Contract Act_Practical Problems_19

A bank sanctions an overdraft limit against the security of a continuing guarantee. The surety dies. Can the bank proceed against the heirs of the surety under the guarantee and, if so, to what extent ?

The death of the surety operates, in the absence of a contract to the contrary, as a revocation of a continuing guarantee as regards future transactions. It may, however, be noted that the estate of the surety shall be liable for all transactions entered into between the creditor and the principle debtor prior to the death of the surety, unless there was a contract to the contrary. However, his estate shall not be liable for the transactions entered into after his death, even if the creditor has no notice of the death.

Thus, in the given problem, since there is nothing against attachment of surety's properties after his death, the heirs of the surety shall be liable for the debit balance in the overdraft account but this liability shall be limited to the higher of the following two:

1. The amount of debit balance in the overdraft account as on the date of surety's death;
and
2. The value of the surety's estate acquired by the heirs.

Contract Act_Practical Problems_18

'A' applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. Whether the contract is induced by undue influence? Decide.

For relief on ground of undue-influence under Section 16, two requirements need to be satisfied, viz.,

(i) the party alleged must be in a position to dominate the will of the other; and
(ii) he must have exercised that domination to obtain an undue advantage.

In the given case, a bank cannot be said to be in a position to dominate the will of the borrower — the borrower having option to borrow from other banks or other sources. Thus, contract cannot be said to be induced by undue influence.

Contract Act_Practical Problems_17

A is a minor aged seventeen years, who broke his right leg in a football match. He engaged B, a doctor, to set it. Does the doctor have a valid claim for his services? Give reasons.

Under Section 68, minor's properties, if any, can be held liable for necessaries supplied or necessary service rendered to a minor or to any of his dependents. Medical service of the nature under reference can well be considered as necessary and, therefore, the doctor shall have claim only against the properties of the minor, if any i.e., he can sue for attachment of minor's properties. Money cannot be recovered from the minor personally.

Contract Act_Practical Problems_16

A owes B rupees ten thousand, C, who is a friend of A, pays to B rupees five thousand in full satisfaction of B's claim on A which B accepts. Can B now recover the balance from A? Given reasons.

No. B cannot recover the balance from A. The problem is based on the statutory illustration to Section 63 of the Indian Contract Act, 1872. The Section provides, inter alid, that the promisee may, instead of performance of the promise made to him, accept any satisfaction which he thinks fit. Thus, having accepted payment from C, in full satisfaction of his claim againstA, B ceases to have any rights against A.

Parternship Act_Practical Problems_5

A, B and C are partners in a firm called ABC. A, with the intention of deceiving D, a supplier of office stationery, buys certain stationery on behalf of the ABC firm. The stationery is of use in the ordinary course of the firm's business. A does not give the stationery to the firm, instead brings it to his own use. The supplier D, who is unaware of the private use of stationery by A, claims the price from the firm. The firm refuses to pay for the price, on the ground that the stationery was never received by it. Decide

(i) Whether the firm's contention is tenable?
(ii) What would be your answer if a part of the stationery so bought by A was delivered to the firm by him, and the rest of the stationery was used by him for private use, for which neither the firm nor the supplier D was aware?
(iii) Explain the provisions of the Indian Partnership Act in this regard.

The given problem relates to 'implied authority' of a partner. Sections 19 and 22 of the Partnership Act deal with the subject of implied authority of a partner. The two Sections when read together provide that the act of a partner which is done to carry on, in the usual way business of the kind carried on by the firm, binds the firm, provided the act is done in the firm's name, or in any manner expressing or implying an intention to bind the firm.

Besides, every partner is in contemplation of law the general and accredited agent of the partnership and may consequently bind all the other partners by his acts in all matters which are within the scope and objects of the partners. Considering the aforesaid provisions and explanation, the questions asked in the problem may be answered as under:

(i) The firm's contention is not tenable, for the reason that the partner in the usual course of the business has an implied authority to bind the firm. The firm is, therefore, liable for the price of the goods.

(ii) In the second case also the answer would be the same as above, i.e., the implied authority of the partner binds the firm.

(iii) It is explained above.

Contract Act_Practical Problems_15

A enters into a contract with B for the sale of goods to be delivered at a future date. Is it a wagering agreement? Give reasons.

The contract in question is not a wagering agreement. It only involves future consideration and is a valid, enforceable, common business transaction. A transaction, to be wagering, must make the performance of the transaction dependent upon the happening or non-happening of an uncertain future event. The performance in the given case being not so dependent, transaction is not wagering.

Contract Act_Practical Problems_14

A contract to purchase certain immovable properties had been made by a guardian on behalf of a minor and the minor sued the other party for a decree of specific performance to recover possession. State whether the suit will succeed.

Yes-Although the general rule of law is that a stranger to a contract cannot maintain a valid suit, it was recognised in Kwaja Mohd. v. Haisaini Begum, that a beneficiary can always claim the benefits and bring a suit directly against the promisor.

Moreover, the beneficiary being a minor, it shall make no difference because under the Indian Contract Act, a minor can always be beneficiary under the contract and validly enforce such benefits. Thus, minor, in the present case, shall succeed in his suit for specific performance.

Contract Act_Practical Problems_13

K agreed to sing at the Star Theatre for a period of three months beginning 1 st January 1996. She further agreed not to sing at any other theatre during this period. Is this contract enforceable against her?

Restraint of trade is considered against public policy and, therefore, is bad in the eyes of the law. Section 27 of the Indian Contract Act declares it void. However, with regard to service agreements, restraints of the nature mentioned in the given problem shall bevalid, if reasonable. The facts of the given problem are based on the case of Lumley v. Wagner in which the Court held this restraint of 3 months to be reasonable and thus enforceable. Thus, K can be restrained from singing elsewhere during the period of 3 months.

Contract Act_Practical Problems_12

A, a minor, borrowed Rs. 5,000 on loan from B, staling that he was a major and executed a receipt in his favour. Discuss the remedies available to B to recover the money lent by him.

A minor is always allowed to plead minority and is not estopped to do so even where he had procured a loan or entered into some other contract by falsely representing that he was of full age. In Leslie v. Shiell, S, a minor, borrowed £ 400 from L, a money lender, by fraudulently misrepresenting that he was of full age. On default to pay by S, L sued for return of the £ 400 and damages for the tort of deceit. Held, L could not recover £ 400 and his claim for damages also failed. The Court did not grant relief, otherwise it would have been an indirect way of enforcing a void contract. Even on equitable grounds, the minor could not be asked to refund £ 400, as the money was not traceable and the minor had already spent the same.

Thus, in the given case, the agreement being void, B shall not be allowed to recover the money. However, if the money can be traced with A, the minor shall be liable, on equitable grounds, to restore the same since a minor cannot be given a liberty to cheat.

Contract Act_Practical Problems_11

The lessor let out his premises to the lessee on a fixed rent. The deed recited that "if the company did not vacate the premises by a specific date, the company shall commence paying the then prevalent market rent." Does this provision in the lease deed make the contract void for uncertainty?

Yes- such an agreement shall be void as per Section 29 of the Indian Contract Act being uncertain in terms of the rent payable. The expression 'market rent' lends uncertainty to the amount of rent chargeable since rent might vary from location to location, premises to premises. Hence the clause in the lease deed suggesting payment of rent at market rate shall be void and unenforceable.

Parternship Act_Practical Problems_4

A and B purchased a taxi to ply in partnership. They plied the taxi for a year when A, without the consent of B, disposed of the taxi. B brought an action to recover his share in the sale proceeds. A resisted B's claim on the ground that the firm was not registered. Will B succeed in his claim?

Yes- B will succeed in his claim. Although under Section 69 of the Partnership Act, a partner of an unregistered firm cannot enforce any of his contractual or legal rights against any other partner but non registration of a firm does not affect a partner's right to seek settlement of accounts of a dissolved firm. In this given case, the taxi having been sold, the business of the firm has already been dissolved. B shall thus, be entitled to claim his share in the sale proceeds.

Parternship Act_Practical Problems_3

Anand and Ravi are carrying on business in partnership. In the partnershipdeed, it is provided that none of the partners should borrow money except with theconsent of both. Anand borrowed a sum of Rs. 1,000 from Suresh for the business ofthe firm without the consent of Ravi. Is the firm liable? Give reasons for your answer.

The problem relates to the authority of a partner. According to Section 19 of the Partnership Act, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. Now, the question that may arise is that where a specific restraint has been put on a partner's authority, will such a restraint affect the partner's implied authority to bind the firm.

In this regard. Section 20 provides that the partners in a firm may, by contract between themselves, extend or restrict the implied authority of any partner. But, in so far as third parties are concerned, the firm continues to be liable to him for any such act which falls within the scope of the implied authority of a partner unless the person, with whom the partner is dealing, knows the lack of authority of the partner. Thus, in the given case, since Anand borrowed money for business purposes (and in a trading firm, power to borrow money falls within the usual course of business and hence implied power of a partner), the firm shall be held liable to Suresh.

Parternship Act_Practical Problems_2

D, J and A are only partners in a firm. They decide to dissolve the partnership with effect from 1st April, 1988. The partners do not give a public notice of the dissolution, but continue the business. During the course of business, D, J and A endorse certain Bills of Exchange of the partnership to a third party M, who was not aware of the dissolution. M, the third party, had supplied certain stationery to the firm. The Bills of Exchange are dishonoured. The third party M wants to claim the money. Decide:

(i) Whether the firm will be liable to pay for the bills of exchange?
(ii) What are the provisions of the Indian Partnership Act in this regard?

The problem is based on the provisions of Section 45 of the Indian Partnership Act. The Section provides that notwithstanding the dissolution of a firm, the partners continue to be liable as much to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until Public Notice of the dissolution is given.

Therefore, the firm shall be liable on the bills, as no public notice was given by the partners regarding dissolution of the firm. Similar view was expressed in Robinson's case also.

Parternship Act_Practical Problems_1

A and B, co-owners of a house, let it to a paying guest. They divide the net rents between them. Are they partners?

No-A and B, are not partners since a very essential element that the partners must be engaged in carrying some business is lacking. They could be partners if they make it their business to acquire houses jointly to rent out and share the net gains. Since it is the only house, they are the co-owners only—not partners.

Contract Act_Practical Problems_10

A customer entrusts certain G.P. Notes for safe custody to his bank. The bank keeps the G.P. Notes in a wooden box. Later, it is found that the Notes are destroyed by white ants. What is the bank's liability to the customer?

Section 151 of the Indian Contract Act, 1872 charges a bailee (which the bank is in the present case) to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

Further, Section 152 provides that if the bailee has taken reasonable amount of care which a man of ordinary prudence would take, then in the absence of any special contract, he will not be responsible for the loss, destruction or deterioration of the goods bailed.

In the present case, if to the knowledge of the bank manager, the premises were infested with white ants, it would certainly be considered negligence on his part to have stored valuable documents like G.P. Notes in a wooden box. Otherwise, i.e., not being aware, keeping G.P. Notes in wooden box is not likely to be considered as improper and hence bank may not be subjected to any liability.

Contract Act_Practical Problems_9

The manager of a cinema theatre gave instructions that no tickets were to be sold to R. R, knowing this, asked his friend to buy a ticket for him. With this ticket R went to the theatre but was refused admission. He filed a suit for damages for breach of contract, against the theatre. Would he succeed? Decide giving the provisions of the Indian Contract Act in this regard.

R would not succeed. Section 22 of the Indian Contract Act provides that a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact essential to the agreement. However, in certain exceptional cases, a unilateral mistake renders a contract unenforceable. One such circumstance may be 'mistake with regard to the identity of the person contracted with'. A large number of a legal decisions are available on this point including those of Candy v. Lindsey.

The facts of the given problem are similar to those of Said v. Butt in which the contract was declared void on ground of mistake. Manager of the theatre having issued instructions not to sell ticket to R, suggests that he had no intentions to make contract with R. Thus, had it been known that the ticket was being purchased for R, it would have been refused. There is thus absence of consent altogether and hence no valid agreement. R would, therefore, not succeed in his suit for damages.

Contract Act_Practical Problems_8

X, an old lady, by a deed of gift made over certain property to her daughter D, with the specific directions that she should pay P, who is the sister of the old lady, a sum of Rs. 100 per month. The same day D entered into an agreement with P to pay her the agreed amount. D now refuses to pay her aunt P, the above amount on the plea that no consideration had moved from P to D. P, therefore, sues D. Is the suit maintainable and can D be held liable to pay the amount? Decide.

Yes-D can be held liable to pay the amount to P. Consideration may move from a stranger [Section 2(d) of the Indian ContractAct]. The facts of the given problem are based on the case of Chinnaya v. Ramaya in which a similar decision was given.