j.k.shah classes c.p.t. - law chapter 1 - indian …...coercion is committing or threatening to...

J.K.SHAH CLASSES C.P.T. - LAW

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CHAPTER 1 - INDIAN CONTRACT ACT, 1872

UNIT 1: NATURE OF CONTRACT

OFFER

DEFINITION

When one

person signifies

to another his

willingness to

do or abstain

from doing

anything, with a

view to obtain

the assent of

another, such

an act or

abstinence, is

known as

offer.

CHARACTERISTICS:

1. Offer must be capable of creating legal relationship

Case law: Balfour v. Balfour

2. The terms of the offer must be definite and certain

3. Offer must be different from invitation to offer

4. Offer should be communicated.

Case law: LalmanShuklavsGauriDutt

5. Offer can be express or implied.

6. Offer can be conditional. 7. Offer should not contain a

term non-compliance of which would directly lead to acceptance.

TYPES:

1. General offer

Case law: Carlill

v/s Carbolic &

2. Smoke Balls Co

3. Specific/Special

offer

4. Counter offer Cross

offer

5. Standing/open/

continuing offer

LAPSE OF OFFER:

1. By rejection of offer

by offeree

2. By revocation of offer

by Offeror

3. By Counter Offer

4. By lapse of time

5. By failure to accept

condition in

conditional offer

6. By Death or insanity

of the offeror/offeree

It received its assent on 25th April, 1872 and was introduced on 1st September, 1872.

It is applicable to whole of India except Jammu and Kashmir

Contract = Agreement + Enforceable by law

Agreement:

“Every promise and every set of promises forming the consideration for each other, is an

agreement.”

All Contracts are agreements but all agreements are not contracts.

INTRODUCTION


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• ACCEPTANCE DEFINITION CHARACTERISTICS

• COMMUNICATION OF OFFER & ACCEPTANCE AND REVOCATION OF OFFER & ACCEPTANCE

1. Communication of offer is complete when it comes to the knowledge of offeree. 2. Communication of acceptance is complete

As against Offeror As against Offeree

3. Revocation of offer is valid before offeree puts the acceptance in course of transmission and it is out of his reach to stop it.

4. Revocation of acceptance is valid before acceptance comes to the knowledge of offeror.

• TYPES OF CONTRACTS

• ESSENTIAL ELEMENTS OF A VALID CONTRACT 1. There must be an offer and its acceptance and intention to create a legal relationship. 2. There must be capacity of parties. 3. There must be free consent and consensus-ad-idem. 4. There must be lawful object and lawful consideration. 5. The performance must not be impossible. 6. The performance must not be uncertain 7. The agreement must not be declared to be void

When the person to whom

the proposal is made signifies

his assent thereto, the

proposal is said to be

accepted

1. Must be communicated

2. Must be unconditional

3. By specific person

4. Must be within a specific/reasonable

time.

5. Can be express or implied

6. Should be via prescribed mode of

communication.

TYPES OF CONTRACTS AS PER INDIAN LAW

1. Valid contract 2. Void Contract

Void Agreement 3. Voidable Contract 4. Illegal Agreement 5. Unenforceable contract 6. Express contract 7. Implied contract 8. Tacit contract 9. Executed contract 10. Executory contract 11. Unilateral contract 12. Bilateral contract

TYPES OF CONTRACT S AS PER ENGLISH LAW

English Law classifies the

contract into: (i) Formal contract (a) Contract of record and (b) Contract under Seal, and (ii) Simple contracts.

When offeree puts the

acceptance in a course of

transmission and it is beyond

his reach to stop it

When the acceptance

comes to theknowledge

of offeror


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UNIT 2: CONSIDERATION

DEFINITION

When at the desire of the promisor, the promisee or any other person did or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such an act or abstinence is called a consideration for the

promise.

CHARACTERISTICS

1. The consideration must move at the desire of the promisor.

2. It may move from the promise or any other person Case law: In Chinnayya v/s Ramayya

3. Consideration can be past, present or future

4. Consideration can be negative or positive.

5. Consideration need not be adequate.

6. It must be real and not illusory

7. It must not be illegal, immoral, or opposed to public policy.

8. Consideration can be executed or executor.

9. Consideration for an act which a person a legally bound to perform is not a valid consideration.

DOCTRINE OF PRIVITY OF CONTRACT.

RULE: Stranger to Contract cannot sue. But a stranger to a consideration can sue. Exceptions to the rule “A stranger to a contract cannot sue” i. Beneficiaries in the

case of trust ii. Written family

settlements iii. Partition of Hindu

Undivided Family iv. In Assignment of

contract, assignee has a right to sue

v. Acknowledgement of Debts

vi. Covenants with land vii. If contracts made by

the agent, principal can enforce the contract.

NO CONSIDERATION NO CONTRACT

Exceptions: 1. Out of Natural

Love and Affection

2. Compensation paid for past voluntary services

3. Promise to pay Time Barred Debts in writing

4. No consideration is necessary to create an agency

5. In case of completed gifts, no consideration is necessary

6. Bailment 7. Charity


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UNIT 3: OTHER ESSENTIAL ELEMENTS OF A VALID CONTRACT

Following persons are not competent to contract :

1. Minor

2. Person of unsound mind: Unsound mindedness is or Permanent Temporary Idiot Usually sound but occasionally unsound

If contract is entered during or Lucid Intervals Lunatic intervals

Valid Void

• CAPACITY OF PARTIES

An agreement will be valid and enforceable only if the parties to it are legally competent to enter into contract.

� A minor is a person who is below the age of eighteen years. � An agreement with a minor is void ab initio � The minor’s contracts do not impose any liability on his parents or guardians. � Parents/Guardians can enter into a contract on behalf of minor for his

benefits. � Parents/Guardian cannot bind a minor in a contract to purchase immovable

properties � If minor falsely represents his age, still the contract is void-ab-initio as he

can always plead minority. � Minor cannot ratify the agreement after attaining majority � If any necessaries of life (food, clothing, shelter, education, health) are

supplied to a minor, he is not personally liable but only his property is liable. � A minor can be appointed as an agent but he is not liable for his acts as an

agent � Case law: In MohiriBibee vs. DharmodosGhose


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3. Persons disqualified by law.

CONSENSUS-AD- IDEM

FREE CONSENT

Consent is said to be free if it is not induced by:

Coercion Undue influence Fraud Misrepresentation

(i) Alien enemies (ii) Insolvents (iii) Convicts (iv) Foreign sovereigns, diplomatic staff, and accredited

representatives of foreign states (v) Corporation and a company

Two or more persons are said to consent when they agree upon the same thing in the same sense. “ It is also known as consensus ad idem (i.e., meetings of the minds). For the creation of contract, there must be consensus ad idem

� Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

� Physical force is involved

� Acts are forbidden by Indian Penal Code.

� No relationship is required for exercising coercion, hence it can proceed from a third party on third party.

� Suicide also amounts to coercion.

� When consent to an agreement is caused coercion, the agreement is a contract voidable at the option of the party whose consent was caused. In other words, aggrieved party can either rescind or affirm the contract

� 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 uses that position to obtain an unfair advantage of the other.

� Mental/Moral force is involved

� Acts are not forbidden by Indian Penal Code.

� Fiduciary relationship is required.

� Following types of relations are fiduciary relation:

(a) Lawyer and client (b) Doctor and patient (c) Spiritual adviser and

devotee (d) Parents and child, etc. � Can be exercised

between same parties only.

� When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was caused. In other words, aggrieved party can either rescind or affirm the contract

� Intentional misrepresentation of facts.

� Active concealment of defects/facts

� Promise made without an intention to perform

� Since there is an intention to cheat, it is forbidden by Indian Penal Code

� The person making the statement, himself does not believe it as true.

� Mere silence does not amount to fraud. But when silence is equivalent to speech or when there is a duty to speak and the person does not speak, it amounts to fraud

� The effect of fraud is that it makes the contract voidable at the option of the party whose consent was obtained by fraud i.e., such party may put an end to the contract if he so chooses. Aggrieved party can claim damages.

� Unintentional

misrepresentation of

facts.

� Misrepresentation is a

false representation

which is made

innocently

� Since there is no

intention to cheat, it is

not forbidden by

Indian Penal Code

� The person making

the statement, himself

believes it as true.

� The effect of

misrepresentation is

that it makes the

contract voidable at

the option of the party

whose consent was

obtained by

misrepresentation i.e.,

such party may put an

end to the contract if

he so chooses.

Aggrieved party

cannot claim damages


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MISTAKE

Law Fact

Indian Law Foreign Law Bilateral Mistake Unilateral Mistake

(Both parties are (One Party is at

Not Excusable Excusable at mistake) mistake)

Valid Void Void Valid

UNLAWFUL OBJECT & UNLAWFUL CONSIDERATION

1. Agreement forbidden by law 2. Agreement defeating the provisions of law 3. Agreement causing injury to a person or loss of property. 4. Where consideration is immoral. 5. Agreement has a fraudulent object. 6. Agreement interfering with course of law and justice 7. Where consideration is opposed to public policy.

a) Stifling Prosecution b) Maintenance and Champerty c) Trading with an enemy d) Trafficking in public offices e) Marriage brokerage contracts f) Interest against obligation g) Agreement for the creation of monopolies


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• AGREEMENTS EXPRESSLY DECLARED AS VOID

AGREEMENT IN RESTRAINT OFMARRIAGE IS VOID Exceptions:

(1) Minors (2) Restraint for

particular reasonable period is valid

AGREEMENT IN RESTRAINT OF TRADE IS VOID

Exceptions:

1. An agreement through which an outgoing partner will not carry on the business of the firm for a reasonable time will be valid, though it is in restraint of trade

2. Where a person sells his business along with the goodwill to another person, agrees not to carry on same line of business in certain reasonable local limits, such an agreement is valid.

3. An agreement of service through which an employee commits not to compete with his employer is not in restraint of trade

4. Trade Combinations are valid as long as they are not creating monopoly are valid

AGREEMENT IN RESTRAINT OF LEGAL

PROCEEDINGS

An agreement which restricts or waives one’s right to sue or limits the time of justice is void. Exceptions:

(1) A contract by which the parties agree that any dispute between them shall be referred to arbitration and will not be taken to the court is a valid contract.

(2) Contracts specifying the courts

AGREEMENT THE MEANING OF WHICH IS UNCERTAIN

IS VOID

1. Payment of money or money’s worth upon ascertainment of future uncertain event is known as wagering.

2. Wagering agreements are void but collateral to wagering are valid. Illegal agreements are void and collateral to illegal are also void. 3. Promissory Note arising out of wagering is also void. 4. Game is involving Skill Valid

Chance Void 5. In horse races if amount involved is <500 Void

≥500 Valid

6. The Act provides that an agreement to buy lottery tickets is one by way of wager and is void. 7. Speculative transactions are valid as they involve skills.

WAGER ING AGREE

MENTS


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UNIT 4: PERFORMANCE OF CONTRACTS

• CONTRACT WILL BE PERFORMED BY: 1. Promisor himself 2. Legal Representative However, if the contract involves personal skills and if the promisor dies, the

contract becomes void. 3. Agent 4. Third persons, if promise permits

• REQUISITES OF A VALID PERFORMANCE

A performance to be valid must fulfil the following conditions otherwise promisor will be liable non-performance: 1. It must be unconditional 2. Performance must be at a proper time and place 3. Performance must be within reasonable time. 4. Performance must give reasonable opportunity for inspection

• EFFECT OF REFUSAL OF A PARTY TO PERFORM

If Promisor fails to perform the contract,

Promisee can

OR

Rescind the contract Affirm the contract

+ +

Claim damages Claim damages

• DISTINCTION BETWEEN SUCCESSION AND ASSIGNMENT

� Succession

When the benefits of a contract are succeeded by a process of law, both the

ASSET and the LIABILTY would be transferred to the legal heir.

� Assignment: Assignment is voluntary transfer of right. Unlike succession,

the assignor can assign only the assets to the assignee and not the liabilities.

• LIABILITY OF JOINT PROMISERS

� Liability of joint promisor is joint and several

� If any joint promisor dies, his legal representatives must jointly with the

surviving promisors fulfil the promise.

� On the death of all the joint promisors, the representatives of all of them must

jointly fulfil the promise.

� The promisee may compel anyone of the joint promisor to perform the

promise

� Where a promisee releases one of the joint promisors, the release of one

promisor does not discharge the other joint promisors

• RIGHTS OF JOINT PROMISEES

� Rights of joint promises is only joint and not joint & several


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� If any joint promisee dies, his legal representative must jointly with the

surviving promisees claim the performance.

� On the death of all the joint promisees, the legal representatives of all of

them must jointly claim the performance.

• TIME AND PLACE FOR PERFORMANCE

� Where the day for performance is not specified promisor has to

perform within reasonable time

� Where the time for performance is not specified promisor has to

perform during business hours

� Promisee has to specify day, time and place for performance.

� Where the place for performance is not specified promisor has to

apply to promise to appoint the place

� Performance is after reasonable time, business hour or at a place other than

appointed place Performance is valid if promise accepts or demands

it.

• RECIPROCAL PROMISES

� Promises which form the consideration for each other are called reciprocal

promises

Mutual and concurrent Conditional and dependent Mutual and independent

Promises are to be Performance of the promise by Party performs the promise

performed together one party depends on the prior independently without

performance of the promise by waiting for other party

the other party

� Where one party to a reciprocal promise prevents the other party from performing

his promise, the contract becomes voidable at the option of the party who is so

prevented. And the aggrieved party can also recover compensation.

� Legal and Illegal Reciprocal Promises

Legal part Illegal part

Valid Void

But if the things are inseparable then the entire agreement is void


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• EFFECTS OF FAILURE TO PERFORM AT A TIME FIXED IN A CONTRACT IN

WHICH TIME IS ESSENTIAL

When time element in a contract is When time element in a contract is

essential not essential

If promisor fails to perform within fixed If promisor fails to perform within

fixed time time

Promisee can Promisee can

• IMPOSSIBILITY OF PERFORMANCE Initial/ Existing impossibility Supervening impossibility (Impossible from the beginning) [Doctrine of Frustration as per English Law] (Possible in the beginning but

subsequently becomes void) Void Agreement Void agreement

• Aggrieved Party can

claim damages void contract

Rescind the

contract

(+)

Claim damages

Affirm the

contract

(+)

Claim damages

Only

Claim damages

Impossibility is

unknown to

both the parties

Impossibility is

known to both

the parties

Impossibility is

known to 1 but

unknown to

other

Impossibility arising due to

following circumstances:

1. Destruction of subject matter

2. Outbreak of war.

3. Change of law

4. Incapacity to perform a contract

of personal services

5. Non-existence of a particular

state of things


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• APPROPRIATION OF PAYMENTS Where the debtor has Where the creditor has Where no one has specified specified specified

Even time barred debt can be adjusted • CONTRACTS WHICH NEED NOT BE PERFORMED

1. Novation: Cancellation of old contract and substitution of new contract. It must be with the mutual consent of all the parties. 2. Alteration: It means change in one or more terms of the contract. It must be with the mutual consent of all the parties 3. Rescission : It means the cancellation of the contract. 4. Remission : It means the acceptance of lesser fulfillment of the terms of the

promise

• QUANTUM MERUIT (as much as is earned) �� Any benefit received under voidable contract which is subsequently avoided

is to be returned back . �� Any benefit received under void contract is to be returned back.

• EFFECTS OF NEGLECT OF PROMISEE

If any promisee neglects or refuses to afford the promisor facilities for the performance of a promise, the promisor is excused from the performance of his promise.

Follow his

specification and

adjust it against a

particular debt

Follow his

specification and

adjust it against a

particular debt

Appropriation as per

time

� However, if 2 loans

are taken on the

same day then

appropriation must

be done

proportionately


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UNIT 5- BREACH OF CONTRACT

Anticipatory Breach Actual Breach (Breach before due date) (Breach on the due date) Promise can

Rescind the

contract

immediately

(+)

Claim damages

Wait till the due

date &

Rescind the

contract on the

due date

(+)

Claim damages

Actual breach of

contract on the due

date of performance

Promisee can

Rescind the contract

on the due date

(+)

Claim damages

Actual breach of

contract during its

performance

Promisee can

Reject the

performance

(+)

Claim damages

DAMAGES FOR BREACH OF CONTRACT

1) Ordinary/ Usual damages: Market Value-

Contract Price

2) Liquidated damages: Pre-estimated damages

which shall arise in ordinary breach

circumstances.

3) Special damages:Pre-estimated damages

which shall arise in special circumstances.

4) Exemplary/ Vindictive/ Punitive damages:

Here intention of the party is not to recover

loss but to punish the other party. It can be

claimed in following cases:

a) Where a banker wrongfully dishonours

customer’s cheque

b) Where there is a breach of a promise to marry

5) Nominal damages: Here intention of the

parties to establish a right to sue. Such

damages are awarded by court. Such

damages are for nominal amounts like ten

rupees or even ten paise.

6) Damages for deterioration caused by delay:

Such damages are recovered for damages or

‘deterioration’ caused to goods on account of

delay by carriers

7) Remote or indirect damages: The remote

damages are not recoverable.

LIQUIDATED DAMAGES AND PENALTY

� Liquidated damages: Pre-estimated

damages which shall arise in ordinary

breach circumstances. Intention of parties is

to recover the loss. Its genuine calculation of

loss.

� Penalty: Pre-estimated penalty which shall

arise in ordinary breach circumstances.

� Intention of parties is to punish the other

party. Its not genuine calculation but its a

random amount

� As per Indian law, there is no difference

between Liquidated damages and Penalty

but English Law recognizes the difference

between the two.

� Only court can reduce the amount of

Liquidated damages/Penalty if it is found

unreasonable. However even court cannot

increase the amount.

� A party who rightfully rescinds the contract

only can claim damages.


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DISCHARGE OF CONTRACT

Discharge of contract and discharge of party are different. 1. Discharge by performance 2. Discharge by mutual agreement 3. Discharge by impossibility of performance 4. Discharge by lapse of time 5. Discharge by operation of law 6. Discharge by breach of contract 7. Discharge by remission 8. When a promise neglects or refuses to

provide reasonable facilities for the performance, promisor and contract is discharged.

ADDITIONAL REMEDIES AVAILABLE IN CASE OF BREACH OF CONTRACT:

Apart from claiming damages, following remedies are available in case of breach of contract:- 1. Rescission of contract 2. Suit for Quantum Meruit 3. Suit for Specific Performance: Where (i) The damages are not an adequate remedy or (ii) The damages cannot be estimated or (iii) The subject matter of contract is unique in nature, Then the aggrieved party can file a suit for specific performance in the court. However it is at the discretion of the court. Specific performance cannot be ordered if (i) Performance of contract is continuous in nature (ii) Performance of contract involves personal skills 4. Suit for Injunction Injunction is an order of the courts restraining a person from doingsomething which he promised not to do. In this case also, the courts are at discretion to issue an injunction order. Case Law: Lumely v/s Wagner


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UNIT 6: CONTINGENT AND QUASI CONTRACT

CONTINGENT CONTRACTS

Meaning Rules of enforcement of Essentials of contingent contingent contract contract

• It is a contract to do or not to do something if the event collateral to it happens or does not happen

• Contingent Contracts Dependent on the ‘Happening’ of Future Uncertain Event

• Contract is valid- if event happens • Contract becomes void- if the event does

not happen/ becomes impossible • Contingent Contracts Dependent on the

‘Non-Happening’ of Future Uncertain Event

• Contract is valid- if event does not happen/ becomes impossible

• Contract becomes void- if the event happens

• Contingent Contracts Dependent on future conduct of a living person.

• Contract is valid if person acts accordingly Otherwise it becomes void

• Contingent Contracts Dependent on the Happening or Non-Happening of Specified Uncertain Event Within Fixed Time

• Contingent Contracts Dependent on Impossible Event is void.

1. There must be a valid contract.

2. The performance of the contract must be conditional

3. The event must be uncertain

4. The uncertain event must be collateral to the contract

QUASI CONTRACTS

INTRODUCTION

It is an implied contract. It is based on the principle of “Prevention of unjust enrichment at the expense of other”

CIRCUMSTANCES (OR CASES) OF QUASI CONTRACTS

1. Supply of necessaries to persons who are incompetent to contract 2. Payment by a Person Having Some Interest in Payment

Conditions: (i) The person making the payment must have some interest in paying the amount. (ii) The person making the payment must not be bound by law to pay the amount. (iii) The other person from whom the money is sought to be recovered must be legally

bound to pay the money. 3. Claim for any benefit received under a non-gratuitous act

Conditions: (a) The person must lawfully do something for another person or deliver something to

him. (b) The person doing some act or delivering something must not intend to act

gratuitously (c) The other person must voluntarily accept the acts or goods and he must have

enjoyed their benefits 4. Finder of goods 5. Payment of Money or Delivery of Goods by Mistake or Under Coercion


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1. A enquires from B, “Will you purchase my cow for $ 100?” B replies, “I shall purchase your cow for $ 100 provided your purchase my parrot for $120.” In this case:

(a) B has accepted the offer of A (b) B has made a counter offer to A (c) A is bound by the actions of B (d) B cannot make such an offer 2. A agrees to sell to B horse for `̀̀̀ 25,000 if he wins race and for `̀̀̀15,000 if he does

not. The horse wins the race. The agreement is: (a) Valid and enforceable (b) Void and enforceable (c) Void and wagering (d) Voidable and wagering

3. X offers to sell his house to Y for `̀̀̀10 Lacs and states in his letter that the offer

would be considered as accepted if acceptance is not communicated within a certain time. Here, the letter of X would:

(a) Amount to a proposal (b) Amount to a promise (c) Not amount to a proposal (d) Amount to acceptance 4. Goods displayed in a shop window with a price label will amount to: (a) Offer (b) Acceptance of offer (c) Invitation to offer (d) Counter offer 5. The communication of an acceptance is complete as against acceptor:

(a) When it is put in course transmission to him so as to be out of reach of the acceptor

(b) When it comes to the knowledge of the proposer. (c) When both the proposer and the acceptor declare the acceptance. (d) When the acceptor accepts his acceptance in a court of law .

6. A promise is a:

(a) Consideration (b) Contract (c) An accepted proposal (d) Proposal

7. B’s son is lost, A goes in search of B’s son. Meanwhile; B makes an offer to pay `̀̀̀

1,000 to the finder of his son. A finds B’s son. Can A claim `̀̀̀ 1,000 from B? (a) Yes, A has found B’s son (b) No, A had no knowledge of the offer. (c) No, A is hired by B. (d) None of these.

8. Cash withdrawn through ATM of a Bank is:

(a) Unilateral Contract (b) Tacit Contract (c) Executed Contract (d) Executory Contract

9. All agreements are contracts if they are Made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared as ________by law. (a) Valid. (b) Void. (c) Lawful. (d) Forceable.

10. A prospectus issued by a company for subscription of its share and debentures is :

(a) An invitation to make an offer to buy. (b) An express offer to sell the Share/Debentures. (c) Implied offer to sell the share/ debenture. (d) None of the above.

MULTIPLE CHOICE QUESTION


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11. M/s Law Book Company made an offer to sell a new law book released recently only to the members of Bar Council. This offer is called. (a) General offer (b) Specific offer (c) Implied offer (d) Invitation to offer

12. H, a coolie in uniform at the railway station carried the luggage of Z, a passenger,

from the platform to the taxi stand without being asked by Z to do so and Z did not attempt to stop him from carrying the luggage. In this, Z _________ to make payment to H: (a) Is bound (b) Is not bound (c) Is free (d) None of the above

13. An agreement to put a fire on a person’s car is a _________________.

(a) Legal (b) Voidable (c) Valid (d) Illegal

14. ___________is good in substance, but suffers from some technical defects like absence in writing, barred by limitation etc. (a) Valid contract (b) Voidable contract (c) Illegal contact (d) Unenforceable contract

15. Mohan invites Sohan to stay with him in Mumbai during X’mas vacations. Sohan

accepts the invitation and informs Mohan accordingly. When Sohan reaches Mohan’s house, he finds it locked. He, therefore, stays in a hotel. Sohan now wants to claim from Mohan the hotel charges. The option available to Sohan is that: (a) Sohan can claim the hotel charges from Mohan. (b) Sohan can claim damages (c) Sohan can file a suit against Mohan (d) None of the above.

16. B received an offer by letter. He gives his acceptance by letter which are duly

stamped addressed and put in the letter box. This amounts to: (a) Valid acceptance (b) Not a valid acceptance (c) Not the prescribed manner of acceptance (d) None of these

17. ‘A’ Telegraphed to ‘B’, will you sell me your bunglow? Let me know the “lowest

price”. ‘B’ replied, “lowest price of bunglow is $ 900”. ‘A’ agreed to buy and asked about his title deeds. To this he received no reply. (a) Yes, ‘B’ is liable to sell because offer was accepted by ‘A’ (b) No, there was no contract because ‘B’ communicated only the lowest price (c) Yes, it became a legal contract with the communication of lowest price by ‘B’ (d) No, this offer was mere a negotiate offer to receive offer.

18. Past consideration is valid in.

(a) England only (b) India only (c) Both (d) None 19. Rohan promises to make a gift of `̀̀̀10,000 towards the repairs of a temple. The

trustees of the temple of the faith of his promise incurs liabilities. Rohan does not pay. Can the trustees recover the promised amount from Rohan? (a) The trustee cannot recover anything from Rohan (b) The trustee can recover to the extent of liabilities from Rohan (c) The trustee can recover `̀̀̀ 10,000 from Rohan (d) None


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20. A who was badly in need of money offered to sell his piano worth `̀̀̀ 8,500 to B for`̀̀̀5,000. B refused to buy. A gradually lowered his price until `̀̀̀ 2,500 was reached, which B accepted. Before the piano was delivered A received an offer of a larger sum from X and he refused to carry out the contract with B claiming that the consideration was inadequate. Is A liable to pay damages to B for failure to carry out his part of contract? (a) No, as the consideration was inadequate A cancelled the contract. (b) Yes, A is liable to pay damages to B for failure to carry out his part of the

contract. (c) No, as the contract was made due to Undue influence (d) Any of the above

21. Which of the following is Void Agreement?

(a) Agreement the meaning of which is certain (b) Agreement with unlawful consideration (c) Agreements with minor. (d) Agreement with inadequate consideration, if inadequacy is not supported by

free consent. 22. Contracts of love and affection are valid under which head.

(a) Contract without consideration (b) Contract with consideration (c) Stranger to a consideration (d) None of these

23. Under the Indian Contract Act, 1872, which one of the following is not an essential

element of a contract? (a) Intention to create a legal relationship. (b) Adequacy of consideration. (c) Certainly of meaning (d) Free Consent.

24. Which one of following statements is not correct?

(a) Consideration cannot come from a third person. (b) Consideration may be executed or executor. (c) Consideration must be real. (d) Consideration may be past also.

25. Mr.Pramod, by a deed of gift transferred certain property to his daughter (X) with the

direction that she should pay an annuity to her sister ‘Y’, ‘X’ executed a writing in favour of ‘Y’ agreeing to pay the annuity, Later on, ‘X’ refused to pay the amount to her sister taking a plea that no consideration is given to her in return from ‘Y’, Can ‘X’ refuse to pay to ‘Y’? (a) She is not bound to pay the promised amount as the promise made by her

father on behalf of her, which is not valid (b) She is not bound to pay the promised amount as the condition automatically

vanishes after the death of her father (c) She is bound to pay only reasonable amount as she was not direct party of

this contract (d) She is bound to pay the promised amount because consideration need not

necessarily move from the promise only. 26. It a creditor does not file a suit against the buyer for recovery of the price within 3

years the debt becomes: (a) Time barred and hence irrecoverable (b) Time barred but recoverable (c) Not time barred (d) None of these.


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27. Atul contracted to make and deliver 350 pairs of shoes to Bansi by 1st January. A strike of Atul’s employees prevented him from fulfilling his contract. In a suit by Bansi for breach of contract, Atul claimed that the contract was terminated by impossibility of performance. Was his defence good? (a) No, Atul is liable to Bansi for damages (b) Yes, doctrine of supervening impossibility applies (c) Yes, doctrine of frustration will apply (d) Option (b) but not (c)

28. X offers to sell a painting to Z which X knows is the copy of a well-known master piece. Z thinking that the painting is original decides to buy it at a very high price. Is this a valid contract? (a) Yes, price is not the criteria for setting aside the contract (b) No, X is guilty of fraud. (c) Yes, Z has an erroneous belief as to the value of the painting (d) No X is guilty of misrepresentation

29. X agrees to pay ‘Y’ `̀̀̀ 5,000 if Y delivers a judgement in his favour in a suit. ‘Y’ does

so but X refuses to pay any money. In this context which one of these gives the correct legal position of the agreement? (a) The agreement is void being opposed to public policy (b) The agreement is valid and enforceable (c) The agreement is voidable at the option of ‘Y’ (d) The agreement is void because the object is unlawful forbidden by law

30. In case, though the husband was a divorcee, he did not disclose the fact of his

previous marriage to his wife and in-laws. It was held that the consent was obtained by: (a) Mistake (b) Misrepresentation (c) Fraud (d) Undue influence

31. A sum of money was agreed to be paid to the father in consideration of his giving

his daughter in marriage. The agreement is void on ground’s of being: (a) Restraint of marriage (b) Marriage brokerage contract (c) Restraint of personal liberty (d) Restraint of legal proceedings

32. Which of the following agreements are expressly declared void by the Indian

Contract Act? (a) Agreement made without consideration (b) Agreement by a minor or a person of unsound mind (c) Agreement in restraint of marriage (d) Agreement of which the consideration and object are unlawful

33. A minor can do which of the following things?

(a) Plead minority (b) Can act as an agent (c) Enter contract of apprenticeship (d) All of the above

34. Which of the following statement is not correct?

(i) A threat to commit suicide does not amount to coercion (ii) Undue influence involves use of physical pressure (iii) Ignorance of law is no excuse (iv) Silence always amounts to fraud (a) (i) and (ii) (b) (i), (ii) and (iii) (c) (i), (ii) and (iv) (d) (ii), (iii) and (iv)


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35. A minor’s estate is liable for the _________supplied to him: (a) Luxuries (b) Necessities (c) Necessaries (d) All the things

36. S instructs T to enter on his behalf into a wagering transaction. T loses in the

transaction and pays from his pocket. He thereafter sues S for reimbursement. Can S raise plea of wager? (a) Yes, S can raise the plea of wager (b) No, as the agent’s transaction, which is collateral to the main

transaction,which is void is not affected. (c) Yes, S can raise the plea of wager but only in the states of Maharashtra &

Gujarat (d) Option (b) is correct whereas (c) is an exception

37. The person providing necessaries to minor is entitled to be reimbursed from miner’s

property. This is because of which type of contract. (a) Contingent contract (b) Quasi contract (c) Voidable contract (d) None of these

38. All agreements in restraint of trade are void does not apply to:

(a) The admission of a new partner (b) Sale of goodwill (c) Bothe (a) and (b) (d) None of these

39. When one party is in a position to dominate the will of another and uses his superior

position to obtain the consent of weaker party, the contract is said to be obtained by (a) Fraud (b) Undue Influence (c) Coercion (d) Misreprentation

40. In Coercion _________pressure is applied

(a) Physical (b) Mental (c) Both (a) & (b) (d) None of these

41. When parties do not intend to perform the contract they made then it amounts to:

(a) Fraud (b) Misrepresentation (c) Mistake (d) None of these

42. X is a patient in lunatic asylum. At intervals of time he is of sound mind. He can enter into contract: (a) At any time (b) During intervals when he is of sound mind. (c) During the course of his unsoundness of mind. (d) When he is discharged but of unsound mind.

43. A sells his dog through auction sale. B was the highest bidder. B purchases the

dog, the dog was of unsound mind but A doesn’t disclose this fact to B. The act of A is ________? (a) The act is fraudulent (b) It amounts to sale (c) It amounts to illegal act (d) It does not amounts to fraud.

44. Which of the following can be a party to enter into a contract?

(a) A convict under sentence (b) Joint stock company (c) Minor (d) All of the above.

45. An unsound person ‘B’ is liable for necessaries provided to him to the extent of:

(a) B’s estate (b) B personally (c) B’s relative (d) B’s son


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46. A person who had the means of discovering the truth with ordinary diligence can avoid the contract on the ground of misrepresentation. This statement is ________ (a) True (b) False (c) Partly true (d) Can’t say

47. In relation to a Contract the term “Consensus-ad-idem” under the Indian Contact act

1872 means. (a) Reading an agreement (b) Reaching of Contract (c) General Consensus (d) Meeting of minds upon the same thing in the same sense.

48. A master ask the servant to sell the goods to him at the price less than market price. The Contract can be avoided by the servant on the ground of ____________. (a) Coercion (b) Fraud (c) Mistake (d) Undue influence

49. A person who enters into a contract with a minor ___________.

(a) Responsible for Losses arising out of contract. (b) Not responsible for all the losses. (c) Responsible for giving compensation granted to a suit. (d) Cannot sue the minor.

50. A Criminal Act is involved in __________

(a) Coercion (b) Undue influence (c) Misrepresentation (d) All of the above.

51. Ram a minor got injured his left leg in a football match. He engaged a doctor for the

treatment of the leg. The doctor wants to claim for his services from the minor’s property. The claim of the doctor is __________under the Indian Contract Act, 1872. (a) Valid (b) Invalid (c) Void (d) Illegal

52. Execution of a bond requiring employees leaving the organisation before the expiry of the term of service to pay compensation to the employer is considered: (a) Unenforceable agreement (b) Voidable agreement (c) Valid agreement (d) Void agreement

53. Which of the following is not applicable in relation to an agreement by a minor?

(a) An agreement by or with a minor is voidable (b) An agreement with a minor is void-ab-initio (c) A minor cannot ratify an agreement on attaining majority (d) A minor can plead minority

54. Gopalasawami proposed to Raman to give 1 kg. of opium if he destroys the

property of Swaminathan. In this case _________ (a) Consideration if unlawful (b) Object of consideration is unlawful (c) Consideration is unlawful and object of consideration is partly unlawful (d) Consideration and its object both are unlawful

55. Which one of the following statement is not correct?

(a) The maxim “quid pro quo” means lawful consideration. (b) A person entering into a contract must be major and of sound mind. (c) The maxim “consensus-ad-idem” means that parties to contract must agree

upon the same thing in the same sense. (d) Consent is not deemed to be free when vitiated by misrepresentation.


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56. In order to get a job Q paid a sum of `̀̀̀ 2,00,000 to S to influence a Head of a Public Service Commission. S agrees to do the job but fails to get Q any job in the commission. Q sues S for recovery of the money paid. In this connection which one of the following is correct? (a) Q can recover the amount with interest at the rate of 10% (b) Q can recover the amount paid (`̀̀̀ 2,00,000) and damages. (c) The contract is void as it is opposed to public policy and Q cannot recover the

money. (d) The contract is valid and Q can recover the money paid to S.

57. Peter buys a mosquito killer machine assuming that is worth `̀̀̀50,00,000. The

machine actually is worth only `̀̀̀ 5,000. The remedy available to Peter is: (a) The agreement can be avoided on the ground of mistake. (b) The agreement cannot be avoided on the ground of mistake. (c) Peter can sue for return of `̀̀̀ 5,000. (d) Peter can sue for recovery of `̀̀̀ 50,000.

58. In case there is misrepresentation, the remedy left with parties is to __________the

contract. (a) Alter (b) Rescind (c) Accord (d) Novate.

59. ___________ does not affect the free consent of the parties.

(a) Fraud (b) Coercion (c) Incompetency of the parties (d) Undue Influence

60. A lets out a theatre to B for a series of drama for certain days. The theatre was

completely destroyed be fire before the scheduled dates. In the case: (a) The contract is discharged by impossibility of performance (b) The contract is void ab initio (c) The contract is voidable at the option of B (d) A cannot be discharged of the contract

61. A servant is employed for one year on a monthly salary of 1800, the whole salary to

be paid at the end of the year. The servant wrongfully leaves the service after six months. Is he entitled to any salary? (a) He is entitled to the whole salary (b) He is entitled to the salary of six months. (c) He is entitled to the salary which his master thinks suitable (d) He is not entitled to any salary

62. In case of default by joint promisors, the promise:

(a) Cannot sue any single promise (b) Can sue any one of them to the extent of his share in the joint promise (c) Can sue any one of them for the entire promise (d) Both (a) and (b)

63. A contract of personal volition is not performed by:

(a) The agent (b) The promises (c) The legal representatives (d) All of these

64. The right of joint promises to demand performance is:

(a) Joint (b) Several (c) Joint or several (d) Joint and several


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65. It time is essence of a contract and the promisor fails to perform the contract by the specified time, the contract: (a) Remains Valid (b) Becomes Void (c) Becomes Unenforceable (d) Becomes Voidable at the instance of the promise

66. Whether time is the essence of the contract depends on the:

(a) Provisions of law (b) Intention of the parties (c) Facts and circumstances of each separate case (d) All of the above

67. Which of the following contract is not discharged by frustration?

(a) Government intervention (b) Destruction of goods (c) Change of law (d) Commercial Impossibility

68. X paid to Y `̀̀̀7,00,000 for purchase of a flat. Y promised to give possession of the

flat after one year. Y’s promise to give the possession is: (a) Executed (b) Executory (c) Past (d) Future

69. The process by which one person succeeds rights interest and benefits and

obligations of another person is termed as:- (a) Assignment (b) Succession (c) Remission (d) Recission

70. Brown promises to sell his house to Crown for `̀̀̀20,00,000. Later on both of them

agreed not to execute the deal; this is known as:- (a) Novation (b) Remission (c) Recession (d) Alteration

71. A agrees to pay 10,000 to B after 2 years. During this period B dies. After 2 years, B’s son C claims the amount from A. C’s claim is __________. (a) Invalid (b) Enforceable (c) Not enforceable (d) Unlawful.

72. A holds a house under a lease agreement. Subsequently he buys the house and

becomes the owner of the house. The contract is discharged by (a) Rescission (b) Novation (c) Waiver (d) Remission

73. Which of the following is not applicable in relation to performance of reciprocal promises? (a) They can be performed simultaneously, (b) They cannot be performed simultaneously. (c) They can be performed in an order fixed by the parties. (d) The order of performance may be decided by the nature of transaction

74. If no time is specified for performance of contract, it must be performed within a

reasonable time. “Reasonable time” means time _____________. (a) Which seems to be reasonable to the promisor (b) Which seems to be reasonable to the promise (c) Which is determined as reasonable by a third person (d) Which is reasonable under the facts and circumstances of the case


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75. Sharma promised to teach Verma for the preparation of an examination. Sharma dies. In this case __________. (a) Legal representatives of Sharma can be compelled to perform the promise. (b) Verma can claim damages. (c) The agreement is voidable at the option of Verma. (d) The contract comes to an end.

76. When a voidable contract becomes void the rule of __________.

(a) novation applies (b) Impossibility applies (c) restitution applies (d) recession applies

77. X and Y enter into two agreements which are collaterial to each other. One agreement is illegal and the other is legal but inseparable from the illegal one. In this case both the agreements are: (a) Valid (b) Void (c) Voidable (d) None of the above.

78. Nirmal a professional singer enters into a contract with new Mumbai Opera House

for a sum of `̀̀̀20,000 for one hour. The sum was paid to Nirmal in advance. On the day of programme Nirmal meets an accident and is unable to Sing-Decide whether. (a) Nirmal must refund the advance money of`̀̀̀20,000 paid by Opera House. (b) Nirmal need not refund the advance money of `̀̀̀20,000 paid by Opera House. (c) Opera House will compel Nirmal to sing (d) Nirmal should enter into a new contract for singing at the Opera House.

79. Asok owes `̀̀̀25,000 to Laxmi. Laxmi promises to accept `̀̀̀15,000 in full settlement of

the original debt. Such an agreement is : (a) Voidable (b) Valid (c) Illegal (d) Unenforceable

80. Which one of the following is relevant in normal circumstances in determining the

amount of damages from breach of contract? (a) Normally expected loss (b) Difference between market price and contract price (c) Sudden closure price of production (d) Additional expenses for procuring the goods

81. A party who does not suffer any loss in case of breach of contract is entitled to:

(a) Statutory damages (b) Liquidated damages (c) Exemplary damages (d) Nominal damages

82. Specific Performance may be ordered by the court when:

(a) Damages are an adequate remedy (b) Damages are not an adequate remedy (c) Defaulting party is not ready to pay damages (d) Contract is not voidable

83. Damages which an aggrieved party claim besides general damages for any loss he

has suffered owing to special circumstances known to both the parties at the time of singing the contract are known as: (a) General damages (b) Special damages (c) Nominal damages (d) Vindictive damages

84. ________ damages are measured on the basis of extent of shock to the sentiments

of promise (a) Vindictive (b) Nominal(c) Loss of reputation (d) Discomfort


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85. In case of anticipatory breach, where the promise elects to keep the contract alive, if during the time the contract remains open, some event happens discharging the promisor from his liability, the contract becomes: (a) Voidable (b) Illegal (c) Contingent (d) Void

86. P contracts with Q to deliver possession of a house under construction within a

period of six months; failing which he would pay the monthly rental of Q. The monthly rental payable by P for Q is in the nature of : (a) Penalty (b) Liquidated Damages (c) Exemplary Damages (d) Special Damages

87. N chartered M’s ship and agreed to load it with a cargo in Orissa within 50 days. N

was unable to supply the cargo but M continued to demand it. Meanwhile war broke out, rendering the performance impossible. In such a case: (a) M cannot sue for damages (b) Contract is discharged (c) Neither (a) nor (b) (d) Both (a) and (b)

88. In which of the following cases a claim is not enforceable on the ground of quantum

meruit? (a) A is engaged by B to write a book to be published in instalments in weekly

magazine. The magazine is abandoned after a few issues. (b) A is employed as a managing director in a company. After he renders service

for sometime it is found that the directors were not qualified to appoint him as such.

(c) A undertakes to build a house for B for `̀̀̀ 25,000, but after having done half the work he abandons the contract. B afterwards completers the house.

(d) A decorates B’s flat and fits a wardrobe and a book-case for a lump sum of `̀̀̀15,000. The work is done but B complaints of faulty workmanship.

89. G a film star agreed to act exclusively for Y, a film producer, for one year. During

the year, she contracted to act for some other producer. In this case, Y: (a) Can restrain G by an injunction (b) Cannot sue G at all (c) Has to produce the film with other actors only (d) Cannot restrain G by an injunction

90. E contracts to marry F. Before the agreed date of marriage, E marries K. Here, F is entitled to sue E for: (a) Anticipatory Breach in an express manner (b) Actual Breach in an express manner (c) Anticipatory Breach in an implied manner (d) Actual Breach in an implied manner

91. The damages which are not natural and direct are known as:

(a) Penalty (b) Liquidated damages (c) Ordinary damages (d) Remote damages

92. _______damages are awarded to establish a right of decree for the breach of

contract. (a) Ordinary damages (b) Nominal damages (c) Special damages (d) Liquidated damages


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93. Suman, age of 17 year, enter into a contract for the sale of property but breaches the contract before performance. Can buyer file any claim in this condition? (a) Yes (b) No (c) Can’t say (d) None

94. Sometimes a party is entitled to claim compensation in proportion to work done by

him. This is possible by a suit for. (a) Damages (b) Injunction (c) Quantum meruit (d) None of these

95. A fair and genuine pre-estimated sum of damages likely to result due to breach of

contract is termed as (a) Liquidated Damages (b) Ordinary damages (c) Penalty (d) None of the above.

96. In case of anticipatory breach of contract the _________.

(a) contract automatically comes to an end. (b) promisor is discharged of his liability. (c) promise has no remedy. (d) promise can claim damages.

97. Which of the following statement is true with respect to a voidable contract, the

injured party ________. (a) Is entitled to recover compensation (b) Has a right to sue for damages (c) Has a right to rescind the contract (d) All of these.

98. __________is only a circulation of an offer, it is an attempt to induce offers &

precedes a definite offer. (a) Express offer (b) Implied offer (c) Specific offer (d) Invitation to offer.

99. If the promise accepts the anticipatory breach of contract committed by the

promisor, then: (a) The promise need not perform his part of the contract, but he cannot claim

damages from the promisor (b) The promise must perform his part of the contract before claiming damages

from the promisor. (c) The promise need not perform, and he can claim damages from the

promisor (d) The promise needs to perform his part, of the contract immediately in order to

keep the contract alive. 100. The basis of ‘quasi contractual’ relations is the:

(a) Existence of a valid contract between the parties (b) Prevention of unjust enrichment at the expense of others (c) Existence of a voidable contract between the parties (d) Provision contained in section 10 of the Indian Contract Act

101. A agrees to pay B a sum of money if a certain ship does not return. The ship is

sunk. A refuses to pay. Advise B. (a) B can enforce the contract when the ship sinks (b) B can claim damages (c) B can not enforce the contract when the ship sinks (d) None


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102. The Indian Contract Act details with the following Quasi – Contractual Obligations:-

(i) Claim for necessaries supplied to a person incompetent to contract (ii) Responsibility of finder of goods (iii) Re – imbursement of money paid, due by another (iv) Obligation of person enjoying benefit of non – gratuitous act (a) (ii) & (iii) (b) (i) & (ii) (c) (i), (ii), (iii) & (iv) (d) (iii) & (iv)

103. A person who finds goods belonging to another and takes them into his custody, is

subject to the same responsibility as a: (a) Thief (b) Trespasser (c) Bailee (d) True Owner

104. _________are the contracts implied by law:

(a) Contingent contracts (b) Implied contract (c) Quasi contract (d) All of these

105. To claim reimbursement of money paid on behalf of another person, which of the

following is not required? (a) Payment must be made to a third party to whom the another party was liable (b) Payment must be voluntary (c) There should be some legal or other coercive process compelling the

Payment (d) Original liability should be of another person

106. U leaves his goods at V’s place who consumes them. V is bound to pay the price.

V’s act of consumption of goods constitutes an implied promise to pay, under the principal of : (a) Deemed Contractual Obligations (b) Semi Contractual Obligations (c) Contractual Obligations (d) Quasi – Contractual Obligations

107. Wagering agreement is : (a) Valid (b) Void (c) Voidable (d) None of these

108. The Contract of General Insurance is :

(a) Contingent (b) Valid (c) Voidable (d) None of these 109. A promised to give `̀̀̀50,000 to B, If B is selected as the President of Co-operative

society. It is _________. (a) Void contract (b) Contingent contract (c) Wagering contract (d) Illegal contract

110. Events in case of contingent contracts are:

(a) Collateral and Uncertain (b) Certain and Collateral (c) Collateral (d) None of the above

111. A contingent contract is a/an:

(a) Absolute contract (b) Conditional contract (c) Uncertain contract (d) Uneforceable contract


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112. A contingent contract dependent upon non happening of a future uncertain event becomes void when such event: (a) happens (b) does not happen (c) becomes impossible (d) None of these

113. Under the Indian Contract Act, 1872 ________ is the essential characteristic of a

Contingent Contract (a) Performance to depend only upon happening of some event in future. (b) Performance to depend only upon non-happening of some event in future. (c) Performance is dependent upon happening of some event in future. (d) None of the above.

114. Ashok Kumar is a famous hockey coach. He agrees to impart training in hockey to

Sachin, who is a minor at a remuneration of `̀̀̀10,000 per month. This is a (a) Void Agreement (b) Voidable Contract (c) Quasi Contract (d) Contingent Contract

115. The law relating to “Quasi-Contracts” is based on ___________. (a) absence of agreement between the parties. (b) the rights against a particular person. (c) principals of public policy and morality. (d) principles of equity justice and good conscience.

116. Which one of the following is an essential element of contingent contract?

(a) Performance depends on happening or non-happening of some event. (b) The event is not collateral to the contract. (c) The event should not be the consideration for a promise. (d) The event should not be the mere will of the promisor.

117. A finder of a purse on a road in the market, is duty bound to trace the real owner of

purse. If the finder does not do so, he shall be guilty of : (a) Extortion (b) Theft (c) Criminal misappropriation of property (d) None of the above.

118. Essential feature of a contingent contract is

(a) Performance to depend on happening or non-happening of an event in future (b) Performance depends only on happening or non-happening of an event in

future. (c) Performance depends only on non-happening of an event in future (d) None of the above.

119. Every wagering agreement is of a _________ nature.

(a) Collateral (b) Impossible (c) Contingent (d) Void.

120. A contract to do or not to do something if some event, collateral to such contract does or does not happen is : (a) A contingent contract (b) A wagering agreement (c) Illegal agreement (d) Void agreement


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CHAPTER 2 - SALE OF GOODS ACT

UNIT 1 : FORMATION OF CONTRACT OF SALE

• INTRODUCTION

• Introduced on 1st of July, 1930 • Applicable to whole of India except Jammu & Kashmir • This law was previously part of Indian Contract Act, 1872 • Where the Sale of Goods Act is silent on any point, the Indian Contract Act is

applicable. • CONTRACT OF SALE

Sale Agreement to sell (Executed) (Executory) “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price • DEFINITIONS

1. Buyer : Buyer means a person who buys or agrees to buy goods. 2. Seller : Seller means person who sells or agrees to sell goods. 3. Goods: Any movable asset, except money and actionable claims, including stocks and shares, including growing crops, grass and things attached to or forming part of the

land which are can be severed before the contract of sale.

Classification of Goods

Existing Goods

Goods which are

already in existence

at the time of

contract of sale

Future Goods

Goods which are to

be manufactured in

future.

Contingent Goods

Acquisition of such

goods depends upon

a contingency which

may or may not

happen.

Specific/Ascertained

Goods

Goods which are

identified and agreed

upon at the time of a

contract

General /Unascertained

Goods

Goods which are not

specifically identified

but indicated by

description at the time

of the Contract


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� Money here means legal tender of money, i.e. the recognised circulation in the country; but not old rare coins.

� Things attached to the earth are not movables, but trees, growing crops which can be easily severed from the earth before sale. Fruits, vegetables and flowers which can be separated from the trees, are included in ‘goods’.

� Livestock i.e. cows, buffaloes, cats etc are ‘goods’. � Patents, copyrights, goodwill, trade-marks, are all considered goods

which can be the subject matter of a contract. � Water, gas and electricity are goods � As per English law, “shares and stock” are not treated as “goods”. � To conclude, everything movable is goods, except the following:-

1. Money 2. Actionable Claims 3. Immovable assets 4. Services 5. Human Beings

4. Price = Money Consideration of the goods

• Gift of Goods ≠ Sale Of Goods Act • Exchange of goods for goods i.e Barter ≠ Sale Of Goods Act • Exchange of goods for goods + Price = Sale Of Goods Act

5. Property

General property Special property (ownership) (interest) But in Sale Of Goods Act, ‘property’ means the general property in goods and not merely a special property

6. Mercantile Agent Mercantile Agent means an agent having authority to sell goods, or to

consign goods for the purpose of sale, or, to buy goods, or to raise money on the security of goods.

7. Documents showing Title to Goods/ Documents of Title to Goods 8. Delivery: Delivery means voluntary transfer of possession

It is a document

which shows the

ownership of

goods.

It is a document which is

used as proof of the

possession or control of

goods.

Actual delivery

When the goods are

actually physically

delivered to the buyer.

Symbolic delivery

When there is a delivery

of a thing in token of a

transfer of something

else

Constructive delivery:

When it is affected

without any change in

the custody or actual

possession


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• ESSENTIAL ELEMENTS OF A VALID CONTRACT OF SALE 1. All the requirements of a valid contract must be fulfilled 2. There must be two parties to the contract of sale 3. There must be some goods as a subject-matter 4. The general property in the goods must be transferred to the buyer 5. There must be some price for the goods 6. A contract of sale can be absolute or conditional

• DISTINGUISH BETWEEN 1. Sale and Bailment

Sale Bailment

1. The ownership in goods is transferred from the seller to the buyer.

1. There is only transfer of possession of goods from the bailor to the bailee

2. The return of goods in contract of sale is not possible.

2. The bailee must return the goods to the bailor on the fulfilment of the purpose for which the bailment was made.

3. The consideration is the price in terms of money.

3. The consideration may be gratuitous or non-gratuitous.

2. Sale and Agreement to sell

Sale Agreement to sell

1. Ownership and risk are immediately transferred

1. Ownership and risk are transferred at some future time

2. A sale is an executed contract 2. An agreement to sell is an executory contract

3. Consequences of Breach by buyer : In a sale, if the buyer fails to pay for the goods, the seller can: (i) File a suit for recovery of price (ii) Claim damages.

3.Consequences of Breach by buyer : In an agreement to sell, if the buyer fails to pay for the goods, the seller can only claim damages for breach of contract

4. Consequences of Breach by seller : In a sale, if the seller defaults, i.e. commits a breach, the buyer can: (i) sue for damages (ii) claim the goods back from third party

4. Consequences of Breach by seller : In the case of an agreement to sell, if the seller commits a breach, the buyer can only claim damages.

5. A subsequent loss or destruction of the goods is the liability of the buyer

5. Such loss or destruction is the liability of the seller.


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3. Sale and Hire Purchase

Sale Hire Purchase

1. Ownership is transferred immediately 1. The ownership in goods passes to the hirer upon payment of the last instalment.

2. The position of the buyer is that of the owner of the goods.

2. The position of the hirer is that of a bailee till he pays the last

3. The return of goods in contract of sale is not possible.

3. The hirer may, if he so likes, terminate the contract by returning the goods to its owner without any liability to pay the remaining instalments.

4. If buyer becomes insolvent, seller takes the risk

4. The owner takes no such risk, for if the hirer fails to pay an instalment the owner has right to take back the goods.

5. The buyer can resell the goods. 5. The hirer cannot resell the goods 6. Tax is levied at the time of the contract.

6. Tax is not leviable until it eventually converted into a sale.

• CONTRACT FOR WORK AND LABOUR In contract for work and labour or materials, the contract is for the exercise of the skill and labour, and delivery of goods is only subsidiary.

• FORMATION AND MODES OF A CONTRACT OF SALE

A contract of sale may be made in anyone of the following modes: 1. There may be immediate delivery of goods, but the price to be paid at some

future date. 2. There may be immediate payment of price, but the delivery to be made at

some future date. 3. There may be immediate payment of price and the immediate delivery of

goods. 4. The price and delivery of the goods may be postponed. 5. The price and delivery of the goods may be agreed to be made in

instalments. A contract of sale may be made (a) in writing, or (b) by words of mouth , or (c) partly in writing and partly by words of mouth, or (d) may be implied from the conduct of the parties. However, if any particular mode is prescribed by any law, then the contract of sale must be made in that particular mode

• EFFECT OF DESTRUCTION OF GOODS

Goods are destroyed

before the contract of sale

Agreement is void

(Risk of goods is with the

seller)

Goods are destroyed after

agreement to sell but

before sale

Contract becomes void

(Risk if goods is with the

seller)

*Aggrieved party can

claim damages

Goods are destroyed after

the contract of sale

Contract is already

executed

(Risk if goods is with the

buyer)


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• PRICE AND MODES OF FIXING THE PRICE Price may be fixed in any of the following modes: 1. The fixation of price by the contract of sale 2. The fixation of price in a manner provided in the contract of sale [ 3. The fixation of price by course of dealings 4. The fixation of a reasonable price 5. The fixation of price by third party: � However, if such third party fails to make the valuation, the contract becomes

void. But if the buyer has received the goods and has appropriated them, he becomes bound to pay reasonable price to the seller.

� Sometime, the third party is influenced or prevented by the buyer or the seller from fixing the price. In such cases, the innocent party may recover damages from the defaulting party.


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UNIT 2: CONDITIONS AND WARRANTIES

Conditions & Warranties

Stipulations

• Condition: Stipulation essential to the main purpose of the contract

In Breach of Condition, buyer can

(i) 3Rs Rescind the contract, Return the goods, claim Refund

(ii) Claim damages

• Warranty: Stipulation collateral to the main purpose of the contract

In Breach of Warranty, buyer can

(i) Only claim damages

• DISTINCTION BETWEEN CONDITION AND WARRANTY

CONDITION WARRANTY

1. A condition is a stipulation which is

essential to the main purpose of the

contract.

1. It is only collateral to the main

purpose of the contract.

2. In Breach of Condition, buyer can

i. 3Rs Rescind the

contract, Return the goods,

claim Refund

ii. Claim damages

In Breach of Warranty, buyer can

i. Only claim damages

3. A breach of condition may be treated

as a breach of warranty

3. A breach of warranty cannot be

treated as a breach of condition

• WHEN A CONDITION CAN BE TREATED AS A WARRANTY:

1. Voluntary waiver of condition by buyer

2. Buyer treats the breach of the condition as breach of warranty

3. Waiver by law as to impossibility

4. Where a contract of a sale is not severable and the buyer has accepted the

goods or part thereof, then buyer cannot reject the goods and can only claim

damages.


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CONDITION

Express Implied

Express conditions are

those, which are agreed

upon between the parties

at the time of contract

and are expressly

provided in the contract.

It is a condition, which the law implies into the contract of sale. Law

presumes that the parties have incorporated it into their contract unless

they are expressly excluded by the parties

In case of conflict between the express and implied conditions, the express

term shall prevail

1.Conditions as to title: It is presumed that the seller has a valid title to the

goods, i.e., he has the right to sell the goods. If later on, the buyer comes to

know that the seller had no valid right to sell the goods, then he may reject

the goods and claim the refund of the price, if already paid

2. Condition as to sample: In case of sale of goods by showing the sample to

the buyer, there is an implied condition that the goods delivered shall

correspond with the quality of the sample.

3. Condition as to description: When the goods are sold by description, there

is an implied condition is that the goods shall correspond with the

description.

4. Condition as to sample as well as description:When the seller shows

sample of the goods to the buyer and also gives him their description, there

is an implied condition is that the goods shall correspond with both, the

sample as well as description.

5. Condition as to quality or fitness for buyer’s purpose: Ordinarily, there is,

no implied condition that the goods shall be fit for the particular purpose of

the buyer as seller is not responsible in following cases:

(i) To know the particular purpose of buyer.

(ii) If buyer chooses the goods negligently.

However in following exceptions, seller is responsible to the buyer:

(i) If the buyer makes his purpose clear to the seller.

(ii) If the buyer buys the goods ‘relying upon his skill and judgment’.

6. Condition as to merchantability:The term ‘merchantability’ has not been

defined in the Sale of Goods Act.

Goods are purchased for

Self use Resale

7. Condition as to wholesomeness: As per this condition, foodstuffs/eatables

sold must be fit for human consumption

Then they should be

reasonably fit for the

purpose for which they

are generally used

Then they should be

immediately re-saleable in

the market under their

description


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WARRANTY

Express Implied • DOCTRINE OF CAVEAT EMPTOR (BUYER BEWARE)

� The Doctrine states generally seller is not responsible for bad goods. This Doctrine takes the side of the seller.

Seller is not responsible in following cases:- (i) To know the particular purpose of buyer. (ii) If buyer chooses the goods negligently (iii) If the goods are defective and the defect is patent (i.e defect which can

be discovered by mere inspection) � Exceptions : The exceptions to the doctrine of Caveat Emptor; which are

mentioned below (i.e in the following seller is responsible) : 1. Where the buyer specifies the particular purpose for which the goods

are required to the seller. 2. Where buyer relies on the seller’s skill or judgment. 3. Where there is contract of sale by sample, the rule of caveat emptor will

not apply if the goods do not correspond with sample 4. Where goods are bought by description, the goods shall correspond

with the description. 5. If the goods are bought both by sample as well as by description this

rule will not apply if goods do not correspond with both sample and description.

6. There is an implied condition that the goods shall be of merchantable quality

7. When the seller actively conceals some defect in the goods so that the same could not be discovered by the buyer on a reasonable examination, then the rule of Caveat Emptor will not apply.

8. When the goods are purchased under some brand name.

Express warranties are

those, which are agreed

upon between the parties

at the time of contract

and are expressly

provided in the contract.

It is a warranty, which the law implies into the contract of sale. Law

presumes that the parties have incorporated it into their contract unless

they are expressly excluded by the parties

In case of conflict between the express and implied warranties, the express

term shall prevail.

1. Warranty as to quiet possession: Where the buyer has obtained

the possession of the goods, he has a right to enjoy them in a way

he likes. If buyer’s right of possession and enjoyment is disturbed

by anyone, then the buyer can recover damages from the seller

2.Warranty as to free from encumbrance: There is an implied

warranty that the goods sold shall be free from encumbrance i.e

loans/liability. If buyer had to pay any loan , he can claim it as

damages from the seller

3. Disclosure of dangerous nature of goods: There is another

implied warranty on the part of the seller that in case the goods are

dangerous, then the seller must warn the buyer of the danger. If

there is breach of this warranty, the buyer can claim damages

4. Warranties implied by customs: The parties enter into an

agreement subject to the known customs or usages of trade, if

there is breach of this warranty, the buyer can claim damages


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UNIT 3: TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS

� TRANSFER OF PROPERTY Meaning: The term ‘property in the goods’ may be defined as the legal ownership of the goods. Transfer of Ownership means transfer of Risk, Rights and Returns pertaining to the goods

Rules: 1. The ownership is transferred at the time of making the contract if the

following conditions’ are fulfilled: a) The sale must be of specific/ascertained goods b) The goods must be in a deliverable state c) The contract of sale must be unconditional

2. Transfer of ownership in case of sale of unascertained goods

(a) When the goods are ascertained and (b) When the goods are appropriated to the contract: Appropriation is the

process by which the goods to be delivered under the contract are identified and set apart with the mutual consent of the seller as well as buyer.

3. Where the specific goods are to be put in a deliverable state by the seller ,

the ownership is transferred as soon as the seller has put the goods in a deliverable state and the buyer comes to know about the act of the seller.

4. Where the specific goods in a deliverable state are to be weighed or

measured by the seller to ascertain the price, the ownership is transferred to the buyer as soon as the seller has done the act of ascertaining the price and the buyer comes to know about this act of the seller.

5. However, parties may decide to pass the ownership as per the contract. 6. Transfer of ownership in case of sale on approval

� The ownership of goods is with seller and the possession of goods is with buyer

� The buy er has an option to return the goods. � The ownership is transferred to the buyer in any of the following three

ways: a) When the buyer accepts the goods b) When the buyer adopts the transaction by doing some act which shows

that he has accepted the goods c) Where the buyer fails to return the goods within fixed or reasonable time

Transfer of property:

1.Meaning

2.Rules

Acceptance of Goods

Delivery of Goods:

1. Meaning

2. Rules


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7. Reservation of right of disposal • The seller may like to retain the ownership of the goods until some later

date, e.g., until the price is paid or some conditions are fulfilled. The seller may do so by reserving his right of disposal.

• In the following two circumstances the seller is presumed to have reserved the right of disposal : 1. By taking the documents showing title in his own name or his

agent’s name 2. By sending the bill of exchange for the price, to the buyer, along

with the documents of title 8. Risk passes with the ownership

� The risk and the ownership of the goods go together. In other words, the goods are at the risk of the party who has the ownership of the goods.

� Exceptions: a) Agreement between the parties: The risk and the ownership may

be separated by an agreement between the seller and the buyer. b) Goods are at the risk of the party in default c) Trade customs : The risk and the ownership may also be

separated by the trade customs 9. Transfer of title by non-owners

� “Nemodat quod non-habet”: This means that ‘no one can transfer a better title than he himself has’. Thus, the buyer cannot get a better title than that of the seller. If the seller’s own title is defective, the buyer’s title will also be defective.

� Exceptions: In the following exceptional circumstances a non-owner can transfer a valid

title to a bonafide buyer: 1) Sale by a mercantile agent 2) Sale by a joint owner: When the joint owner is in the sole possession

of the goods, and he sells them to a person who buys in a good faith, the buyer gets a valid title to the goods.

3) Sale by estoppel: When the owner of goods, by his conduct or by statement, wilfully leads the buyer to believe that the seller has the authority to sell, then he is estopped (i.e., prevented) from denying the seller’s authority to sell

4) Sale by unpaid seller: To be done in Unit 4 5) Sale by a seller in possession of goods after their sale : If the seller

continues to have the possession of the goods even after their sale and if he resells the same goods to a new buyer then in such cases, the second buyer gets a valid title to the goods if he buys them in a good faith

6) Sale by a buyer in possession of goods after their sale: If the buyer obtains the possession of the goods which he has bought or agreed to buy from the seller and the seller still has some lien or other rights over the goods. If the buyer resells the same goods to a new person. In such cases, the second buyer gets a valid title free.

7) Sale by a finder of goods:

If the goods are If the goods are non-perishable

perishable If the expenses on the goods ≥ 2/3rd of Market Value


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8) Sale by a person in possession under a voidable contract: The buyer gets a valid title only if the following conditions are satisfied:- a. A person must obtain the possession of the goods by coercion,

undue influence, fraud or misrepresentation. b. The seller must have obtained the possession of the goods under

a voidable contract and not under a void contract. c. The contract must not have been rescinded (i.e., put to an end) at

the time of sale d. The buyer must act in a good faith.

9) Sale Under the Provision of Other Acts : a. Sale by an Official Receiver or Liquidator of the Company will give

a valid title to the purchaser. b. Sale by a pawnee/pledgee under default of pawnor in repayment

of debt will give valid title to the purchaser. � In case of hire-purchase, hirer cannot pass a good title even

to a bonafide buyer.

� DELIVERY OF GOODS Meaning: “Delivery” means a voluntary transfer of possession from one person to another. Delivery of goods may be actual, symbolic or constructive.

Rules: 1. Buyer in position to access the goods: The delivery of the goods may be made in any of the modes, but it must have

the effect of putting the goods in the possession of the buyer or his agent. 2. Demand for delivery of goods: It is seller’s duty to put the goods in deliverable state and inform the buyer

regarding same. It is buyer’s duty to make a demand for the delivery of the goods.

3. Goods in the possession of a third person: Sometimes, at the time of sale, the goods are in the possession of a third

person. In such cases, the effective delivery takes place when such person acknowledges to (i.e., inform) the buyer, that he holds the goods on his (buyer’s) behalf.

4. Delivery to a carrier or wharfinger: Where the sold goods are delivered to a carrier/wharfinger for the purpose of

transmission to the buyer or safe custody, the delivery of goods to the carrier/wharfinger is treated as a delivery to the buyer.

5. Place for the delivery of goods:

Specified in the

contract

The goods must

be delivered at

such place

Not specified in the contract

i. In case of sale- Place of Sale

ii. In case of an agreement to sell- Place of

agreement to sell

iii. If at the time of agreement to sell, the goods are

not in existence- Place of manufacture


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6. Time for the delivery of goods:

7. Time for demand or tender of delivery: The demand of delivery by the buyer must be made within reasonable time

during business hours and on a working day. 8. Expenses for the delivery of goods: The expenses of putting the goods into a deliverable state are borne by the

seller. And the expenses of receiving the goods are borne by the buyer. However, the seller and the buyer may also agree otherwise

9. Deterioration of goods during transit: The buyer shall bear the loss of deterioration of goods which is incidental i.e.

natural in transit. 10. Delivery of goods by instalments: As a rule, the delivery of goods by instalments is not considered as a good

delivery and the buyer is not bound to accept the goods delivered to him by instalments, unless otherwise agreed.

11. Part delivery of goods:

Specified in the

contract

The goods must

be delivered at

such specified

time

Not Specified in the contract

The delivery of goods must be made

within a reasonable time during

business hours on a working day.

Where the part delivery is made

in progress of the whole delivery

Then it is treated as a delivery of

the whole and the ownership of

the whole quantity is transferred

to the buyer.

Where the part delivery is made with

the intention of separating it from the

whole

Then it is not treated as a delivery of the

whole and the ownership of the whole

quantity is not transferred to the buyer.


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12. Delivery of wrong quantity: Short delivery Excess delivery Mixed delivery or or or or

� ACCEPTANCE OF DELIVERY OF GOODS

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 i.e when the buyer adopts the transaction by doing some act which shows that he has accepted the goods; or

(c) retains the goods after the lapse of a reasonable time, without intimating to the seller that he has rejected them

Accept

the

Goods

Accept all

the

Goods

Accept

the

Goods

Reject

the

Goods

Reject

the

Goods

Reject

the

Goods

Accept

the

quantity

ordered

He shall have to

pay at the

contract price for

the goods

actually delivered

to him

The buyer rejects the whole quantity the contract is not

treated as cancelled, it is valid and subsisting. The seller still

has the right to tender again the contract quantity of goods,

and the buyer can claim damages for delay.


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UNIT 4: UNPAID SELLER � MEANING OF UNPAID SELLER:

A seller will be called ‘unpaid’ if the following conditions are fulfilled: (1) The whole or part of the price has not been paid or tendered and that the

seller has immediate right of action for the price. (2) A bill of exchange or other negotiable instrument has been received but the

same has been dishonoured.

� RIGHTS OF UNPAID SELLER Against Goods Against Buyer

When property in When property in goods is transferred goods is not transferred

(A) Rights Against the Goods:

1. Where the ownership of the goods has transferred to the buyer: In this case, the unpaid seller has the following rights: (a) Right of lien

• The right of lien is the right to retain possession of the goods. • This right can be exercised only when the possession of goods is

with the seller. • The unpaid seller of goods can retain his possession of goods until

payment of the price in following cases: a) Where the goods are not sold on credit. b) Where the goods have been sold on credit, but the term of credit

has expired c) Where the buyer becomes insolvent.

• The unpaid seller can retain the goods only for the payment of the price of the goods: He cannot retain the goods for any other charges, e.g., maintenance, charges for storage of goods during the exercise of lien etc.

• The right of lien is indivisible in nature. • Termination of Lien:

a) By delivery of goods to the carrier b) By delivery of goods to the buyer c) By waiver of the lien d) By payment of price by the buyer

(B) Right of stoppage in transit

• The right of stoppage in transit is the right to regain possession of the goods. • This right can be exercised only when,

1. Right of Lien

2. Right of

stoppage in

transit

3. Right of resale

1. Right of

withholding

delivery

2. Any other

right

1. Suit for recovery of

price

2. Rescind the contract

3. Suit for damages

4. Suit for interest


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(i) Seller should have parted with the possession (ii) Possession should be with a carrier, & (iii) Buyer has not acquired the possession. • The right of stoppage in transit can be exercised if the buyer has become

insolvent. • The unpaid seller can stop the goods in transit only for the payment of the

price of the goods. • Distinction between Right of Lien and Right of Stoppage in transit

Right of Lien Right of stoppage in transit

1. The essence of a right of lien is to retain possession

1. The essence of stoppage in transit is to regain possession

2. Seller should be in possession of goods under lien

2. In stoppage in transit, (i) seller should have parted with the possession (ii) possession should be with a carrier, & (iii) buyer has not acquired the possession.

3. Right of lien can be exercised even when the buyer is not insolvent.

3. Right of stoppage in transit can be exercised only when buyer becomes insolvent

4. Right of lien precedes right of stoppage in transit.

4. Right of stoppage in transit begins when the right of lien ends

(C) Right of Resale

2. Where the ownership of the goods has not been transferred to the buyer: (a) Right of Withholding Delivery When the ownership of the goods sold is not transferred to the buyer, if the

buyer fails to pay the price, the unpaid seller may refuse to deliver the goods

The unpaid seller has the direct

right to resell the goods in the

following circumstances:

1. Where the goods are of

perishable nature

2. Where the unpaid seller has

expressly reserved his right of

resale.

In any other case, the unpaid seller has

theright to resell the goods by following the

procedure:

1. Unpaid seller should give a notice to the

buyer of his intention to resell the goods

(+)

Additional time for payment

2. If the buyer does not pay the price within

a reasonable time, the seller may resell the

goods

� If the notice of resale is given then in case

of loss on resale, it can be recovered and

in case of profit on resale, it can be

retained.

� However the notice of resale is not

given, the seller cannot recover the loss

suffered on resale. Moreover, if there is

any profit on resale he must return it to

the original buyer


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to the buyer. Such right is known as right of withholding the delivery of the goods.

(b) Any other right Since ownership and possession of goods is with the seller, seller can use,

gift, resell the goods, etc.

(B) Rights against the Buyer 1. Suit for recovery of price Where the buyer takes the ownership as well as possession of goods and the

buyer fails to pay the price of the goods, the seller can file a suit against the buyer for recovery of the price.

2. Rescind the contract By not paying the price, the buyer has breached the contract. So the unpaid

seller can rescind the contract. 3. Suit for damages The seller may bring a legal action against the buyer for the recovery of

damages suffered. 4. Suit for interest The court may award the interest from the date of tender of the goods or from

the date when the price is payable. The rate of interest to be awarded is at the discretion of the court.

• EFFECTS OF SUB-SALE OR PLEDGE BY BUYER � The right of lien or stoppage in transit is not affected by the buyer selling or

pledging the goods unless the seller has assented to it. � Exceptions:

(a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.

(b) When a document showing title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value.

• RIGHTS OF PARTIES IN BREACH OF CONTRACT

• AUCTION SALES

� An auction sale is a sale at which the auctioneer, as agent for the seller,

invites persons present to bid for goods sold. � Auctioneer acts in a dual capacity

Rights of Buyer against Seller

1. Damages for non-delivery

2. Suit for specific performance

3. Suit for breach of warranty

4. Suit for breach of condition

5. Rescind the Contract


Rights of Seller against Buyer

1. Rescind the contract

2. Suit for recovery of price

3. Suit for damages


He acts as an agent

of the seller till the

article is ‘knocked

down’ to the bidder.

Subsequently, he

acts as an agent of

the buyer.


: 119 :

� Rules regarding Auction Sales: � Where goods are put up for sale in lots, they are deemed to be sold in lots. � The sale is complete and ownership is transferred when the auctioneer

announces its completion by the fall of the hammer or in any other customary manner.

� Bidder may retract his bid anytime before auction sale is complete. � The sale may be notified to be subject to a ‘reserve price’ or ‘upset price.’

When the sale is notified to be subject to a ‘reserve price’, the bidding and knocking down of the article to the highest bidder are all subject to the condition that the ‘reserve price’ should be reached.

� If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

� A right to bid may be ‘reserved’ expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any other person on his behalf, may bid at the auction.

� Implied warranties in auction sale: In an auction sale, the auctioneer warrants the following : 1. that he has an authority to sell; 2. that he is not aware of any defect in the title of the principal; 3. that he undertakes to handover the quite possession of the goods as

soon as the price is paid to him.


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1. Goods means every kind of movable property including: (a) Actionable currency money (b) Old currency notes (c) Goodwill and copyright (d) Both (b) and (c) 2. In case of an agreement to sell, subsequent loss or destruction of the goods is the

liability of ___________. (a) The buyer (b) The seller (c) Bothe the buyer and seller (d) The Insurance Company 3. X purchased papers from Y and resold them to Z, who found that the papers were

infected with white ants and returned them to X. Can X return the goods to Y? (a) No (b) Yes (c) Z has to return directly (d) None of the above 4. In case of sale of standing trees, the property passes to the buyer when trees are : (a) Felled and ascertained (b) Not felled but earmarked (c) Counted but earmarked (d) Bothe (b) and (c) 5. In case of a hire –purchase, the hirer: (a) Can pass a good title to a bonafide purchaser (b) Cannot pass a good title to a bonafide purchaser (c) Can choose whether to pass or not to pass the title (d) All of these 6. Where by a contract of sale, the seller purports to effect a ______ the contract

operates as an agreement to sell. (a) Future sale of existing goods (b) Present sale of existing goods (c) Future sale of future goods (d) Present sale of future goods 7. In a contract of sale, the price may be : (a) Fixed by the contract (b) Agreed to be fixed in a manner thereby agreed (c) Determind by course of dealings between the parties (d) All of the above 8. A contracts to sell to B all the oil to be produced from groundnut harvested from A’s

farm. The crops having been harvested an oil made therefrom, A fills the oil in the cans supplied by b. Does the property in oil pass to B?

(a) No, goods are not in a deliverable state (b) Yes, goods are in a deliverable state (c) No, B has not taken the delivery (d) None of the above 9. The position of the hire purchaser is that of (in sale): (a) Bailee (b) Co-owner (c) Owner (d) Seller 10. A document of title of goods. (a) Bill of lading (b) Dock warrant (c) Railway receipt (d) All of the above



: 121 :

11. Which of the following is not considered as goods? (a) Antiques (b) Jubilee coins (c) Current coins (d) None 12. X agrees to deliver in future 100 computer sets for `̀̀̀ 30 lakhs in exchange of 200

fridge sets worth `̀̀̀ 40 lakhs and `̀̀̀ 60,000 in cash. This is a : (a) Barter (b) Agreement to sell (c) Executed contract of sale (d) Sale 13. Sale is different from : (a) Agreement to sell (b) Hire purchase (c) Bailment (d) All of the above 14. Movable property does not include money but includes – (a) Stocks and shares (b) Grass (c) Growing crops (d) All of the above 15. In an agreement to sell: (a) Property passes to the buyer (b) Property does not pass to the buyer (c) Possession passes to the buyer (d) None of the above 16. The essential element of Sales of Goods is :

(a) Promise to products (b) Price (c) Transfer of possession (d) None of these

17. The sale of Goods Act,1930 deals with. (a) Mortgage (b) Pledge (c) Both (a) & (b) (d) None of the above. 18. If the goods are in a deliverable state, the buyer: (a) Is bound to take delivery (b) Is not bound to take delivery (c) Has the option to take or not to take the delivey. (d) All of the above. 19. R supplied goods to jeweller for making an ornament. The jeweller charges `̀̀̀500/-

as making charges. The deal is: (a) An agreement to sell (b) Hire purchase agreement (c) Contract for labour (d) None of the above. 20. Under the Sale of Goods Act, 1930, delivery means voluntary transfer of ______

from one party to the other. (a) Property (b) Party (c) Possession (d) Place. 21. Which of the following statements is correct in relation to ascertainment of price of

goods? (a) Price of goods must be fixed in the contract of sale (b) Parties to contract of sale of goods cannot fix the manner of ascertainment of price (c) Where parties agree that price of goods has to be fixed by a third person and

he does not fix, the agreement is void (d) Where the price is not fixed in any manner, the seller is not entitled to any

price.


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22. Which one of the following statements is not correct? (a) In agreement to sell, property in goods passes to the buyer. (b) Sale is an executed contract: (c) In agreement to sell, loss of goods is the liability of seller. (d) In sale the seller can sue the buyer for price.

23. Which of the following is not a contract of sale under the Sale of Goods Act, 1930?

(a) A partner agreed to buy goods for the firm. (b) M agreed to sell 20 kgs rice worth `̀̀̀1,000 on a future date. (c) P agreed to sell 100 chairs for `̀̀̀20,000 to R (d) X agreed to sell his building for `̀̀̀40 Lakhs to Y.

24. Viru agrees to buy the entire crop of wheat that would yield in Dheeru’s farm in

Madhya Pradesh at the rate of `̀̀̀1,000 per 100 kilograms. The deal under the Sale of Goods Act, 1930 is (a) An agreement of sale of present goods (b) Not a contract of sale (c) An agreement to sell future goods (d) All the above.

25. In a Contract of Sale price consideration can be __________.

(a) Something other than money terms (b) Only in terms of money (c) Grauitous of Non Gratuitous (d) None of the above.

26. Breach of warranty gives a right to :

(a) Reject goods (b) Treal the contract as repudiated (c) Claim new goods (d) Claim damages but not a right to reject the goods and treat the contract as repudiated.

27. X, contracts to buy from Y 1000 bags of cement. Y sends 1000 bags through truck. When cement arrives it becomes stone by the contact of rainwater. Can X reject the goods? (a) Yes – breach of condition as to wholesomeness (b) Yes – conditions as to merchantability (c) No – Yes never knew himself (d) No – X should have seen it

28. A sells his cat to B saying it is very lucky. B buys the cat but it does not proves

lucky. Has B any cause of action against A? (a) Yes for cheating (b) Yes, trial period should be given (c) No, mere expression of opinion (d) None of these

29. M sold to B a tin of disinfectant powder. He knew that it would be dangerous to

open the tin without special care but he did not warn B. B without knowledge of the danger opened the tin and injured himself. B filed a suit or damages for injury will he succeed? (a) Yes, conditions as to merchantability. (b) Yes, warranty as to disclose of dangerous nature of goods (c) Yes, warranty as to quality or fitness by usage of trade (d) Yes, condition as to quality or fitness.


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30. In a contract of sale, ordinarily there is ______as to the quality or fitness of goods for any particular purpose: (a) An implied warranty (b) An express warranty (c) No implied warranty (d) No express warranty

31. A milk- vendor supplied X with milk, which contained typhoid germs. X got infected

after consuming the milk. Is the milk – vendor bound to pay damages? (a) Yes, breach of condition as to wholesomeness (b) Yes, condition as to merchantability (c) No, A never knew himself (d) No, B Should have seen it.

32. M purchased a hot water bottle from a chemist. The bottle burst and injured his wife.

The chemist is liable on account of : (a) Breach of express condition as to quality (b) Breach of implied condition as to quality (c) Personal injury caused to the Buyer’s wife (d) Hot water bottle sales are illegal

33. The seller must warn the buyer of the probable danger related to the goods. This is

known as: (a) Express warranty (b) Implied warranty (c) Implied condition (d) Express condition

34. Doctrine of Caveat Emptor does not apply when: (a) There is an usage of trade. (b) Goods have latent defects. (c) Contract is induced by fraud. (d) In all the above situations.

35. Implied condition of merchantability is _____when buyer examines the good.

(a) Exists (b) Pre-assumed (c) Is applicable (d) Not applicable 36. A Condition is :

(a) Essential to main purpose of the Contract: (b) Collateral to the purpose. (c) Both main purpose and Collateral to the purpose. (d) Neither main purpose nor collateral to the purpose.

37. Merchantable quality of goods means:

(a) Goods are free from latent defects (b) Goods are marketable at their full value (c) Goods can be used for the purpose for which those are purchased (d) All of the above

38. The implied warranties as per the Sale of Goods Act, 1930 includes _______.

(a) Enjoyment of undistributed possession (b) Disclosure of dangerous nature of goods (c) Quality or fitness by usage of trade (d) All of the above

39. A stipulation in a contract of sale with reference to goods which are the subject

thereof may be _________. (a) A fair price (b) A lawful price (c) Condition and warranty (d) Delivery


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40. In case of ________in addition to the implied condition as to merchantability there is another implied condition that the goods shall be wholesome. (a) Silver (b) Equity shares (c) Machineries (d) Eatables

41. __________who in the ordinary course of his business has authority to sell and

dispose of the goods on behalf of his principal. (a) The seller (b) The buyer (c) Merchantile agent (d) Ordinary agent

42. ‘A’ sold a new Creata Car to B. On delivery ‘B’ found that it was not a new car. This

is. (a) Breach of Contract (b) Breach of Exchange (c) Breach of Condition (d) Breach of Guarantee

43. When a breach of condition is treated as a breach of warranty the buyer can only

_______. (a) Claim damages (b) Repudiate the contract (c) Reject the goods (d) None of the above

44. In case of sale on approval, the ownership is transferred to the buyer when the:

(a) Accepts the goods (b) Adopts the transaction (c) Fails to return goods within the specified time (d) All of these

45. A of Mumbai writes to B of Delhi to send him a book by post parcel. B recover the

price? (a) No, delivery to post office is not a delivery to buyer (b) Yes, delivery to post office is delivery to buyer (c) No, B has not got the book (d) None

46. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, he

will have to compensate the seller in a suit by him for: (a) Damages for non-acceptance (b) Price for non-acceptance (c) (a) and (b) (d) None

47. A finder of goods has the power to sell the goods and to give good title to the buyer,

if the owner of goods cannot be found with: (a) Ordinary diligence (b) Reasonable diligence (c) Due diligence (d) Lack of diligence

48. A delivers a horse to B for trial for 8 days. It was agreed that sale would be

completed if the horse was found suitable for B’s purpose. The horse died on 3rd day without any fault of either party. It was held that contract was: (a) Completed (b) To be completed (c) Void (d) Illegal

49. X purchased a DVD at a public auction. Neither Auctioneer nor X knew at that time

that the DVD was a stolen property. In such case, true owner can: (a) Recover the goods from X (b) Sue the Auctioneer for fraud (c) Both (a) and (b) (d) Either (a) or (b)


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50. __________means an act involving the selection and earmarking or separation of goods with the intention of using the goods in performance of contract of sale:- (a) Appropriation of goods (b) Ascertainment of goods (c) Transfer of goods (d) None

51. A sold a bicycle costing `̀̀̀1,000 to B. B paid 500 and after some time A insisted B to

take delivery. In the meantime bicycle is lost who bears the risk? (a) A (b) B (c) Both (d) None

52. There was a contract to supply waste coal and ash for the next six months, as and

when the waste is generated by the seller’s factory. The buyer paid the lump sum price for the next six months is advance. When does the property in the goods pass to the buyer? (a) After the lapse of six months period (b) At the time of entering into the contract (c) At the time of paying advance money (d) As and when factory discharges waste

53. Where under the contract of sale, the seller is bound to send the goods to the

buyer, but no time for sending them is fixed, the seller is: (a) Not bound to send them within a reasonable time (b) Bound to send them within a reasonable time (c) Bound to send them within a six month’s time (d) Bound to send them within a year’s time

54. When the sale is made, goods should be:

(a) Delivered to sellers place (b) Delivered to the place of business of buyer (c) Only placed at the disposal of the buyer (d) None

55. Where the seller delivers to the buyer a quantity of goods larger than he contracted

to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered he shall pay for them: (a) At the amount of the goods he ordered (b) At the contract rate for whole goods (c) Half of the amount (d) Less than the rate

56. Ram of Mumbai orders Bill of Delhi for the supply of certain goods. The station

Master of Mumbai informs Ram about the arrival of goods but before Ram could take delivery, goods are destroyed. Can Bill get the money of goods? (a) No-Ram has not taken the delivery (b) No-Property is not transferred (c) Yes – Property transferred to Ram (d) None of these

57. S was shopping in a self service supper market. He picked up a bottle of mango

squash from a shop and while examining it the bottle exploded in his hand and injured him. Can S claim damages for the injury? (a) S cannot claim damages (b) S can claim damages (c) S has to pay price for the bottle (d) None


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58. Goods are said to be in __________. when they are in such a state that the buyer would under the contract be bound to take delivery of them: (a) Salesable state (b) Deliverable state (c) Presentable state (d) None of these

59. Where goods are sold by a person who is not the owner thereof and who does not

sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. This is known as: (a) Caveat Emptor (b) NemoDat Quod Non Habet (c) Risk prima facie passes (d) None of these

60. In case of party delivery in lieu of whole, the buyer may ______the goods. (a) Reject (b) Accept (c) Demand for the balance amount of goods. (d) Either (a) or (b)

61. When does the property of the specific goods in a deliverable state, passes? (a) When payment is made (b) When possession is transferred. (c) When contract is made (d) When the notice is given to the buyer

62. A sells certain goods to B. After the contract of sale but before the goods were

delivered to B, the goods were taken by the Government for its own use. Here the seller is: (a) A (b) B (c) Both (d) None

63. When the buyer and seller both reject the goods and the goods are in transit, then

(a) It is deemed that the goods are still in transit. (b) Transit is deemed to be ended. (c) Carrier becomes the owner of the goods. (d) None of these.

64. Finder of Goods can sue the true owner of the goods for the: (a) Expenses incurred in finding the true owner: (b) Expenses incurred in preserving the goods. (c) Reward announced by the owner if he had the knowledge of the reward. (d) All of the above.

65. Risk prima facie passes with :-

(a) Property or ownership (b) Completed agreement. (c) Verification and delivery of goods. (d) Payment of price.

66. None owner can convey title under:

(a) Sale by mercantile agent (b) Sale by one of joint owners (c) By person under voidable contract not rescinded until sale (d) All of these.

67. As per the Sale of Goods Act, 1930 physical delivery of goods is not an essential

element of contract of sale. This statement is __________. (a) True (b) False (c) Party true (d) Can’t say

68. A gives a gold chain to B on sale or return basis and B gives it to C on sale or return basis. C loses the gold chain. Who shall bear the loss? (a) A, the real owner (b) B (c) C (d) None of the above


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69. When there is a sale for unascertained goods under the Sale of Goods Act, 1930 The property in the goods does not pass to the buyer until the goods are ________.

(a) Appropriated (b) Ascertained (c) Identified (d) Set apart

70. Which of the following modes of delivery is considered to be valid in a contract of sale of goods? (a) Actual (b) Constructive (c) Symbolic (d) All of the above

71. Anil sold stolen goods to Arvind and Arvind bought the said goods in good faith. Now the real owner of goods claims the goods from Arvind. In this case ________. (a) The sale of goods by Anil is valid because goods were in his possession. (b) Arvind become owner of goods because he bought in good faith (c) The maxim, “Nemodat quad non habet” is applicable (d) The maxim, “Nemodat quad non habet” is not applicable

72. Under Sale of Goods Act, 1930 which one of the following is not an essential condition of appropriation of goods. (a) Goods must be in deliverable state. (b) Assent for appropriation may be express or implied. (c) Appropriation must be unconditional. (d) Assent must be given before appropriation.

73. A seller agrees to sell 100 quintals of rice to buyer and requests him to take delivery

but buyer rejected that quality of rice and refused to take delivery. What will be suitable solution? (a) Seller can compel the buyer to return the rejected rice (b) Buyer is not liable for any loss occasioned by the refusal (c) Seller is entitled to a notice of the rejection and liable for any loss. (d) Buyer is liable only for reasonable charge for the care & custody of the goods.

74. A document amounts to a document of title only where it shows

________undertaking to deliver the goods to the holder of the document. (a) A statutory (b) A conditional (c) An unconditional (d) An invalid

75. In a concluded sale, if goods are destroyed, loss is to be faced by _________. (a) seller (b) buyer (c) carrier (d) selling agent

76. When unpaid seller has resold the goods which are in his possession, the new

buyer. (a) Gets good title on the goods (b) Does not get good title on the goods (c) Gets good title on goods subject to consent of the original buyer (d) None of the above

77. Sales of goods by a mercantile agent is not valid if _________.

(a) the buyer had notice of non-authority of the mercantile agent. (b) the mercantile agent was in possession of goods. (c) the mercantile agent was acting in ordinary courses of business. (d) the buyer purchased the goods in good faith.


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78. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, then the transit _______even if the seller has refused to receive them back. (a) Is deemed to be at an end (b) Is not deemed to be at and end (c) In nobody‘s hand (d) None of the above

79. An auction sale is complete on the:

(a) Fall of hammer (b) Delivery of good (c) Payment of price (d) Both (b) and (c)

80. Where the seller expressly reserves the right of resale in case the buyer makes a

default. If there are losses to the seller, on a resale, the seller: (a) Cannot claim the same from the buyer as damages (b) Can claim the same from the buyer as damages (c) Sue the buyer for not purchasing (d) None of the above

81. P sells a car by auction to Q, who is the highest bidder. Q offers to pay for the car

by a cheque and he is allowed to do so provided he signs a document stating that the property in the card would not pass to him until the amount of the cheque has been credited to the seller’s account. The cheque is subsequently dishonoured. P asks Q to return back the car as he has not become the owner of the car because the cheque given by him has been dishonoured. Decide: (a) Yes, P’s contention is justified (b) No, P’s contention is not justified (c) Car should be-auctioned by Q (d) None of these

82. The minimum price below which the auctioneer will not sell the goods.

(a) Stock price (b) Reserve price. (c) Upset price. (d) Either (b) or (c)

83. Even if a substantial portion of the price is paid and only a small balance is pending,

the seller is still regarded as an Unpaid Seller. The statement is : (a) True (b) Party True (c) False (d) Partly False

84. If, no notice of resale is given to the buyer, the unpaid seller is not entitled:

(a) To retain surplus if any under resale (b) To recover any loss on resale of the goods (c) Both (a) and (b) (d) None of the above

85. In pretended bidding sale is : (a) Voidable at the option of the buyer. (b) Voidable at the option of the seller (c) It is legal and nothing can be done (d) Buyer can ask for the goods at discounted rate

86. Where property in goods has not passed to the buyer and the Unpaid Seller

exercises his right of withholding delivery of goods, such unpaid seller: (a) Should supply goods to buyer in full (b) Can exercise his other remedies also (c) Does not have any other remedy under the Act (d) Should supply defective goods to the buyer


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87. When the unpaid seller has parted with the goods to a carrier and the buyer has become insolvent, he can exercise: (a) Right of lien (b) Right of resale (c) Right of stoppage in transit (d) None of the above

88. If in an Auction Sale, Auction Sale, Auctioneer mistakenly falls the hammer for price

less than the Reserve price Auctioneer is: (a) Bound by auction (b) Not bound by auction (c) Both (a) & (b) (d) Liable for damages

89. Seller has right of resale where.

(a) Goods are perishable. (b) Seller has reserved such right. (c) Seller gives notice. (d) All of these

90. When the buyer gives of the good and seller becomes insolvent then what remedy

is available with the buyer against the goods and seller? (a) only rateable dividend in respect of price. (b) goods if property in goods has passed to buyer (c) no claim on goods (d) Either (a) or (b)

91. Right of lien in available to an unpaid seller of goods, who is in possession of

goods. (a) Where the goods have been sold without any stipulation as to credit. (b) On the Expiry of the term of credit, if the goods are sold on credit. (c) On buyer becoming insolvent. (d) In all the above situations.

92. At an auction sale, X makes the highest bid for a flower vase. The auctioneer strikes

the table with hammer on which flower vase was kept and it fell down and broke into several pieces. In this case, the loss will fall on __________. (a) the auctioneer (b) the bidder, X (c) equally on X and the auctioneer (d) none of the above

93. M sold goods to B. The payment was to be done after one month. B did not made

payment. The right of lien can be exercised by M when goods are _________. (a) handed over to transporter (b) not handed over to anyone (c) handed over to B (d) handed over to anyone

94. The right of lien of unpaid seller comes to an end when __________.

(a) He delivers the goods to the carrier (b) The buyer or his agent lawfully obtains possession of goods. (c) The seller waives his right of lien (d) In all the above cases

95. The remedy available to the unpaid seller against the buyer does not includes

________. (a) suit for price (b) suit for damages for non-acceptance of goods. (c) right of stoppage of goods in transit. (d) action to recover interest


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96. Which of the following rights are available to an unpaid seller under the Sale of Goods Act, 1930? (a) Right of resale (b) Right of stoppage of goods in transit (c) Right of lien (d) All the above

97. In the auction sale, the auctioneer is __________.

(a) buyer (b) bailee (c) hirer (d) agent. 98. The right of lien is available to the unpaid seller only when:

(a) Seller is not in possession of the goods (b) Seller is in possession of the goods (c) Seller has delivered the goods to the carrier (d) Seller has delivered the goods to the buyer.

99. Where the goods are of perishable nature, unpaid seller can: (a) Sue for price (b) Repudiate the contract before due date (c) Resell the goods (d) Sue for damages

100. Which of the following is not the right of an unpaid seller?

(a) To resell the goods (b) To stop the goods in transit (c) To retain the goods (d) To demand the goods back.


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CHAPTER 3 - INDIAN PARTNERSHIP ACT

UNIT 1: NATURE OF PARTNERSHIP

• INTRODUCTION

� Introduced on 1st of October, 1932

� Applicable to whole of India except Jammu & Kashmir

� This law was previously part of Indian Contract Act, 1872

� Where the Indian Partnership Act is silent on any point, the Indian Contract

Act is applicable.

• PARTNERSHIP

Partnership is the relation between two or more persons who have agreed to share

profits of a business carried on by all or any of them acting for all.

• PARTNER

Person who enters into partnership

• FIRM

Partners are collectively known as firm

• ESSENTIAL ELEMENTS OF PARTNERSHIP

1. It is an association of two or more persons

� There must be at least two persons to form a partnership. Maximum

number of partners, IPA is silent. But Companies Act 2013 specifies it as

50. If number of partners fall below it ceases to be partnership. If it goes

beyond 50, it will become an illegal association.

� The persons can be natural or artificial. Hence 2 companies can be

partners. But a firm cannot enter into a contract for partnership though

their partners can become partners.

� All such persons must be competent to contract. According to Indian

Contract Act every person except the following:

i Minor

ii Person of unsound mind

iii Person disqualified by any law to which they are subject (alien,

insolvents etc)

2. There must be an agreement

� Partnership comes into existence by agreement and not by status (like by

birth in HUF) or by operation of law (like law of inheritance).

� The agreement may be express or implied, oral or written. However the

partnership deed must be in written.

� All the essential elements of a valid contract must be satisfied.

3. There must be business.

� Business means any trade, occupation and profession carried on with an

intention to make profits.


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� When two or more people agree to share income from a joint property it

does not amount to partnership because there does not exist any

business. Any charitable trust, NGO, etc cannot be considered as a

partnership firm.

4. Sharing of Profits:

� Sharing of profits is essential but sharing of losses is not essential.

Partner can share profits & losses or only profits but never only losses.

� It is not necessary that every person sharing profits is a partner.

Following persons are getting profits but are not partners:

i Money Lender

Ii Employee/Manager

Iii Seller of Goodwill

iv Retiring partner sharing profits pending settlement of accounts.

v Legal Representative of deceased partner sharing profits pending

settlement of accounts.

vi Minor

� Just because a person is sharing profits, he is not a partner. But if a

person is a partner, he will definitely get share in profits.

5. Mutual Agency

� It’s the most essential element of Parnership. It determines the true test

of partnership.

� There must exist a mutual agency relationship among the partners.

� It means every partner is a

Agent of the firm Principal for other partners acts


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• DISTINCTION BETWEEN

1. Partnership and Co-ownership:

Partnership Co-ownership

1. It arises from an agreement. 1. It may arise from agreement or operation

of law.

2. It is formed to carry on business. 2. It may or may not involve carrying on a

business.

3. It involves profit or loss. 3. It may or may not involve profit or loss

4.Partners have a mutual agency

relationship.

4. Co-owners do not have a mutual agency

agreement.

5. Maximum partners can be 50. 5. No such limit is applicable here.

6. A partner cannot transfer his share to a

stranger without the consent of any other

business.

6. A co-owner can transfer his share to a

stranger without the consent of other

owners.

7. A partner has no right to claim partition

of property.

7. A co-owner has the right to claim

partition of property.

2. Partnership and HUF:

Partnership HUF

1. It arises from agreement 1. It arises by status.

2. Governed by Indian Partnership Act,

1932.

2. It is governed by Hindu Law.


4. A person can be admitted by the consent

of the other existing partners.

4. A male person becomes a member

merely by his birth.

5. A minor can be admitted only to the

benefits of the firm.

5. A male minor becomes a member

merely by his birth.

6. Each partner is implied authority to bind

the firm for the actions done by him in

the daily course of business.

6. Only Karta has such authority.

7. Unlimited liability. 7. Karta’s liability is unlimited and the

coparcener’s liability is limited to their

share in the family property

8. Each partner has the right to ask for the

books of accounts and also for the

profits and losses.

8. The coparceners have no such right

9. In case of death of a partner, partnership

is dissolved unless otherwise agreed.

9. HUF continues to operate even after

death of a coparcener.


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3. Partnership and Company:

Partnership Company

1. A firm does not enjoy separate legal

entity i.e. separate legal existence.

1. It has a separate legal existence.

2. The liability of the partner is unlimited. 2. Limited to the value of shares held by

the members.

3. It does not enjoy a long lease of life

because of dissolution due to different

reasons.

3. It enjoys a perpetual existence.

4. Maximum partners can be 50. 4. In case of private limited company,

Minimum members-2, maximum

members -200

In case of public limited company,

Minimum members -7, maximum

members - no limit

5. A partner cannot transfer his share

without the consent of other partners.

5. A member can transfer his share as and

when he wishes to.

6.There is mutual agency amongst the

partners

6. There is no mutual agency amongst the

members

7. Distribution of profits is compulsory as

per the partnership deed

7. No such compulsion of distributing the

profits.

8. The ownership & management lies with

all the partners.

8. Ownership is with shareholders and the

management is with board of directors

9. Property of the firm is the joint property

of all the partners.

9. The property of company is not the joint

property of the members.

10.The creditors of the firm can proceed

against the partners jointly and severally.

10. The creditors of a company can

proceed only against the company.

11.No compulsory Audit 11. Its compulsory

4. Partnership and Club:

Partnership Club

1. Business oriented objects 1. Not aimed at making profits entirely.


3. Does not enjoy long lease of life 3. Enjoys a long lease of life

4.There is mutual agency amongst the

partners

4. There is no mutual agency amongst the

members

• TYPES OF PARTNERS

1. Active/Actual Partner : � A partner who is actively engaged in the conduct of the business of the

partnership is known as ‘active partner’. � When an active partner retires from the firm, he has to give a public

notice. Otherwise, he will be liable on the principle of ‘holding out’. � He is liable for acts of firm


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2. Sleeping or Dormant Partner : � A ‘Sleeping partner’ is one who does not take any active part in the

business. � Such partner joins the firm by agreement and invests capital and shares

in the profit of the business like the other partners. � A sleeping partner need not give public notice of his retirement from the

firm. � He is liable for acts of firm

3. Nominal Partner :

� A partner, who simply lends his name to the firm, without having any real interest in it, is called a nominal partner.

� He neither invests nor shares in the profits or takes part in the management of the business.

� He, along with other partners, is liable to outsiders for all the debts of the firm.

� Difference between sleeping and nominal partner:A nominal partner is known to the outside world as a partner of the firm but in reality does not share in the profit of the firm. A dormant partner on the other land, even though not known as a partner to the world at large but in fact shares in the profits of the business.

4. Partner for profits only : � Partners may agree that a particular partner shall get a share of the

profits only but he will not be called upon to contribute towards the losses. Such a partner is known as ‘partner for profits only’.

� He continues to be liable to third parties for all acts of the firm. 5. Sub-Partner :

� When a partner agrees to share his profits divided from the firm with a third person, that third person is known as ‘sub-partner’.

� He cannot represent the firm and bind the firm by his acts. He has no right against the firm nor is he liable for the acts of the firm.

6. Partner by Holding Out or by Estoppel : � To hold a person liable as a partner by holding out, it is necessary to

establish the following : 1. He represented himself or knowingly permitted himself to be

represented as a partner. 2. Such representation occurred by words spoken or written or by

conduct. 3. The other party on the faith of that representation gave credit to the

firm. • Once he poses himself as a partner, though he is not a partner, he is

estopped from saying that he is not a partner in a firm.

7. Incoming Partner:

A person who is admitted as a partner into an already existing firm with the consent of all the existing partners is called as “incoming partner”.

8. Outgoing Partner:

A partner who leaves a firm in which the rest of the partners continue to carry on business is called an outgoing partner.


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• TYPES OF PARTNERSHIP 1. Particular Partnership :

� When a partnership is started for a particular purpose or period, it ends only when the purpose or period is completed.

� If the partnership is carried even after the completion of the target then it is deemed to be partnership at will.

2. Partnership at will : � When no provision is made by contract between the partners for the

duration of their partnership, or for the determination (termination) of their partnership, the partnership is “Partnership at will”.

� Where the partnership is at will, the firm may be dissolved by any partner giving notice inwriting to all the other partners of his intention to dissolve the firm.

� The firm is dissolved as from the date mentioned in the notice as the date of dissolution or if no date is mentioned, then from the date of the communication of the notice.

• REGISTRATION OF FIRM

1. The registration of a firm is not compulsory. It is optional for the firm either to get itself registered or not. There is no penalty for non-registration of a firm. The registration can be done anytime, either in the beginning or during the continuance of business.

2. Procedure: 1. Step 1- Obtain a statement in the form from the office of the Registrar. 2. Step 2- State the following information:

o Name of the firm o Principal place of the firm o Name of the other places where the firm carries its business o Date when each partner joined o Name in full and permanent address of each partner o Duration of the firm.

3. Step 3- Get the statement of duly verified and signed by all the partners or their agents.

4. Step4- File the statement along with prescribed fees 5. Step 5- Obtain a certificate or registration from the Registrar.

3. The registration becomes effective from date of filing of duly signed and verified documents and not from the date of issue since the act of the Registrar in recording an entry of the statement in the firm is only a clerical act.

4. Consequences of non-registration: 1. The partners cannot file a suit against the firm or other partners 2. The firm cannot file a suit against third parties 3. The partner of the firm or the firm cannot claim a set-off over `̀̀̀100

5. Following are not the disabilities of an unregistered firm:

1. The third party can file a suit against the firm even if the firm is unregistered.

2. The partners of an unregistered firm can file a suit for: o The dissolution of the firm, o The accounts of the dissolved firm, and o Realisation of the property of the dissolved firm


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3. The partner of an unregistered firm/unregistered firm can sue for rights which arise otherwise than out of a contract.

• MINOR’S POSITION IN PARTNERSHIP FIRM

� A minor cannot become a partner in a firm because partnership is founded on

a contract and contract with a minor is void-ab-initio. Though a minor cannot

be a partner in a firm, he can be admitted to the benefits of partnership with

the consent of all the partners.

� Rights and liabilities of minor

Liabilities After attaining majority

INSERT QUESTIONS

Rights: i. A minor partner

has a right to his agreed share of the profits and property of the firm.

ii. He can have access to, inspect and copy the accounts of the firm.

iii. He can sue the partners for accounts or for payment of his share but only when severing his connection with the firm, and not otherwise.

iv. Right to become

a partner within 6

months from the

date of attaining

majority or when

he comes to

know whichever

is later.

Before attaining majority i. Minor has no

personal liability for the debts of the firm incurred during his minority.

ii. The liability of the minor is confined only to the extent of his share in the profits and the property of the firm.

iii. Minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm vests in the Official Receiver/Assignee.

When he elects

to become a

partner

i. He becomes

personally liable

to third parties

for all acts of

the firm since

he was

admitted to the

benefits.

ii. His share in the

property and

profits remains

the same as

decided.

When he elects

not to become a

partner

His share shall

not be liable for

any acts of the

firm done after

the date of the

public notice.


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UNIT 2: RELATIONS OF PARTNER

• RIGHTS OF PARTNERS

1. Right to take part in business: However, the partners may provide, by a

contract, that this right shall not be available to some partners.

2. Right to be consulted:

In case of difference of opinion, matter will be settled in following way:

In case of an ordinary matter In case of fundamentalmatter

To be settled by a majority of the partners To be settled by consent of all the partners

i.e unanimous consent

3. Right to have access to books: However, the partners may provide, by a

contract, that this right shall not be available to some partners.

4. Right to share profits: Noagreement between the partners can restrict this

right.

5. Right to interest on capital and on advance:

Interest on capital:It can be claimed only if partnership agreement specifies

and only out of profits.

Interest on loans and advances: It is payable @6% per annum whether there

are profits as well as losses.

6. Right to indemnity:

The partners have a right to recover expenses incurred and payments made

by him in ordinary course of business or in emergency. No agreement

between the partners can restrict this right.

7. Right to use the partnership property for the purpose of the

partnershipbusiness.

8. Right to be consulted at the time of admission of a new partner.

9. Right to retire from the firm.

10. Right not to be expelled by majority of partners.

11. Right to remuneration if the partnership agreement expressly provides for

the payment of remuneration to working partners.

12. Right to dissolve the firm.

• DUTIES OF PARTNERS

1. Duty of good faith

2. Duty to carry on the firm business to the greatest common advantage

3. Duty to render true, accounts

4. Duty to give full information

5. Duty to indemnify for loss caused by fraud

6. Duty to attend diligently


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7. Duty to share losses

8. Duty to account for personal profits

(a) Personal profits from any transaction of the firm.

(b) Personal profits from the use of the property of the firm.

(c) Personal profits from the business connection of the firm.

(d) Personal profits from the use of the name of the firm.

However, the above duty is subject to a contract between the partners

9. Duty to account for profits of a competing business

10. Duty to use firm property exclusively for firm.

• PROPERTY OF THE FIRM

1. Property and rights brought into the firm by the partners

2. Property and rights purchased by the firm

3. Property and rights acquired otherwise

4. Goodwill of the firm

• AUTHORITY OF A PARTNER

� Authority means the right of a partner to bind the firm by his own acts.

Authority

� Limitations of Partner’s Implied Authority :

The implied authority of a partner does not empower him to

(a) Submit a dispute relating to the business of the firm to arbitration,

Express authority

The authority which is

expressly given to a

partner by the

agreement of

partnership is called

“Express authority”.

The firm is bound by all

acts done by a partner

by virtue of any express

authority given to him.

Implied authority

Authority arising by implication of law

The act of a partner binds the firm which is done

(i) to carry on in the usual way,

(ii) the act must relate to a matter which is within the scope of

the business of the firm,

(iii) and the act is in the name of the firm,

(iv) or in any manner expressing or implying an intention to bind

the firm, and

(v) done by him in his capacity as partner.

If the partnership be of a general commercial nature, following

acts are within implied authority:

(i) Buy or sell or pledge goods on account of the partnership

(ii) Incur normal expenses.

(iii) Borrow money and pay debts on account of the partnership

(iv) Drawing, making, signing, endorsing, accepting,

transferring, discounting any negotiable instruments.


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(b) Withdraw a suit or proceeding filed on behalf of the firm,

(c) Compromise or relinquish any claim or portion of a claim by the firm,

(d) Admit any liability in a suit or proceeding against the firm,

(e) Transfer immovable property belonging to the firm,

(f) Acquire immovable property on behalf of the firm.

(g) Open a banking account on behalf of the firm in his own name or

(h) Enter into partnership on behalf the firm.

� The partners in a firm may, by contract between the partners, extend or restrict the

impliedauthority of any partner.

� If any partner does an act which is beyond his authority but in emergency and good

faith then the firm is liable.

� An admission or representation(i.e statement of facts) made by a partner

concerning the affairs of the firm makes the firm liable.

� Notice to a partner = Notice to the firm

(i) Such notice must relate to the affairs of the business

(ii) Such notice must be given to a working partner and not a sleeping partner

(iii) There must not be any fraud committed by the partner and third party against

the firm.

J.K.SHAH CLASSES

C.P.T. - LAW

: 141 :

•

LIABILITY OF A FIRM AND ITS PARTNERS TO A THIRD PARTY

F

irm

is

lia

ble

Pa

rtn

er

is p

ers

on

ally

lia

ble

Fir

m i

s li

ab

le

Co

ntr

act

ua

l

lia

bil

ity

Lia

bil

ity

fo

r W

ron

gfu

l A

cts

of

a P

art

ne

r

Lia

bil

ity

fo

r M

isa

pp

lica

tio

n o

f M

on

ey

or

Pro

pe

rty

by

a P

art

ne

r

• F

or

the

act

s o

f th

e

firm

(i.

e a

cts

of

pa

rtn

ers

)

Fir

m i

s li

ab

le

(i.e

pa

rtn

ers

are

join

tly

an

d s

ev

era

lly

lia

ble

)

• F

irm

is

alw

ays

lia

ble

for

all

th

e a

cts

of

pa

rtn

ers

wh

ich

are

wit

hin

th

eir

au

tho

rity

Wro

ng

ful

Act

of

pa

rtn

er

wit

hin

his

au

tho

rity

Wro

ng

ful

Act

of

pa

rtn

er

is

be

yo

nd

his

au

tho

rity

Wro

ng

ful

Act

of

pa

rtn

er

is

be

yo

nd

his

au

tho

rity

an

d

oth

er

pa

rtn

er

ha

ve

ra

tifi

ed

it

Wh

ere

m

on

ey

o

r

pro

pe

rty

is

rece

ive

d

by

a

p

art

ne

r a

nd

the

n

mis

ap

pli

ed

b

y

the

sa

me

pa

rtn

er.

Wh

ere

mo

ne

y o

r

pro

pe

rty

is

rece

ive

d

by

th

e f

irm

an

d t

he

n

mis

ap

pli

ed

by

an

y o

f

the

pa

rtn

ers

.


: 142 :

• RECONSTITUTION OF A FIRM (Dissolution of partnership) The reconstitution of a firm means a change in the constitution i.e., composition of the firm and it takes place in the following cases : (1) Admission of a new partner (2) Retirement of a partner (3) Expulsion of a partner (4) Rights of outgoing partner (5) Insolvency of a partner (6) Death of a partner (7) Transfer of a partner’s interest (8) Revocation of continuing guarantee (1) Admission of a Partner

� A new partner can be admitted into an existing firm in any of the following ways (a) With the consent of all the partners. (b) In accordance with a contract already entered into between the partners

for the admission of a new partner. � The liability of an incoming partner may be discussed as under :

1. Liability for the acts of the firm done before admission : An incoming partner is not liable for the acts of the firm done before his

admission into the firm. 2. Liability for the acts of the firm done after admission : He is liable for all the acts of the firm done after he became a partner in

the firm. 3. If the incoming partner agrees to bear the past liabilities, then for past

liabilities he shall not be liable to third parties as he is a stranger to contract but he shall be liable to other partners.

(2) Retirement of a Partner

� A partner may retire from the firm in anyone of the following three modes : (i) By consent. A partner may retire, at any time with the consent of all other

partners. (ii) By agreement. The partners may enter into an express agreement about

the retirement of a partner. In such cases, a partner may retire according to the terms of the agreement.

(iii) By notice. In case of partnership at will, a partner may retire by given a written notice of retirement to all other partners.

� A retiring partner continues to be liable to third parties for the acts of the firm done even after his retirement until a public notice of his retirement is given.

(3) Expulsion of a Partner

� He can be expelled only if the following conditions are satisfied: (a) Thepower of expulsion should be given to the partners by an express

contract between them. (b) The power of expulsion should be exercised by majority of partners. (c) The power of expulsion should be exercised in absolute good faith. The test of good faith includes three things:

(i) that the expulsion must be advantageous to the firm and not to the partners personally.

(ii) that the partner to be expelled is given a notice to that effect (iii) that he was given an opportunity of being heard.


: 143 :

� It these conditions are not fulfilled the expulsion is null and void and the

expelled partner can demand re-instatement in the firm

� An expelledpartner continues to be liable to third parties for the acts of the firm

done even after his retirement until a public notice of hisretirement is given.

� The public notice can be given either by the expelled partner himself or by the

firm.

(4) Rights of outgoing partner

� To carry on competing business :

An outgoing partner may carry on a business, but it can be restricted by an

agreement (below mentioned).

However he cannot

(a) use the firm name.

(b) represent himself as carrying on the business of the firm, or

(c) solicit the custom of persons who were dealing with the firm before he

ceased to be a partner.

But he can advertise his business.

Restraint of trade agreement :

A partner may make an agreement with his partners that on ceasing to be a

partner he will not carry on any business similar to that of the firm within a

specified period or within specified local limits, such agreement shall be valid if

the restrictions imposed are reasonable (Indian Contract Act,1872).

� If settlement of accounts is not yet done, then,

OR

Right of outgoing partner to share Right to claim interest @ 6%

subsequent profits

(5) Insolvency of a Partner

(i) The partner declared an insolvent, ceases to be a partner on the date on

which the order of adjudication is made.

(ii) The firm is dissolved on the date of the order of insolvency unless there is a

contract to the contrary.

(iii) The estate of the insolvent is not liable for any act of the firm after the date of

the order of insolvency.

(iv) The firm cannot be held liable for any acts of the insolvent partner after the

date of the order of insolvency.

(6) Death of a Partner

� The firm is automatically dissolved on the death of a partner. However, the

partners may specifically provide in their agreement that the firm shall not be

dissolved, and the remaining partners shall continue the firm’s business.

� Where the firm is not dissolved by the death of a partner, the estate of a

deceased partner is not liable for any acts of the firm which are done after his

death


: 144 :

(7) Transfer of Partner’s Interest

� A partner can transfer his share only with the consent of other partners.

� The transferee thereby does not become a partner of the firm,

� A transferee of a partner’s interest cannot do the following, during the

continuance of the partnership

o Interfere in the conduct of the business; or

o Inspect or take a copy of accounts

� On the dissolution of the firm, the transferee will be entitled,

o To receive the share of the assets of the firm to which the transferring

partner was entitled, and

o For the purpose of ascertaining the share, he is entitled to an account as

from the date of the dissolution.

(8) Revocation of continuing guarantee

A continuing guarantee given to a firm, or by a third party in respect of the

transaction of a firm, is in the absence of agreement to the contrary, revoked as to

future transactions from the date of any change in the constitution of the firm.


: 145 :

UNIT 3: DISSOLUTION OF FIRM

• DISSOLUTION OF FIRM

Without court’s intervention With court’s intervention

• CONSEQUENCES OF DISSOLUTION 1. Liabilities for the acts done after dissolution: On the dissolution of a firm, partners have to give a public notice of the

dissolution. If it is not given, the partners shall remain liable to the third party for their acts done even after the dissolution of the firm

2. Continuing Authority for Winding Up:

On the dissolution of a firm, the authority of each partner to bind the firm continues for the following purpose: (a) If it is necessary to wind up the affairs of the firm, and (b) If it is necessary to complete the transactions started but not completed

at the time of dissolution. 3. Partner’s Right for Utilisation of Assets On the dissolution of the firm, each partner is entitled to the following rights:

(a) He is entitled to have the property of the firm utilised in payment of its debts and liabilities.

(b) He is entitled to have the surplus distributed among all the partners according to their rights.

4 Mode of Settlement of Accounts :

� Utilization of assets: The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be utilized in the following manner: (a) First of all, the assets shall be utilized in paying the debts of the firm to

the third parties. (b) If there is any surplus, the same shall be utilized in paying each partner

the amount of loan advanced to the firm other than the capital. (c) If there is still any surplus, the same shall be utilized in paying each

partner towards the amount of his capital.

Compulsory

1. If all or all except one partners are declared insolvent or die. 2. If entire business becomes unlawful

Optional

1. By agreement 2. By giving notice in

partnership at will 3. On happening of certain

contingencies: (a)Expiry of term (b) Completion of venture (c) Death of a partner (d) Insolvency of a partner

1. Insanity of a partner

2. Permanent incapacity

of a partner

3. Misconduct of a partner

4. Persistent breach of

agreement

5. Transfer of interest

6. Perpetual losses in

business

7. Any other just and


: 146 :

(d) If there is still any surplus, the same shall be divided among all the partners in proportion to their share in the profits of firm.

� Payment of losses: The losses of the firm, including the deficiencies of capitals shall be paid in the following manner: (a) First of all, the losses shall be paid out of the profits. (b) If the profits, are not sufficient to pay the losses, then the balance of loss

shall be paid out of capital, and (c) If still some balance of losses remains, it shall be paid by the partners

individually in the proportion in which they were entitled to share profits.

5. Payment of firm’s debts and Partner’s Private Debts: 1) Firm’s property shall be applied first in payment of firm’s debts then the

surplus, if any, shall be applied for payment of partner’s private debts to the extent in which the concerned partner is entitled to the surplus.

2) Partner’s private property shall be applied first in the payment of his debts and the surplus, if any, shall be used in payment of firm’s debts.

6. Return on premium of partnership’s premature dissolution:

In the case of dissolution of partnership earlier than the period fixed for it, the partner paying the premium is entitled to the return of the premium of such part thereof as may be reasonable except when the partnership is dissolved: (i) By the death of one of the partners; (ii) When the dissolution is mainly due to the misconduct of the partner who

paid the premium (iii) The dissolution is according to an agreement which had no provision for

the return of premium or any part thereof. 7. Treatment of Loss Arising due to Insolvency of a Partner:

Unless otherwise agreed it requires that: 1) The solvent partners should bring in cash equal to their shares of the loss

on realization 2) The solvent partners should bear the loss arising due to the insolvency of

a partner in the ration of their Last Agreed Capitals. 8. Rights of a partner in case of Dissolution on Account of Fraud and

Misrepresentation: 1) He has a right of lien on the surplus assets after the payment of firm’s

debts, for any sum paid by him for purchase of a share in the firm 2) He is entitled to rank as a creditor of the firm in respect of any payment

made by him towards firm’s debts 3) He is entitled to be indemnified by the partner guilty of fraud or

misrepresentation against all the debts of the firm


: 147 :

• MODE OF GIVING PUBLIC NOTICE

Firm

or

Registered Unregistered

� When public notice is required to be given

a) on retirement or expulsion of a partner b) on the dissolution of the firm c) on the election to become or not to become a partner by a minor on

attaining his majority. � When a public notice is not required

a) on the death of a partner b) on the insolvency of partner

� By giving a publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm is located

� Notice is to be served on the Registrar of Firms

� By giving a publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm is located


: 148 :

1. Raj and Ram, two friends buy hundred mobile sets agreeing to share the same between them. It is a: (a) Co-ownership (b) Partnership (c) Joint venture (d) Hindu undivided family business

2. _________Partner does not take active part in the conduct of the business:

(a) Dormant partner (b) Minor partner (c) Sub partner (d) Partner by estoppel

3. Which of these statements is not true with respect to a Joint Hindu Family

Business? (a) It can have female members (b) A Joint Hindu Family firm arises on the basis of status i.e. Birth or by

operation of law. (c) Death of a coparcener does not dissolve the Joint Hindu Family firm (d) Coparcener is liable only to the extent of his share in the family property

4. Prior to enactment of The Indian Partnership Act, 1932, the law relating to

partnership in India were embodied in: (a) Companies Act (b) Chapter XI of The Indian Contract Act (c) Hindu Law (d) Chapter X of The Indian Contract Act

5. An Agreement between the partners must be:

(a) Valid (b) Lawful (c) Competent to contract (d) All of these

6. Failure by a minor to give public notice within six Months will have following effect.

(a) The partnership becomes an illegal association. (b) The partnership firm stands dissolved. (c) Minor automatically becomes partner. (d) Minor automatically ceases to be a partner.

7. X and Y formed a partnership firm to undertake construction of a Terminal for

Northern Railway at Pune. This partnership is a : (a) Limited Partnership (b) Partnership at Will (c) Particular Partnership (d) Joint Venture

8. Which of these can be admitted as a partner?

(a) Minor (b) HUF (c) Partnership firm (d) Corporate body

9. When a minor attains majority, from which date is he deemed to be a partner with unlimited liability? (a) When he attains majority (b) When it comes to his knowledge (c) (a) or (b) whichever is earlier (d) (a) or (b) whichever is later

10. Which of the following is not valid partnership:

(a) Partnership between two firm (b) Partnership between one firm and an individual



: 149 :

(c) Partnership between a firm and a minor (d) All of these

11. Johnson is an employee of ABC Ltd. He is entitled to a salary of `̀̀̀8,00,000 and

entitled to a commission of 20%. If the profit in a year is `̀̀̀ 1 crore, then Johnson is : (a) Employee (b) Partner (c) Both Partner & Employee (d) None of these

12. A minor should give public notice within ______months of attaining majority, to elect

whether to become a partner or not to become a partner. (a) five (b) six (c) twelve (d) none of these

13. True test of partnership is :

(a) Share of profits only (b) Share of profits & losses (c) Mutual agency (d) None of these

14. Partnership agreement can be :

(a) Oral (b) Written (c) Oral or written (d) Written on stamp paper

15. Partnership cannot be formed between

(a) Two artificial persons (b) Naturally borne and artificial persons (c) Between two naturally borne persons (d) None of the above.

16. A partner who contributes capital in the firm and actively participates in the working

of the business is called: (a) Active Partner (b) Dormant Partner (c) Sub- Partner (d) Nominal Partner

17. Interest on capital will be allowed only when:

(a) There are heavy losses in the firm (b) There are no profits and no losses (c) There are profits (d) All of the above

18. A introduces B to C as a partner in his firm. B, in facts is not a partner but did not deny the fact. C advanced a loan to A, which he (A) could not pay back. C held B liable for repayment of loan because: B is a (a) Sleeping partner (b) Sub Partner (c) Dormant partner (d) Partner by estoppel or Holding out

19. According to the Indian Partnership Act, 1932 a partnership is valid where:

(a) A convict undergoing imprisonment is admitted to the benefits of partnership.

(b) A private company admitted as a partner in the partnership. (c) A partnership between an Indian Citizen and an alien enemy. (d) Partnership between an Indian Citizen and a friend having U.K. nationally

where UK 15 at war 20. Under the Indian Partnership Act, 1932, In the absence of an agreement among

the partners, profits of a firm shall be divided in the ratio of : (a) Capitals contributed by the partners (b) Equally among the partners (c) Volume of business done by partners. (d) To be decided by the Court.


: 150 :

21. Mutual agency under the Indian Partnership Act, 1932 means (a) Sharing of profits of the firm among the partners. (b) Rights of a partner to act as an agent and principal of other partners (c) Mutual Co-operation among partners (d) Joint liability of all partners.

22. Sub partnership arise between.

(a) Two partners of same firm (b) Two firms. (c) A partner and a stranger. (d) None of the above

23. In case of emergency a partner of the firm can act as.

(a) An agent of the firm. (b) A master of the firm. (c) An employee of the firm. (d) All of the above

24. In case of admission of a partner, how much amount should a partner bring as his

capital? (a) `̀̀̀ 1,00,000 (b) `̀̀̀ 5,00,000 (c) `̀̀̀ 10,000 (d) None of above

25. Which one of the following statements is true.

(a) In a partnership, every partner is not an agent of the other partners. (b) A partnership firm has no Legal personality distinct from its partners. (c) In a partnership, the profits of the firm should be distributed equally among all partners. (d) In a partnership, the liability of partner is limited to the extent of their Capital

Contribution. 26. A and B Enter into an agreement to work together for a Construction project where

in A will receive all the payment including profits and shall pay 300 per day as wages to B state weather A and B are: (a) Master and servant (b) Partners (c) Labourers (d) Co-venturers

27. A partnership firm can raise its capital:

(a) By the issue of Cumulative Preference shares (b) By the issue of participating preference shares (c) By the issue of Non- convertible preference shares (d) None of the above.

28. For admitting a minor into the benefits of partnership consent of _________

required: (a) majority of partners of the firm (b) parent or guardian of minor (c) the Register of the firm (d) Employees

29. Every partner is an agent of the firm as regards the _______________:

(a) A only (b) All the Partners (c) B and C only (d) A and C only

30. A rented a house from X for carrying on the business of the firm. After one month A did not pay the rent. B and C are other partners of the firm. X can claim his rent from: (a) A only (b) All the Partners (c) B and C only (d) A and C only


: 151 :

31. A public company can have a maximum of _________ member (a) unlimited (b) 50 (c) 20 (d) 10

32. Sharing of profit is __________ evidence of existence of partnership. (a) Conclusive (b) Not a conclusive (c) Confirmative (d) Collaborative

33. Which of the following statements is not correct in relation to ‘Partnership’?

(a) Partnership business must be carried on by all or any of them acting for all (b) Partnership is created to make profit (c) Partnership arises from status and not contract (d) Registration of partnership is not mandatory

34. Mr. Sharma, his wife Mrs. Sharma, a dormant partner and his brother Dinesh have

started a firm in partnership. Due to some family problem, Mrs. Sharma quit from firm partnership without giving public notice. Does she liable for subsequent debts incurred by the firm? (a) She is liable and debts will be adjusted from her husband’s share (b) She is liable and her share of debts will be adjusted from her personal

property (c) She is not liable as she was only the dormant partner in the firm (d) She is not liable because she dropped partnership before firm incurredlosses.

35. In the absence of specific agreement, partner is entitled to interest at the rate of

______ on an advance made for the purpose of business of the firm (a) 6% p.a (b) 10 p.a.(c) 8% p.a. (d) 12% p.a.

36. Several men from an association in which each partner contributes `̀̀̀ 500 annually.

The purpose of it is to produce cloth for distributing free to war windows. Type of partnership is __________. (a) No partnership (b) Actual partnership (c) Partnership by holding out (d) Mutual Agency.

37. A partnership can be formed in the case of :

(a) X and Y decide to invest a sum of 2,000 to buy goods in a custom auction, sell them and share the profits equally

(b) X and Y members of a joint family do a joint business sharing profits and losses

(c) X lends money to Y for a business with a stipulation for recovering his debt from, a share out of the profits of the business.

(d) X and Y co-owners of a house which was occupied by them jointly decide to let it out to C and agree to share the rent equally.

38. The person with whom the partner of a partnership firm agrees to share his share of

profit. The partnership firm is termed as: (a) Sub- partner (b) Partner by estoppel (c) Nominal partner (d) Actual partner.

39. One of the essential elements of a partnership agreement is that it:

(a) is enforceable (b) is legal (c) is between two or more persons (d) has object which is prohibited by law.


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40. The maximum number of partners in partnership firm is determined by _________. (a) companies Act (b) partnership Act (c) limitation Act (d) none of the above

41. Every partner is bound to attend ________to his duties in the conduct of the

business: (a) Systematically (b) Diligently (c) Sincerely (d) Effectively

42. A third part deals with the firm without knowledge that Mr X has been expelled from the firm. In such a case, Mr X ________: (a) is liable to the firm (b) is liable to third parties (c) is liable to the continuing partners (d) is not liable to the third partners

43. In case of transfer of partner’s interest u/s 29, the transferee is entitled to interfere

with the conduct of the business: (a) To inspect books of the firm (b) To receive the share of the transferring partner (c) To interfere with the conduct of the business (d) To require accounts

44. X and Y are partners in a firm dealing in garments. X placed an order in the firm’s

name and on the firm’s letter head for 10 bottles of wine to be supplied at his residence: (a) The firm is not liable for A’s act (b) The firm is liable for tort (c) A has acted within his implied authority. (d) The firm is liable for A’s Act

45. In absence of partnership deed interest on capital is charged for a fixed period of:

(a) 12 months (b) 6 months (c) 3 months (d) Not payable 46. Expulsion of a partner which is not in accordance with the provisions of Section 33

of the Indian Partnership Act, 1932 is _________: (a) Null & Void (b) Null & Void to some extent (c) Is unconstitutional (d) In good faith and in the interest of partnership.

47. A partner may be expelled from the firm on the fulfilment of the condition that the

expulsion power is exercised ________. (a) in good faith (b) as given by express contract (c) by majority of partners (d) all of these

48. Ravi, a partner of a firm, borrows money on his own credit by giving his own

promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true? (a) The firm would be liable, provided the lender did not know the limitation on the

authority of Ravi. (b) The firm is not liable for the loan (c) Both (a) and (b) are true (d) None of the above

49. For the Acts of the firm: (a) Minor is personally liable (b) Minor’s share is liable (c) Guardian is personally liable (d) There is no liability at all for or on behalf of the minor


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50. As per Section 29 of the Indian Partnership Act, 1932 a partner may transfer his interest in the firm ___________. (a) By sale (b) By charge (c) By mortgage (d) All of these

51. An admission or representation made by a partner concerning the affairs of the firm

is the evidence against the firm in …….: (a) All cases &u circumstances (b) If it is made in the ordinary course of business (c) When it is in the best interest of the firm. (d) When there are reasons to believe such admission

52. An irregularly expelled partner has :

(a) Right to reinstatement (b) Right to get back his share of profit and property in the firm (c) Both (d) None

53. Mini was a partner in a firm. The firm ordered goods in Mini’s life time, but delivery

was not made until after Mini’S death. The supplier of the goods claims to be paid out of Mini’s estate. Advise Mini’s representatives: (a) Mini’s estate is not liable for the price in an action for goods sold and

delivered, as there was no debt in respect of the goods in Mini’s life time. (b) Mini’s estate is not liable for the price in an action for goods sold and delivered (c) Mini’s estate is liable as the firm ordered goods in Mini’s lifetime (d) None of the above

54. A change in nature of business can be effected only by:

(a) Unanimous consent of all partners (b) Consent of majority partners (c) Consent of working partners (d) Consent of sleeping partners

55. The implied authority of a partner in a firm does not empower him to:

(a) Open a bank account on behalf of the firm (b) Engaging and discharging (c) Accepting any amount of debts due to the partnership firm (d) Enter into partnership on behalf of the firm

56. A minor admitted to the benefits of the partnership cannot file a suit for his share of

profits or property of the firm, except: (a) When the Register of Firms sanctions such filling of suit (b) When the minor intends to severe his connections with the firm (c) When all other partners force a minor to file a suit (d) When the firm is dissolved

57. A,B,C are members of banking firm. D who owes the firm`̀̀̀1,000 pays it to A. A

without informing B and C about the payment by D, misappropriates the amount. Is D discharged of his debt to the firm by the payment made to A: (a) Yes, D is discharged of his debt (b) No, D is not discharged of his debt (c) D will be discharged when A will admit (d) None


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58. The heirs of the deceased partner: (a) Can become a partner in the firm of the deceased partner only if the surviving

partners, give their consent in this regard. (b) Does not have a right to become a partner in the firm of the deceased partner (c) Has a right to become a partner in the firm of the deceased partner (d) Both (a) and (b)

59. The implied authority of any partner may be :

(a) Restricted by contract between partners (b) Extended by contract between partners (c) Either extended or restricted by contract between partners (d) Can be extended but not restricted by contract between partners

60. Every partners has a right to:

(a) Be remunerated (b) Be consulted (c) Receive interest on capital (d) Do his own business

61. Which of the following is not covered by the term “Properly of the firm”

(a) Property and rights and interest in property originally brought into the stock of the firm.

(b) Property acquired by or for the firm (c) Goodwill of the business (d) Property of the partners

62. Under the Indian Partnership Act, 1932, in the absence of an agreement, a partner

is: (a) To be paid salary (b) To be paid salary if he is an Active Partner (c) To be paid salary if he is a dormant partner only (d) Not to be paid salary including dormant partner.

63. Premium paid by a partnership firm on the Joint Life Policy of partners is

(a) Debited to capital accounts of each partner (b) Credited to capital accounts of each partner (c) Credited to Profit and loss account of firm (d) Debited to Profit and Loss account of firm

64. When are the assets and liabilities of a firm revalued:

(a) On admission of a new partner (b) On retirement of a partner (c) On death of a partner (d) In all the above situations

65. In case of __________the continuing guarantee given to the partnership in respect

to the transactions of the fir, is revoked for the future transactions. (a) dissolution of firm (b) insolvency of a partner (c) change in constitution of the firm (d) none of the above

66. A,B, C were partners in a partnership firm. “A paid the liabilities of the firm although

he had no authority to do so. What can be the possible action of other partners? (a) Can ratify the transaction (b) Can’t ratify the transaction (c) Ignore the transaction (d) None of these.


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67. Robert, who is a sleeping partner in the firm wanted to inspect the books of accounts of the partnership firm due to certain allegations of financial impropriety by some of the partners. The other partners in the firm objected to the same and denied access to book of accounts. The action of the other partners is ________. (a) not correct since Robert has right of access to books of accounts (b) valid since Robert is a sleeping partner who has no such rights (c) valid since a partner has no right to access to access to books of accounts (d) valid since the reason cited by Robert is unacceptable.

68. Which of the following is not a duty of partner?

(a) To indemnify for fraud. (b) To dissolve the firm. (c) To share losses. (d) To account for any profits.

69. The amount received by a partnership firm from the Life Insurance Company on the

maturity of a Joint Life Policy taken by the firm is shared by the partners in the ratio of (a) Capital balance at the end of the financial year (b) Capital balances at the beginning of the financial year (c) Equal ratio (d) In the profit sharing ratio.

70. A,B,C and D started a business in partnership for importing mobile handsets from

foreign ports and selling it in Chittagong. A was well aware of the variation in the prices of cell phones so he made some personal transaction in the name of firm without informing other partners. A is liable: (a) Only to inform other partners about his personal transactions (b) A is under no obligation (c) A was liable to amount to the firm for the profit made in the personal

transaction (d) None of the above

71. In a partnership firm the decision can be made by rule of majority when decision

relates to : (a) Financial matters (b) Policy matters (c) Regular routine matters (d) Buying and selling of immovable

properties. 72. The accounting rule in respect of loss arising due to insolvency of a partner is dealt

within _________: (a) Garner vs. Murray (b) Hyde vs. Wrench (c) Derry vs. Peek (d) All of these

73. A and B become partners for 16 years. A pays B a premium of `̀̀̀ 5,000. At the end of 8 years, there is dispute between A and B and they declare a dissolution: (a) A can get back the entire amount of the premium paid by him to B (b) A can get back a reasonable part of the premium (c) A can get back `̀̀̀2,500 from (d) A cannot get back any amount of premium paid by him

74. At the time of dissolution of a firm, every partners or his representative is entitled to

have the ________applied in payment of the debts and liabilities of the firm: (a) assets of the firm (b) property of the firm (c) liability of the firm (d) goodwill of the firm


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75. P is indebted to the firm for a sum of `̀̀̀500 and the firm files a suit against him on 1.3.2008. Will the firm succeed if the firm is not registered: (a) No, because the firm is unregistered (b) No, because the sum doesn’t exceeds `̀̀̀1,000 (c) No, because P is not knowing about the debt (d) None of these

76. Voluntary Dissolution is :

(a) Dissolution by the adjudication of all the partners as insolvent (b) Dissolution as a result of an agreement between all the partners (c) Dissolution by the business of the firm becoming unlawful (d) All of these

77. Register of firm is open to inspection:

(a) Free of cost (b) One payment of such fee as is prescribed (c) Subject to furnishing Bank Guarantee (d) On filling an affidavit to this effect

78. XYZ a partnership firm was constituted on 1.4.2008. On 25th April the partners

resolved to get the firm partners resolved to get the firm registered with the Registrar of Firm.

The firm prepared the necessary documents for registration on 26th April which were signed on 28th April. They send the documents to the Registrar office on 30th April by Registered post which was received in the Registrar office on 4th May, 2008. The registrar filed the statement and entered the firms name in the Register of Firms on 20th May, 2008. The firm will be deemed to have been registered on: (a) 30th April (b) 28th April (c) 20th May (d) 4th May

79. If a firm wants to register itself, it will go to _________:

(a) Registrar of Firms (b) Registrar of Companies (c) Court (d) Any of these

80. Non registration of Partnership is not a bar for:

(a) Civil proceeding (b) Criminal proceeding (c) Both (a) and (b) (d) Neither (a) nor (b)

81. The conclusive evidence of registration of firm is:

(a) The certified copy of register of firm (b) The register of Central Government. (c) The certificate of registration of firms. (d) None of these.

82. A non-registered firm can claim a set off of an amount not exceeding:

(a) `̀̀̀ 100 (b) `̀̀̀ 1,000 (c) `̀̀̀ 10,000 (d) Any amount 83. When the number of partners in a firm exceeds the number permissible under the

Indian Partnership Act, 1932, the partnership becomes: (a) A public limited company (b) A co-operative society (c) An illegal association (d) A private limited company


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84. In the absence of any contract to the contrary insolvency of a partner results in: (a) Dissolution of partnership, but not of the firm. (b) Dissolution of firm as well as partnership. (c) Neither dissolution of firm, nor dissolution of partnership. (d) None of the above

85. One of the following is not the disability of an unregistered firm:

(a) It cannot file a suit against the third parties (b) Its partners cannot file a suit against the firm. (c) It cannot claim a set off exceeding `̀̀̀ 100/- (d) It cannot be sued by a third party.

86. Application for registration of a Partnership Firm should be signed by _________.

(a) 2/3rd of the total number of partners (b) At least 3/4th of the partners (c) Any one of the Partners (d) All the partners.

87. XYZ firm consists of 4 partner viz, X,Y,Z and A, having one fourth share each in the profits of the firm. According to X,Y and Z activities of A are not in the interest of the partnership and thus want to expel A from the firm. Advise whether:- (a) X, Y and Z should seek retirement from the firm (b) No. X, Y and Z cannot expel A from the firm (c) Yes, X, Y and Z can expel A from the firm (d) None of the above

88. The surplus remaining after settlement of debts and liabilities of the firm in case of

dissolution shall be ___________. (a) credited to Central Revenue Account of the Government of India (b) credited to Reserve Bank of India (c) distributed among the partner equally (d) distributed among the partner according to their profit sharing ratio.

89. On the ground, ________one or more partners of a firm individually or together

apply to the court for dissolution of the firm. (a) a partner being of unsound mind (b) misconduct of a partner (c) persistent losses in the firm business (d) all the above

90. When an agreement to form a partnership is signed by all the partners, the

document is called (a) Promote (b) Partnership deed (c) Memorandum of Association (d) None of the above.

91. Which of the following are not affected by the non-registration of the firm?

(a) The right of a third party to sue the firm (b) The right of a partner to file a suit for the dissolution of the firm (c) The power of ‘official assignee’ to release the property of an insolvent Partner (d) All of the above

92. On which ground, court may dissolve a firm at the suit of a partner:

(a) Where a partner wilfully commits a breach of agreement on regular basis (b) Where a firm is constituted for a fixed term, on its expiry (c) Where a partner dies (d) When a minor is admitted into partnership


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93. There is compulsory dissolution of the firm: (a) On the death of majority of partners (b) On the insolvency of all the partners (c) In the case of continuous losses (d) In the case of deadlock in the management

94. The date of compulsory dissolution for a partnership firm is __________.

(a) date of order of the Court. (b) date on which firm closes its business. (c) date of applying to the court. (d) None of the above.

95. A partner cannot demand his proportionate share of premium from the other

partners at the time of dissolution of partnership: (a) In case of premature dissolution (b) By the death of one of the partner (c) Mainly due to the misconduct of the partner receiving the premium (d) In all of above

96. An Unregistered firm is not a :

(a) Legal association (b) Illegal association (c) Association of persons (d) Proprietorship concern

97. X,Y and Z are partners in a firm, Z was murdered by W, who wanted to become partner in the firm. Thereafter, W gives his proposal to other partners to join the firm as a partner. Y objects to W’s proposal. The partnership deed contains a provision that the firm shall not be dissolved on the death of any partner. Which one of the following statements in this context is correct? (a) W is liable for the acts of the firm done after Z’s death (b) Estate of W is liable for the acts of the firm done after the death of Z (c) Estate of Z is not liable for the acts of the firm after his death (d) Estate of Z is liable for the acts of the firm done before his death.

98. P,Q and R are partners sharing profits in 5: 3: 1. Their capitals were 30,000, 20,000

and 10,000 respectively. R becomes insolvent. The deficiency of capital on insolvency of R would be borne by P and Q in (a) 5 :3 (b) 3 :1 (c) Equally (d) None of these

99. Unregistered firm cannot file a suit against a _______ to enforce any right arising

from a contract (a) incoming partner (b) outgoing partner (c) third party (d) minor admitted to benefits of partnership.

100. Public notice is not required when there is:

(a) Dissolution of the firm (b) Admission of new partner (c) Retirement of a partner (d) Expulsion of a partner.