31/03/24

CA Test-06

Practice Test- 12
Sampurna June 2024
Business Laws
1. Total Marks - 50
2. Time Allowed – 90 Min. Date: 31/03/2024

All Question are Compulsory

1. What is a wagering agreement? Describe the transactions which resembles with wagering transactions but are not
void. (6 Marks)

2. Rahul, a transporter was entrusted with the duty of transporting tomatoes from a rural farm to a city by Aswin. Due
to heavy rains, Rahul was stranded for more than two days. Rahul sold the tomatoes below the market rate in the
nearby market where he was stranded fearing that the tomatoes may perish. Can Aswin recover the loss from Rahul
on the ground that Rahul had acted beyond his authority? (5 Marks)

3. Ms. R owns a two Wheeler which she handed over to her friend Ms. K on sale or return basis. Even after a week, Ms.
K neither returned the vehicle nor made payment for it. She instead pledged the vehicle to Mr. A to obtain a loan.
Ms. R now wants to claim the two Wheeler from Mr. A. Will she succeed?
Examine with reference to the provisions of the Sale of Goods Act, 1930, what recourse is available to Ms. R?
Would your answer be different if it had been expressly provided that the vehicle would remain the property of Ms.
R until the price has been paid? (7 Marks)

4. What are the rights of buyer against the seller, if the seller commits a breach of contract under the Sale of Goods Act,
1930? (4 Marks)

5. What do you mean by “Particular Partnership” under the Indian Partnership Act, 1932? (2 Marks)

6. State the differences between Partnership and Hindu Undivided Family. (4 Marks)

7. Whether a minor may be admitted in the business of a partnership firm? Explain the rights of a minor in the partnership
firm. (6 Marks)

8. A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, A dies. In 2017, B and C sue
X in the name and on behalf of A & Co., without fresh registration. Decide whether the suit is maintainable. Whether
your answer would be same if in 2017 B and C had taken a new partner D and then filed a suit against X without
fresh registration? (7 Marks)

9. Explain any five circumstances under which contracts need not be performed with the consent of both the parties.
(5 Marks)

10. Ramesh hires a carriage of Suresh and agrees to pay ₹ 1500 as hire charges. The carriage is unsafe, though Suresh is
unaware of it. Ramesh is injured and claims compensation for injuries suffered by him. Suresh refuses to pay. Discuss
the liability of Suresh. (4 Marks)

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Hints & Solutions

Date: 31/03/2024

1. (H & S)
Wagering agreement (Section 30 of the Indian Contract Act, 1872): An agreement by way of a wager is void. It
is an agreement involving payment of a sum of money upon the determination of an uncertain event.
The essence of a wager is that each side should stand to win or lose, depending on the way an uncertain event takes
place in reference to which the chance is taken and in the occurrence of which neither of the parties has legitimate
interest.
For example, A agrees to pay Rs. 50,000 to B if it rains, and B promises to pay a like amount to A if it does not rain,
the agreement will be by way of wager. But if one of the parties has control over the event, agreement is not a wager.
Transactions resembling with wagering transaction but are not void
(i) Chit fund: Chit fund does not come within the scope of wager (Section 30). In case of a chit fund, a certain
number of persons decide to contribute a fixed sum for a specified period and at the end of a month, the amount
so contributed is paid to the lucky winner of the lucky draw.
(ii) Commercial transactions or share market transactions: In these transactions in which delivery of goods or shares
is intended to be given or taken, do not amount to wagers.
(iii) Games of skill and Athletic Competition: Crossword puzzles, picture competitions and athletic competitions
where prizes are awarded on the basis of skill and intelligence are the games of skill and hence such competition
are valid. According to the Prize Competition Act, 1955 prize competition in games of skill are not wagers
provided the prize money does not exceed Rs. 1,000.
(iv) A contract of insurance: A contract of insurance is a type of contingent contract and is valid under law and these
contracts are different from wagering agreements.

2. (H & S)
Provision
Agent’s authority in an emergency (Section 189 of the Indian Contract Act, 1872): An agent has authority, in an
emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of
ordinary prudence, in his own case, under similar circumstances.
Analysis and conclusion
In the instant case, Rahul, the agent, was handling perishable goods like ‘tomatoes’ and can decide the time, date and
place of sale, not necessarily as per instructions of the Aswin, the principal, with the intention of protecting Aswin
from losses. Here, Rahul acts in an emergency as a man of ordinary prudence, so Aswin will not succeed against him
for recovering the loss.

3. (H & S)
Provision
As per the provisions of Section 24 of the Sale of Goods Act, 1930, when goods are delivered to the buyer on approval
or “on sale or return” or other similar terms, the property therein passes to the buyer-
(a) when the buyer signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of
rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time
has been fixed, on the expiration of a reasonable time; or
(c) he does something to the good which is equivalent to accepting the goods e.g. he pledges or sells the goods.
Analysis and conclusion
Referring to the above provisions, we can analyse the situation given in the question:
(i) In the instant case, Ms. K, who had taken delivery of the two wheeler on Sale or Return basis pledged the two
wheeler to Mr. A, has attracted the third condition that she has done something to the good which is equivalent
to accepting the goods e.g. she pledges or sells the goods. Therefore, the property therein (two wheeler) passes
to Mr. A. Now in this situation, Ms. R cannot claim back her two wheeler from Mr. A, but she can claim the
price of the two wheeler from Ms. K only.
(ii) It may be noted that where the goods have been delivered by a person on “sale or return” on the terms that the
goods were to remain the property of the seller till they are paid for, the property therein does not pass to the
buyer until the terms are complied with, i.e., price is paid for. Hence, in this case, it is held that at the time of
pledge, the ownership was not transferred to Ms. K. Thus, the pledge was not valid and Ms. R could recover the
two wheeler from Mr. A.
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CA Test-06 CA
4. (H & S)
If the seller commits a breach of contract, the buyer gets the following rights against the seller:-
1. Damages for non-delivery [Section 57]: Where the seller wrongfully neglects or refuses to deliver the goods to
the buyer, the buyer may sue the seller for damages for non-delivery.
2. Suit for specific performance (Section 58): Where the seller commits of breach of the contract of sale, the buyer
can appeal to the court for specific performance. The court can order for specific performance only when the
goods are ascertained or specific.
3. Suit for breach of warranty (Section 59): Where there is breach of warranty on the part of the seller, or where
the buyer elects to treat breach of condition as breach of warranty, the buyer is not entitled to reject the goods
only on the basis of such breach of warranty. But he may–
(i) set up against the seller the breach of warranty in diminution or extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60): Where either party to a contract of sale repudiates the
contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of
delivery, or he may treat the contract as rescinded and sue for damages for the breach.
5. Suit for interest:
(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages, in
any case where by law interest or special damages may be recoverable, or to recover the money paid where
the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the
amount of the price to the buyer in a suit by him for the refund of the price in a case of a breach of the contract
on the part of the seller from the date on which the payment was made.

5. (H & S)
Particular partnership: A partnership may be organized for the prosecution of a single adventure as well as for the
conduct of a continuous business. Where a person becomes a partner with another person in any particular adventure
or undertaking, the partnership is called ‘particular partnership’.
A partnership, constituted for a single adventure or undertaking is, subject to any agreement, dissolved by the
completion of the adventure or undertaking.

6. (H & S)
Basis of Partnership Joint Hindu family
difference
Mode of creation Partnership is created necessarily by an The right in the joint family is created by status
agreement. means its creation by birth in the family.
Death of a Death of a partner ordinarily leads to the The death of a member in the Hindu undivided
member dissolution of partnership. family does not give rise to dissolution of the
family business.
Management All the partners are equally entitled to take The right of management of joint family business
part in the partnership business. generally vests in the Karta, the governing male
member or female member of the family.
Authority to bind Every partner can, by his act, bind the The Karta or the manager, has the authority to
firm. contract for the family business and the other
members in the family.
Liability In a partnership, the liability of a partner In a Hindu undivided family, only the liability of
is unlimited. the Karta is unlimited, and the other coparcener
are liable only to the extent of their share in the
profits of the family business.
Calling for A partner can bring a suit against the firm On the separation of the joint family, a member is
accounts on for accounts, provided he also seeks the not entitled to ask for account of the family
closure dissolution of the firm. business.
Governing Law A partnership is governed by the Indian A Joint Hindu Family business is governed by the
Partnership Act, 1932. Hindu Law.
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CA Test-06 CA
Minor’s capacity In a partnership, a minor cannot become a In Hindu undivided family business, a minor
partner, though he can be admitted to the becomes a member of the ancestral business by
benefits of partnership, only with the the incidence of birth. He does not have to wait for
consent of all the partners. attaining majority.
Continuity A firm subject to a contract between the A Joint Hindu family has the continuity till it is
partners gets dissolved by death or divided. The status of Joint Hindu family is not
insolvency of a partner. thereby affected by the death of a member.
Number of In case of Partnership number of members Members of HUF who carry on a business may be
Members should not exceed 50. unlimited in number.
Share in the In a partnership, each partner has a In a HUF, no coparceners has a definite share. His
business defined share by virtue of an agreement interest is a fluctuating one. It is capable of being
between the partners. enlarged by deaths in the family diminished by
births in the family.

7. (H & S)
A minor cannot be bound by a contract because a minor’s contract is void and not merely voidable. Therefore, a
minor cannot become a partner in a firm because partnership is founded on a contract.
Though a minor cannot be a partner in a firm, he can nonetheless be admitted to the benefits of partnership under
Section 30 of the Indian Partnership Act, 1932. In other words, he can be validly given a share in the partnership
profits.
When this has been done and it can be done with the consent of all the partners then the rights and liabilities of such
a partner will be governed under Section 30 as follows:
Rights:
(i) A minor partner has a right to his agreed share of the profits and of the firm.
(ii) He can have access to, inspect and copy the accounts of the firm.
(iii) He can sue the partners for accounts or for payment of his share but only when severing his connection with
the firm, and not otherwise.
(iv) On attaining majority, he may within 6 months elect to become a partner or not to become a partner. If he
elects to become a partner, then he is entitled to the share to which he was entitled as a minor. If he does not,
then his share is not liable for any acts of the firm after the date of the public notice served to that effect.

8. (H & S)
Provision
As regards the question whether in the case of a registered firm (whose business was carried on after its dissolution
by death of one of the partners), a suit can be filed by the remaining partners in respect of any subsequent dealings or
transactions without notifying to the Registrar of Firms, the changes in the constitution of the firm, it was decided
that the remaining partners should sue in respect of such subsequent dealings or transactions even though the firm
was not registered again after such dissolution and no notice of the partner was given to the Registrar.
Analysis and conclusion
The test applied in these cases was whether the plaintiff satisfied the only two requirements of Section 69 (2) of the
Act namely,
(a) the suit must be instituted by or on behalf of the firm which had been registered;
(b) the person suing had been shown as partner in the register of firms. In view of this position of law, the suit is in
the case by B and C against X in the name and on behalf of A & Co. is maintainable.
Now, in 2017, B and C had taken a new partner, D, and then filed a suit against X without fresh registration. Where
a new partner is introduced, the fact is to be notified to Registrar who shall make a record of the notice in the entry
relating to the firm in the Register of firms. Therefore, the firm cannot sue as D’s (new partner’s) name has not been
entered in the register of firms. It was pointed out that in the second requirement, the phrase “person suing” means
persons in the sense of individuals whose names appear in the register as partners and who must be all partners in the
firm at the date of the suit.
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CA Test-06 CA
9. (H & S)
Under following circumstances, the contracts need not be performed with the consent of both the parties:
(i) Novation: Where the parties to a contract substitute a new contract for the old, it is called novation. A contract
in existence may be substituted by a new contract either between the same parties or between different parties
the consideration mutually being the discharge of old contract. Novation can take place only by mutual
agreement between the parties. On novation, the old contract is discharged and consequently it need not be
performed. (Section 62 of the Indian Contract Act, 1872)
(ii) Rescission: A contract is also discharged by recission. When the parties to a contract agree to rescind it, the
contract need not be performed. (Section 62)
(iii) Alteration: Where the parties to a contract agree to alter it, the original contract is rescinded, with the result that
it need not be performed. In other words, a contract is also discharged by alteration. (Section 62)
(iv) Remission: Every promisee may dispense with or remit, wholly or in part, the performance of the promise made
to him, or may extend the time for such performance or may accept instead of it any satisfaction which he thinks
fit. In other words, a contract is discharged by remission. (Section 63)
(v) Rescinds voidable contract: When a person at whose option a contract is voidable rescinds it, the other party
thereto need not perform any promise therein contained in which he is the promisor.

10. (H & S)
Provision
Problem asked in the question is based on the provisions of the Indian Contract Act, 1872 as contained in Section
150.
The section provides that if the goods are bailed for hire, the bailor is responsible for such damage, whether he was
or was not aware of the existence of such faults in the goods bailed.
Analysis and conclusion
Accordingly, applying the above provisions in the given case Suresh is responsible to compensate Ramesh for the
injuries sustained even if he was not aware of the defect in the carriage.

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