NOTE TO STUDENTS GUIDANCE FOR ANSWERING CASE STUDIES While answering case studies, your answer should consist of three identifiable parts. The first paragraph should comprise the ‘Provision’ which is being applied to answer the case study at hand. It should be as far as possible in legal & bookish language. The second paragraph should comprise the ‘Connection’, i.e. the summarised reference to the given case study which brings out the rationale for applying the above stated provision. It is usually derived from the language of the question. The third and the last paragraph must contain the ‘Conclusion’ i.e. the inference drawn for the given case scenario after applying the stated provisions. It contains the remedies or the solution asked for in the case study. A good answer must have these three parts in three distinct paragraphs. Many answers in the Cracker have been given following this rule. It is advisable to students to kindly follow the abovementioned method of writing answers for their practice and in their exams to score well. However, in this book in certain places the answer to the case study has been given by providing a Hint which contains a short reference of the applicable provision and the conclusion. This has been done in keeping with the spirit of brevity which is essential to the requirement of a “CRACKER” meant for quick revision and wider coverage of questions. CA MANMEET KAUR
I-5
Chapter-wise Marks Distribution of Previous Examinations Chapter Head
Type of May- Nov- May- Nov- Nov- Jan- Jul- Dec- May- Dec- June DecQuestion/s 18 18 19 19 20 21 21 21 22 22 23 23 UNIT - I : INDIAN REGULATORY FRAMEWORK
Chapter 1* : Indian Regulatory Framework
SAT LAT CS UNIT - II : INDIAN CONTRACT ACT, 1872
Chapter 1 : Nature of Contract Chapter 2 : Offer & Acceptance
SAT
1
LAT
5
CS
4[C]
SAT LAT CS
Chapter 3 : Capacity to Contract
SAT
5
7
3
6
3
2
LAT CS
Chapter 4 : Consideration
3
LAT
5
CS Chapter 5 : Free Consent
6
6
7
7
SAT 7 3
5
4 [C]
SAT LAT
5
7+5
5
7
5
CS Chapter 6 : Legality of Object & Consideration Chapter 7 : Void Agreements
7
2
2
SAT LAT
7
CS SAT
4 2
LAT CS
4 [C] 3
5 4 [C] 4 [C] 4 [C]
I-7
I-8 Chapter Head Chapter 8 : Contingent & QuasiContracts Chapter 9 : Performance of a Contract
CHAPTER-WISE MARKS DISTRIBUTION Type of May- Nov- May- Nov- Nov- Jan- Jul- Dec- May- Dec- June DecQuestion/s 18 18 19 19 20 21 21 21 22 22 23 23 SAT LAT CS
5
4 [C]
6
LAT 4 [C]
6
2
6
4 [C]
4
5
7
5
3
4 [C]
4 [C]
SAT LAT CS
Chapter 11* : Indemnity & Guarantee
7
SAT CS
Chapter 10 : Discharge of a Contract
7
6
4 [C]
6
2
5 3
SAT LAT CS
Chapter 12* : Bailment and Pledge
SAT LAT CS
Chapter 13* : Agency
SAT LAT CS UNIT - III : SALE OF GOODS ACT, 1930
Chapter 1 : Formation of the Contract of Sale Chapter 2 : Conditions & Warranties
SAT
4 [C]
4
LAT
6 4
SAT
4
LAT
6
6
6
4 [C] 6
6
4 [C] 6
6
3
6
4
6
4
4
6
6
6
SAT
3
2
4 [C]
LAT CS
4 6
SAT LAT
4
6
CS Chapter 4 : Unpaid Seller
4 [C]
CS
CS Chapter 3 : Transfer of Ownership
4
6
6
6
6 6+3
6
6
2
UNIT - IV : INDIAN PARTNERSHIP ACT, 1932 Chapter 1 : General Nature of a Partnership
SAT
4
4
2
2+4
4
LAT
6
CS
6
2
4 6
I-9
CHAPTER-WISE MARKS DISTRIBUTION Chapter Head Chapter 2 : Relations of Partners Chapter 3 : Registration of a Firm & Dissolution of a Firm
Type of May- Nov- May- Nov- Nov- Jan- Jul- Dec- May- Dec- June DecQuestion/s 18 18 19 19 20 21 21 21 22 22 23 23 SAT
4+2
2
2+4
2+4
4
LAT
4 6
CS
6
3+3
6
6
6
SAT
2+4
4
4
4
4
6
4 6
6
6
4
4
LAT
6 6 4
6
6
5
5
5
6
6
CS UNIT - V : LIMITED LIABILITY PARTNERSHIP ACT, 2008
Chapter 1 : Limited Liability Partnership Act, 2008
SAT LAT
5
5
5
5
5
5
5
5
5
CS UNIT - VI : THE COMPANIES ACT, 2013
Chapter 1 : The Companies Act, 2013
SAT LAT CS
3 6
3 6
6
6
6
6
6
2 6
6
4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] 4 [C] +3 +3 +3 +3 +3 +3 +3 +4 +3 +3 +3 +3
UNIT VII : THE NEGOTIABLE INSTRUMENTS ACT, 1881 Chapter 1* : The Negotiable Instruments Act, 1881
SAT LAT CS
Note : SAT : Short Answer Type (2/3/4 Marks); LAT : Long Answer Type (5/6/7 Marks); CS : Case Studies; [C] : Compulsory. *Newly added topics.
Chapter-wise Comparison with Study Material Ch. No.
Chapter Head
ICAI Study Material Chapter
Unit - I : Indian Regulatory Framework 1
Chapter 1
Indian Regulatory Framework
Unit - II : Indian Contract Act, 1872 1
Nature of Contract
Chapter 2, Unit 1
2
Offer & Acceptance
Chapter 2, Unit 1
3
Capacity to Contract
Chapter 2, Unit 3
4
Consideration
Chapter 2, Unit 2
5
Free Consent
Chapter 2, Unit 3
6
Legality of Object & Consideration
Chapter 2, Unit 3
7
Void Agreements
Chapter 2, Unit 3
8
Contingent & Quasi-Contracts
Chapter 2, Unit 6
9
Performance of a Contract
Chapter 2, Unit 4
10 Discharge of a Contract
Chapter 2, Unit 4, Unit 5
11 Indemnity & Guarantee
Chapter 2, Unit 7
12 Bailment and Pledge
Chapter 2, Unit 8
13 Agency
Chapter 2, Unit 9
Unit - III : Sale of Goods Act, 1930 1
Formation of the Contract of Sale
Chapter 3, Unit 1
2
Conditions & Warranties
Chapter 3, Unit 2
3
Transfer of Ownership
Chapter 3, Unit 3 I-11
I-12
CHAPTER-WISE COMPARISON WITH STUDY MATERIAL
Ch. No. 4
Chapter Head
Unpaid Seller
ICAI Study Material Chapter Chapter 3, Unit 4
UNIT - IV : Indian Partnership Act, 1932 1
General Nature of a Partnership
Chapter 4, Unit 1
2
Relations of Partners
Chapter 4, Unit 2
3
Registration of a Firm & Dissolution of a Firm
Chapter 4, Unit 3
UNIT - V : Limited Liability Partnership Act, 2008 1
Limited Liability Partnership Act, 2008
Chapter 5
UNIT - VI : The Companies Act, 2013 1
The Companies Act, 2013
Chapter 6
UNIT - VII : The Negotiable Instruments Act, 1881 1
The Negotiable Instruments Act, 1881
Chapter 7
CONTENTS PAGE
Note to Students Chapter-wise Marks Distribution of Previous Examinations Chapter-wise Comparison with Study Material
I-5 I-7 I-11
UNIT I INDIAN REGULATORY FRAMEWORK CHAPTER 1 INDIAN REGULATORY FRAMEWORK
3
UNIT II INDIAN CONTRACT ACT, 1872 CHAPTER 1 11
NATURE OF CONTRACT
CHAPTER 2 18
OFFER & ACCEPTANCE
CHAPTER 3 28
CAPACITY TO CONTRACT
CHAPTER 4 35
CONSIDERATION
CHAPTER 5 44
FREE CONSENT
CHAPTER 6 LEGALITY OF OBJECT & CONSIDERATION
55
CHAPTER 7 60
VOID AGREEMENTS
I-13
I-14
CONTENTS PAGE
CHAPTER 8 CONTINGENT & QUASI-CONTRACTS
68
CHAPTER 9 PERFORMANCE OF A CONTRACT
76
CHAPTER 10 91
DISCHARGE OF A CONTRACT
CHAPTER 11 111
INDEMNITY AND GUARANTEE
CHAPTER 12 123
BAILMENT AND PLEDGE
CHAPTER 13 138
AGENCY
UNIT III SALE OF GOODS ACT, 1930 CHAPTER 1 FORMATION OF THE CONTRACT OF SALE
157
CHAPTER 2 164
CONDITIONS & WARRANTIES
CHAPTER 3 179
TRANSFER OF OWNERSHIP
CHAPTER 4 189
UNPAID SELLER
UNIT IV INDIAN PARTNERSHIP ACT, 1932 CHAPTER 1 GENERAL NATURE OF A PARTNERSHIP
201
CONTENTS
I-15 PAGE
CHAPTER 2 214
RELATIONS OF PARTNERS
CHAPTER 3 REGISTRATION OF A FIRM & DISSOLUTION OF A FIRM
238
UNIT V LIMITED LIABILITY PARTNERSHIP ACT, 2008 CHAPTER 1 LIMITED LIABILITY PARTNERSHIP ACT, 2008
249
UNIT VI THE COMPANIES ACT, 2013 CHAPTER 1 269
THE COMPANIES ACT, 2013
UNIT VII THE NEGOTIABLE INSTRUMENTS ACT, 1881 CHAPTER 1 THE NEGOTIABLE INSTRUMENTS ACT, 1881
Solved Paper : Dec. 2023 (Suggested Answers)
305 P.1
1 CHAPTER
FORMATION OF THE CONTRACT OF SALE
LONG ANSWER QUESTIONS: Q.1 What is a contract of sale? What are the essentials of a valid contract of sale? (MTP & RTP Nov. 2018, MTP May 2019, RTP May 2020, RTP July 2021) Ans. According to Section 4(1) of the Sale of Goods Act, 1930, “a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.” The following are the essentials of valid contract of sale:— (i) Presence of two parties, i.e. buyer & seller, is required. (ii) Transfer of property in goods i.e. ownership, is required in a contract of sale. Transfer of ownership must take place or must be agreed to take place from the seller to the buyer. Thus it includes both sale and agreement to sell. (iii) The subject matter of a contract of sale must always be goods. Goods mean every kind of movable property other than money and actionable claims. (iv) The transfer of property in goods must take place from the seller to the buyer for a price. (v) The contract of sale may be absolute or conditional. (vi) All the essentials of a valid contract must be present. Q.2 What are the rules for the ascertainment of price in a contract of sale? Ans. Section 9 of the Sale of Goods Act, 1930, provides 4 modes of ascertainment of price. The price in a contract of sale may be:— (a) fixed by the contract. (b) may be left to be fixed in an agreed manner (such as market price or fixation of price by a third party).
157
158
UNIT III : SALE OF GOODS ACT, 1930
(c) may be determined by the course of dealings between parties (such as manufacturing cost, market price). (d) a reasonable price (if price cannot be fixed in accordance with the above provisions. What is a reasonable price is a question of fact dependent on the circumstances of each particular case? Further:— (a) The parties may agree to sell and buy goods on the terms that the price is to be fixed by the valuation of a third party and if such third party fails to make the valuation the contract becomes void. (b) However, if the buyer has received and appropriated the goods or any part thereof, he becomes bound to pay reasonable price. (c) If the third party is prevented from making the valuation by the fault of the seller or the buyer, the innocent party may maintain suit for damages against the party in fault. Q.3 What is meant by ‘goods’ under the Sale of Goods Act, 1930? What are its different types? [Nov. 2018, 4 Marks, MTP Nov. 2018] Ans. Goods means:— Every kind of movable property other than actionable claims and money and includes - stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Section 2(7). Actionable claim means a right to a debt or to any beneficial interest in movable property not in the possession of the claimant, which can be recovered by a suit or legal action. Money means the legal tender or currency of the country and it does not include old coins and foreign currency. Even Fixed Deposit Receipts are considered as goods under Sale of Goods Act, 1930. The following are the types of goods:— 1. Existing goods :- The goods which are in existence at the time of contract of sale i.e. are either owned or possessed by seller at the time of contract of sale are said to be existing goods. The existing goods may be further classified as follows:— A. Specific goods The goods which are identified and agreed upon at the time when the contract of sale is made, are called ‘specific goods’. B. Ascertained goods Ascertained goods are those goods which are identified in accordance with the agreement after the contract of sale is made. When out of a large number or large quantity of unascertained goods, the number or quantity contracted for is identified and set aside for
CH. 1 : FORMATION OF THE CONTRACT OF SALE
159
such contract, such number or quantity is said to be ‘ascertained goods’. Thus ascertained goods, are identified after the making but before the performance of the contract, the process being conducted in conformity with the agreement. C. Unascertained goods The goods which are not specifically identified and agreed upon at the time when the contract of sale is made, are called ‘unascertained goods’. They are defined by way of description or sample only the time of creation of contact. On appropriation the goods become ascertained. If the identity of contract goods is not established by appropriating them towards the contract, the contract remains in respect of unascertained goods. 2. Future goods: Those goods which are yet to be manufactured or produced or acquired by the seller after the making of the contract of sale, are called ‘future goods’. A contract for the sale of future goods is always an agreement to sell. It is never actual sale because a man cannot transfer what is not in existence. 3. Contingent goods: As per section 6(2) of the Act, contingent goods are those goods the acquisition of which by the seller depends upon a contingency (uncertain event) which may or may not happen. It may be noted that although the contingent goods are a type of future goods but they are different from future goods in the sense that the procurement of contingent goods is dependent upon an uncertain event or uncertainty of occurrence, whereas the obtaining of future goods does not depend upon any uncertainty of occurrence. Q.4 What is meant by delivery? What are the different modes of delivery? [May 2018, 4 Marks, RTP May 2018, MTP Nov. 2018, MTP July 2021] Ans. According to the provision of the Sale of Goods Act, 1930, delivery means voluntary transfer of possession from one person to another. To effect delivery of goods any act may be performed by one party in favour of the other party which has the effect of putting the goods into the possession or control of that other party. Delivery can be effected by any of the following ways: (i) Actual Delivery: It is effected when the goods are physically delivered to the buyer or his agent. (ii) Constructive delivery: It is used as a method of transferring possession when the goods are in the custody of a third person. When the seller gives such directions to a third party, who has the physical custody of the goods, which has the effect of transferring the goods into the possession of the buyer, without the actual movement or delivery of goods, it amounts to constructive delivery. It is also known as delivery by attornment (acknowledgement).
160
UNIT III : SALE OF GOODS ACT, 1930
(iii) Symbolic Delivery: When there is a delivery of a thing in token of transfer of something else, such as a key of godown or warehouse where the goods are stored or documents of title, then it amounts to symbolic delivery.
SHORT QUESTIONS: Q.5 Differentiate between: (a) Sale and Agreement to Sell (b) Sale and Hire Purchase (c) Sale and Bailment
[Dec. 2021, 6 Marks] [MTP May 2018 & MTP May 2019]
Ans. (a) BASIS 1. Transfer of property
2. Nature of Contract 3. Burden of risk 4. Nature of rights
5. Remedies for breach
6. Insolvency of Buyer
7. Insolvency of Seller
SALE AGREEMENT TO SELL The title to the goods passes The title to the goods passes to the buyer immediately. to the buyer on future date or on fulfilment of some condition. It is an executed contract. It is an executory contract. Risk of loss is that of buyer Risk of loss is that of seller. since risk follows ownership. It creates jus in rem that is It creates jus in personam the buyer as a owner gets that is the buyer has only a the right to enjoy the goods personal remedy against the against the whole world. If seller. He can sue only for the seller refuses to deliver the damages for breach and not goods the buyer may sue for for recovery of goods. recovery of goods by specific performance. If the buyer fails to pay for If the buyer fails to accept and the goods, the seller may sue pay for the goods, the seller for the price (suit for price can only sue for damages and sec. 55) and also has other not for price. (Damages for remedies available to an non-acceptance sec. 56) unpaid seller. If the buyer becomes insol- Since the seller continues to vent before paying the price, be the owner, he can refuse the seller shall have to deliver to deliver the goods to the the goods to the Official Official Receiver unless he Receiver on his demand is paid the price because the because the ownership of seller continuous to be the the goods has passed to the owner of the goods. buyer. If the seller becomes If the seller becomes insolvent while the goods insolvent, the buyer cannot are still in his possession, claim the goods. If the buyer the buyer shall have a right has paid the price he can
CH. 1 : FORMATION OF THE CONTRACT OF SALE
BASIS
161
SALE AGREEMENT TO SELL to claim the goods from the claim ratable dividend from Official Receiver because the estate of the insolvent the ownership of goods has seller. passed to the buyer.
(b) SALE (1)
(2)
(3) (4)
(5)
HIRE-PURCHASE
In a contract of sale, the seller transfers In hire purchase there is an agreement or agrees to transfer the property in goods for the hire of an asset conferring an to the buyer for a price. option to purchase. The ownership in goods passes on The ownership passes when the option making the contract even if price is paid to purchase is finally exercised by the in instalments. intending purchaser after complying with the terms of agreement. The purchaser becomes owner of goods In a hire-purchase the hirer is not the owner but only a bailee of goods. After a sale takes place the buyer cannot In a hire-purchase the hire purchaser terminate the contract and refuse to pay can terminate the contract at any time and he is not bound to pay any further the price of the goods. instalments. On default by the buyer the seller cannot On default of any payment by the hirer, claim back the goods. the owner of the article has the right to terminate the agreement and to regain the possession of the article.
(c) SALE (1)
(2) (3) (4)
(5)
BAILMENT
In a contract of sale, the seller transfers In case of bailment possession of goods or agrees to transfer the property in goods is transferred from the bailor to bailee to the buyer for a price. for some purpose, e.g., safe custody, repair, etc. The buyer can deal with the goods the The bailee can use the goods only for the way he likes. intended purpose of bailment. The buyer gets ownership of the goods. The bailee only acquires possession. Generally, the goods are not returnable The goods are returnable after a specified in a contract of sale. period or when the purpose for which they were delivered is achieved. The consideration for a sale is the price The consideration for bailment may be in terms of money. gratuitous or non-gratuitous.
Q.6 Describe the consequences of ‘destruction of goods’ under the Sale of Goods Act, 1930, where the goods have been destroyed after the agreement to sell, but before the sale is affected. [RTP May 2018, RTP Nov. 2020] [June 2022, 4 Marks]
162
UNIT III : SALE OF GOODS ACT, 1930
Ans. Goods perishing before sale but after agreement to sell [Section 8] - where specific goods had perished or became damaged. - without the fault of seller or buyer. - after the agreement to sell is made and before the risk passes to the buyer. - the contract becomes void. Thus, the agreement to sell becomes void in the following circumstances:— (a) The contract of sale must be an agreement to sale and not an actual sale. (b) The agreement to sale must be for specific goods. (c) The goods must perish or become damaged after agreement to sale but before sale. (d) The goods get perished or damaged without any wrongful act or default on the part of the seller or the buyer. For example, an agreement to sell a car after a certain period becomes void, if the car is destroyed or damaged in the intervening period.
CASE STUDIES: Q.7 A sells a laptop computer to B with a stipulation that payment should be made within 3 days. B makes the payment after 7 days of the contract. Ans. Hint : Stipulations as to the time for payment of price is not of essence; A cannot avoid the contract on the grounds of the breach of stipulation as to time of payment of price. Q.8 A agrees to sell two of his cars to B at a price to be fixed by C. He immediately gives delivery of first car. C refuses to fix the price. A asks for the return of the car already delivered while B claims the delivery of the second car too. Decide. Ans. Hint : The buyer B shall pay a reasonable price to A for the car already taken. As regards the second car, the contract becomes void. Q.9 Classify the following transactions according to the types of goods they are :— (i) A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected and set aside. (ii) A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop. (iii) T agrees to sell to S all the oranges which will be produced in his garden this year. [RTP Nov. 2019, MTP Nov. 2020] Ans. Hint : (i) The goods are ascertained goods, in this case, ascertained goods are those which are identified in accordance with the agreement after the contract of sale are known as ascertained goods.
CH. 1 : FORMATION OF THE CONTRACT OF SALE
163
(ii) The goods which are not specifically identified & agreed upon at the time when the contract of sale is made, are called unascertained goods. The packet of salt is unascertained goods in the given case. (iii) The goods which are yet to be manufactured or produced or acquired by seller after making the contract of sale are called future goods. A contract for the sale of future goods is always an agreement to sell. In the given cases oranges are future goods. Q. 10 Mr. A contracted to sell his swift car to Mr. B. Both missed to discuss the price of the said swift car. Later, Mr. A refused to sell his swift car to Mr. B on the ground that the agreement was void being uncertain about the price. Does Mr. B have any right against Mr. A under the Sale of Goods Act, 1930? [June 2023, 4 Marks] Ans. According to the provisions of the Sale of Goods Act, 1930, the price in a contract of sale may be either fixed by the contract or may be left to be fixed in a manner thereby agreed or may be determined by the course of dealings between the parties. The Act further provides that where the price is not determined by the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. In the given case, Mr. A contracted to sell his swift car to Mr. B, but both of them miss to discuss the price and Mr. A subsequently refuses to sell the car on the grounds that the agreement was void on account of uncertainty of price. Thus applying the above stated provisions to the given case it can be concluded that contention of Mr. A is invalid. The contract is valid and enforceable and Mr. B has a right to demand the sale and delivery of the car and is bound to pay the reasonable price of the car to Mr. A.
BUSINESS LAWS | CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE
: : : : : : :
S.K. Agrawal, Manmeet Kaur TAXMANN JANUARY 2024 10th Edition 9789357789554 346 PAPERBACK
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DESCRIPTION This book is prepared exclusively for the Foundation Level of Chartered Accountancy Examination requirement. It covers the past exam questions & detailed answers strictly as per the new syllabus of ICAI. The Present Publication is the 10th Edition for CA-Foundation | New Syllabus | June 2024 exams. This book is authored by Dr S.K. Agrawal & CA Manmeet Kaur, with the following noteworthy features: • As per the new syllabus of ICAI • Coverage of this book includes: o Past Exam Questions with Solutions, including Dec. 2023 Exam o Additional Important Questions for the Exam o Theoretical Questions o Short Notes o Case Studies • [Chapter-wise Marks Distribution] has been included in this book from May 2018 onwards • [Comparison with ICAI Study Material] has been given in this book chapter-wise
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