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CA FOUNDATION – BUSINESS LAW

ICA - 1872 – CASE STUDY BASED QUESTIONS

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Question . 1 - ‘N’ an industrialist has been fighting a long drawn litigation with ‘S’ another
industrialist. To support his legal campaign ‘N’ enlists the services of ‘R’ a legal expert
stating that the amount of Rs. 5 lakhs would be paid, if ‘R’ does not take up the brief of ‘S’.
‘R’ agrees, but at the end of the litigation ‘N’ refuses to pay. Decide whether ‘R’ can recover
the amount promised by ‘N’ under the provisions of the Indian Contract Act, 1872.

Answer:
The problem as asked in the question is based on one of the essential elements of a valid
contract as stated under Section 10 of the Indian Contract Act, 1872. In terms of the said
section, “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 void”. Thus, in order to be valid contract, such agreement must not be
one which the law expressly declares to be either illegal or void.
A void agreement is one which does not have any legal effect. Certain agreements such as
agreements in restraint of trade, marriage, legal proceedings etc., are void agreements
since they have been identified as “opposed to public policy”.

The given instance is based on the agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an agreement has been
expressly declared to be void under section 28 of the Indian Contract Act, 1872 as they are
opposed to public policy.
Hence, “R” in the given case cannot recover the amount of Rs 5 lakhs promised by “N”
because it is a void agreement and cannot be enforced by law.

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Question. 2. Directors of a company appointed Mr. X as company secretary at a monthly

salary of Rs.50,000, Mr. X worked for the company for around 6 months and then it was
discovered that the right to appoint company secretary is not available to directors but this
has to be done by shareholders in their meeting, hence Mr. X was immediately removed
from his post, now the question was that can Mr. X be forced to refund the salary he has
already received from the company for past 6 months ?

Answer:-
Provision: According to section 65 of the Indian Contract Act, 1872, when an agreement is
discovered to be void or when a contract becomes void, any person who has received any
advantage under such agreement or contract is bound to restore it, or to make
compensation for it to the person from whom he received it. The aim of rule of restitution
is to put both the parties at par position.

Facts of the case: In the given case, directors of a company appointed Mr. X as company
secretary at a monthly salary of Rs. 50,000, though directors were not in power to appoint
him. Instead the eights to appoint company secretary is available to shareholders of the
company in the meeting. But now it’s been around 6 months that Mr. X worked for the
company. Now, Mr. X was removed from the post and he was forced to refund the salary of
past 6 months that he has already received from the company

Conclusion: Here, in the context of above provision, being contract between Mr. X and
directors of company is void, Mr. X has to refund the salary of 6 months paid to him. But,
Mr. X has the right to retain the reasonable amount according to his work

Question. 3
Father promised to pay his son a sum of rs one lakh is the son passed C.A. examination in the
first attempt. The son passed the examination in first attempt, but the father failed to pay the
amount as promised. Son files a suit for recovery of the amount. State along with reasons
whether son can recover the amount under the Indian Contract Act, 1872

Solution Hint:-

There is no contract between son and father as they do not intent to create legal relationship.
Thus Son cannot recover the amount from Father.

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Question. 4
Mr D started self service system in his Shop. Mr. A entered in the shop, took a basket and after
taking articles of his choice into the basket reached the cashier for payments. The cashier
refuses to accept the price. Can Mr. D be compelled to sell the said articles to Mr. D. Decide.

Solution Hint:-

Displaying articles is an invitation to offer not an offer. Therefore, D is not bound by it and A
cannot compel him for the same. For more details, Refer case of ‘Pharmaceutical Society of
Great Britain v Boots Cash Chemist Ltd

Question. 5
“Good Girl” Soap Co. advertised that it would give reward of Rs. 1000 who developed skin
disease after using “Good Girl” soap of the Company for a certain period according to the
printed directions. Miss Sona purchased the advertised “Good Girl” and developed skin disease
in spite of using this soap according to the printed instructions. She claimed reward of Rs.
1000. The company refused the reward on the ground that offer was not made to her and that
in any case she had not communicated her acceptance of the offer.
Decide whether Miss Sona can claim reward or not. Refer the relevant case law, if any.

Solution Hint:-

This is a general offer provided by the company and therefore Company is bound by it.
Therefore, Miss Sona can claim compensation from the Company. For more refer case of “Carlill
v Carbolic Smoke ball co

Question. 6
“B” offered to sell his car to “A” for 75,000. “A” accepts to purchase at 74,950. “B” refuses.
Subsequently ‘A’ agrees to purchase at 75,000 but ‘B’ refused. ‘A’ sued ‘B’ for specific
performance of the contract. State legal position?

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Solution Hint:-

A has provided Counter offer to Mr. B by saying that he will purchase the car at 74,950/’. Once
the counter offer is provided, the original offer becomes rejected and once the original offer is
rejected , it cannot be revived again. Therefore, A cannot sue B

Question. 7
Ramaswami proposed to sell his house to Ramanathan. Ramanathan sent his acceptance by
post. Next day, Ramanathan sends a telegram withdrawing his acceptance. Examine the validity
of the acceptance in the light of the following:-
(i)He telegram of revocation of acceptance was received by Ramaswami before the letter of
acceptance.
(ii)The telegram of revocation and letter of acceptance both reached together.

Solution Hint:-
i) The revocation is valid and there is no Contract
ii) If Ramaswami opens the telegram (containing the revocation of acceptance) first and reads
it:- Then the revocation is valid and there is no contract.
If Ramaswami opens the telegram (containing the acceptance) first and reads it:- Then the
revocation is not valid and there is a contract

Question. 8
X transferred his house to his daughter M by way of gift. The gift deed, executed by X, contained
a direction that M shall pay a sum of Rs. 5000 per month to N (the sister of the executant).
Consequently, M executed an instrument in favour of N agreeing to pay the said sum.
Afterwards, M refused to pay the sum to N saying that she is not liable to N because no
consideration had moved from her. Decide with reasons under the provisions of The Indian
Contract Act, 1872 whether M is liable to pay the said sum to N.

Solution Hint:-

Refer Case of “Chinnaya V Rammaya” which states that consideration need not to be received
from the promise, it can be received from third party also. Therefore, N has the right to receive
money from M

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Question. 9
Mr Singh an old man, by a registered deed of gift, granted certain locked property to A, By the
terms of the deed, it was stipulated that an annuity of Rs. 2000 should be paid every year to B,
who was the brother of Mr. Singh.. On the same day, A made a promise with B and executed in
favour an agreement to give effect to stipulation. A failed to pay the stipulated sum. In an action
against her by B, she contended that since B had not furnished any consideration, he has no
rights of action.
Examining the Provisions of the Indian Contract Act, 1872, decide whether the contention of A
is valid?

Solution Hint:-

Refer the case of “Chinnaya V Rammaya

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