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CA – FOUNDATION –NOV’23 APRIL BATCH (LTB) – WEEKEND EXAM-4

FN23 
Paper-2: Business Laws and Business Correspondence and Reporting
Suggested Answers
th
Date: 10 July, 2023 Max. Marks: 50 Marks Time Allowed – 90 min

ANSWER ALL THE QUESTIONS:

1. (a) Define contract. And what are the types of contract on the basis of validity or enforceability? 5M
Answer:
The term contract is defined under section 2(h) of the Indian Contract Act, 1872 as-
“an agreement enforceable by law”.
Types of contract on the basis of the validity or enforceability:
1. Valid Contract: An agreement which is binding and enforceable is a valid contract. It contains all the
essential elements of a valid contract.
2. Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void contract is one which cannot be enforced
by a court of law.
3. Voidable Contract: Section 2(i) defines that “an agreement which is enforceable by law at the option
of one or more parties thereto, but not at the option of the other or others is a voidable contract”.
4. Illegal Contract: It is a contract which the law forbids to be made. The court will not enforce such a
contract but also the connected contracts. All illegal agreements are void but all void agreements are not
necessarily illegal. Despite this, there is similarity between them is that in both cases they are void ab
initio and cannot be enforced by law.
5. Unenforceable Contract: Where a contract is good in substance but because of some technical defect
i.e. absence in writing, barred by limitation etc. one or both the parties cannot sue upon it, it is described
as an unenforceable contract.
(b) Define an Offer/Proposal. What are the types of offer? 5M
Answer:
Definition of Offer/Proposal:
According to Section 2(a) of the Indian Contract Act, 1872, “when one person signifies to another his
willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal”.
Classification of offer
An offer can be classified as general offer, special / specific offer, cross offer, counter offer, standing /
open / continuing offer.
1. General offer: It is an offer made to public at large and hence anyone can accept and do the desired
act (Carlill v. Carbolic Smoke Ball Co.). In terms of Section 8 of the Act, anyone performing the
conditions of the offer can be considered to have accepted the offer. Until the general offer is retracted or
withdrawn, it can be accepted by anyone at any time as it is a continuing offer.
2. Special/specific offer: When the offer is made to a specific or an ascertained person, it is known as a
specific offer. Specific offer can be accepted only by that specified person to whom the offer has been
made. [Boulton v. Jones]
3. Cross offer: When two parties exchange identical offers in ignorance at the time of each other’s offer,
the offers are called cross offers. There is no binding contract in such a case because offer made by a
person cannot be construed as acceptance of the another’s offer.

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4. Counter offer: When the offeree offers to qualified acceptance of the offer subject to modifications
and variations in the terms of original offer, he is said to have made a counter offer. Counter-offer
amounts to rejection of the original offer. It is also called as Conditional Acceptance.
5. Standing or continuing or open offer: An offer which is allowed to remain open for acceptance over
a period of time is known as standing or continuing or open offer. Tenders that are invited for supply of
goods is a kind of standing offer.
2. (a) Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(i) A coolie in uniform picks up the luggage of A to be carried out of the railway station without being
asked by A and A allows him to do so.
(ii) Obligation of finder of lost goods to return them to the true owner.
(iii) A contracts with B (owner of the factory) for the supply of 10 tons of sugar, but before the supply is
effected, the fire caught in the factory and everything was destroyed. 6M
Answer:
(i) It is an implied contract and A must pay for the services of the coolie detailed by him.
Implied Contracts: Implied contracts come into existence by implication. Most often the implication is
by law and or by action. Section 9 of the Act contemplates such implied contracts when it lays down that
in so far as such proposal or acceptance is made otherwise than in words, the promise is said to be
implied.
(ii) Obligation of finder of lost goods to return them to the true owner cannot be said to arise out of a
contract even in its remotest sense, as there is neither offer and acceptance nor consent.
These are said to be quasi-contracts.
Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is created by
law under certain circumstances. The law creates and enforces legal rights and obligations when no real
contract exists. Such obligations are known as quasi-contracts. In other words, it is a contract in which
there is no intention on part of either party to make a contract but law imposes a contract upon the parties.
(iii) The above contract is a void contract.
Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void contract is one which cannot be enforced
by a court of law.
(b) Define Acceptance. Miss Shakuntala puts an application to be a teacher in the school. She was
appointed by the trust of the school. Her friend who works in the same school informs her about her
appointment informally. But later due to some internal reasons her appointment was cancelled. Can Miss
Shakuntala claim for damages? 4M
Answer:
Definition of Acceptance: In terms of Section 2(b) of the Act, ‘the term acceptance’ is defined as
follows:
“When the person to whom the proposal is made signifies his assent thereto, proposal is said to be
accepted. The proposal, when accepted, becomes a promise”.
No, Miss Shakuntala cannot claim damages. As per Section 4, communication of acceptance is complete
as against proposer when it is put in the course of transmission to him.
In the present case, school authorities have not put any offer letter in transmission. Her information from
a third person will not form part of contract.
3. (a) Explain the term “Quasi contract”.
And state the circumstances which are deemed as Quasi contracts. 6M
Answer:

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Quasi Contracts: Under certain special circumstances, obligation resembling those created by a contract
are imposed by law although the parties have never entered into a contract. Such obligations imposed by
law are referred to as ‘Quasi-contracts’. Such a contract resembles with a contract so far as result or effect
is concerned but it has little or no affinity with a contract in respect of mode of creation.
These contracts are based on the doctrine that a person shall not be allowed to enrich himself unjustly at
the expense of another.
Cases Deemed as Quasi – Contracts
(a) Claim for necessaries supplied to persons incapable of contracting (Section 68): If a person,
incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by
another person with necessaries suited to his condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of such incapable person.
(b) Payment by an interested person (Section 69): A person who is interested in the payment of money
which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the
other.
(c) Obligation of person enjoying benefits of non-gratuitous act (Section 70): In term of section 70 of
the Act “where a person lawfully does anything for another person, or delivers anything to him not
intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to
pay compensation to the former in respect of, or to restore, the thing so done or delivered”.
(d) Responsibility of finder of goods (Section 71): ‘A person who finds goods belonging to another and
takes them into his custody is subject to same responsibility as if he were a bailee’.
Thus, a finder of lost goods has:
(i) to take proper care of the property as man of ordinary prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
(e) Money paid by mistake or under coercion (Section 72): “A person to whom money has been paid
or anything delivered by mistake or under coercion, must repay or return it”.
Every kind of payment of money or delivery of goods for every type of ‘mistake’ is recoverable.
Similarly, any money paid by coercion is also recoverable. The word coercion is not necessarily
governed
by section 15 of the Act. The word is interpreted to mean and include oppression, extortion, or such
other means [Seth Khanjelek vs National Bank of India].
In all the above cases the contractual liability arose without any agreement between the parties.
(b) Mr. Rich aspired to get a self-portrait made by an artist. He went to the workshop of Mr. C an artist
and asked whether he could sketch the former’s portrait on oil painting canvass. Mr. C agreed to the offer
and asked for Rs. 50,000 as full advance payment for the above creative work. Mr. C clarified that the
painting shall be completed in 10 sittings and shall take 3 months.
On reaching to the workshop for the 6th sitting, Mr. Rich was informed that Mr. C became paralyzed and
would not be able to paint for near future. Mr. C had a son Mr. K who was still pursuing his studies and
had not taken up his father’s profession yet?
Discuss in light of the Indian Contract Act, 1872?
(i) Can Mr. Rich ask Mr. K to complete the artistic work in lieu of his father?
(ii) Could Mr. Rich ask Mr. K for refund of money paid in advance to his father? 4M
Answer:
A contract which involves the use of personal skill or is founded on personal consideration comes to an
end on the death of the promisor. As regards any other contract the legal representatives of the deceased
promisor are bound to perform it unless a contrary intention appears from the contract (Section 37 of the
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Indian Contract Act, 1872). But their liability under a contract is limited to the value of the property they
inherit from the deceased.
(i) In the instant case, since painting involves the use of personal skill and on becoming Mr. C paralyzed,
Mr. Rich cannot ask Mr. K to complete the artistic work in lieu of his father Mr. C.
(ii) 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.
Hence, in the instant case, the agreement between Mr. Rich and Mr. C has become void because of
paralysis to Mr. C. So, Mr. Rich can ask Mr. K for refund of money paid in advance to his father, Mr. C.
4. (a) What are the differences between a contingent contract and a wagering contract? 6M
Answer:

(b) What will be rights with the promisor in following cases? Explain with reasons:
(i) Mr. X promised to bring back Mr. Y to life again.
(ii) A agreed to sell 50 kgs of apple to B. The loaded truck left for delivery on 15th March but due to riots
in between reached A on 19th March.
(iii) An artist promised to paint on the fixed date for a fixed amount of remuneration but met with an
accident and lost his both hands.
(iv) Abhishek entered into contract of import of toys from China. But due to disturbance in the relation of
both the countries, the imports from China were banned. 4M
Answer:
(i) The contract is void because of its initial impossibility of performance.
(ii) Time is essence of this contract. As by the time apples reached B they were already rotten. The
contract is discharged due to destruction of subject matter of contract.
(iii)Such contract is of personal nature and hence cannot be performed due to occurrence of an event
resulting in impossibility of performance of contract.

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(iv) Such contract is discharged without performance because of subsequent illegality nature of the
contract.
5. (a) “Stranger to a contract cannot sue”- Explain the exceptions to this rule. 6M
Answer:
Stranger to a contract cannot sue is known as a “doctrine of privity of contract”, however, subject to
certain exceptions.
In other words, even a stranger to a contract may enforce a claim in the following cases:
(1) In the case of trust, a beneficiary can enforce his right under the trust, though he was not a party to
the contract between the settler and the trustee.
(2) In the case of a family settlement, if the terms of the settlement are reduced into writing, the
members of family who originally had not been parties to the settlement may enforce the agreement.
(3) In the case of certain marriage contracts/arrangements, a provision may be made for the benefit
of a person, he may file the suit though he is not a party to the agreement.
(4) In the case of assignment of a contract, when the benefit under a contract has been assigned, the
assignee can enforce the contract but such assignment should not involve any personal skill.
(5) Acknowledgement or estoppel – where the promisor by his conduct acknowledges himself as an
agent of the third party, it would result into a binding obligation towards third party.
(6) In the case of covenant running with the land, the person who purchases land with notice that the
owner of land is bound by certain duties affecting land, the covenant affecting the land may be enforced
by the successor of the seller.
(7) Contracts entered into through an agent: The principal can enforce the contracts entered by his
agent where the agent has acted within the scope of his authority and in the name of the principal.
(b) Explain the law relating to Minor’s agreement/Position of Minor
- in case of liability for necessaries. 4M
Answer:
Law relating to Minor’s agreement/Position of Minor:
Liability for necessaries: The case of necessaries supplied to a minor or to any other person whom such
minor is legally bound to support is governed by section 68 of the Indian Contract Act. A claim for
necessaries supplied to a minor is enforceable by law. But a minor is not liable for any price that he may
promise and never for more than the value of the necessaries. There is no personal liability of the minor,
but only his property is liable.
To render minor’s estate liable for necessaries two conditions must be satisfied.
(i) The contract must be for the goods reasonably necessary for his support in the station in life.
(ii) The minor must not have already a sufficient supply of these necessaries.
Necessaries mean those things that are essentially needed by a minor. They cannot include luxuries or
costly or unnecessary articles. Necessaries extend to all such things as reasonable persons would supply
to an infant in that class of society to which the infant belongs. Expenses on minor’s education, on funeral
ceremonies come within the scope of the word ‘necessaries’.
The whole question turns upon the minor’s status in life. Utility rather than ornament is the criterion.

**** All the Best****

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