19056comp Sugans Pe2 Bcl Cp1

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1THE IN DIAN CO NTRA CT A CT, 1872

Q uestion 1W hat is m ean t by 'U ndue In fluence '? 'A ' app lies to a b an ke r fo r a loan at a tim e w here the re iss tr ingency in the m oney m arke t. T he banke r dec lines to m ake the loan except a t an unusua llyh ig h ra te of in te rest. A accep ts the loan on these te rm s. W he the r the con tract is induced byundue in fluence? Decide . (N ov . 2002 )AnswerM ea nin g o f U nd ue In flu en ce :S e ctio n 16 of th e In d ian C o ntrac t A ct, 1 872 , s ta tes tha t a co n trac t is sa id to be in du ce d byund ue in fluen ce w here the re la tio ns subs is tin g b etw ee n the p arties a re su ch th a t the pa rtiesare in a p os ition to d om in a te the w ill o f the o the r an d use d tha t po s ition to ob ta in an unfa irad vantag e over the o th er.A pe rson is d ee m ed to be in tha t po s ition :( a ) w he re he h o ld s rea l o r ap pa ren t a u tho rity over the o the r o r stan ds in a fiduc ia ry re la tion

to h im ;(b ) w he re h e m a ke s a contra c t w ith a pe rson w hose m en ta l capa c ity is te m po rarily o r

p erm ane ntly a ffe cte d b y reaso n of o ld age , illne ss or m en ta l o r bod ily d istre ss.(c ) w he re a m an w ho is in pos itio n to do m ina te the w ill o f the o th er e n te rs in to con trac t w ith

h im a nd th e tran sa c tion ap pe ars to b e u ncon sc iona b le , th e bu rde n of pro ving tha t it isfa ir, is o n h im , w ho is in such a po s ition .

W he n o ne o f the pa rties w ho h as ob ta ine d th e be ne fits o f a tran sa c tion is in a p os ition todo m ina te th e w ill o f th e o th er, an d th e tra nsac tion be tw een the partie s a ppe ars to beunco nsc ion ab le , th e la w ra ises a pre su m ptio n o f u ndu e in flue nce [sec tio n 16(3)]. E ve rytran sa c tion w here th e te rm s are to the d isadva ntage of on e of the partie s ne ed n ot n ecessarilybe co ns ide red to b e unco nsc ion ab le . If th e contra c t is to th e a dvan ta ge of on e of the p artiesbu t the sam e h as be en m ad e in th e ord ina ry course o f b us ine ss the presum p tion o f un derin flue nce w ou ld n ot be ra ise d.In th e g iven p rob lem , A a pp lies to the b an ke r fo r a lo an a t a tim e w hen the re is s tr inge ncy inthe m oney m arke t. T he ba nker de cline s to m ake the loan excep t a t an un usua lly h igh ra te o fin te re s t. A accepts the lo an on th ese te rm s. T h is is a tra nsac tion in the ord ina ry cou rse o fbu siness , an d th e co ntrac t is no t in duce d by un du e in flue nce . A s b etw een pa rties on an equ a l


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1.2 Business and Corporate Laws

foo tin g , th e cou rt w ill n o t ho ld a ba rga in to be un consc io nab le m ere ly o n th e g rou nd o f h ighin te re s t. O nly w he re the le nd er is in a po s ition to d om in a te the w ill o f the bo rrow er, the re lie f isg ran ted on the g rou nd of un due in flu en ce . B ut th is is n o t the s itua tio n in th is p rob lem , an dth ere fo re , th ere is n o u nd ue in flu en ce .Q uestion 2'A ' s tands su re ty for 'B ' fo r any am oun t wh ich 'C ' may lend to B from tim e to tim e during thenext th ree m on ths sub ject to a max imum o f Rs.50 ,000 . O ne m on th la te r A revokes theg ua ra nte e, w he n C had len t to B R s.5 ,0 00 . R efe rrin g to th e p ro vis io ns of th e In dia n C on tra ctAct , 1872 dec ide w he the r 'A ' is d ischa rged from all the liab ilities to 'C ' fo r a ny su bs equ en tloan . W ha t w ou ld be you r answer in case 'B ' m akes a de fau lt in pay ing back to 'C ' th e m o ne ya lready bo rrow ed i.e . R s.5 ,000? (N ov . 2002 )AnswerT he pro b le m as a ske d in the que s tio n is ba se d on the prov is ion s o f th e In d ia n C o ntra ct A c t1 87 2, as con ta ine d in S ection 1 30 re la tin g to th e revoca tion o f a con tin u in g gu ara n tee a s tofu tu re transa ctio ns w hich can be do ne m ain ly in the fo llow in g tw o w ays:1 . B y N otice : A con tin u in g g ua ran te e m ay at any tim e b e re voked by th e su re ty as to fu tu re

tra ns actio ns , b y n otic e to th e cre dito r.2 . B y dea th o f surety : T h e de ath o f th e sure ty o pera tes , in th e ab sence of an y contra c t to

th e con tra ry , a s a revoca tio n o f a contin u in g gu ara n tee , so fa r as rega rds fu tu retr an sa ctio ns . (S e ctio n 1 31 ).

T he liab ility o f the sure ty fo r p rev iou s tra nsac tion s how ever rem ains .T hu s ap p ly in g the a bove p rov is io ns in th e g iven case , A is d ischa rge d from a ll the liab ilities toC for any sub se qu ent lo an .A nsw er in the seco nd case w ou ld d iffe r i.e . A Is liab le to C fo r R s. 5 ,00 0 on defa u lt o f B s incethe loa n w as taken b efore the no tice o f re voca tion w as g iven to C .Q uestion 3S tate the grounds upon w hich a con trac t m ay be d ischa rged under the p rov is ions o f IndianC on tr ac t A c t, 1872 (N o v. 2 00 2)AnswerD is ch arg e o f a C on tra ct:A C on trac t m ay be d isch arg ed e ithe r b y a n a ct o f p artie s o r by a n ope ra tio n o f law w h ich m ayb e e nu me ra te d a s fo llo ws :(1 ) D ischa rge by pe rfo rm ance w h ich m ay be actua l perfo rm an ce o r ten de r o f p erfo rm ance .

A c tua l p erfo rm ance is sa id to ha ve taken p la ce , w he n each of th e pa rties h as do ne w ha th e ha d ag ree d to do u nde r the agreem e nt. W h en th e pro m isor o ffe rs to perfo rm h is


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The Indian Contract Act, 1872 1.3

ob lig a tio n , b u t th e p ro m ise e re fu se s to a cce p t th e p e rfo rm an ce . It a m ou n ts to a tte m ptedp erfo rm a nc e o r te nd er:

(2 ) D ischa rge by m utua l agreem en t: S ectio n 6 2 o f the In d ia n C on tra c t A ct, 1 8 7 2 pro v id e s ifthe p artie s to a c on trac t ag re e to su bs titu te a ne w c on trac t fo r it o r to re fu n d o r re m it o ra lte r it, th e o rig in a l co n tra c t ne e d n o t to b e p e rfo rm ed . N ova tio n , R esc iss ion , A lte ra tio nan d R em iss io n a re a lso th e sa m e g rou n d o f th is na tu re .

(3 ) D is ch arg e b y im pos sib ility of per formance: T he im p os sib ility m a y e xis t fro m its in itia tio n.A lte rn a tive ly , it m ay b e su p e rve n in g im po ss ib ility w hich m ay tak e p la ce o w in g to (a ).u n fo re se e n ch a n g e in la w (b ). T h e d e s truc tio n o f s ub je c t m atte r (c ). T he no n -e x is te n ce o rn on -o ccu rre nce o f p artic ula r s ta te o f th ing s d ). th e d ec la ra tion o f w ar (S ec tio n 56 ).

(4 ) D ischa rge by lapse o f t ime: A co ntra c t sh o u ld b e p e rfo rm ed w ith in a sp e c ific p e rio d a sp res cribe d in th e La w o f L im ita tio n A ct, 1 96 3 . If it is n o t p e rfo rm ed th e p a rty is d e p rive do f re m ed y a t la w .

(5 ) D ischa rge by ope ra tion o f l aw: It m ay o cc ur b y d e a th o f the p ro m is o r, b y in s o lve n cy e tc .(6 ) D ischa rge by b reach of cont ract : B rea ch o f co n tra c t m ay b e a ctu a l b re a ch o f co n tra c t o r

an tic ip a to ry b re a ch o f co n tra c t. W h e n a p e rs on re p u d ia te s a co n tra c t b e fo re th es tip u la te d tim e, fo r its p e rfo rm an ce h a s a rriv ed , it is a n a n tic ip a to ry b re a ch . If o n e o f th ep a rties to a co n tra c t b re a ks th e co n tra c t th e p arty in ju red the re by ha s a rig h t o f a c tio n fo rda m a g es a s w e ll a s h e is a lso d isch a rg e d fro m p e rfo rm in g h is p art o f th e c on trac t( Se ctio n 6 4) .

(7 ) A p ro m ise m a y d isp e n se w ith o r re m it th e p e rfo rm a n ce o f th e p ro m ise m a d e to h im o rm ay a cce p t a n y s a tis fa c tio n h e th in ks fit. In th e firs t ca se , th e co ntra c t w ill b e d isc ha rge db y re m iss io n a nd in th e s ec o nd it is ac co rd a n d sa tis fa c tio n (S ec tio n 63 ).

(8 ) W he n a p ro m ise e n e g le c ts or re fu se s to a ffo rd th e pro m iso r re as on a b le fa c ilitie s fo r thep e rfo rm an ce of th e p ro m ise , th e p ro m iso r is e xcu se d b y s uc h ne g le c t o r re fu sa l (S ec tio n67) .

Q uestion 4W hat is the sta tus o f a " f inder of goods" under the Ind ian C on tract A ct, 1 8 7 2 ? W hat a re h isrights? (M ay 2003)

AnswerS tatus o f a F inder o f G oods & h is R ig hts :A pe rso n , w ho fin d s g o o ds b e lo n g in g to a n oth e r a n d ta ke s th e m in to h is c us tod y is su b je c t toth e sa m e re sp o n s ib ility a s a b a ile e . H e is b ou n d to ta k e a s m u ch ca re o f th e go o d s a s a m ano f o rd in ary p ru d en ce w ou ld , un d e r s im ila r c ircu m sta n ce s , ta ke o f h is ow n g o od s o f th e sa m eb u lk , q u a lity a n d va lu e . H e m ust a ls o ta ke a ll n e ce ssa ry m ea su re s to trac e its o w n er. If h ed o es no t, h e w ill b e g u ilty o f w ro n g fu l co nv e rs io n o f th e pro pe rty . T ill th e o w n e r is fo u n d o u t,th e p rop e rty in g o o ds w ill ve s t w ith th e find e r a n d he c an re ta in the g o o d s a s h is o w n a g a in s tth e w ho le w orld (ex ce p t th e o w ne r, o f co u rse ).


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A fin der o f g oo ds ha s th e fo llo w ing righ ts un de r the Ind ian C ontra c t A ct, 1 8721 . R ight o f l ien: T he fin der o f goo ds has a righ t o f lien o ver the go ods fo r h is expe nses . A s

such he ca n re ta in th e g ood s ag a in s t th e ow n er un til he re ce ives com p en sa tion fo rtroub le and expe nses incu rred in pre serv in g th e goo ds an d find ing out th e o w ne r. B ut heh as no rig h t to su e the o w ner fo r any such co m pe nsatio n (S e ctio n 16 8).

2. R ight to sue for reward. T h e find er ca n sue fo r a ny spe c ific rew a rd w h ich th e o w ner h aso ffe red fo r th e re tu rn o f th e go ods . H e m a y a lso re ta in the g ood s un til he re ce ives there wa rd . (S ec tio n 1 68 )

3. R ight or resa le : T h e find er has a righ t to se ll the go od s in the fo llow in g case s:(a ) w here the g ood s fou nd is in d an ger o f pe rish in g ;(b ) w here the o w ner cann ot, w ith rea so na b le d iligen ce , b e foun d ou t;(c ) w here the ow n er is fou nd o ut, b u t he re fuse s to p ay the law fu l cha rge s o f th e find er;

a nd(d) w here the law fu l ch arg es o f the fin de r, in re spec t o f the go od s fo un d, am ou nt to

2 /3 rd o f its va lu e.Q uestion 5E xp la in th e g en era l ru le s o f re la tin g to "A cce ptan ce " un de r the Ind ian C ontract A ct, 187 2.

(M ay 2 00 3)AnswerG en era l R ule s of Accep tance : F o llow in g are the g ene ra l ru le s rega rd ing acce ptance und erthe In dia n C ontra ct A ct, 18 72 :1 . A ccep ta nce m ust be a bso lu te a nd u nqu a lifie d [S ec tion 7(1)].2 . A ccep ta nce m u st be in the pre scribed m a nne r. If the o ffe r is no t accep te d in th e

p rescrib ed m an ne r, th en th e o ffe ro r m ay re je ct the a cce ptan ce w ith in a rea so na ble tim e.3 . A ccep ta nce m ust be co m mun ica ted to the o ffe ree . If accep ta nce is co m mun ica ted to the

p erso n, o the r th an the o ffe ro r, it w ill n ot c re ate an y le ga l re la tion sh ip .4 . A ccep ta nce m u st be g iven b y the party to w h om the offe r is m ade .5 . A ccep ta nce m ust be g iven w ith in the prescribe d tim e o r w ith in a rea so na b le tim e.6 . A ccep ta nce ca nn ot be g iven b efore com mu nica tio n o f an o ffe r.7 . A ccep ta nce m ust be m ade before th e o ffe r lap ses or is w ithd raw n .8 . A ccep ta nce m ust sho w in ten tio n to fu lfil the pro m ise .9 . A ccep ta nce ca n no t b e p resum ed fro m s ilen ce .1 0 . D oing o f d es ire d ac t a m ou nts to a cce ptan ce .


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Q uestion 6W hat tests can be app lied in de te rm in ing w he ther a person is an agen t of a no th er? S ta te a nyfive c irc um sta nce s w he re un der a n a ge nt is p ers on ally lia ble to a th ird p arty fo r th e a cts d urin gth e c ou rs e o f agency. (M ay 2003)AnswerD ete rm i nin g A g en cy & Agen tT h e te s t fo r d e te rm in in g w he th e r a p erso n is o r is n o t an a g e n t is w he th e r th a t p e rso n h a s theca p ac ity to b in d th e p rin c ip a l a n d m ak e h im a n sw erab le to a th ird p e rs on b y brin g in g h im (theprin c ip a l) in to le g a l re la tio n s w ith th e th ird pe rso n an d th u s e s ta b lish a p riv ity o f c on trac tb e tw een th e p arty a n d th e p rin c ip a l. If ye s , he is ag e n t, o the rw is e n o t. T h is re la tio ns h ip o fa g en cy m ay be crea te d e ith e r b y e xp re ss a g re e m en t o r by im plic a tio n :U nd er th e fo llo win g c ircu mstan ce s an a ge nt is p ers ona lly lia ble .1 . W he n h e re pre se n ts tha t h e h as a u th ority to a c t o n b e h a lf o f h is prin c ip a l, b u t w h o d o e s

n o t a c tu a lly po ss es su ch au th o rity o r w ho h a s e xce e d e d tha t a u th o rity an d th e a lle g e dem plo ye r d o e s no t ra tifie s h is a c ts . A n y los s su s ta in e d b y a th ird p a rty b y th e a c ts o fsu ch a p e rs on (a g e nt) a n d w h o re lie s u p o n the rep res en ta tio n is to be m a d e g o o d b ysu ch an a gen t.

2 . W he re a co n tra c t is e n te re d in to by a p e rso n a p pa re n tly in th e ch a ra c te r if a g e n t, b u t inre a lity on h is ow n ac co un t, h e is n o t en title d to req u ire d p e rfo rm an ce of it.

3 . W he re th e co n tra c t ex pre ss ly p ro v id es fo r th e p e rso n a l lia b ility o f th e a g e n t.4 . W he n th e a ge n t s ig ns a n eg o tia b le in s tru m e n t in h is o w n n a m e w ith o u t m ak in g it c le a r

tha t h e is s ig n in g a s an ag e n t.5 . W h e re the a g e n t a c ts fo r a p rinc ip a l w h o ca n no t b e su e d o n a cco u n t o f h is be in g a

fo re ig n S ov ere ig n, A m ba ss ad or, e tc .6 . W he re th e a g en t w orks fo r a fo re ig n p rin c ip a l.7 . W h e re a G o ve rn m e nt S e rv an t e n te rs in to a co n tra c t on b e h a lf o f th e U n io n o f In d ia in

d is re g a rd o f A rtic le 2 99 (1) o f th e C ons titu tio n o f In d ia , In su c h a ca se th e su it ag a in s t theag e n t ca n b e in s titu te d b y th e th ird p a rty o n ly an d n o t b y th e p rin c ip a l (C ha ttu rb hu j v .Moheshwar ) .

8 . W he re a cco rd ing to th e us ag e of tra d e in c erta in k in d s o f b u s in e ss , a g e n ts a re p e rso n a llyl iable.

Q uestion 7E xp la in th e c on ce pt o f 'm is re pre se nta tio n' in m a tte rs o f con tract. S ohan induced S ura j to buyh is m otorcyc le say ing tha t it was in a ve ry g oo d co nd itio n. A fter ta kin g th e m oto rc yc le , S ura jcom pla ined tha t the re w ere m any de fec ts in the m otorcyc le . S ohan proposed to ge t it repa iredand prom ised to pay 40% cos t o f r ep a ir s A fte r a few days, the m oto rcyc le d id no t work at a ll.N ow Sura j wan ts to resc ind the con tract. Dec ide g iv ing reasons. (N ovem ber 2003 )


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AnswerMisrepresentat ion & t he P ro blem : A ccord ing to S ection 18 of the Ind ian C ontract A c t, 1872,m is re pre se nta tio n is th ere :1 . W hen a person positive ly asserts tha t a fac t is true w hen h is in fo rm ation does not

w arran t it to be so , though he be l ieves it to be true .2 . W hen there is any breach of duty by a person, w h ich brings an advantage to the person

com mitting it by m is lead ing another to h is pre jud ice .3 . W hen a party causes, how ever,innocently , the o ther party to the agreem ent to m ake a m is take as to the substance of theth ing w hich is the sub jec t o f the agreem ent.

Problem:The aggrieved party, in case of m is representation by the o ther party , can avo id or resc ind thecontract [S ection 19, Ind ian C ontract A ct, 1872]. The aggrieved party loses the righ t to resc indthe contract if he , a fte r becom ing aw are o f the m isrepresenta tion , takes a benefit under thecontract o r in som e w ay affirm s it. A ccord ing ly in the given case S ura j cou ld no t rescind thecontract, as h is acceptance to the o ffe r o f S ohan to bear 40% of the cos t o f repa irs im plied lyam ount to fina l acceptance of the sa le [Long v . L lo yd , (1 95 8)J .Q uestion 8Sunil de live red h is ca r to M ahesh for repa irs . M ahesh com pleted the work, but d id no t re tu rnthe ca r to Sun il w ith in reasonab le tim e , though Sun il repeated ly rem inded M ahesh for thereturn of ca r. In the mean tim e a b ig fire occu rred in the ne ighbo rhood and the ca r w asdes troyed . D ec ide whe the r M ahesh can be he ld liab le unde r the p rov is ions of th e In dia nC on tr ac t A c t. 1872. (N ov em b er 2 00 3)AnswerThe prob lem asked in the question is based on the provis ions o f section 160 and 161 of theInd ian C ontract A ct 1872. A ccord ing ly, it is the duty o f the ba ilee to re tu rn or de live r the goodsba iled accord ing to the ba ilo r's d irec tions , w ithou t dem and, as soon as the tim e for w hich theyw ere ba iled has exp ired , o r the purpose fo r w hich they w ere ba iled fo r any loss , destruction o fthe goods from tha t tim e (S ection 161), no tw iths tand ing the exercise o f reasonab le care on h ispart.There fo re , app ly ing the above prov is ions in the g iven case , M ahesh is liab le fo r the loss ,a lthough he w as not neg ligen t, bu t because of h is fa ilu re to de live r the car w ith in a reasonab let ime (Shaw & C o. v . S ymm o ns & Sons) .Q uestion 9W hat do you unders tand by "Agency by Ra tifica tion "? W ha t is the e ffec t of r atific a tio n ? P o in to ut a ny fo ur e le m en ts of a va lid ra tifica tion. (N ovem ber 2003 )


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Answe rA ge nc y b y R atific atio n; its e ffec t & e ss en tia ls o f v alid r atif ic at io n:Mean ing : A person m ay act on beha lf on anothe r w ithou t h is know ledge o r consen t. La ter onsuch anothe r pe rson m ay accept the act o f the form er o r re ject it. If he accepts the act o f thefo rm er done w ithout h is consent, he is sa id to have ra tified that act and it p laces the parties inexactly the sam e position in w h ich they w ou ld have been the fo rm er had la te r's au tho rity a t thetim e he m ade the con tract. L ikew ise , w hen an agent exceeds the au thority bestow ed upon h imby the p rinc ipa l, the princ ipa l m ay ra tify the unautho rised act.E ffe ct o f R a tific atio n : The e ffect o f ra tifica tion is to tende r the acts done by one person(agen t) on behalf o f ano ther (p rinc ipa l), w ithou t h is (p rinc ipa l's ) know ledge or autho rity , asb ind ing on the othe r pe rson (princ ipa l) as if they had been perfo rm ed by his au thority (S ection1 96: In dian C ontra ct A ct, 18 72).Further, ra tifica tion re la tes back to the da te w hen the act w as done by the agent. Th is m eansthe agency com es in to ex is tence from the m om ent the agen t firs t acted and not from the tim ew hen th e princ ip al ra tif ie d th e a ct.E ss en tia ls o f a v alid R atif ic atio n1 . The agen t m ust pu rpo rt to act as agen t fo r a princ ipa l w ho is in contem pla tion and is

id en tifia ble a t th e tim e o f c on tra ct.2 . The p rinc ipa l m ust be in ex is tence a t the tim e of con tract.3. The princ ipa l m ust have con trac tua l capacity both a t the tim e o f the con tract and at thetim e o f ra tific a tio n .4. The princ ipa l m ust have the fu ll know ledge o f a ll the m ate ria l facts .5. R atifica tion m ust be done w ith in a reasonab le tim e of the act pu rpo rted to be ra tified .6. The act to be ra tified m us t be law fu l and no t vo id o r illega l o r u ltra v ires in case o f a

company .7. T he w ho le tran sa ction ca n b e ra tified .8. R atifica tion m ust be com m unica ted to the pa rty w ho is sought to be bound by the act

done by the agen t.9. R a tifica tion can be of the acts w hich the princ ipa l had the pow er to do.10 . R atifica tion shou ld no t put a th ird party to dam ages.11 . R a tifica tion re la tes back to the date o f the act o f the agen t.Q ues tio n 1 0S ha mbh u D ay al s ta rte d "s elf s erv ice " s ys tem in h is sho p. S m t. P ra kas h en tered the s hop , tooka baske t and a fte r tak ing artic les o f her cho ice in to the baske t reached the cash ie r fo rpaym ents . The cash ie r re fuses to accept the p rice . C an S ham bhu D aya l be com pe lled to se llthe sa id artic le s to Sm t. Prakash? Dec ide . (M ay 2004)


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AnswerIn vita tio n to o ffe rT he o ffe r shou ld be d is ting u ishe d from a n inv ita tio n to o ffe r. A n o ffe r is the fina l e xpre ss io n o fw illingn ess b y the o ffe ro r to b e b ou nd by h is o ffe r shou ld the party choo ses to accep t it. W herea p arty , w ith ou t e xpre ss in g h is fin a l w illin gne ss , p rop oses certa in te rm s o n w hich h e is w illin gto ne go tia te , he do es not m ake a n offe r, bu t in vite s o n ly the o th er pa rty to m ake a n offe r onthose te rm s. T his is the ba sic d is tinc tion betw ee n offe r and inv ita tion to o ffe r.T he d isp la y o f a rtic le s w ith a p rice in it in a se lf-se rv ice sh op is m ere ly an in vita tio n to o ffe r. Itis in n o se nse an o ffe r fo r sa le , th e accep tance o f w hich cons titu tes a co ntrac t. In th is c as e,S mt. P rakash in se lec tin g so m e a rtic les a nd app roa ch in g th e cash ie r fo r paym ent s im ply m adean offe r to b uy th e artic le s se le c te d by he r. If th e cash ie r do es no t a ccept the p rice , th ein te re s te d buye r cann ot co m pe l h im to se ll. [Fisher V . Bel l (1 961 ) O .B . 394 Pharmaceut ica lsociety of Grea t B r it ai n V . B o ots C a sh C h em is ts }.Q uestion 11Akh ilesh en te red in to an ag reem en t w ith Shekha r to de live r h im (Shekha r) 5 ,000 bags to bem anu factu red in h is facto ry . The bags cou ld no t be m anu factu red because of strike by thew orkers and A kh ilesh fa iled to supply the sa id bags to S hekha r. D ec ide w he the r A kh ilesh canb e e xe mp te d fro m lia bility u nd er th e p ro vis io ns of th e In dia n C on tra ct A ct, 1 8 7 2 . (M a y 2 00 4) )AnswerD elivery o f B agsA cco rd in g to S e ctio n 56 (P ara 2 ) o f Ind ian C on tra c t A c t, 18 72 w hen the pe rfo rm a nce o f acontra c t beco m es im po ssib le or un law fu l sub sequ en t to its fo rm atio n , the con tra c t beco m esvo id , th is is te rm ed a s 'su pe rven ing im po ss ib ility ' (i.e . im po ssib ility w hich do es no t e xist a t thetim e o f m ak ing th e co ntrac t, b ut w hich a rises sub seq uen tly).B ut im poss ib ility o f pe rfo rm ance is , a s a ru le , n o t a n excuse fro m p erfo rm ance . It m ean s tha tw he n a p erson has p rom ise d to do som e th ing , h e m u st p erfo rm h is prom ise un less theperfo rm an ce b ecom e s a bso lu te ly im p oss ib le . W hethe r a prom ise b ecom e s a bso lu te lyim po ss ib le d ep end s up on th e fa c ts o f each case .T he perfo rm an ce d oes no t b ecom e a bso lu te ly im poss ib le o n accoun t o f s trike s , lockou t andc iv il d is tu rba nces a nd the co ntrac t in su ch a ca se is no t d ischa rge d un less o th erw ise a gre edby the p arties to the con trac t (Budge t V Bennin g to n ; J a co b s V C redi t L yonna is ) .In th is case M r. A kh ilesh co u ld no t d e live r the bag s a s p rom ise d beca use of s tr ike b y th ew orkers . T h is d ifficu lty in pe rfo rm ance can not b e co ns ide red as im poss ib le o f perfo rm an ceattrac ting S ection 56 (P ara 2 ) an d he nce M r. A kh ile sh is lia b le to M r. S he khar fo r no n-p er fo rm a nc e o f c on tr ac t.


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Q uestion 12M r. Se th an industr ia lis t has been figh ting a long d rawn litiga tion w ith M r. Ram an anothe rindustria lis t. To support h is lega l cam pa ign M r. Se th en lis ts the se rv ices o f M r. X a l ega le xp ort s la tin g tha t an a mo un t o f Rs. 5 lakhs wou ld be paid , if M r. X does no t take up the brie fo f M r. R am an . M r. X ag rees, bu t a t the end o f the litiga tion M r. S eth re fuses to pay . D ec idew he the r M r. X can recove r the am ount prom ised by M r. S eth under the p rov is ions o f th e In d ia nC on tr ac t A c t, 1872. (N ov em b er 2 00 4)AnswerT h e pro b le m as a ske d in th e q u e s tio n is ba se d o n o n e o f th e e sse n tia ls o f a va lid co n tra c t.A cc ord in g ly , on e o f the e ss en tia l e le m en ts o f a va lid co n tra c t is th a t th e a g re e m ent m ust n o tb e o n e w hich th e la w d e c la re s to be e ith e r ille g a l o r vo id . A vo id ag re em en t is o n e w ith o u t a n yle g a l e ffec t. T hu s an y a g re e m en t in re s tra in t o f tra d e , m arr ia g e , le ga l p roc ee d in g s e tc ., a revo id ag ree m en ts . T h u s M r. X ca n n o t rec ov er th e a m ou n t o f R s. 5 la kh s p rom is ed b y M r. S ethb ec au se it is a n ille g a l a g re e m en t a n d ca n n o t b e e n fo rce d b y la w .Q uestion 13Wh at is m ea nt by A ntic ip ato ry B re ach o f Cont ract?M r. D ubious textile en te rs in to a contract w ith Re ta il G a rm ents Show Room fo r supp ly o f1 ,0 0 0 p ie c es o f Cotton Sh irts a t R s.300 pe r sh irt to be supp lied on o r be fo re 31 st December ,2004 . H owever, on 1 st N ovem ber, 2004 Dub ious Textiles in fo rm s the Re ta il G arm en ts ShowRoom tha t he is no t w illing to supp ly the goods as the p rice o f C otton sh irts in the m eantim ehas gone up to R s. 350 pe r sh irt. E xam ine the righ ts o f the Re ta il G arm en ts Show R oom in th isrega rd . (Novem ber 2004 )AnswerA ntic ip ato ry b re ac h o f c on tra ctA ntic ipa to ry b re ac h o f c on trac t o ccu rs w hen th e p ro m iso r re fu se s a lto g e th e r to pe rfo rm h ispro m ise a n d s ig n ifie s h is un w illin g ne ss e ve n be fo re th e tim e fo r p erfo rm an c e h a s arrive d . Insu ch a s itu a tio n th e pro m ise c an c la im co m pen sa tio n b y w ay o f lo ss o r d a m ag e c au se d to h imb y th e re fu sa l o f th e p ro m is o r. F o r th is , th e p rom is ee n e e d n o t w ait till the tim e stip u la te d inth e co n tra c t fo r fu lfillm en t o f th e pro m ise by th e p o im iso r is o ve r.In th e g iv en p ro b le m D u b io u s T e xtiles h a s in d ica te d its u n w illin gn e ss to su p p ly th e co tto nsh irts o n 1 st N o ve m be r 2 0 0 4 it se lf w he n it h a s tim e u p to 31 s' - D ec em b er 2 00 4 fo r p erfo rm a nc eo f th e co ntra c t o f su p p ly o f go o d s . It is th e re fo re ca lled a ntic ip a to ry bre a ch of co n tra c t. T h u sR e ta il G a rm en ts sh o w roo m c an c la im da m ag es fro m D ub io us T e xtile s im med ia te ly a fte r 1 stN ove m be r, 2 0 0 4 , w ith o u t w aiting u p to 3 1 s' D ec em be r 2 00 4 . T h e da m ag es w ill b e ca lcu la te d a tth e ra te o f R s . 5 0 pe r sh ir t i.e . th e d iffe re n ce b etw e e n R s. 3 50 /- (the p rice p re va ilin g o n 1 s1N ove mbe r) a nd R s. 3 00 /- th e co ntra cte d p ric e.


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Q uestion 14D is tin gu is h b etw ee n C on tr ac t o f In dem nity a nd C on tra ct o f Guarantee.Answer

(N ov em b er 2 00 4)

Contrac t o f indemn ity Contract of Guaran tee1. There are tw o parties to the contrac t v iz . 1 . T here are th ree parties to the viz .

indem nifie r (p rom isor) and the cred ito r, p rinc ipa l deb to r and the sure tyI nd e m n if ie d ( pr om i se ).

2 Liab ility o f the indem nifie r to the 2. Liab ility o f the sure ty to the cred ito r isindem nified is prim ary and independent. co lla te ra l o r secondary, the prim aryliab ility be ing tha t o f the principa l deb to r .

3 There is on ly one contract in case of a 3 . In a contrac t o f guaran tee there arecontrac t o f indem nity , i.e ., be tw een the th ree contracts, be tw een principa lindem nifie r and the indem nified . D ebtor and C red ito r; be tw een cred ito r

and the sure ty and betw een sure ty andp ri nc ip a l d e bt or .

4 It is no t necessary fo r the indem nifie r to 4. It is necessary that sure ty shou ld g iveact a t the request of the indem nified . the guaran tee a t the reques t o f the

debtor.5 The liab ility o f the indem nifie r a rises 5 . T here is usually an ex isting debt or du ty,

on ly on the happen ing o f a contingency. the perfo rm ance of w h ich is guaran teedb y th e s ure ty.

6 A n indem nifie r cannot sue a th ird 6 . 6 . A sure ty , on d ischarg ing the debt due byparty fo r loss in h is ow n nam e, because the princ ipa l deb to r, steps in to the shoesthere is no priv ity o f con trac t. H e can do of the cred ito r. H e can proceed aga instso on ly if there is an ass ignm ent in h is the princ ipa l deb to r in h is ow n righ tfavour.

Q uestion 15Fathe r p rom ised to pay his son a sum o f Rs. O ne lakh if the son passed C.A. e xa min atio n inthe first a ttem pt. The son passed the exam ina tion in the firs t a ttem pt, but fa the r fa iled to paythe amoun t as prom ised. Son files a su it fo r reco ve ry of the amount. S ta te a long w ithreasons w hethe r son can recove r the am oun t unde r the Ind ian C on tract Act, 1872

(M ay 2 00 5)


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AnswerP ro b le m a ske d in the qu es tion is base d o n the p rov is io ns o f the Ind ian C ontrac t A c t, 1 872 asconta ined in S ectio n 10 . A ccord in g to th e p rov is io ns there sho u ld be a n in ten tio n to crea teleg a l re la tion sh ip be tw een th e partie s . A greem ents o f a so cia l na tu re or do m estic n a tu re donot co n tem pla te leg a l re la tionsh ip a nd as such are no t con trac ts, w hich can b e e nforce d . T h isprin c ip le ha s b ee n la id d ow n in th e ca se o f B a lfo ur vs . B a lfo ur (1 91 2 2 K B . 5 71 ). A cco rd in g ly ,ap p ly in g the ab ove pro v is ions and th e case de c is ion , in th is case so n ca nno t recove r theam oun t o f R s.1 lakh from fa ther fo r the rea so ns exp la ine d a bove .Q uestion 16A h ire a carriage o f B and agrees to pay Rs.500 as h ire cha rges. The carriage is unsa fe ,though B is u na wa re of it. A is in jured and c la im s com pensation fo r in ju ries su ffered by him .B re fu se s to p ay. D isc uss th e lia bility of B (M ay 2 00 5)AnswerP ro b le m a ske d in the qu es tion is base d on th e prov is ion s o f th e Ind ian C o ntrac t A c t, 18 72 asconta ined in S e ctio n 1 50 . T he se ctio n p rov id es th a t if the go od s are ba iled fo r h ire , the b a ilo ris respo ns ib le fo r su ch da m age , w he th er h e w as or w a s no t a w are o f th e ex is ten ce of suchfau lts in the goo ds ba iled . A ccord ing ly , ap p ly in g the abo ve pro vis ions in the g iven case B isrespo ns ib le to com pe nsate A for th e in ju rie s sus ta ined even if h e w as n ot aw are o f th e defe ctin th e c ar ria ge .Q uestion 17M L td ., con tracts w ith Shan ti T rade rs to make and de liver ce rta in m ach inery to them by30.6 .2004 fo r R s. 11.50 lakhs. D ue to labou r s tr ike , M L td . co uld n ot m an ufa ctu re a nd d eliv erthe m ach ine ry to S han ti T raders . La te r, S han ti T rade rs p rocu red the m achinery from ano the rm anu factu re r fo r R s.12 .75 lakhs. Shanti T raders w as a lso preven ted from perfo rm ing acon tract w h ich it had made w ith Zen ith T rade rs a t the tim e o f th eir c on tra ct w ith M L td . a ndwere compe lled to pay compensa tion for breach of con tract. Adv ise Shanti T rade rs theamoun t o f com pensa tion w hich it can c la im from M L td ., re fe rrin g to th e le ga l p ro vis io ns o f th eInd ian C ontract A ct. (M ay 2005)AnswerS e ctio n 73 of the Ind ian C on tra c t A c t, 1 872 p rov id es fo r co nseq uen ces o f b reach of con trac t.A cco rd in g to it, w hen a contra c t h as be en broken , th e p arty w ho suffe rs b y such bre ach isen title d to re ce ive from the p arty w h o h as b roke n the co ntrac t, co m pen sation fo r an y loss o rda m ag e cause d to h im the reb y w h ich na tu ra lly a ro se in th e usua l cou rse o f th in gs from suchbre ach or w h ich th e pa rties kne w w hen the y m ad e the contra c t, to b e like ly to re su lt from thebre ach o f it. S u ch co m pe nsation is no t g ive n fo r a ny re m ote a nd ind ire ct loss o r dam a gesus ta in ed by re ason o f the bre ach . It is fu rthe r p rov id ed in the exp lan a tion to the sec tion tha tin es tim ating th e loss or da m age from a b rea ch of con trac t, th e m ean s w h ich e x iste d o frem edy ing the in co nve n ien ce cau se d by the n on-perfo rm an ce of the con trac t m ust be take n


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i nt o a c co u n t.A pp ly in g the ab ove prin c ip le o f law to the g iven case , M L td is ob liged to co m pe nsate fo r theloss o f R s.1 .25 lakh s (i.e . R s .12 .75 m inu s R s.1 1 .50 = R s. 1 .25 lakh s) w hich ha d na tu ra llya r isen due to de fa u lt in p erfo rm ing the contra ct b y the spe c ifie d da te .R ega rd in g th e a m oun t o f co m pe nsation w h ich S ha nti T rad ers w ere com p e lle d to m a ke toZ en ith T rad ers , it dep en ds up on th e fa c t w he th er M L td kne w ab out the co ntra ct o f S han tiT rad ers fo r su pp ly o f th e con tra c te d m ach in ery to Z e n ith T ra de rs o n the spe c ified da te . If so ,M Ltd is a lso o b lig ed to re im burse the com p ensa tio n w h ich S h an ti T ra de rs h ad to pay toZ en ith T ra de rs fo r b rea ch of co n trac t. O th erw ise M L td is no t lia b le .Q uestion 18M r. A hu ja of De lh i engaged M r. S ingh as his agent to buy a house in W est E xtens ion a rea .M r. S in gh bo ug ht a house for Rs.20 lakhs in the name of a nom inee and then pu rchased ith im se lf for RS .24 Iakhs. He then sold the sam e house to M r. Ahuja for RS .26 /akhs. M r. Ahu jala te r com es to know the m isch ie f o f M r. S ingh and tries to recove r the excess amount pa id toM r. S ingh. Is he entitled to recove r any am ount from M r. S ingh? If so , how m uch? Expla in .

(N ov em be r 2 00 5)AnswerT he prob lem in th is ca se , is base d on the p rov is io ns o f th e Ind ian C o ntra ct A c t, 18 72 a sconta ined in S ection 215 re ad w ith S ection 216 . T h e tw o sec tio ns p rov id e , tha t w here anag en t w itho u t the kn ow le dge of the prin c ipa l, de a ls in th e b us in ess o f ag ency on h is ow na cc ou nt, th e p rin cip al m a y:(1 ) repu d ia te the transa c tio n , if th e ca se sh ow s, e ither tha t the a gen t ha s d isho ne s tly

co ncea led a ny m ateria l fac t from h im , o r tha t the dea ling s o f th e age nt have bee nd is ad va nta ge ou s to h im .

(2 ) c la im fro m the ag en t a ny ben efit, w hich m ay h ave re su lted to h im from th e tra nsa ctio n .T he re fo re , b ased o n the a bo ve prov is ion s , M r. A hu ja is e n titled to re cover R s.6 lakh s fro mM r. S ing h b e in g the a m ou nt o f p ro fit earned b y M r. S in gh out o f th e transa c tio n .Q uestion 19M iss X , a film actress agreed to work exc lusive ly fo r a period o f two yea rs , for a filmp roduction com pany. However, during the sa id period she en te rs in to a contract to work foran other film pro duce r. D iscu ss the rights o f the agg rieved film production com pany under theIn dia n C o ntra ct A ct, 1872. (N ov em be r 2 00 5)AnswerW he re a p arty co m m en ts a breach o f ne gative te rm of a co ntrac t i.e ., w he re h e d oe ssom e th ing w h ich he p rom ise d n ot to do , th e ag grie ved party can go to cou rt w h ich m ay beissu e an order res tra in ing h im from d o in g w ha t he pro m ised no t to do . S uch an order o f the


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the va lid ity as betw een the donor and donee, o f any g ift actua lly m ade." Thus, g ifts do notr eq uir e a ny c on sid er atio n.Q uestion 2 1E xamin e th e v alid ity of a con tract w hen the accep tance from the o fferee is ob ta ined under'C oe rc ion ' o r u nd er 'U ndu e in flu en ce '. P oin t ou t th e d is tin ctio n b etw ee n 'C oerc io n' a nd 'U nd uein fluence '. (Novem ber 2005 )AnswerA ccord ing to S ection 19 of the Indian C ontract Ac t, 1872 w hen consent to an agreem ent isg iven due to coerc ion or undue in fluences , such a contrac t is vo idab le a t the option o f theparty w hose consent w as so obta ined . T he d iffe rence betw een coerc ion and undue in fluenceis as under:

(a )Coerc ionIt invo lves the phys ica l fo rce or th rea t.T he aggrieved party is com ple te tom ake the contract aga inst its w ill.It invo lves com mitting or th rea ten ing tocom m it an ac t fo rb idden by Ind ianP ena l C ode for de ta in ing or th rea ten ingto de ta in property o f ano ther person .It is no t necessary tha t there m ust bes om e re la tio ns hip b etw ee n th e p artie s.C oercion need not proceed from theprom isor nor need it be d irec teda ga in st th e p ro m is or.T he contract is vo idab le a t the option o fthe party w hose consent has beeno bta in ed b y th e c oe rcio n.

Undue I nf lu e nc eIt involves m ora l o r m enta l p ressure .The aggrieved party be lieves tha t heor she w ou ld m ake the contract.N o such illega l act is com m itted or ath re at is g iv en .

S om e sort o f re la tionsh ip be tw eenth e p artie s is a bs olu te ly n ece ssa ry.U ndue in fluence is a lw ays essentia lbe tw een the parties to the contract.

W here consent is induced by unduein fluence , the contract is e ithervo idab le or the court m ay se t it sa leor en fo rce it in a m od ified fo rm .The court has the d istinc tion tod irect the aggrieved party to re tu rnthe benefit in w ho le or in part o r no tto g ive a ny s uch d ire ctio ns.

Q ue stio n 2 2Ram aswam i p roposed to se ll h is house to R am ana than . R am ana than sen t h is accep tance bypost. Next day, Ram ana than sends a te leg ram w ithd raw ing his accep tance . E xam ine thevalidity o f the a cce ptan ce in th e lig ht o f t he f ollow ing :

(b )

(c )

(d )

(e )

(f) In case of coerc ion w here theaggrieved party , as per S ection 64,resc inds the contrac t any benefitrece ived has to be restored back to theo th er p arty .


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(i) The te leg ram o f revocat ion o f accep tance w as rece ived by R am asw am i befo re the le tte ro f acceptance.

(ii) The te leg ram o f re vo ca tio n a nd le tte r o f a cc ep ta nc e b oth re ac he d to ge th er.(M ay 2 00 6)

AnswerT h e p ro b le m is re la te d w ith th e co m m un ica tio n a n d tim e o f ac ce pta n ce a n d its re vo ca tio n . A spe r S e ctio n 4 o f th e Ind ian C on trac t A c t, 1 87 2 , th e co m m u n ica tio n o f a n a cce p ta n ce is aco m ple te a s ag a in s t the a cce p to r w he n it co m es to th e kn o w le d g e o f th e p ro p o se r.A n a cc ep ta n ce m ay b e re vo k ed a t a n y tim e b e fo re th e co m m un ica tio n o f th e a cc ep ta n ce isco mp le te a s ag ain st the a cce pto r, b ut n ot a fte rw ard s.R efe rr in g to th e a bo ve p ro vis io ns(i) Y e s , th e re vo ca tio n o f a cce p tan ce b y R am ana th a n (th e a cc ep to r) is v a lid .(ii) If R a m as w a m i o pe n s th e te le g ram firs t (a n d th is w o u ld b e no rm a lly so in ca se of a

ra tio na l p e rso n) a n d re a d s it, th e ac ce p ta n ce s ta n d s re vo ke d . If h e o p en s th e le tte r firs tan d re a d s it, rev oc a tion o f ac ce pta n ce is n o t p os s ib le a s th e co n tra c t h a s a lre a d y be e nconc luded

Q ue stio n 2 3E xp la in the c ircu ms tan ce s w he re und er a party to a con tract m ay be exempted from theper formance o f co ntra ct o n th e gro und o f 'S up erv en in g im p os sib ility ' u nd er th e In dia n C on tra ctAct , 1872. (M ay 2 00 6)AnswerSu p er ve n in g impo s si bil it y: W he n p erfo rm anc e o f a p rom is e be c om es im po ss ib le o r ille ga lb y o ccu rre nc e o f a n u ne xp e c te d , e ve n t o r a ch a n g e o f c ircu m s ta n ce s be yo n d th eco n tem pla tio n o f p a rties , is ca lle d su pe rve n in g im po ss ib ility . In ca se o f su p erve n in gim p os sib ility th e c on tra ct b ec om e s v oid .Circumstances: A p a rty to a co ntra c t m a y b e e xc us ed fro m th e p e rfo rm a n ce of h ispro m ise o n th e g ro u n d o f 's up e rv en ing im p o ss ib ility ' u n d er the In d ia n C o n tra c t A c t,1 8 7 2 in th e fo llo w in g c ircu m stan ce s .( a ) A cc ide n ta l d e s tru c tio n o f th e su b je c t m atte r o f th e c on trac t: If th e su b je c t m atte r o f the

c o ntra c t is d e s tro ye d b y a n a cc id en t b o th the p a rtie s are e xcu se d from th e pe rfo rm an ceo f th e c on tr ac t.

(b ) N o n-e x is te n ce o r n on oc cu rre n ce of a p a rticu la r s ta te o f th in g s : N on -ex is te n ce o r n o noc cu rren c e of a p a rtic u la r s ta te o f th in g s o f th e co n tra c t e x em pts th e p a rties from th ep erfo rm a nc e o f th e c on tra ct.


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(c) Incapac ity to perfo rm a contract o f persona l services : In case of con trac t o f persona lserv ice , d isab ility o r incapac ity to perfo rm , caused by the act o f G od e.g . illness ,c on stitu te s la wfu l e xcu se for n on -p erfo rm an ce o f th e c on tra ct.

(d ) C hange in law : P erfo rm ance of a contract m ay a lso becom e im possib le due to asubsequent change in the law . T he law passed afte r the contrac t m ay proh ib itperfo rm ance of som e act, w hich m ay be very bas is o f the contract. A s such the contrac tis d ischarged due to subsequent im poss ib ility and the parties becom e free from the irm u t ua l o b li ga ti on s .

(e ) O utbreak o f w ar: C ontracts m ay be affected by w ar in a varie ty o f w ays, v iz ., (i) byem ergency leg is la tion contro lling prices or o therw ise re la ting to res tric tion o f trade ; (ii) byp ro hib itin g o r re stra in in g tra ns actio n w ith a lie n e ne my.

Quest ion 24Ravi becom es guaran tor fo r A shok fo r the am oun t w hich may be g iven to h im by Na lin w ith ins ix m on ths. The m axim um lim it of the sa id am oun t is Rs . 1 lakh . A fte r tw o moths Raviw ithd raw s h is gua ran tee . U pto the tim e of revocat ion of guaran tee , N alim had g iven to A shokRs.20,000.(i) W he the r R avi is d ischa rged from his liab ilities to N alin for any subsequen t loan .(ii) W he the r Ravi is liab le if A shok fa ils to pay the am oun t of R s. 2 0,0 00 to N alin ?

(M ay 2 00 6)An s we rD ischarge of S ure ty by R evocation (P rob lem ): A s per section 130 of the Ind ia C ontrac tA c t, 1872 a specific guaran tee cannot be revoked by the sure ty if the liab ility has a lreadyaccrued . A continu ing guaran tee m ay, a t any tim e, be revoked by the sure ty , as to fu tu retransactions, by no tice to the cred ito r, bu t the sure ty rem ains liab le fo r transactions a lreadye nte re d in to .A s per the above prov is ions (i) Y es, R av i is d ischarged from all the subsequent loan becauseit's a case of con tinu ing guaran tee . (ii) R av i is liab le fo r paym ent o f R s. 20 ,000 N alin becauseth e tra ns actio n h as a lre ad y c om ple te dQuest ion 24X , a m ino r w as study ing in M .C om . in a co llege . O n t Ju ly , 2005 he took a loan of Rs.1 0,0 00 from B fo r p aym en t of h is co llege fees and to pu rchase books and agreed to repay by31 st December, 2005 . X possesses assets w orth R s. 2 /akhs. O n due da te X fa ils to pay backthe loan to B. B now wants to recove r the loan from X ou t of h is (X 's) asse ts . R efe rring to theprovisions of In dia n C o ntra ct A ct, 1872 d ec id e w h eth er B would succeed . (Novem ber 2006 )An s we rY es, B can proceed aga ins t the asse ts o f X . A ccord ing to section 68 of Ind ian C ontract A ct1872 "If a person , incapab le o f en te ring in to a contract, o r anyone w hom he is lega lly bound


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to support, is supp lied by another person w ith necessaries su ited to h is cond ition in life , theperson w ho has fu rn ished such supp lies is en titled to be re im bursed from the property o f suchincapab le person ." S ince the loan g iven to X is fo r the necessaries su ited to the cond itions inlife o f the m inor, h is asse ts can be sued to re im burse B .Q ue stio n 2 5" The r ela ti on s h ip of princ ipa l and agent (i.e . A gency ) m ay be cons titu ted by Subsequentra tif ic atio n b y th e p rin cip al." E xa min e th e v alid ity of th e s ta te m en t a nd s ta te th e re qu is ite s of av alid ra tific atio n in th e lig ht of t he p rov is i ons of th e In dia n C on tra ct A ct, 1 87 2.

(N o vembe r 2 00 6)AnswerW here an agent does an ac t fo r h is principa l w ithou t h is know ledge or au thority o r w here heexceeds the g iven authority, the princ ipa l is no t he ld bound by the transaction so m ade.H ow ever, S ection 196 of the Ind ian C ontrac t A ct, 1872, perm its the principa l to ra tify the act o fthe agent. A ccord ing to th is section "W here acts are done by one person on beha lf o f ano ther,bu t w ithou t h is know ledge or au thority, he m ay e lec t to ra tify o r to d isow n such acts. If hera tify them , the sam e effects w ill fo llow as if they had been perfo rm ed by h is au thority "A gencyin such a case is sa id to be cons titu ted by ra tifica tion .T o b e va lid , a ra tific atio n m us t fu lfill th e fo llo win g c on ditio ns :(i) The agent m ust purport to act an agent.(ii) The princ ipa l m ust have been in exis tence at the tim e the agent orig ina lly ac ted .(iii) R atifica tion m ay be expressed or im plied (S ec tion 197).(iv) N o va lid ra tifica tion can be m ade by a person w hose know ledge of the facts o f the case

is m ate ria lly d efe ctiv e (S ectio n 1 98 ).(v) R atifica tion m ust be o f the entire transaction . A contrac t cannot be ra tified partia lly

(S ec tio n 1 99 ).(v i) R atifica tion o f unauthorized ac t m ust no t in ju re th ird person . (S ection 200)(v ii) A n illega l act cannot be ra tified .(v iii) The person ra tify ing the act m ust have contrac tua l capacity.Q ue stio n 2 6Ex pla in in g th e p ro v is io ns of th e In dia n C on tra ct A ct, 1872, a nswe r th e fo llo w in g:(i) A con trac ts w ith B fo r a f ix ed p ric e to c on stru ct a hou se fo r B with in a s tip u la te d time . B

w ould supp ly the necessary m ateria l to be used in the cons truc tion . C g ua ra nte es A 'sper fo rmance of t he c on tr ac t. B does not supp ly the m ateria l as pe r the agreem ent. Is Cd is c ha rg ed fr om h is lia bilit y?


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(ii) C , th e h o ld e r of an ove r due b ill o f exchange drawn by A as su re ty fo r B , and accep ted byB , con tracts w ith X to g ive tim e to B . Is A d isch arg ed fro m h is liab ility ? (N ove mb er 2 00 6)

Answer(i ) A cco rd ing to S ection 134 o f the Ind ian C ontract A c t, 1872, the su rety is d ischa rged by

any con tract be tw een the c red ito r and the p rinc ipa l debtor, by w h ich the p rinc ipa l deb to ris re leased o r by any act or om iss ion for the cred ito r, the lega l consequence of w h ich isthe d ischarge o f the princ ipa l deb to r. In the g iven case the B om its to supp ly the tim ber.H ence C is d isch arg ed fro m his lia bility .

(ii) A cco rd ing to S ection 136 o f the Ind ian C on tract A ct, 1872 , w here a con tract to g ive tim eto the p rinc ipa l deb to r is m ade by the cred ito r w ith a th ird person and no t w ith thep rinc ipa l debtor, the surety is no t d ischarged . In the g iven question the con tract to g ivetim e to the p rinc ipa l deb tor is m ade by the cred ito r w ith X w ho is a th ird person. X is no tthe p rinc ipa l deb to r. Hence A is not d ischarged .

Q ue stio n 2 7Y ho lds ag ricu ltu ra l land in G ujara t on a lease g ran ted by X , the owner. The land revenuepayab le by X to the Governm en t be ing in arrea r, h is land is adve rtised fo r sa le by theG ove rn men t. U nd er th e R ev en ue la w, th e co nse qu en ce of s uc h s ale w ill b e te rm in atio n o f V 'slease . Y , in order to p reven t the sa le and the consequen t te rm ina tion of his ow n lease , paysthe G overnm en t, the sum due from X . R e fe rrin g to th e p ro vis io ns o f th e In dia n C ontra ct A ct,1872 dec ide whe the r X is liab le to m ake good to Y , the am oun t so pa id? (M ay 2007 )AnswerY es, X is bound to m ake good to Y the am oun t so paid . S ection 69 of the Ind ian C ontract A ct,1872 , prov ides tha t "A pe rson w ho is in te rested in the paym en t of m oney w h ich ano ther isbound by law to pay, and w ho the refore pays it, is entitled to be re im bursed by the o ther. Inthe g iven case Y has m ade the paym ent o f law fu l dues o f X in w hich Y had an in terest.The refore, Y is entitled to get the re im bursem ent from X.Q ue stio n 2 8E xamin e w he th er th e fo llo win g c on stitu te a cont ract of 'B a ilm e nt' u nd er th e p ro vis io ns of th eIn dia n C on tra ct A ct, 1 87 2:

(i ) V parks h is ca r a t a pa rk in g lo t, loc ks it, a nd k ee ps th e ke ys w ith h im se lf.( ii) S e izure o f goods b y custom s au tho rities . (M ay 2007 )

Answer(i) N o. M ere custody o f goods does not m ean possess ion. Fo r a ba ilm en t to ex is t the ba ilo r

m ust g ive possess ion o f the ba iled prope rty and the ba ilee m ust accep t it (S ec tion 148,In dia n C on tract A ct, 1 87 2 is no t ap plica ble ).

(ii) Yes, the possess ion o f the goods is transfe rred to the custom au tho rities . The refo re


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b ailm en t e xis ts a nd s ectio n 1 48 is ap plica ble .Q ue stio n 2 9A contracted w ith B to supp ly h im (B ) 500 tons of i ron-steel @ Rs. 5 ,000 per ton , to bed eliv ere d a t a spec ified tim e. The rea fte r, A con tracts w ith C fo r th e p urc ha se o f 5 00 to ns ofi ron-steel @ Rs. 4 ,800 pe r ton , and a t the same tim e to ld 'C ' tha t he d id so for the pu rpose ofperfo rm ing h is con tract en te red in to w ith B . C fa iled to perfo rm h is con tract in due cou rse .C onsequen tly , A cou ld no t p rocu re any iron -s tee l and B resc inded the con tract. W hat w ou ldbe the am oun t o f dam ages w hich A cou ld c la im from C in the c ircum stances? E xpla in w ithre fe re nc e to th e p ro vis io ns of th e In dia n C o ntr ac t, 1872. (M ay 2 00 7)AnswerThe prob lem in the question is based on the p rov is ions of the Ind ian C on tract A ct, 1872 ascon ta ined in S ection 73 . S ection 73 prov ides that w hen a con tract has been broken the pa rtyw ho su ffers by such breach is en titled to rece ive from the party w ho has broken the contractcom pensation fo r any loss o r dam age caused to h im the reby w hich natu ra lly a rose in the usualcou rse o f th ings from such b reach o r w h ich the parties knew w hen they m ade the con trac t tobe like ly to resu lt from the b reach of it. The lead ing case in th is po in t is H a dle y v B a xe nd ale .In "H ad le y v s. B ax en da le " it w as decided tha t if the specia l c ircum stances unde r w h ich thecon trac t w as actua lly m ade w ere com mun ica ted by the pla in tiffs to the de fendants , and thusknow n to bo th parties, the dam ages resu lting from the breach o f such a contract w h ich theyw ould reasonab ly con tem plate , w ou ld be the am ount of in ju ry w h ich w ould ord inarily fo llowfrom a breach o f contract unde r these specia l c ircum stances so know n and com munica ted.In the instan t case 'A ' had in tim ated to 'C ' that he w as p rocu ring iron stee l from h im for thepu rpose o f pe rform ing h is con trac t w ith '8 ' Thus, C had the know ledge of the specia lc ircum stance . Therefore, 'A ' is en titled to c la im from 'C ' R s. 1,00 ,000 (d ifference betw een theprocu ring p rice of iron stee l and contracted se lling p rice to '8 ') be ing the am oun t o f p rofit 'A 'w ould have m ade by the perfo rm ance o f h is contract w ith '8 '. If A had not to ld C of 8 'scon trac t then the am ount of dam ages w ould have been the difference be tw een the contractprice and the m arke t price on the day o f defau ltQ ue stio n 3 0'X ' ag reed to becom e an ass is tan t fo r 5 yea rs to 'Y ' who was a D oc to r p ra ctis in g a t L ud hia na .It w as a lso agreed tha t du ring the te rm of agreemen t X' w ill not p ractise on h is ow n accoun t inLudh iana . A t the end o f o ne y ea r, 'X ' le ft th e a ss is ta nts hip of 'Y ' and began to p rac tise on h iso wn a cc ou nt. R efe rr in g to the p ro vis io ns of th e In dia n C on trac t A ct, 1872, dec ide w he the r 'X 'cou ld be restra ined from do ing so? (N ovem ber 2007 )AnswerA n agreem en t in restra in t o f trade /bus iness/profess ion is vo id unde r S ection 27 of the Ind ianC on tract A ct, 1872. B u t an agreem ent o f se rv ice by w h ich a person b inds h im se lf du ring thete rm of the ag reem en t no t to take se rv ice w ith anyone e lse d irectly o r ind irectly to p rom ote any


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business in d irect com petition w ith tha t o f h is em ployer is no t in restra in t o f trade. How eve r inthe g iven case X cannot be restra ined by an in junction from do ing so .Q ue stio n 3 1X trans ferred h is house to h is daughte r M by way of g ift. T he g ift deed, execu ted by X ,conta ined a d ir ec tio n th at M s ha ll p ay a sum o f Rs. 5 ,000 per m on th to N (the s is te r of th ee x ec u ta n t) . C o n se q ue n tly M execu ted an instrum en t in favou r of N agree ing to pay the sa idsum . A ft erwa rd s , M re fused to pay the sum to N say ing tha t she is no t liab le to N because nocons ide ra tion had m oved from her. Dec ide w ith reasons under the p rov is ions of th e In dia nC on tr ac t A c t, 1872 whether M is liab le to p ay the sa id sum to N . (N ovem ber 2007 )AnswerA s per S ection 2 (d ) o f the Ind ian C ontract A ct, 1872, in Ind ia , it is no t necessary thatconside ration m ust be supplied by the pa rty , it m ay be supp lied by any othe r pe rson inc lud inga s tra ng er to th e tra ns ac tio n.The p rob lem is based on a case "C hin na ya V s. R am a yy a" is w hich the C ourt c lea rly obse rvedthat the conside ration need no t necessarily m ove from the pa rty itse lf, it m ay m ove from anype rson . In the g iven p rob lem , the sam e reason app lies. H ence, M is liab le to pay the sa id sumto N and cannot deny her liab ility on the ground tha t conside ra tion d id no t m ove from N .Q ue stio n 3 2X , Y and Z jo in tly bo rrow ed R s.50 ,000 from A. The who le am oun t w as repa id to A by Y .D ecid e in th e lig ht o f th e In dia n C on tra ct A ct, 1872 whether :(i) Y can recove r the contr ibu tion from X and Z ,( ii) le g al r ep re s en ta tiv e s o f X are liab le in case o f death o f X ,(iii) Y can recove r the contr ibu tion from the assets , in case Z b e come s in s olv e nt.

(N ov em b er 2 00 7)AnswerS ection 42 o f the Ind ian C ontract A ct, 1872 requ ires that w hen tw o or m ore persons havem ade a jo in t p rom ise , then , un less a con trary in ten tion appears by the con trac t, a ll suchpe rsons jo in tly m us t fu lfill the p rom ise. In the event of the dea th of any of them , h isrepresen ta tive jo in tly w ith the surv ivo rs and in case of the death of a ll p rom isees, there pre se nta tiv es o f a ll jo in tly m u st fu lfill th e p ro mis e.S ection 43 a llow s the p rom isee to seek pe rform ance from any o f the jo in t p rom isors. Theliab ility o f the jo in t prom iso rs has thus been m ade no t on ly jo in t bu t "jo in t and seve ra l". S ection43 p rov ides tha t in the absence o f express ag reem ent to the con trary , the p rom isee m aycom pel anyone or m ore o f the jo in t prom iso rs to pe rform the w ho le o f the prom ise .S ection 43 deals w ith the con tribu tion am ong jo in t prom iso rs . The prom iso rs, m ay com pelevery jo in t prom iso rs to con tribu te equa lly to the pe rform ance o f the p rom ise (un less a


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con trary in te ntio n ap pe ars from the con tra cts). If anyone o f the jo in t prom iso rs m akes de fau ltin such con tribu tion the rem ain ing jo in t p rom isors m us t bear the loss a ris ing from such de fau ltin e qu al s ha re s.A s per the p rov is ions o f above sections,(i) Y can recover the con tribu tion from X and Z because XYZ a re jo in t p ro m is ors .(ii) Legal represen ta tive o f X are liab le to pay the contribution to Y . H ow ever, a lega l

rep resentative is liab le on ly to the extent o f p roperty of the deceased rece ived by h im .(iii) 'Y ' a lso can recover the con tribu tion from Z 's asse ts .Q ue stio n 3 3P oint out w ith reasons w hether the fo llow ing agreem ents are va lid or vo id :(i) Kamala prom ises Ramesh to lend Rs. 50,000 in lieu o f consideration that R am esh gets

K am ala 's m arriage disso lved and he him self m arries her.(ii) Sohan agrees w ith Mohan to se ll h is b lack horse. Unknown to both the parties , the horse

was dead at the tim e of agreement .(iii) R am se lls th e g oo dw ill o f his shop to Shyam for Rs. 4,00,000 and prom ises not to carry on

such bus iness forever and anyw here in Ind ia .(iv ) In an agreement between Prakash and G irish, there is a condition that they w ill not

in stitu te le ga l p ro ce ed in g a ga in st e ac h o th er w ith ou t co ns en t..(v) Ramamurthy, who is a cit izen o f Ind ia , enters in to an agreem ent w ith an alien friend.

(M ay 2 00 8)AnswerV a lid ity o f a gr eem en ts(i ) Vo id Ag reement : A s per S ection 23 o f the Ind ian C on trac t A ct, 1872 an agreem en t is vo id

if the ob ject or considera tion is against the public po licy .(ii) Vo id Ag reemen t: A s per S ection 20 o f the Ind ian C ontract A ct, 1872 the con tract caused

by m istake o f fac t are vo id . There is m istake o f fact as to the exis tence o f subject-m atter.(iii) Vo id a gr eemen t: A s per S ection 27 o f the Ind ian C ontract A c t, 1872 an agreem ent in

restra in t o f trade is vo id . H ow ever, a buyer can put such a cond ition on the se ller o f goodw ill, no t to carryon sam e business. H ow eve r, the cond itions m ust be reasonableregard ing the du ra tion and the place of the business.

(iv) Vo id ag reement: A n agreem ent in restra in t o f lega l p roceed ings is vo id as pe r S ection 28o f the Ind ian C on tract A ct, 1872 .

(v ) Va lid a gr eemen t: A n agreem en t w ith a lien friend is va lid , bu t an ag reem en t w ith a lienenem y is vo id .


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1.22 Businessand Corporate Laws

Q ue stio n 3 4R avi se nt a cons i gnmen t o f goods worth Rs. 60 ,000 by ra ilway and go t ra ilw ay rece ip t. Heo bta in ed a n a dva nce o f Rs. 30 ,000 from the bank and endorsed and de live red the ra ilw ayre ce ip t in fa vo ur of the bank by way o f security . T he ra ilw ay fa iled to de live r the goods a t thedes tination. The bank filed a su it aga inst the ra ilw ay fo r Rs . 60 ,000 . D ec ide in the light o fprovisions of th e In dia n C on tra ct A ct, 1 8 7 2 , w he the r the bank w ou ld succeed in the sa id su it?

(M ay 2 00 8)AnswerR ig hts o f B aile eA s pe r S ectio ns 178 an d 1 78 A o f th e Ind ian C ontra c t A c t, 1 87 2 the dep os it o f title d ee ds w iththe b an k a s secu rity a ga ins t an adva nce co ns titu tes a p led ge . A s a p led ge, a b an ke r's rig h tsare n o t lim ited to h is in te res t in the g ood s p led ge d. In ca se of in ju ry to th e goo ds o r the irde priva tion b y a th ird party , th e p le dge e w o u ld have a ll such re m ed ies th a t the o w ne r o f thego od s w ou ld ha ve ag a in s t the m . In M orv i M ercan tile Bank L td . vs . U n ion of India, th eS u pre m e C ou rt h e ld tha t the ba nk (p le dge e) w as en titled to recover no t on ly th e am oun t o f thead vance d ue to it, b u t th e fu ll va lu e o f the cons ig nm ent. H o w ever, th e am ount o ve r a nd a bo veh is in te re s t is to be he ld b y h im in tru s t fo r th e p led go r. T h us , the ba nk w ill succee d in th isc la im o f R s. 60 ,0 00 ag ain st R ailw ay .Q ue stio n 3 5R is the w ife o f P . She purchased som e sarees on C red it from Q. Q dem anded the am oun tfrom P . P re fused . Q f i led a su it aga inst P fo r the sa id am ount. D ec ide in the ligh t ofprovisions o f th e In dia n C on tra ct A ct, 1 8 7 2 , whe the r Q wou ld succeed? (May 2008 )AnswerP ro ble m o n A ge nc yP ro b le m as asked in th e qu es tion is ba se d on the p rov is io ns re la te d w ith th e m ode s ofc rea tio n o f a ge ncy re la tio nsh ip u nd er the Ind ian C ontrac t A ct, 1 87 2. A ge ncy m ay b e crea te dby a lega l p re sum ptio n ; in a case of co hab ita tion by a m arrie d w om an (i.e . w ife is co ns id ere das a n im p lied ag ent, o f her h usba nd ). If w ife live s w ith he r h usba nd , th ere is a leg a lp re su m ption th a t a w ife ha s a utho rity to p le dg e h er husb and 's c re d it fo r n ecessaries . B u t theleg al p resu mption ca n b e re bu tted in th e fo llo wing cases :(i) W here th e goo ds pu rcha se d o n cre d it a re n o t n ecessaries .(ii) W here th e w ife is g ive n su ffic ien t m on ey fo r p urch as ing nece ssa rie s.(iii) W here th e w ife is fo rb idd en fro m purchas in g a ny th ing o n cre d it o r co n trac ting de bts.(iv ) W here th e trade r has b ee n exp ress ly w arned n ot to g ive cred it to h is w ife .If th e w ife lives a part fo r no fau lt o n he r p art, w ife ha s auth ority to p le dge h er husb and 's c re d itfo r ne cessaries . T h is leg a l p re su m ptio n can be rebu tte d on ly in cases (iii) and (iv ).


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A pp ly in g th e ab ove co nd itio ns in the g ive n case 'Q ' w ill su cce ed . H e can recover the sa idam oun t fro m 'P ' if sa rees pu rchase d by 'R ' a re n ece ssa ries fo r h er.Q ue stio n 3 6M l ends a sum of R s.5 ,0 00 to B , o n th e s ec urity o f tw o s ha re s of a Lim ited C om pany on tApril 2007 . O n 15 th June , 2007 , the company issued tw o bonus sha res. B re tu rns the loanamoun t of R s.5 ,000 w ith in te rest bu t M re tum s on ly two sha res w h ich were p ledged andre fuses to g ive the tw o bonus shares. Adv ise B in the ligh t o f th e p ro vis io n s of th e In dia nC on tr ac t A c t, 1872. (N ov em b er 2 00 8)A n s w e rB aile e's d utie s a nd L ia bilitie sT he p rob lem as a ske d in the q ues tion is base d o n the pro v is ion s o f S ec tion 1 63(4) o f theIn d ia n C ontra c t A c t, 18 72 . A s pe r th e sec tio n , " in th e a bsen ce of any co ntrac t to the contra ry ,the ba ilee is b ou nd to de live r to the ba ilo r, a ny increa se or p ro fit w hich m ay h ave a ccrued fro mth e g oo ds b aile d."A pp ly in g th e pro vis io ns to the g ive n case , the b onu s sha res are an increa se on the sha resp le dge d b y B to M . S o M is liab le to re tu rn the shares a lon g w ith th e b onu s sha res a nd he nceB the b a ilo r, is en titled to th em also (M oti/a l v B ai M an i ).Q ue stio n 3 7Bowes C a deb t gua ran teed by A. C does no t sue B fo r a yea r a fte r the debt has becom ep aya ble . In th e m ea ntim e, B becom es inso lven t. Is A d ischarged? D ec ide w ith re fe rence tot he p rov is io n s of th e In dia n C on tra ct A ct, 1872. (N ov em b er 2 00 8)A n s w e rD isch arg e o f su re tyT he pro b le m is ba sed o n the prov is ion s o f S e ctio n 1 37 o f the Ind ian C on trac t A c t, 1 87 2re la ting to d ischa rge of sure ty . Th e se ctio n s ta tes tha t m ere fo rb ea ran ce o n the pa rt o f thecred ito r to su e the p rinc ip a l de b to r a nd /o r to en fo rce any o th er re m edy aga ins t h im w ou ld n o t,in the ab sence of any pro v is ion in the g uaran te e to th e co ntra ry, d ischa rge th e su re ty . In v ie wof these p rov is io ns , A is n o t d ischa rge d from h is liab ility as a su re ty .Q ue stio n 3 8"G oo d G irl" S oa p C o. a dv ertise d th at it w ould g ive a reward of R s.1 ,000 w ho developed sk ind isease a fter us ing , "G ood G irl" soap o f the com pany fo r a ce rta in pe riod acco rd ing to thep rin ted d irec tions . M iss Rakh i pu rchased the adve rtised "G ood G irl" and deve loped sk ind is ea se in s pite o f u sin g th is so ap a cc ord in g to th e p rin te d in stru ctio ns. S he c la im ed re wa rd ofRs.1 ,000 . The company re fused the reward on the g round tha t o ffe r w as no t m ade to he r andtha t in any case she had no t com mun ica ted her accep tance o f th e o ffe r. D ec id e w he the r M is s


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Rakh i can c la im the rew ard o r no t. Re fe r the re levan t case law , if any. (N ovem ber 2008 )AnswerG e ne ra l o ff erY es, M iss R a kh i can c la im th e rew ard o f R s.1 ,000 beca use the adve rtisem en t issue d by thecom pa ny is a n offe r m ade to th e pu b lic in ge ne ra l an d h ence an yone ca n accep t a nd d o thede s ired ac t. W he re a g ene ra l o ffe r is o f co n tinu ing na tu re , it w ill be o pen fo r accep tance to a nynum b er o f pe rsons until it is re tra c te d . T he C on tra c t A c t po sits th a t p erfo rm ance of thecond ition s o f a pro po sa l is an a cce ptance o f the propo sa l. S o the re is n o ne ed of ac tu a l an dfo rm al o ffe r an d th e com mu nica tio n o f an a cce ptan ce of a n o ffe r. R e leva n t case law is Car/i l lv . C arb olic S mok e B all C o.

19056comp Sugans Pe2 Bcl Cp1

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