, Discharge and Breach of Contract

1 When the contract said to be performed?

Ans. A contract said to be performed in following situation

1 What are reciprocal promises?

2 Give rules for assignment of contractual obligation

Example: A agrees to employ E as a courier, the service to commence from 1st

Unit 3: The Sales of Goods Act 1930-I

1 When the Indian sales of goods act was came in to force?

1 What is symbolic delivery? Give example

(1) The transfer of property in goods

1 Distinguish between sale and agreement to sell

at large, including the seller. for damages.

Relation to main purpose: It is Relation to main purpose: It is

Rights of aggrieved party: Breach of Rights of aggrieved party: Breach of

Treating condition as warranty: Under Treating condition as warranty:

Legal effect of breach: Breach of Legal effect of breach: Breach of

Discharge on breach: In case of Discharge on breach: In case of

Under which circumstances can a breach of condition be treated as a breach of

Unit 4: The Sales of Goods Act 1930- II

1 When is the seller bound to deliver goods?

1 What do you mean by ‘Delivery’?

9 What are knockout agreements?

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