Thursday, December 06, 2007

Contract Act_Practical Problems_63

A’ stands surety for ‘B’ for any amount which ‘C’ may lend to B from time to time during the next three months subject to a maximum of Rs. 50,000. One month later A revokes the guarantee, when C had lent to B Rs. 5,000. Referring to the provisions of the Indian Contract Act, 1872 decide whether ‘A’ is discharged from all the liabilities to ‘C’ for any subsequent loan. What would be your answer in case ‘B’ makes a default in paying back to ‘C’ the money already borrowed i.e. Rs. 5,000?

The problem as asked in the question is based on the provisions of the Indian Contract Act 1872,
as contained in Section 130 relating to the revocation of a continuing guarantee as to future
transactions which can be done mainly in the following two ways:

1. By Notice: A continuing guarantee may at any time be revoked by the surety as to future
transactions, by notice to the creditor.
2. By death of surety: The death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee, so far as regards future transactions.
(Section 131).
The liability of the surety for previous transactions however remains.
Thus applying the above provisions in the given case, A is discharged from all the liabilities
to C for any subsequent loan.
Answer in the second case would differ i.e. A Is liable to C for Rs. 5,000 on default of B
since the loan was taken before the notice of revocation was given to C.

Contract Act_Practical Problems_62

‘A’ applies to a banker for a loan at a time where 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.
In the given problem, A applies to the 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. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence. As between parties on an equal footing, the court will not hold a bargain to be unconscionable merely on the ground of high interest. Only where the lender is in a position to dominate the will of the borrower, the relief is granted on the ground of undue influence. But this is not the situation in this problem, and therefore, there is no undue influence.

Contract Act_Practical Problems_61

Mr. Dubious textile enters into a contract with Retail Garments Show Room for supply of 1,000 pieces of Cotton Shirts at Rs. 300 per shirt to be supplied on or before 31st December, 2006. However, on 1st November, 2006 Dubious Textiles informs the Retail Garments Show Room that he is not willing to supply the goods as the price of Cotton shirts in the meantime has gone upto Rs. 350 per shirt. Examine the rights of the Retail Garments Show Room in this regard.

In the given problem Dubious Textiles has indicated its unwillingness to supply the cotton shirts
on 1st November 2006 itself when it has time upto 31st December 2006 for performance of the
contract of supply of goods. It is therefore called anticipatory breach of contract. Thus Retail
Garments show room can claim damages from Dubious Textiles immediately after 1st November, 2006, without waiting upto 31st December 2006. The damages will be calculated at the rate of Rs.50 per shirt i.e. the difference between Rs. 350/- (the price prevailing on 1st November) and Rs. 300/- the contracted price.

NI Act_Practicle Problems_45

M a broker draws a cheque in favour of N, a minor. N indorses the cheque in favour of O, who in turn indorses it in favour of P. Subsequently, the bank dishonoured the cheque. State the rights of O and P and whether N, can be made liable?
According to section 26 of the Negotiable Instruments Act, 1881 a minor may draw, indorse,
deliver and negotiate a negotiable instrument to bind all parties except himself. Therefore, O and P cannot claim from B, who being a minor does not incur any liability on the cheque. O can claim payment from M, the Drawer, only and P can claim against O, the indorser and M, the drawer.

Contract Act_Practical Problems_60

Ram, Rahim and Robert are partners of software business and jointly promises to pay Rs.30, 000 to Raheja. Over a period of time Rahim became insolvent, but his assets are sufficient to pay one-forth of his debts. Robert is compelled to pay the whole. Decide whether Robert is required to pay whole amount himself to Raheja in discharging joint promise.

According Section 43 of Indian Contract Act, 1872 when two or more persons make a joint
promise, the promisee may, in absence of express agreement to the contrary, compel any one or
more of such joint promisers or perform the whole of the promise. Further, if any one of two or
more joint promisers makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Therefore, in this case, Robert is entitled to receive 2,500 from Rahims assets and 13,750 from Ram.

Contract Act_Practical Problems_59

Miss.Chitra, a singer, enters in to a contract with the manager of Bangalore Gate Club, to sing in the Club for two concerts every week during the next two months and the club agrees to pay her at the rate of Rs.2000 for each concert. On the seventh concert Miss.Chitra willfully absents herself. With the assent of the manager of the club, Miss.Chitra sings for the eighth concert. But on the following day, the club, puts an end to the contract. Can Miss.Chitra claim damages for breach of contract? Advise .

On the seventh Concert when Miss.Chitra willfully absents herself, the club is at liberty to put an end to the contract. If Miss.Chitra sings on the eighth Concert with the consent of the club. The club has signified its acquiescence in the continuance of the contract and cannot now put an end to it. The club is entitled to compensation for the damage sustained because of Miss.Chitra’s
failure to sing on the seventh concert. If the club puts an end to the contract, Miss.Chitra can
claim damages for breach of contract [Section 39 of The Indian Contract Act, 1872)].

Contract Act_Practical Problems_58

Mr. X, is employed as a cashier on a monthly salary of Rs.2,000 by ABC bank for a period of three years. Y gave surety for X’s good conduct. After nine months, the financial position of the bank deteriorates. Then X agrees to accept a lower salary of Rs.1,500/- per month from Bank. Two months later, it was found that X has misappropriated cash since the time of his appointment. What is the liability of Y?

If the creditor makes any variance (i.e. change in terms) without the consent of the surety, then
surety is discharged as to the transactions subsequent to the change. In the instant case Y is
liable as a surety for the loss suffered by the bank due to misappropriation of cash by X during the first nine months but not for misappropriations committed after the reduction in salary. [Section 133, Indian Contract Act, 1872].

NI Act_Practicle Problems_44

Can an acceptor of a bill avoid his liability against a person who is a holder in due course or who derives his title from a holder in due course, on the following grounds:

a. That the instrument has not been filled in accordance with the authority given by him.
b. That the other parties to the bill were fictitious.
c. That the instrument was drawn without consideration.
d. That the delivery of the instrument was conditional.
e. That the instrument had been lost.
f. That the instrument was obtained from him by means of fraud.
g. That the instrument was obtained from him for an unlawful consideration.
h. That his signature was forged.That payee had no capacity to endorse.