Shri Vile Parle Kelavani Mandal’s

PRAVIN GANDHI COLLEGE OF LAW

[Affiliated to University of Mumbai]

FOURTH YEAR LL.B./B.L.S. ONLINE EXAMINATION – MAY, 2021

[Subject: Contract - II] [Semester – VIII]

[Date of Examination: 18/06/2021] [Time : 1 Hour] [Marks : 30]

[Exam Code : 8101 ]

NB: 1. Please check whether you have got the right question paper.
2. All questions are compulsory.

Q1. A and B go into a shop. B says to the shopkeeper, “let him (A) have the goods, I will see you
paid.” What kind of contract is this? state its important essential.

Ans 1. It is a kind of Contract of Guarantee.

Essentials of a Contract of Guarantee

1. Concurrence of All the Parties

All the three parties namely, the principal debtor, the creditor and the surety must agree to make such a
contract.

2. Liability

In a contract of guarantee, liability of the surety is secondary i.e., the creditor must first proceed against
the debtor and if the latter does not perform his promise, then only he can proceed against the surety.

3. Existence of a Debt

A contract of guarantee pre-supposes the existence of a liability, which is enforceable at law. If no such
liability exists, there can be no contract of guarantee. Thus, where the debt, which is sought to be
guaranteed is already time barred or void, the surety is not liable.

4. Consideration

There must be consideration between the creditor and the surety so as to make the contract enforceable.
The consideration must also be lawful. In a contract of guarantee, the consideration received by the
principal debtor is taken to be the sufficient consideration for the surety.

Anything done, or any promise made, for the benefit of the principal debtor may be sufficient
consideration to the surety for giving the guarantee

pg. 1
– Sec. 127 of Indian Contract Act, 1872..

Thus, any benefit received by the debtor is adequate consideration to bind the surety. But past
consideration is no consideration for a contract of guarantee. There must be a fresh consideration
moving from the creditor.

5. Writing not Necessary

A contract of guarantee may either be oral or written. It may be express or implied from the conduct of
parties.

Q2. A becomes surety to C for B's conduct as a manager in C's bank. Afterwards, B and C contract,
without A's consent, that B's salary shall be raised, and that he shall become liable for one-fourth of the
losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. Discuss the
liability of A.
Ans 2. The above word problem is related to Section 133 of the Indian Contract Act, 1872 i.e.,
Discharge of surety by variance in terms of contract. The section states that "Any variance, made
without the surety’s consent, in the terms of the contract between the principal debtor and the creditor,
discharges the surety as to transactions subsequent to the variance." In simpler terms, it means that any
variance, made without the surety’s consent, in the terms of the contract between the principal debtor
and the creditor, discharges the surety as to transactions subsequent to the variance.
After analysing the above situation we can conclude that A is discharged from his suretyship by the
variance made without his consent i.e, as soon as B and C contracted without A's consent and hence, is
not liable to make good this loss.
Q3. A gives an electric kettle to B, an electric repairer, on condition that the kettle must be returned
completely repaired within a fixed period. When A asks for the return of the kettle, B claims to retain
the kettle until he is paid due remuneration for the work done by him. Is B’s claim tenable?
Ans 3. This is a contract of bailment in which B’s claim is tenable. Under section 170 where the bailee
has in accordance with the purpose of the bailment rendred any service involving the exercise of labour
and skill in respect of the goods bailed. He has a right to retain such goods until he receives due
remuneration for the service he has rendered in respect of such goods. This is the bailee’s rights to
particular lien.
Q4. State the principle on which Law of agency is based. Who may be an agent?
Ans 4. Concept of agency is based on the latin maxim Qui facit per alium facit per se which means
that he who acts through another does the act himself. In other words the authorized acts of the agents
are,in law, the acts of the principle himself.
An agent is a person employed to do any act for another or to represent another in dealings with third
persons. The person for whom such act is done is called the principle.
Q5. State the law relating to pledge by mercantile agent.

pg. 2
Ans. 5. Where a mercantile agent is, with the consent of the owner, in possession of goods or the
documents of title to goods, any pledge made by him, when acting in the ordinary course of business of
a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to
make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice
that the pawnor has no authority to pledge. In this section, the expression "mercantile agent " and
"documents of title" shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3
of 1930)
In case of pledge by a mercantile agent, the following necessary conditions of validity under this
section are:
1. The person pledging the goods must be a mercantile agent.
2. Mercantile agent must be in possession either of the goods or the documents of title to goods.
3. Such possessions must be with the consent of the owner.
4. Pledge must have been made by the mercantile agent when acting in the ordinary course of
business.
5. The pledgee must act in good faith.
Q6. Discuss briefly the rules related to passing of the property when the goods are ascertained.
Ans 6. A sale of goods or property implies a transfer or passing of ownership to the buyer. The
passing of property is an important aspect to help determine the liabilities and rights of both the buyer
and the seller. Once a property is passed to the buyer, then the risk in the goods sold is that of the buyer
and not the seller. Section 20 relates to Specific goods in a deliverable state. It states that if the contract
is unconditional for the sale of specific goods in a deliverable state, then the property in the goods
passes to the buyer the moment the contract is made. This rule holds true even if the time of payment
of price or delivery of the goods or both is postponed. Specific goods to be put into a deliverable state
(Section 21) – Imagine a contract for the sale of goods where the seller has to do something before the
goods are ready for delivery. In such cases, the passing of property happens only after the seller does
the things and informs the buyer. specific goods to be put into a deliverable state (Section 21) –
Imagine a contract for the sale of goods where the seller has to do something before the goods are
ready for delivery. In such cases, the passing of property happens only after the seller does the things
and informs the buyer. Further Section 23 lists two important rules for the passing of property of
unascertained goods:
Sale of unascertained goods by description: Imagine a contract for the sale of unascertained or future
goods by description. If any goods of that description are appropriated to the contract either by the
buyer or the seller with the consent of the other party, then the property of the goods passes to the
buyer. The consent can be express or implied and given before or after the appropriation is made.
Delivery to the carrier: If the seller delivers the goods to the buyer or a carrier or a bailee (whether
named by the buyer or not) for the purpose of transmission to the buyer, but does not reserve the right
of disposal, then he is deemed to have unconditionally appropriated the goods to the contract.
Q7. “A” who was looking for a job, gets a offer letter form X which states that “A” is appointed as a
cashier however he needs to give a guarantee by someone upto Rs. 100000/-. B his close friend agrees
to give guarantee for the same. Explain the kind of guarantee and write a brief note about B’s liability
in the given case.
Ans 7. The answer to the question whether there is a sole surety or co-sureties defines the nature and
extent of surety’s liability. Section 128 of the Indian Contract Act, 1872 provides that a surety’s
liability is co-extensive with the principal debtor’s liability unless it is provided otherwise by the
pg. 3
contract. The general rule in case of co-surety is that they will be jointly and severally liable. The
sureties are independently and jointly liable for the whole debt.

According to Section 146, “Where two or more persons are co-sureties for the same debt or duty, either
jointly or severally, ad whether under the same or different contracts, and whether with or without the
knowledge of each other, the co-sureties, in the absence of any contract to the contract, are liable, as
between themselves, to pay each an equal share of the whole debt, or that part of it which remains
unpaid by the principal debtor.” Thus, the co-sureties are liable to contribute equally for the repayment
of the debt.

Section 147 provides that the liability of co-sureties which is bound in different sums shall be paid
equally to the extent of their respective obligations.
This is a specific guarantee. With respect to this case, A is the principal debtor and B is the surety. B
shall be liable upto the amount of Rs. 100000/- and his liability shall end as soon as this debt is
discharged. After making a payment and discharging the liability of the A, B gets various rights. These
rights are – rights against the principle debtors, rights against the creditors and rights against co-
sureties.

Q8. A B and C are partners in a firm. The state in which they have principal place of business does
not make registration mandatory. Z a regular client of the firm and was in good relations with A,
requested A to give him Rs. 500000/- for his child’s education. After brief discussion with Z, A agreed
to give him the loan partly from personal funds i.e Rs. 300000 and partly from firm Rs. 200000.. Z
fails to make the payment. Discuss the rights of A in the given case and quote suitable provisions of
law.
Ans 8. If the firm is unregistered A Cannot file a suit against Z to make good the loss to the firm. But
since A has given Z a personal loan of Rs. 300000, he can sue Z for those Rs.300000 in his personal
capacity.
Q9. A wants to auction certain stock of goods which is lying in this godown. Give your opinion to A
about his participation in the auction, reserve price and binding nature of auction sale.
Ans 9. As a general rule the seller or any person on his behalf cannot bid at an auction sale unless the
right to do so has been expressly reserved and notified. The auctioneer is also prevented from
knowingly taking such a bid from the seller. If this rule is contravened the buyer treat the contract as
fraudulent.
A reserve price is the minimum price fixed by the seller to avoid sales at un reasonably lower price
thus it is the minimum price below which the goods will not be sold in any case.
It has been held that a condition in an auction sale that “ bidding one’s name shall not be withdrawn” is
not enforceable. In an auction sale the sale is complete when the auctioneer announces it the fall of the
hammer or in any other customary manner. Until that is done a bidder can retract his offer.

Q10. Explain the term condition and warranty with an illustration.

pg. 4
Ans. 10 a condition is a requirement or event that should be performed before the completion of
another action. It is directly associated with the objective of the contract. If a condition is breached it
results in the termination of the contract. A warranty is an assurance given by the seller to the buyer
about the state of the product, that the prescribed facts are genuine. Breaching the warranty can result
in the aggrieved party claiming damages for such breach.
Example A man buys a particular horse,which is warranted to be quiet toride and drive.The horse turns
out to be Vicious, the buyer’s only remedies to claim damages.This is a breach of warranty,because the
stipulation made by the seller was only a collateral one.
X wants to purchase a horse fromY,which can run at a speed of 50 Kms/hour.Y pointing at a particular
horse says “This horse will suit you.” X buys the horse but later on finds that the horse can run at a
speed of 30 Kms/hour.This is a breach of condition because the stipulation made by theseller forms the
very basis of the contract

pg. 5