BUSINESS LAW

Complete Exam Crash Course

Units I, II & III — Comprehensive Notes + 48 Case-Study MCQs

BBA 301-6 | Mid-Semester Examination | CIA 2

Exam: 15 Case-Study MCQs | 60 minutes | Pen only | No overwriting

Focus: Legal reasoning & application, NOT rote memorization
You must: Identify legal issues in scenarios, apply provisions, distinguish similar concepts
 UNIT I — Introduction to Law of Contracts

1.1 Meaning and Scope of Business Law

Business law (commercial/mercantile law) is a branch of civil law that governs commercial and business
transactions in both public and private spheres. It covers formation and enforcement of contracts, sale of
goods, partnerships, intellectual property, competition, consumer protection, and cyber law. It helps resolve
disputes, maintain order, and set standards for dealings between businesses, government, and customers. A
manager who understands business law can make better decisions within a legal framework.

1.2 Sources of Indian Business Law

• English Mercantile Law — India's commercial law is heavily based on English common law and equity.
• Statutes/Legislation — Acts of Parliament: Indian Contract Act 1872, Sale of Goods Act 1930,
Partnership Act 1932, Companies Act 2013, Consumer Protection Act 2019, IT Act 2000, etc.
• Judicial Precedents (Case Law) — Decisions of Supreme Court and High Courts that interpret and
develop law. Binding on lower courts (doctrine of stare decisis).
• Customs and Trade Usages — Long-standing practices in particular trades accepted as having force
of law. Must be ancient, certain, reasonable, and not contrary to law.
• Personal Law — Hindu Law, Muslim Law, etc. (relevant in partnership and succession contexts).

1.3 The Indian Contract Act, 1872

Enacted on April 25, 1872. Applies to the whole of India. Contains general principles of contract (Secs 1-75).
Specific contracts (Indemnity, Guarantee, Bailment, Agency) in Secs 124-238.

Sec. 2(h): 'An agreement enforceable by law is a contract.'

Sec. 2(e): 'Every promise and every set of promises forming consideration for each other is an
agreement.'
Sec. 2(b): 'When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted.'

Formula: Proposal + Acceptance = Promise/Agreement + Enforceability at Law = CONTRACT

All contracts are agreements, but all agreements are not contracts. An agreement becomes a contract only
when it is legally enforceable (meets all essentials under Sec. 10).

1.4 Types of Contracts

A. Based on Enforceability / Validity:
Type Definition Example

Valid Satisfies all essentials of Sec. 10. Fully enforceable.

A sells car to B for Rs. 5L. Both adults, free consent, lawful.

Void Agreement Not enforceable from the beginning. No legal [Link] with a minor. Agreement to do impossible act.
[Sec. 2(g)]

Void Contract Was valid initially but later becomes [Link] to perform in a hall; hall destroyed by earthquake.
[Sec. 2(j)]
 Voidable Enforceable at the option of one party (the aggrieved).
Contract
Can be
obtained
affirmed
by or
coercion,
[Link], undue influence, misrepresenta
[Sec. 2(i)]

Illegal Forbidden by law. Void + punishable. Collateral agreements

Contract toalso
smuggle
tainted.
goods, contract to commit murder.

Unenforceable Valid in substance but can't be enforced due to technical

Oral contract
defect. that law requires to be in writing.

B. Based on Formation:
• Express Contract — Terms stated clearly in words (written or spoken). E.g., written employment
contract.
• Implied Contract — Terms inferred from conduct/circumstances. E.g., eating at a restaurant implies
you'll pay for the meal.
• Quasi Contract (Secs. 68-72) — Not a real contract. Created by law to prevent unjust enrichment. No
agreement between parties, but law imposes obligation. See details below.
• E-Contract — Formed through electronic means (websites, emails, digital platforms). Recognized
under IT Act 2000.

C. Based on Performance:
• Executed Contract — Both parties have fully performed their obligations. Nothing remains to be done.
• Executory Contract — Obligations still pending from one or both sides.
• Partly Executed, Partly Executory — One party has performed, the other hasn't yet.
• Unilateral Contract — Only one party has an obligation (e.g., reward: finder must return, offerer must
pay).
• Bilateral Contract — Both parties have outstanding obligations to perform.

1.5 Essentials of a Valid Contract (Section 10)

Sec. 10: 'All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void.'

The essentials are: (1) Offer and Acceptance, (2) Intention to create legal relations, (3) Lawful Consideration,
(4) Capacity of Parties, (5) Free Consent, (6) Lawful Object, (7) Not declared void, (8) Certainty and
possibility of performance, (9) Legal formalities (if required).

ESSENTIAL 1: Offer / Proposal [Sec. 2(a)]

Sec. 2(a): 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, he is said to make a proposal.

Rules of a Valid Offer:

• Must be made with intention to create legal relations (social/domestic agreements generally not
enforceable)
• Must be definite, clear, and not vague
• Must be communicated to the offeree (offer not known cannot be accepted)
• May be expressed (words) or implied (conduct)
• May be specific (to one person) or general (to the world — Carlill v. Carbolic Smoke Ball Co.)
• Must be distinguished from an invitation to offer (advertisements, price lists, display of goods, auction
announcements are NOT offers — they invite offers from others)
Special Types of Offers:
• Cross Offer — Two parties make identical offers to each other in ignorance of each other's offer. NO
contract formed (neither is an acceptance).
• Counter Offer — Offeree modifies the terms. Destroys the original offer. Becomes a new offer. (Hyde v.
Wrench)
• Standing/Open Offer — Offer that remains open for acceptance over a period. E.g., tender for supply
of goods over a year.

Lapse/Termination of Offer:
• By communication of notice of revocation (before acceptance)
• By lapse of prescribed time (or reasonable time if no time specified)
• By failure of a condition precedent (Sec. 6)
• By death or insanity of offeror (if known to offeree before acceptance)
• By counter-offer or rejection
• By non-acceptance within time or in prescribed mode

ESSENTIAL 1 (cont.): Acceptance [Sec. 2(b)]

Sec. 2(b): When the person to whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise.

Rules of Valid Acceptance:

• Must be absolute and unqualified (mirror image rule) — Sec. 7(1). Conditional acceptance =
counter-offer.
• Must be communicated to the offeror (Sec. 3). Silence is NOT acceptance (Felthouse v. Bindley).
• Must be in the prescribed mode (if any). If no mode prescribed, in some usual and reasonable manner
(Sec. 7(2)).
• Must be given within the time specified, or within a reasonable time.
• Must be given before the offer lapses or is revoked.
• Must be by the person to whom the offer is made.
• Must be given after knowledge of the offer (acceptance in ignorance of offer is no acceptance).

Communication Rules (Secs. 3-5):

• Communication of offer: Complete when it comes to the knowledge of the offeree.
• Communication of acceptance: Against the proposer — when put in course of transmission (e.g., letter
posted). Against the acceptor — when it comes to knowledge of the proposer.
• Communication of revocation: Against person revoking — when put in transmission. Against person to
whom made — when it comes to their knowledge.
• Revocation of offer: Can be revoked any time before acceptance is complete AGAINST THE
PROPOSER (i.e., before acceptance is dispatched).
• Revocation of acceptance: Can be revoked before it comes to the knowledge of the proposer.

ESSENTIAL 2: Lawful Consideration [Sec. 2(d)]

Sec. 2(d): When at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise.
Key Rules of Consideration:
• Must move at the desire of the promisor (not voluntarily)
• May move from the promisee or any other person (stranger to consideration CAN enforce — this is
different from English law)
• May be past, present, or future (English law does not accept past consideration; Indian law does)
• Must be real and something of value — but need not be adequate (Explanation 2 to Sec. 25). Courts
don't judge fairness of bargain.
• Must be lawful (not illegal, immoral, or against public policy)
• Must not be uncertain or impossible

Exceptions — Valid agreements WITHOUT consideration (Sec. 25):

• Sec. 25(1): Natural love and affection between near relations — must be in writing AND registered.
• Sec. 25(2): Promise to compensate for past voluntary services — person must have already done
something voluntarily for the promisor.
• Sec. 25(3): Promise to pay a time-barred debt — must be in writing and signed.
• Sec. 185: No consideration needed for agency.
• Gifts actually made — completed gifts don't need consideration.

ESSENTIAL 3: Free Consent [Secs. 13-22]

Sec. 13: Two or more persons are said to consent when they agree upon the same thing in the
same sense (consensus-ad-idem).
Sec. 14: Consent is said to be free when it is NOT caused by: (1) Coercion, (2) Undue Influence,
(3) Fraud, (4) Misrepresentation, (5) Mistake.

(i) COERCION [Sec. 15]

Committing or threatening to commit any act forbidden by the Indian Penal Code, OR unlawfully detaining or
threatening to detain any property, to the prejudice of any person, with the intention of causing that person to
enter into an agreement.
• Need not be directed at the contracting party — can be against a third person
• Need not emanate from the party to the contract
• Effect: Contract is VOIDABLE at the option of the party whose consent was obtained by coercion
• Burden of proof: On the party alleging coercion
• E.g., A threatens to shoot B if B doesn't sell his house to A. A threatens to harm B's child.

(ii) UNDUE INFLUENCE [Sec. 16]

When a party is in a position to dominate the will of another and uses that position to obtain an unfair
advantage.

When is a person 'in a position to dominate'?

• Real or apparent authority over the other (e.g., employer-employee, IAS officer-subordinate)
• Fiduciary relationship (e.g., doctor-patient, lawyer-client, parent-child, guru-disciple)
• Contract with a person whose mental capacity is temporarily or permanently affected (age, illness,
distress)
• Effect: Contract is VOIDABLE. Court may set aside the contract entirely or modify terms.
• Burden of proof: On the party in the dominant position to show contract was fair
 • Pardine Lumber case: Undue influence involves no physical threat — it's mental/positional domination

(iii) FRAUD [Sec. 17]

Fraud means and includes any of the following acts committed by a party to the contract (or with connivance,
or by agent) with intent to deceive or induce the other party to enter into the contract:
• False suggestion of a fact known to be untrue
• Active concealment of a fact by one having knowledge
• Promise made without intention of performing it
• Any other act fitted to deceive
• Any act or omission that the law specifically declares to be fraudulent
Mere silence is NOT fraud — except: (a) duty to speak (fiduciary relationship), (b) silence is equivalent to
speech (half-truths). Effect: VOIDABLE + right to claim damages.

(iv) MISREPRESENTATION [Sec. 18]

A false statement made innocently (without intent to deceive), believed to be true. Three types:
• Positive assertion of something not true, though the person believes it to be true
• Breach of duty (without intent to deceive) that gives an advantage to the person committing it
• Causing a party to make a mistake as to the substance of the thing which is the subject of the
agreement
Effect: VOIDABLE at the aggrieved party's option. No right to claim damages (unlike fraud).

Fraud vs. Misrepresentation:

Feature Fraud (Sec. 17) Misrepresentation (Sec. 18)

Intent Intention to deceive is PRESENT No intention to deceive (innocent)

Knowledge Person KNOWS statement is false Person BELIEVES statement is true

Damages Aggrieved party can claim damages NO damages; only rescission

Defence No defence even if party could have discovered truth

Defence available if party had means to discover truth (Sec. 19)

Effect Voidable Voidable

Criminal liability Possible under IPC No criminal liability

(v) MISTAKE [Secs. 20-22]

Bilateral/Mutual Mistake of Fact (Sec. 20): Both parties are under a mistake as to a matter of fact essential
to the agreement. Effect: VOID.
• Must relate to essential fact (existence, identity, quality of subject matter)
• E.g., A agrees to buy B's horse. Unknown to both, the horse is already dead. Contract is void.
Unilateral Mistake (Sec. 22): Only one party is mistaken. Effect: Generally VALID (not void).
• Exception: Mistake as to the identity of the person contracted with may make it void (if identity is
material).
Mistake of Law: Mistake of Indian law is NO excuse (Sec. 21). Everyone is presumed to know the law. But
mistake of foreign law is treated as mistake of fact.

ESSENTIAL 4: Capacity to Contract [Sec. 11]

 Sec. 11: Every person is competent to contract who is: (a) of the age of majority (18 years; 21 if
guardian appointed by court), (b) of sound mind, (c) not disqualified from contracting by any
law.

Minor's Agreements:
• Void ab initio — not merely voidable (Mohiri Bibi v. Dharmodas Ghose, 1903)
• Minor cannot ratify the contract upon attaining majority
• No estoppel against a minor — even if minor misrepresented his age
• No specific performance can be ordered against a minor
• Minor CAN be a beneficiary / promisee (e.g., payee of a promissory note)
• Necessaries supplied to a minor (Sec. 68): Supplier can recover from minor's property/estate (NOT
personal liability of minor)
• Minor can be an agent (but principal cannot hold minor liable)
• Parents/guardians are NOT liable for minor's contracts (unless agent of parent)

Persons of Unsound Mind [Sec. 12]:

A person is of sound mind if capable of understanding the terms and forming a rational judgment of its effect
on their interests at the time of contracting.
• Person usually of unsound mind but occasionally of sound mind — CAN contract during lucid intervals
• Person usually of sound mind but occasionally of unsound mind — CANNOT contract during unsound
intervals
• Includes: idiots (permanent), lunatics (occasional intervals), persons under influence of intoxicants or
drugs

Persons Disqualified by Law:

• Alien enemies (during war), convicts (during sentence), insolvent persons (until discharged),
corporations (beyond scope of charter/memorandum), foreign sovereigns and diplomats (unless they
choose to submit)

ESSENTIAL 5: Lawful Object and Consideration [Sec. 23]

The consideration or object of an agreement is UNLAWFUL if it:
• Is forbidden by law (statutory prohibition)
• Would defeat the provisions of any law
• Is fraudulent
• Involves or implies injury to person or property of another
• Is immoral or opposed to public policy
If any part of a single consideration or any one of several objects is unlawful, the agreement is VOID (Sec.
24).

ESSENTIAL 6: Agreements Expressly Declared Void [Secs. 24-30]

• Sec. 24: Agreements with partly unlawful consideration or object
• Sec. 25: Agreements without consideration (subject to 3 exceptions noted above)
• Sec. 26: Agreements in restraint of marriage (every agreement preventing a person from marrying is
void — exception: minor's agreement to marry)
 • Sec. 27: Agreements in restraint of trade (every agreement preventing a person from exercising a lawful
trade/profession is void — Exception: Sale of goodwill — buyer can restrain seller from similar
business within reasonable limits)
• Sec. 28: Agreements in restraint of legal proceedings (agreements restricting right to sue or limiting
time for legal action — with exceptions for arbitration)
• Sec. 29: Uncertain/vague agreements ('A agrees to sell to B 100 tons of oil' — which oil? Void for
uncertainty.)
• Sec. 30: Wagering agreements (bets). Both parties stand to win or lose. No insurable interest. VOID.
Cannot recover money won on a wager. But skill-based competitions (e.g., crossword prizes) are
generally not wagering.

Contingent Contracts [Secs. 31-36]

Sec. 31: A contingent contract is one to do or not do something if some collateral event does or
does not happen. E.g., insurance contracts, indemnity contracts.

• Sec. 32: Contingent on happening of event — can be enforced only when event happens. Becomes
void if event becomes impossible.
• Sec. 33: Contingent on non-happening of event — enforceable only when event becomes impossible.
• Sec. 34: Contingent on future conduct of a living person — person may do anything (event is when he
does it).
• Sec. 35: Contingent on event happening within specified time — void if time expires and event hasn't
happened.
• Sec. 36: Contingent on impossible events — VOID (whether or not parties knew it was impossible).
Distinction: Contingent contract ≠ Wagering agreement. In contingent contracts, there is a genuine interest
(e.g., insurance). In wagering, it's purely speculative — no interest except the bet itself.

Quasi Contracts [Secs. 68-72]

Not contracts at all — obligations imposed by law to prevent unjust enrichment. No agreement between
parties.
• Sec. 68: Necessaries supplied to a minor or person of unsound mind — recoverable from their
estate/property.
• Sec. 69: Payment by an interested person — person who pays another's debt (having an interest in it)
is entitled to reimbursement.
• Sec. 70: Obligation of person enjoying benefit of non-gratuitous act — if someone lawfully does
something or delivers something to another, and the other person enjoys the benefit, the other must
compensate.
• Sec. 71: Finder of goods — person who finds goods belonging to another must take care of them as a
bailee would.
• Sec. 72: Money paid or thing delivered by mistake or under coercion — must be repaid or returned.

1.6 Discharge of a Contract

A contract is 'discharged' when the rights and obligations created by it come to an end.

(i) By Performance:
• Actual Performance: Both parties perform their obligations completely.
 • Attempted / Tender of Performance (Sec. 38): Promisor offers to perform but promisee refuses to
accept. The promisor is not responsible for non-performance. Tender must be unconditional, at proper
time, place, for the whole obligation, and promisee must have reasonable opportunity to inspect goods.

(ii) By Mutual Agreement / Consent:

Method Meaning Consideration needed?

Novation Substituting a new contract for the old one (new parties or new
Yes
terms).
— newOldpromise
contractisextinguished.
consideration for the old.

Rescission Cancellation of all or some terms by mutual agreement. Mutual promise to rescind is sufficient.

Alteration Change in one or more terms with consent of all parties. Same
Yes.
parties, different terms.

Remission (Sec. 63)

Acceptance of lesser performance than what was promised. Creditor
No — promisee
accepts can
[Link] with performance.

Waiver Intentional abandonment of a right under the contract. No consideration needed.

Novation vs. Alteration: Novation = new contract (may have new parties). Alteration = same parties,
changed terms. In novation, old contract is completely replaced.

(iii) By Impossibility of Performance (Sec. 56):

Initial Impossibility: Known at time of agreement — agreement is void ab initio.
Supervening Impossibility (Doctrine of Frustration): Becomes impossible AFTER formation due to events
beyond control. Contract becomes void.
Grounds: (a) destruction of subject matter, (b) death/incapacity of party (personal contracts), (c) change of
law, (d) outbreak of war, (e) non-existence or non-occurrence of a particular state of things.

NOT supervening impossibility (Sec. 56 does NOT apply):

• Difficulty of performance / commercial hardship (difficulty ≠ impossibility)
• Strikes, lock-outs, civil disturbances (unless specifically destroying subject matter)
• Failure of a third party on whom promisor depended
• Self-induced impossibility
(iv) By Lapse of Time: Under the Limitation Act, 1963, contracts must be enforced within 3 years (generally).
(v) By Operation of Law: Death of promisor (in personal contracts), insolvency (debts discharged),
unauthorized material alteration, merger.

(vi) By Breach:
• Actual Breach: On the due date — party fails to perform or performs inadequately.
• Anticipatory Breach (Sec. 39): Before due date — party declares they won't perform. Aggrieved party
can: (a) treat contract as discharged and sue immediately, OR (b) wait till due date and then sue.

1.7 Remedies for Breach of Contract

(i) Damages [Sec. 73-75]:
Type Meaning Example

Ordinary / General Damages that naturally arise in the usual course ofAthings
agreesfrom
to sell
the 100
breach.
tonnes
Foreseeable
of iron to B.
at A
time
breaches.
of contract.
B can recover
(Sec. 73)

Special (Sec. 73) Damages for loss arising from special circumstances
B told
known
A hetoneeds
both parties
iron forata time
specific
of contract.
project deadline. A's breach cau

Exemplary / Punitive Damages to punish the breaching party. Very rare Bank
in contract
wrongfully
law. Allowed
dishonours
mainly
a trader's
in: (a) breach
chequeof—promise
trader can
to marry,
claim fo
(b

Nominal Token damages when breach occurred but no actual

A breaches
loss suffered.
contract
Establishes
with B but
theB legal
suffered
[Link] financial loss. Court aw
 Liquidated Damages Liquidated = pre-estimated genuine damages. Penalty
Contract
= amount
says out
"Rs.of5 proportion
lakh penalty
to for
loss.
breach."
Indian Court
law: Court
assesses
will award
actua
vs. Penalty (Sec. 74)

Hadley v. Baxendale Rule: Only damages that were reasonably foreseeable as a probable result of the
breach at the time of making the contract can be claimed. Remote or indirect losses are not recoverable.
Duty to mitigate: The aggrieved party must take reasonable steps to minimize the loss. Cannot claim
damages for loss that could have been avoided.
(ii) Specific Performance: Court orders the breaching party to actually perform the contract. Granted when:
monetary damages are inadequate, subject matter is unique (land, rare goods). NOT granted for personal
service contracts.
(iii) Injunction: Court order restraining a party from doing something. Used to enforce negative covenants.
E.g., a singer contracted to perform exclusively at one venue — court can restrain them from performing
elsewhere.
(iv) Quantum Meruit: 'As much as earned.' Reasonable compensation for work done before the contract was
discharged. Available when: (a) contract is divisible, (b) one party prevents the other from completing, (c)
contract is void/becomes void.
(v) Rescission: Court sets aside the contract. All parties restored to pre-contract positions. Aggrieved party
freed from all obligations.

1.8 E-Contracts
An e-contract (electronic contract) is a contract formed and executed through electronic means — without
physical paper or signatures. Recognized under the Information Technology Act, 2000 (which gives legal
validity to electronic records and digital signatures).

Types of E-Contracts:
• Click-Wrap Agreement: User must actively click 'I Agree' / 'I Accept' to accept terms. Used in software
installations, app downloads, website registrations. Legally binding because of active consent.
• Shrink-Wrap Agreement: Terms are inside the product packaging (e.g., inside a software CD box).
Opening the shrink-wrap = acceptance. Controversial because user sees terms AFTER purchase.
• Browse-Wrap Agreement: Terms available via a hyperlink at the bottom of a website. Mere use of the
website implies acceptance. Weakest form of consent — often challenged in courts.
• Email Contracts: Offer and acceptance exchanged via email. Valid contract if all essentials are met.

Digital Goods:
Intangible products delivered electronically: e-books, music downloads, software, apps, streaming
subscriptions, online courses, digital art/NFTs. Need for regulation arises because: no physical inspection
possible before purchase, unique refund/return challenges, licensing vs. ownership issues, cross-border
jurisdiction problems.

Unfair Terms in E-Contracts:

One-sided terms that exploit the unequal bargaining power between platforms and consumers:
• Unilateral termination/modification clauses (platform can change terms anytime)
• Automatic renewal without clear notice or easy cancellation
• Excessive limitation of liability (denying ALL responsibility)
• No refund policies for digital goods
• Forced arbitration clauses (preventing users from going to court)
 • Data collection/sharing clauses buried in lengthy ToS
Consumer Protection Act, 2019 (Sec. 47) specifically addresses unfair contract terms and empowers
consumer commissions to declare such terms void.
 UNIT II — Contract of Guarantee & Indemnity

2.1 Contract of Indemnity [Secs. 124-125]

Sec. 124: 'A contract by which one party promises to save the other from loss caused to him by
the conduct of the promisor himself, or by the conduct of any other person.'

Parties (only 2):

• Indemnifier (Promisor) — the one who promises to compensate
• Indemnity-holder (Promisee) — the one who is protected against loss

Essential Features:
• Only TWO parties involved
• The indemnifier's liability is PRIMARY and independent
• Loss may be caused by the promisor himself or by any other person
• Purpose is to protect against anticipated loss
• It is a species of contingent contract (liability arises on happening of a contingency — the loss)
Commencement of Liability: Indian courts (following English law in some decisions) have held that the
indemnity-holder does NOT have to wait until actual loss is suffered. The right to indemnity arises as soon as
the liability becomes absolute and certain, even if the loss hasn't been actually paid.
Rights of Indemnity-Holder (Sec. 125): When sued and acting within the scope of authority:
• All damages ordered to pay in the suit
• All costs of bringing or defending the suit
• All sums paid under any compromise of the suit (if not contrary to indemnifier's orders and prudent)
Note: The Act is silent on rights of the indemnifier. Generally, after paying, the indemnifier is subrogated to
the rights of the indemnity-holder.
Example: A says to B: 'Sell goods to C on credit. If C doesn't pay, I will pay you.' A is the indemnifier, B is the
indemnity-holder. Only 2 parties (A and B) are in this contract. C is not a party.

2.2 Contract of Guarantee [Secs. 126-147]

Sec. 126: 'A contract to perform the promise, or discharge the liability, of a third person in case of
his default.'

Parties (THREE):
• Surety / Guarantor — person who gives the guarantee
• Principal Debtor (PD) — person whose default is guaranteed against
• Creditor — person to whom the guarantee is given

Three contracts exist simultaneously: (1) Creditor ↔ PD (principal contract), (2) Creditor ↔
Surety (guarantee contract), (3) Surety ↔ PD (implied promise of indemnity)

Essential Features of Guarantee:

 • Must have THREE parties and three distinct contracts
• There must be a principal debt or duty (guarantee is secondary to a primary obligation)
• Surety's liability is secondary and conditional — arises ONLY on default of the principal debtor
• An existing or future debt/duty can be guaranteed
• Guarantee may be oral or written (no writing required unlike English law)
• Must have the consent of all three parties

Consideration for Guarantee (Sec. 127):

Sec. 127: Anything done, or any promise made, for the benefit of the principal debtor is
sufficient consideration for the surety's guarantee.

The creditor does NOT need to give separate consideration to the surety. The fact that the
creditor extends credit/service to the PD on the surety's guarantee is itself sufficient
consideration.

E.g., Bank lends Rs. 5 lakhs to A (PD) because B (surety) guarantees. The loan to A is sufficient
consideration for B's guarantee.

2.3 Distinction: Indemnity vs. Guarantee

Feature Contract of Indemnity Contract of Guarantee

Section Sec. 124-125 Sec. 126-147

Number of parties TWO (Indemnifier + Indemnity-holder) THREE (Surety + Principal Debtor + Creditor)

Number of contracts ONE THREE (running simultaneously)

Nature of liability PRIMARY — independent of any third party's default

SECONDARY — arises only on default of principal debtor

Existing debt/duty No existing debt necessary Must have an existing or contemplated principal debt/duty

Trigger for liability Loss occurring to the promisee Default by the principal debtor

Right against third party Indemnifier generally cannot sue a third party Surety can sue principal debtor after paying (subrogation)

Request to pay Indemnity-holder need not exhaust other remedies

Creditor
first can directly approach surety (need not sue PD first)

Purpose To reimburse loss To provide security for a debt/duty

Quick Memory Aid: Indemnity = 'I will protect YOU from loss' (2 parties, independent).
Guarantee = 'If HE doesn't pay, I will' (3 parties, dependent on default).

2.4 Kinds of Guarantee

(i) Specific Guarantee:
• Given for a single, specific debt or transaction
• Surety's liability ends when that particular debt is discharged or the transaction is completed
• Cannot be revoked once given (if consideration has passed)
• E.g., C guarantees A's loan of Rs. 1 lakh from Bank. Once the Rs. 1 lakh is repaid, C's guarantee ends.

(ii) Continuing Guarantee [Sec. 129]:

 Sec. 129: A guarantee which extends to a series of transactions is called a 'continuing
guarantee.'

• Not limited to a single transaction but covers multiple/ongoing transactions

• E.g., A guarantees B's account with a supplier — covering all goods supplied over a period
• Common in banking (overdraft facilities, running credit accounts), supply contracts
• Continues until revoked or until the specified limit/period is reached

Distinction: Specific vs. Continuing Guarantee:

Feature Specific Guarantee Continuing Guarantee

Scope Single transaction Series of transactions

Duration Ends with the specific transaction Continues until revoked or limit reached

Revocation Cannot be revoked (after consideration) Can be revoked for FUTURE transactions (Sec. 130)

Example Guaranteeing one loan Guaranteeing a running credit account

Revocation of Continuing Guarantee (Sec. 130):

• Surety can revoke continuing guarantee by giving notice to the creditor
• Revocation is prospective only — surety remains liable for transactions already entered into BEFORE
the notice
• Cannot revoke for past transactions
Sec. 131: Death of surety operates as revocation of continuing guarantee for future transactions (unless
contract provides otherwise). Estate remains liable for past transactions.

2.5 Liability of Surety

Sec. 128: The liability of the surety is co-extensive with that of the principal debtor, unless the
contract provides otherwise.

This means: Whatever the PD owes, the surety also owes. If the PD owes Rs. 5 lakhs, the surety
is liable for Rs. 5 lakhs (unless the guarantee limits the amount).

Key Points on Surety's Liability:

• Surety's liability is SECONDARY (arises on PD's default) but once default occurs, it becomes
IMMEDIATE — creditor need NOT first sue the PD
• Surety is liable for the whole amount unless the guarantee specifies a maximum limit
• Surety's liability includes principal debt + interest + damages + costs (unless limited by contract)
• Sec. 127: Guarantee obtained by misrepresentation (Sec. 142) or concealment (Sec. 143) made by the
creditor is INVALID
• If the principal debt is void (e.g., debt of a minor), the guarantee is also void — surety cannot be liable
for a void obligation
• But if the debt is merely voidable (not void), the guarantee continues unless/until the debt is avoided

2.6 Rights of Surety

A. Rights Against the Principal Debtor:
• Right of Subrogation (Sec. 140): After paying the creditor, the surety steps into the shoes of the
creditor and gets ALL rights the creditor had against the PD. Can sue PD for the full amount paid.
• Right of Indemnity (Sec. 145): Implied promise that the PD will indemnify the surety for amounts
rightfully paid. The surety can recover from the PD every payment made under the guarantee.

B. Rights Against the Creditor:

• Right to Securities (Sec. 141): Surety is entitled to the benefit of every security that the creditor has
against the PD at the time the guarantee was given — even if the surety did NOT know about those
securities. If the creditor loses or releases any security, the surety is discharged to that extent.
• Right to be informed of any changes in the terms of the principal contract
• Right to set off any debt owed by the creditor to the surety

C. Rights Against Co-Sureties:

• Right of Contribution (Sec. 146): If there are multiple co-sureties and one pays more than their share,
they can claim contribution from the others.
• Sec. 146: Co-sureties bound for the SAME amount — contribute equally.
• Sec. 147: Co-sureties bound in DIFFERENT amounts — contribute proportionally (each pays in
proportion to their maximum guaranteed amount, up to their limit).
Example (Sec. 146): A, B, C are co-sureties for Rs. 90,000. Each pays Rs. 30,000.
Example (Sec. 147): A guarantees up to Rs. 1L, B up to Rs. 2L, C up to Rs. 3L. Default = Rs. 3L. A pays Rs.
50K, B pays Rs. 1L, C pays Rs. 1.5L (proportional to 1:2:3).

2.7 Discharge of Surety

The surety is released from liability in these situations:

Section Ground of Discharge Explanation

Sec. 130 Revocation of continuing guarantee By notice; only for future transactions.

Sec. 131 Death of surety Revokes continuing guarantee for future transactions (unless contract says otherwise). Es

Sec. 133 Variance in terms of contract ANY change in terms between creditor and PD, without surety's consent, discharges suret

Sec. 134 Release or discharge of PD If creditor releases PD or makes composition with PD, surety is discharged.

Sec. 135 Compounding with / giving time to / agreeing

Any of these,
not to
done
sue without
PD surety's consent, discharges surety.

Sec. 136 Creditor's act or omission impairing surety's

If creditoreventual
does something
remedy that would impair surety's right to sue PD after payment.

Sec. 139 Creditor's act inconsistent with surety's

Anyrights
act by creditor inconsistent with the rights of the surety discharges surety.

Sec. 141 Loss of security by creditor If creditor loses/releases security without surety's consent — surety discharged to extent o

Sec. 142 Guarantee obtained by misrepresentation

Guarantee obtained by creditor's misrepresentation is INVALID (not just voidable).

Sec. 143 Guarantee obtained by concealmentIf creditor conceals material facts from surety — guarantee is INVALID.

Master Rule: The surety agreed to a SPECIFIC arrangement. If the creditor changes ANYTHING
about that arrangement without the surety's consent — whether terms, parties, securities,
timelines — the surety is released. The surety's consent is sacred.
 UNIT III — Law of Sale of Goods

3.1 Introduction to the Sale of Goods Act, 1930

The Sale of Goods Act was originally part of the Indian Contract Act (Secs. 76-123). Separated and enacted
as a standalone Act on July 1, 1930. Governs contracts for sale of goods. Applies to whole of India. The
Indian Contract Act continues to apply to sale of goods contracts for matters not specifically covered by this
Act (Sec. 3).

3.2 Key Definitions

Buyer [Sec. 2(1)]: A person who buys or agrees to buy goods.
Seller [Sec. 2(13)]: A person who sells or agrees to sell goods.
Price [Sec. 2(10)]: The money consideration for the sale of goods. (Goods exchanged for goods = barter,
NOT sale).

Goods [Sec. 2(7)]:

Every kind of movable property other than (a) actionable claims, and (b) money. Includes: stocks/shares,
growing crops, grass, things attached to land that are agreed to be severed.

Type of Goods Definition Example

Existing Goods Owned or possessed by seller at time of contract A's car parked in his garage

- Specific Identified and agreed upon when contract is made "This particular red Honda City"

- Ascertained Identified AFTER the contract, out of a larger lot 50 bags selected from warehouse of 500

- Unascertained Defined by description only, not yet identified "100 kg of Basmati rice" (from any source)

Future Goods To be manufactured, produced, or acquired by seller AFTER

Crops tothe
be contract
grown; goods to be manufactured
[Sec. 2(6)]

Contingent Goods Acquisition depends on a contingency that may or may

Goods
not happen
expected from a ship that may or may not arrive
[Sec. 6(2)]

Important: Future goods can ONLY be the subject of an agreement to sell, never an actual sale
(because you cannot transfer ownership of something you don't yet own).

3.3 Sale vs. Agreement to Sell [Sec. 4]

Sec. 4(1): A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.
Sec. 4(3): Where the transfer of property happens immediately = SALE. Where transfer is to
happen at a future time or subject to conditions = AGREEMENT TO SELL.
An agreement to sell becomes a sale when the time elapses or conditions are fulfilled.

Feature Sale Agreement to Sell

Transfer of property IMMEDIATE — property passes at once FUTURE — property to pass later or on condition
(ownership)
 Nature Executed contract Executory contract

Type of right Right in rem (against the whole world) Right in personam (against the seller only)

Risk of loss On BUYER (even if goods still with seller) On SELLER (even if goods with buyer)

Goods destroyed Buyer bears loss Seller bears loss (contract is void)

Seller becomes Buyer can claim goods from Official Receiver Buyer can only claim rateable dividend (as creditor)
insolvent

Buyer becomes Seller can sue for price Seller can refuse delivery; sue for damages only
insolvent

Seller resells to Second buyer gets no title (seller had no right). Original
Secondbuyer
buyer
cangets
suegood
sellertitle
for (ownership
damages. was still with seller).
third party

Remedy for breach Suit for price (Sec. 55) Suit for damages (Sec. 56)

Golden Rule: RISK FOLLOWS OWNERSHIP, NOT POSSESSION. Whoever OWNS the goods
bears the risk — regardless of who physically has them.

3.4 Conditions and Warranties [Sec. 12]

Feature Condition [Sec. 12(2)] Warranty [Sec. 12(3)]

Definition Stipulation ESSENTIAL to the main purpose of theStipulation

contract COLLATERAL (secondary) to the main purpose

Importance Goes to the root of the contract Does NOT go to the root

Breach gives right to REJECT goods + claim damages Claim DAMAGES only (cannot reject goods)

Treat as other? Buyer can waive breach of condition and treat it asWarranty
breach ofCANNOT
warranty be elevated to a condition

Effect of breach Can treat contract as repudiated Contract subsists; only damages claimable

When is breach of condition treated as breach of warranty? (Sec. 13)

• Buyer voluntarily waives the condition
• Buyer elects to treat it as warranty
• Buyer has accepted the goods (after acceptance, cannot reject — can only claim damages).
Acceptance is deemed under Sec. 42.

Implied Conditions (automatically included by law):

• Condition as to Title [Sec. 14(a)]: Seller has the right to sell the goods. If seller has no title, buyer can
reject + recover the full price even if goods have been used.
• Condition of Sale by Description [Sec. 15]: Where goods are sold by description, they must
CORRESPOND with the description. If goods don't match, buyer can reject. Packing can be part of
description.
• Condition of Fitness for Purpose [Sec. 16(1)]: When buyer makes known the PURPOSE + RELIES
on seller's skill/judgment → goods must be reasonably fit for that purpose. Does NOT apply if buyer
selects goods by trade name and doesn't rely on seller.
• Condition of Merchantable Quality [Sec. 16(2)]: Where goods are sold by DESCRIPTION from a
DEALER in such goods → goods must be of merchantable quality (fit for ordinary purposes). BUT if
buyer has EXAMINED the goods, no condition as to defects which such examination OUGHT to have
revealed.
 • Condition in Sale by Sample [Sec. 17]: (a) Bulk shall correspond with sample in quality. (b) Buyer
shall have reasonable opportunity to compare. (c) Goods shall be free from defects making them
unmerchantable, which would NOT be apparent on reasonable examination of sample.
• Sale by Sample AND Description: Goods must match BOTH the sample AND the description. If either
doesn't match, buyer can reject.

Implied Warranties:
• Warranty of Quiet Possession [Sec. 14(b)]: Buyer shall have and enjoy quiet possession. If buyer's
possession is disturbed by someone with superior title, buyer can claim damages.
• Warranty of Freedom from Encumbrances [Sec. 14(c)]: Goods are free from any charge or right in
favour of a third party not known to the buyer. If encumbrances exist and buyer has to discharge them,
buyer can claim damages.
• Warranty of Disclosing Dangerous Nature: If goods are inherently dangerous, seller must warn
buyer.

3.5 Doctrine of Caveat Emptor (Let the Buyer Beware) [Sec. 16]
The general rule is that the buyer must examine the goods and buy at their own risk. There is no implied
warranty or condition as to the quality or fitness of goods for any particular purpose.

Exceptions to Caveat Emptor (when buyer IS protected):

• Fitness for purpose [Sec. 16(1)]: Buyer tells seller the purpose + relies on seller's judgment
• Merchantable quality [Sec. 16(2)]: Sale by description from a dealer
• Sale by sample [Sec. 17]: Bulk must match sample; hidden defects protected
• Sale by description [Sec. 15]: Goods must match description
• Usage of trade: An implied warranty or condition as to quality/fitness may be annexed by trade usage
• Seller's fraud or active concealment: Caveat emptor does not protect a fraudulent seller
• Consent by fraud/misrepresentation: If the buyer's consent to the purchase was obtained by the
seller's fraud or misrepresentation

3.6 Transfer of Property (Ownership) in Goods

The moment ownership passes determines risk, right to sue, and remedies. Rules differ based on type of
goods.

A. Specific / Ascertained Goods — Secs. 19-22:

Sec. 19: Property passes when the parties INTEND it to pass. To determine intention, look at:
terms of the contract, conduct of the parties, and circumstances of the case.

If intention is not clear, apply the following rules (Secs. 20-24):

Rule 1 [Sec. 20]: Unconditional sale of specific goods in a deliverable state → property passes at the time
of contract (even if payment or delivery is postponed).
Rule 2 [Sec. 21]: Specific goods NOT in deliverable state — seller must do something to put them in
deliverable state → property passes when the thing is done AND buyer has notice of it.
Rule 3 [Sec. 22]: Specific goods in deliverable state but seller must weigh, measure, test, or do something to
ascertain the price → property passes when the act is done AND buyer has notice.
Rule 4 [Sec. 24]: Goods delivered on approval / sale or return → property passes when: (a) buyer signifies
approval, (b) buyer does an act adopting the transaction, or (c) buyer retains goods beyond
agreed/reasonable time without rejecting.

B. Unascertained / Generic Goods — Sec. 23:

Sec. 23: Property in unascertained goods does NOT pass to the buyer until the goods are
ascertained (identified, separated, and appropriated to the contract with mutual consent).

Rule 5 [Sec. 23(1)-(2)]: Unconditional appropriation = when the seller (with buyer's
express/implied consent) irrevocably earmarks specific goods to the contract. E.g., setting aside,
labeling, delivering to carrier.

3.7 Transfer of Title by Non-Owners [Sec. 27]

Nemo dat quod non habet — 'No one can give what they don't have.'
Sec. 27: The buyer of goods gets no better title than the seller had. If the seller has no title, the
buyer gets no title.

Exceptions to Nemo Dat Rule (buyer gets good title despite seller's defect):
• Sale by mercantile agent (Sec. 27, proviso): If a mercantile agent, in possession of goods with
owner's consent, sells in the ordinary course of business, buyer in good faith gets good title.
• Sale by joint owner (Sec. 28): One of several joint owners who is in sole possession of goods with the
consent of co-owners can pass good title to buyer in good faith.
• Sale by person in possession under a voidable contract (Sec. 29): If seller got goods under a
voidable contract, they can pass good title to a buyer in good faith — BUT only if the original contract has
NOT yet been rescinded.
• Seller in possession after sale (Sec. 30(1)): Seller who remains in possession after selling can give
good title to a second buyer in good faith.
• Buyer in possession before sale is complete (Sec. 30(2)): Buyer who obtains possession with
seller's consent can give good title to a subsequent buyer in good faith.
• Estoppel: If the true owner by words or conduct leads a buyer to believe the seller has the right to sell.
• Sale under court order or statutory authority
Note: A THIEF can NEVER pass good title. None of these exceptions apply to stolen goods.

3.8 Performance of Contract — Delivery [Secs. 31-44]

Delivery [Sec. 2(2)]: Voluntary transfer of possession from one person to another. Can be actual (physical),
symbolic (e.g., handing over keys), or constructive (third party acknowledges buyer's right).

Rules of Delivery [Sec. 36]:

• Delivery and payment are concurrent conditions — unless otherwise agreed
• Place: Default = seller's place of business (or residence if no business place)
• Time: Within a reasonable time. Demand/tender must be at a reasonable hour.
• Expenses: Seller bears cost of making delivery. Buyer bears cost of receiving.
• Delivery to a carrier = delivery to buyer (unless otherwise agreed) [Sec. 39]
 • Wrong quantity: If too little → buyer can reject all or accept what is delivered. If too much → buyer can
accept the contracted quantity and reject the rest, or reject all.
• Delivery by installments [Sec. 38]: Buyer is NOT bound to accept installment delivery unless agreed.
Buyer's Right to Examine [Sec. 41]: Buyer has the right to examine goods before accepting. If seller
delivers without allowing examination, buyer is not deemed to have accepted until reasonable opportunity to
examine is provided.
Acceptance of Goods [Sec. 42]: Buyer is deemed to have accepted when:
• Buyer intimates to seller that he has accepted
• Buyer does any act inconsistent with the ownership of the seller (e.g., resells, uses, modifies the goods)
• Buyer retains goods beyond a reasonable time without rejecting
Once accepted, buyer CANNOT reject — can only claim damages (breach treated as warranty).

3.9 Rights of the Buyer

• Right to get delivery as per contract terms
• Right to reject goods that don't conform to the contract (before acceptance)
• Right to examine goods before acceptance [Sec. 41]
• Right to sue for damages for breach of condition or warranty
• Right to sue for specific performance when goods are specific or ascertained [Sec. 58]
• Right to sue for breach of warranty — set off damages against price owed, or claim damages
• Right of repudiation if seller delivers wrong quantity or mixed goods [Sec. 37]

3.10 Rights of an Unpaid Seller [Secs. 45-56]

Sec. 45: A seller is 'unpaid' when: (a) the whole price has NOT been paid or tendered, OR (b) a
bill of exchange or other negotiable instrument received as conditional payment has been
dishonoured.

The term includes any person in the position of a seller (e.g., agent, consignor).

A. Rights Against the GOODS:

(i) Right of Lien [Secs. 47-49] — Right to RETAIN POSSESSION:

When available:
• Goods sold without any credit terms
• Goods sold on credit, but credit period has expired
• Buyer becomes insolvent (even during credit period)
Key features: Lien is on POSSESSION (seller must physically have the goods). Available even if seller holds
goods as agent/bailee for buyer. Part delivery does NOT end lien on the remaining goods (unless it indicates
intent to waive).
When lien is LOST [Sec. 49]:
• Seller delivers goods to carrier/bailee without reserving right of disposal
• Buyer or his agent lawfully obtains possession
• Seller waives the right of lien
Note: Lien is NOT lost merely because the seller has obtained a decree for the price [Sec. 49(2)].

(ii) Right of Stoppage in Transit [Secs. 50-52] — Right to STOP GOODS IN TRANSIT:
When available: Seller has parted with possession + goods are in transit + buyer becomes INSOLVENT.
How exercised [Sec. 52]: (a) Taking actual possession of goods, OR (b) Giving notice to the carrier/bailee.
On receiving notice, carrier must redeliver to seller (at seller's expense).
Duration of transit [Sec. 51]: Transit begins when goods are delivered to carrier. Transit ENDS when:
• Buyer or his agent takes delivery from carrier
• Carrier acknowledges to buyer that he holds goods on buyer's behalf (attornment)
• Carrier wrongfully refuses to deliver to buyer
• Goods reach destination and carrier holds as bailee for buyer (not as carrier)
Rejected goods: If buyer rejects and goods are back in transit, seller can exercise stoppage even if he
initially refused delivery.

Lien vs. Stoppage in Transit:

• Lien: Seller still HAS the goods. Available even without buyer's insolvency.
• Stoppage in Transit: Seller has PARTED with goods (goods are with carrier). Available ONLY
when buyer is insolvent.
Both require that the full price hasn't been paid.

(iii) Right of Resale [Sec. 54]:

When can seller resell:
• If goods are perishable — can resell WITHOUT giving notice to buyer
• If goods are non-perishable — seller must give reasonable notice of intention to resell. If buyer still
doesn't pay within reasonable time after notice → seller can resell.
• If seller expressly reserved the right of resale in the contract
Effect: Seller can recover difference between original price and resale price as damages from original buyer.
New buyer gets good title (as against the original buyer).

B. Rights Against the BUYER Personally:

• Suit for Price [Sec. 55]: When property has passed to buyer and buyer wrongfully neglects/refuses to
pay → seller can sue for the price.
• Suit for Damages [Sec. 56]: When buyer wrongfully refuses to accept and pay → seller can sue for
damages for non-acceptance.
• Suit for Interest [Sec. 61]: Seller can claim interest on the price from the date it was due.

Auction Sale [Sec. 64]:

• Each lot is a separate contract
• Sale is complete when auctioneer announces completion by fall of hammer or in customary manner
• Bidder can withdraw bid before fall of hammer
• Seller can fix a reserve price
• Seller or his agent cannot bid unless expressly stated in the notice of sale
• If seller or his agent secretly bids, buyer can treat sale as fraudulent
 Quick Reference — All Key Sections
Section Topic

ICA Sec. 2(a) Definition of Proposal/Offer

ICA Sec. 2(b) Definition of Acceptance/Promise

ICA Sec. 2(d) Definition of Consideration

ICA Sec. 2(e) Definition of Agreement

ICA Sec. 2(g) Void Agreement

ICA Sec. 2(h) Definition of Contract

ICA Sec. 2(i) Voidable Contract

ICA Sec. 2(j) Void Contract

ICA Sec. 3-5 Communication of offer, acceptance, revocation

ICA Sec. 7 Acceptance must be absolute and unqualified

ICA Sec. 10 Essentials of a Valid Contract

ICA Sec. 11 Competence to Contract (age, soundness, qualification)

ICA Sec. 12 Sound mind defined

ICA Sec. 13 Consent defined (consensus-ad-idem)

ICA Sec. 14 Free Consent — 5 vitiating factors

ICA Sec. 15 Coercion

ICA Sec. 16 Undue Influence

ICA Sec. 17 Fraud

ICA Sec. 18 Misrepresentation

ICA Sec. 19 Voidability of agreements without free consent

ICA Sec. 20 Bilateral mistake of fact (VOID)

ICA Sec. 21 Mistake of law (not excusable)

ICA Sec. 22 Unilateral mistake (generally valid)

ICA Sec. 23 Unlawful Consideration/Object

ICA Sec. 25 Agreement without consideration + 3 exceptions

ICA Sec. 26 Restraint of marriage (VOID)

ICA Sec. 27 Restraint of trade (VOID, except goodwill)

ICA Sec. 28 Restraint of legal proceedings (VOID)

ICA Sec. 29 Uncertain agreements (VOID)

ICA Sec. 30 Wagering agreements (VOID)

ICA Sec. 31-36 Contingent Contracts

ICA Sec. 38 Effect of refusal to accept tender of performance

ICA Sec. 39 Effect of anticipatory breach (repudiation)

ICA Sec. 56 Impossibility of performance / frustration

ICA Sec. 63 Promisee may remit performance

ICA Sec. 68-72 Quasi Contracts

ICA Sec. 73 Compensation for breach (damages)

ICA Sec. 74 Liquidated damages and penalty

ICA Sec. 75 Damages for rightful rescission

ICA Sec. 124 Contract of Indemnity

ICA Sec. 125 Rights of Indemnity-holder

ICA Sec. 126 Contract of Guarantee

ICA Sec. 127 Consideration for guarantee

ICA Sec. 128 Surety's liability co-extensive with PD

ICA Sec. 129 Continuing Guarantee

ICA Sec. 130 Revocation of continuing guarantee

ICA Sec. 131 Death of surety revokes continuing guarantee

ICA Sec. 133 Variance discharges surety

ICA Sec. 134 Release of PD discharges surety

ICA Sec. 135 Compounding with PD discharges surety

ICA Sec. 139 Creditor's act impairing surety's remedy

ICA Sec. 140 Surety's right of subrogation

ICA Sec. 141 Surety's right to creditor's securities

ICA Sec. 142 Guarantee obtained by misrepresentation — invalid

ICA Sec. 143 Guarantee obtained by concealment — invalid

ICA Sec. 145 Surety's right of indemnity against PD

ICA Sec. 146 Co-sureties: equal contribution

ICA Sec. 147 Co-sureties: proportional contribution

SGA Sec. 2(7) Definition of Goods

SGA Sec. 4 Sale vs Agreement to Sell

SGA Sec. 12 Condition vs Warranty

SGA Sec. 14 Implied condition as to title + implied warranties

SGA Sec. 15 Sale by description

SGA Sec. 16 Fitness for purpose + Merchantable quality + Caveat Emptor

SGA Sec. 17 Sale by sample

SGA Sec. 19-24 Rules for transfer of property

SGA Sec. 27 Nemo dat rule + exceptions (mercantile agent etc.)

SGA Sec. 36 Rules as to delivery

SGA Sec. 41 Buyer's right to examine

SGA Sec. 42 Acceptance of goods

SGA Sec. 45 Unpaid Seller defined

SGA Sec. 47-49 Right of Lien

SGA Sec. 50-52 Stoppage in Transit

SGA Sec. 54 Right of Resale

SGA Sec. 55 Suit for price

SGA Sec. 56 Suit for damages for non-acceptance

SGA Sec. 64 Auction Sale rules

 PRACTICE MCQs — 48 Case-Study
Questions
Modeled on your exam format. Read each scenario carefully. Identify the legal issue BEFORE checking
options.

SECTION A — Unit I: Indian Contract Act (Q1-18)

Q1. Ravi offers to sell his laptop to Sam for Rs. 30,000. Sam replies, 'I will buy it for Rs. 25,000.' Ravi
rejects this. Sam then says, 'Okay, I accept your original offer of Rs. 30,000.' Is there a valid contract?
(A) Yes, because Sam eventually accepted the original offer
(B) No, because Sam's counter-offer destroyed the original offer
(C) Yes, because Ravi never formally withdrew the offer
(D) No, because the offer lapsed due to time
Answer: (B)
A counter-offer is a rejection of the original offer and destroys it (Hyde v. Wrench). Once Sam made the counter-offer
of Rs. 25,000, Ravi's original offer ceased to exist. Sam cannot later accept a dead offer.

Q2. Meera, aged 16, enters into a contract to buy a luxury car worth Rs. 50 lakhs. She later wants to
enforce the contract. What is the legal position?
(A) The contract is voidable at Meera's option
(B) The contract is valid because the seller agreed
(C) The contract is void ab initio
(D) The contract can be ratified when Meera turns 18
Answer: (C)
Under Sec. 11, a minor is not competent to contract. Per Mohiri Bibi v. Dharmodas Ghose, a minor's agreement is
void ab initio — not voidable. A luxury car is not a 'necessary.' Minor cannot ratify upon majority either.

Q3. Anil threatens to kill Balu's son unless Balu signs a contract to sell his property at half price. Balu
signs. What is the status?
(A) Void due to coercion
(B) Voidable at Balu's option due to coercion (Sec. 15)
(C) Valid because Balu signed it
(D) Void due to undue influence
Answer: (B)
Coercion (Sec. 15) = threatening an act forbidden by IPC. Contract is VOIDABLE (not void) at the aggrieved party's
option. Balu can choose to avoid or affirm it. Key distinction: coercion makes it voidable, not void.

Q4. Dr. Sharma tells his elderly patient Mrs. Gupta that she must transfer her property to him to
'ensure medical care continues.' She agrees out of dependence. What vitiating element is present?
(A) Coercion — she was threatened
(B) Misrepresentation — the doctor lied
(C) Undue influence — dominant position exploited
(D) Fraud — the doctor intended to deceive
Answer: (C)
Undue influence (Sec. 16). Doctor-patient = fiduciary relationship = position to dominate. No IPC threat (not coercion).
The key indicator is the relationship of trust being exploited for unfair advantage.
Q5. A sells a horse to B claiming it is healthy. A genuinely believes this. The horse turns out to be
seriously ill. What is this?
(A) Fraud, because A sold a sick horse
(B) Misrepresentation, because A innocently believed a false fact
(C) Mistake of fact
(D) No defect — caveat emptor applies
Answer: (B)
Misrepresentation (Sec. 18) = false statement made innocently, believed to be true. A genuinely believed the horse
was healthy — no intent to deceive. Contract is voidable. If A had KNOWN the horse was ill and lied, it would be fraud
(Sec. 17).

Q6. Kiran promises to pay Rs. 50,000 to his aunt Lakshmi out of natural love and affection. The
agreement is oral. Is this enforceable?
(A) Yes, natural love and affection is sufficient
(B) No, because there is no consideration
(C) Yes, because it is between close relatives
(D) No, because under Sec. 25(1), it must be in writing AND registered
Answer: (D)
Sec. 25(1) exception: Agreement without consideration between near relations made out of natural love and affection
is valid — BUT must be in writing AND registered. Oral agreement fails both requirements.

Q7. A and B enter into a contract to smuggle gold. A pays Rs. 5 lakhs advance. B fails to perform. Can
A recover the advance?
(A) Yes, A can sue for breach
(B) Yes, under quantum meruit
(C) No, courts will not assist either party in an illegal contract
(D) No, but A can claim under quasi-contract
Answer: (C)
Under Sec. 23, contract with an unlawful object is void. Courts will not enforce an illegal agreement or grant relief to
either party. 'Ex turpi causa non oritur actio' — no cause of action from a wrongful cause.

Q8. Dev books a wedding hall for June 10. On June 5, the hall burns down. What happens to the
contract?
(A) Dev must find another venue
(B) Contract discharged by supervening impossibility (Sec. 56)
(C) Contract is voidable at Dev's option
(D) Hall owner must rebuild and perform
Answer: (B)
Sec. 56: When performance becomes impossible after the contract due to events beyond control (destruction of
subject matter), the contract becomes void. This is the doctrine of frustration/supervening impossibility.

Q9. Sunil contracts to deliver goods on March 1. On Feb 15, the buyer Vijay declares he won't accept
delivery. What can Sunil do?
(A) Wait until March 1
(B) Treat the contract as discharged by anticipatory breach and sue immediately
(C) Only seek specific performance
(D) Nothing — the buyer can change his mind
Answer: (B)
Anticipatory breach (Sec. 39) = repudiation before due date. Sunil can either: (a) treat contract as discharged and sue
immediately, OR (b) keep the contract alive, wait till due date, and then sue if breach continues.
Q10. Neha clicks 'I Accept' on an app without reading terms. She later finds a clause saying 'company
may change pricing at any time without notice.' What type of e-contract and what issue?
(A) Browse-wrap; no legal issue
(B) Click-wrap; the clause may be an unfair term
(C) Shrink-wrap; void for uncertainty
(D) Click-wrap; valid because she clicked accept
Answer: (B)
Click-wrap = actively clicking 'I Accept.' However, unilateral pricing change clauses are potentially unfair terms under
Consumer Protection Act 2019 (Sec. 47). Simply clicking 'accept' does not make all terms automatically fair or
enforceable.

Q11. Ramesh paints 60% of Suresh's house for an agreed Rs. 50,000. Suresh terminates without
reason. What can Ramesh claim?
(A) Full Rs. 50,000
(B) Quantum meruit for work already done
(C) Nothing, the contract is incomplete
(D) Injunction to continue the contract
Answer: (B)
Quantum meruit = 'as much as earned.' When one party prevents the other from completing performance, the party
who has partly performed can claim reasonable compensation for work done.

Q12. A says to B: 'I will sell you my white horse.' B accepts, thinking A means Horse X while A means
Horse Y. Both are white. Is there a contract?
(A) Yes, both agreed on a white horse
(B) No, bilateral mistake of fact — no consensus-ad-idem
(C) Yes, A can choose which horse
(D) No, fraud by A
Answer: (B)
Sec. 13: Consent requires consensus-ad-idem (same thing in the same sense). Both parties had different horses in
mind. Under Sec. 20, bilateral mistake of essential fact makes the agreement void.

Q13. X promises Y Rs. 10,000 if Y finds X's lost dog. Y finds the dog without knowing about the offer.
Can Y claim the reward?
(A) Yes, Y performed the act
(B) No, Y didn't know about the offer — cannot accept what you don't know about
(C) Yes, under quasi-contract
(D) No, because the offer wasn't in writing
Answer: (B)
An offer must be communicated to the offeree for valid acceptance. Performance in ignorance of an offer is not
acceptance. Knowledge of the offer is essential. However, Y may have a claim under Sec. 70 (quasi-contract) for
benefit conferred.

Q14. Priya agrees to sell her house for Rs. 10 lakhs. Raj pays Rs. 1 as consideration. Priya challenges
it as inadequate. Will she succeed?
(A) Yes, Rs. 1 is grossly inadequate
(B) No, consideration need not be adequate under Indian law
(C) Yes, it amounts to no consideration
(D) No, courts will fix fair value
Answer: (B)
Consideration must be real but need NOT be adequate (Explanation 2, Sec. 25). Parties are free to determine the
value of their bargain. Inadequacy alone doesn't invalidate — though courts may examine it to assess whether
 consent was free.

Q15. Seema enters a contract to perform a dance show. Before the show, she is permanently
paralyzed. What happens?
(A) The organizer can claim damages
(B) Contract discharged by supervening impossibility (Sec. 56)
(C) Seema must arrange a substitute
(D) Contract is voidable at Seema's option
Answer: (B)
Personal contracts become impossible when the promisor is permanently incapacitated. Under Sec. 56, the contract
becomes void automatically. Dance performance is a personal service contract.

Q16. A contract states: 'Rs. 10 lakh penalty if breached.' Actual loss from breach is Rs. 3 lakhs. What
will the court award?
(A) Rs. 10 lakhs (the stated penalty)
(B) Rs. 3 lakhs (reasonable compensation not exceeding the stated amount)
(C) Rs. 5 lakhs (average of penalty and loss)
(D) Nothing, penalty clauses are void
Answer: (B)
Under Sec. 74, Indian law does not distinguish between liquidated damages and penalty in the same way as English
law. Court will award reasonable compensation not exceeding the amount named in the contract. Actual loss = Rs.
3L, which is within the stated Rs. 10L.

Q17. A promises to marry only Priya. Priya promises Rs. 5 lakhs. Later Priya refuses to pay. Can A
enforce?
(A) Yes, valid contract with consideration
(B) No, agreement in restraint of marriage is void (Sec. 26)
(C) Yes, both gave free consent
(D) No, inadequate consideration
Answer: (B)
Sec. 26: Every agreement in restraint of marriage is void. 'Only Priya' restricts A's freedom to marry anyone else.
Since the agreement is void, no compensation can be claimed.

Q18. A supplies necessaries (food and clothing) to B, a minor. B refuses to pay. What can A do?
(A) Sue B personally for the price
(B) Recover from B's property/estate under Sec. 68 (quasi-contract)
(C) Nothing — minor's agreements are void
(D) Sue B's parents for the price
Answer: (B)
Sec. 68 (quasi-contract): Necessaries supplied to a minor or person of unsound mind are recoverable from their
PROPERTY/ESTATE — not personal liability. Parents are not liable unless they authorized the purchase as principal.

SECTION B — Unit II: Guarantee & Indemnity (Q19-30)

Q19. A says to B: 'Enter into a contract with C. If C causes you any loss, I will compensate.' What type
of contract?
(A) Guarantee
(B) Indemnity
(C) Insurance
(D) Contingent
 Answer: (B)
Contract of indemnity (Sec. 124). A promises to save B from loss caused by C's conduct. ONLY 2 parties to the
contract (A and B). C is not a party. Remember: 2 parties = indemnity, 3 parties = guarantee.

Q20. Bank lends Rs. 5 lakhs to Mohan. Suresh guarantees the loan. Mohan defaults. Can the bank
directly sue Suresh without first suing Mohan?
(A) No, must sue Mohan first
(B) Yes, creditor can directly sue surety without suing PD first
(C) No, must exhaust all remedies against Mohan
(D) Yes, but only if Mohan is insolvent
Answer: (B)
Sec. 128: Surety's liability is co-extensive with the PD. The creditor can proceed directly against the surety upon
default — there is NO legal requirement to first exhaust remedies against the PD.

Q21. A guarantees B's loan from Bank C. Without A's consent, Bank C extends B's repayment
deadline by one year. What happens to A's guarantee?
(A) A remains liable
(B) A is discharged — creditor gave time to PD without surety's consent (Sec. 135)
(C) A's liability is reduced
(D) A must give a fresh guarantee
Answer: (B)
Sec. 135: If the creditor gives time to the PD, or makes a composition with the PD, or promises not to sue the PD —
all without the surety's consent — the surety is discharged.

Q22. Ram guarantees Shyam's debt and also gives his gold chain as security to the bank. The bank
loses the gold chain. What happens?
(A) Ram remains fully liable
(B) Ram is discharged to the extent of the value of the lost security
(C) Ram is fully discharged
(D) Ram can claim the chain's value but guarantee continues
Answer: (B)
Sec. 141: If the creditor loses or parts with security without the surety's consent, the surety is discharged to the extent
of the value of that security. The surety was entitled to that security upon payment.

Q23. P, Q, and R are co-sureties for S's debt of Rs. 90,000. S defaults. How much is each surety liable
for?
(A) Rs. 90,000 from any one
(B) Rs. 30,000 each (equal contribution)
(C) Any amount from any surety
(D) Rs. 45,000 from two sureties
Answer: (B)
Sec. 146: Co-sureties liable for the same amount contribute equally. Rs. 90,000 ÷ 3 = Rs. 30,000 each.

Q24. A gives a continuing guarantee to Bank B for loans to C, up to Rs. 10 lakhs. After C takes Rs. 3L
loan, A revokes the guarantee. C later takes another Rs. 4L loan and defaults on both. A's liability?
(A) Rs. 7 lakhs (both loans)
(B) Rs. 3 lakhs (only the pre-revocation loan)
(C) Rs. 10 lakhs
(D) Zero — guarantee was revoked
Answer: (B)
 Sec. 130: Revocation of continuing guarantee = prospective only. A remains liable for Rs. 3L (transactions before
notice) but NOT the Rs. 4L (transaction after revocation).

Q25. Bank lends to D. E guarantees. Without E's consent, bank agrees with D to reduce interest from
12% to 8%. E's position?
(A) E remains liable — reduced interest benefits E
(B) E is discharged — variance without surety's consent (Sec. 133)
(C) E is liable only for the difference
(D) E must consent within 30 days
Answer: (B)
Sec. 133: ANY variance in the terms between creditor and PD, without surety's consent, discharges the surety —
even if the change appears to benefit the surety.

Q26. Creditor obtains a guarantee from surety by lying about the principal debtor's creditworthiness.
Later, PD defaults. Can creditor enforce the guarantee?
(A) Yes, surety should have done due diligence
(B) No, guarantee obtained by creditor's misrepresentation is invalid (Sec. 142)
(C) Yes, but surety can claim reduced liability
(D) No, the contract is voidable at surety's option
Answer: (B)
Sec. 142: Any guarantee obtained by misrepresentation made by the creditor (or with creditor's knowledge)
concerning a material part of the transaction is INVALID — not merely voidable, but invalid.

Q27. Nisha guarantees Deepak's delivery to Farhan. Deepak doesn't deliver. Nisha pays Farhan. What
right does Nisha have?
(A) No rights
(B) Right of subrogation — steps into Farhan's shoes, can recover from Deepak
(C) Right to sue Farhan
(D) Right to cancel the original contract
Answer: (B)
Sec. 140 (subrogation): After paying, surety is invested with ALL rights the creditor had against the PD. Nisha can
now sue Deepak for the full amount paid.

Q28. A, B, C are co-sureties. A guarantees up to Rs. 1L, B up to Rs. 2L, C up to Rs. 3L. PD defaults on
Rs. 3L. How is liability shared?
(A) Rs. 1L each
(B) A = Rs. 50K; B = Rs. 1L; C = Rs. 1.5L (proportional to 1:2:3)
(C) A = Rs. 1L; B = Rs. 1L; C = Rs. 1L
(D) A = Rs. 50K; B = Rs. 50K; C = Rs. 2L
Answer: (B)
Sec. 147: Co-sureties bound in different amounts contribute proportionally. Ratio 1:2:3. Of Rs. 3L: A = 1/6 = 50K; B =
2/6 = 1L; C = 3/6 = 1.5L.

Q29. Govind guarantees a loan to Hari. Hari dies. What happens to the guarantee?
(A) Guarantee terminates automatically
(B) SBI can recover from Hari's estate; if insufficient, from Govind (guarantee continues)
(C) Govind is immediately liable in full
(D) New guarantee needed from Govind
Answer: (B)
Death of PD does NOT discharge the surety. The debt survives against PD's estate. If insufficient, creditor can claim
from surety. Note: death of the SURETY (not PD) discharges continuing guarantee for future transactions (Sec. 131).
Q30. X indemnifies Y against losses in a transaction. Y is sued by Z and spends Rs. 2L in legal costs.
Y wins the suit. Can Y still recover legal costs from X?
(A) No, Y won the suit so there's no loss
(B) Yes, under Sec. 125, indemnity covers all costs of defending the suit
(C) Only if the suit was frivolous
(D) Only if X agreed to cover legal costs
Answer: (B)
Sec. 125: Indemnity-holder can recover ALL costs of defending the suit, even if they ultimately win. The indemnity
covers the cost of defending, not just the outcome.

SECTION C — Unit III: Sale of Goods (Q31-48)

Q31. Ajay agrees to sell his TV to Bharat for Rs. 20,000, delivery next Monday. Before Monday, the TV
is destroyed in a fire. Who bears the loss?
(A) Bharat, because he is the buyer
(B) Ajay, because ownership hasn't transferred yet (agreement to sell)
(C) Both share equally
(D) The insurance company
Answer: (B)
Delivery in the future = agreement to sell, not sale. Ownership still with Ajay. Risk follows ownership. Ajay bears the
loss. Under Sec. 8, if specific goods perish before risk passes, agreement becomes void.

Q32. Rekha asks a shopkeeper for 'a shampoo for dandruff.' Shopkeeper recommends Brand X. It
causes severe hair fall. Rekha's right?
(A) None — caveat emptor applies
(B) Breach of implied condition of fitness for purpose (Sec. 16(1))
(C) Only a warranty claim
(D) Claim against manufacturer only
Answer: (B)
Sec. 16(1): Buyer disclosed purpose + relied on seller's skill/judgment → implied condition of fitness. Shopkeeper
selected the product. This is an exception to caveat emptor.

Q33. Kumar buys 500 kg of wheat from a warehouse holding 2,000 kg. Before separation, the
warehouse floods. Who bears the loss?
(A) Kumar, because he paid
(B) Seller, because goods are unascertained — ownership hasn't passed
(C) Both share proportionally
(D) Kumar, because contract was complete
Answer: (B)
Sec. 23: Property in unascertained goods passes only when goods are ascertained (separated). 500 kg was never
separated from the 2,000 kg. Ownership still with seller. Seller bears loss.

Q34. Deepika buys a necklace described as 'pure gold 24K' in the catalog. It's gold-plated. Her
remedy?
(A) Partial refund only
(B) Reject goods — breach of implied condition of sale by description (Sec. 15)
(C) Damages only, cannot reject
(D) No remedy — should have inspected
Answer: (B)
 Sec. 15: Sale by description → goods must correspond with description. 'Pure gold 24K' ≠ gold-plated. Breach of
CONDITION (not warranty) = right to reject goods entirely.

Q35. 100 chairs in transit. Buyer hasn't paid. Buyer becomes insolvent. Seller's right?
(A) Nothing — goods are with carrier
(B) Stoppage in transit (Sec. 50)
(C) Right of lien
(D) Suit for breach only
Answer: (B)
Stoppage in transit (Secs. 50-52): Goods are in transit + buyer is insolvent + seller is unpaid. Lien requires
possession (seller doesn't have it). The correct right is stoppage in transit.

Q36. Sunil sells bicycle to Mohan. Full price paid. Mohan asks Sunil to keep it for a week. Bicycle
stolen from Sunil's house. Who bears loss?
(A) Sunil — bicycle was in his possession
(B) Mohan — ownership has passed (risk follows ownership)
(C) Both equally
(D) Sunil — he was the bailee
Answer: (B)
Completed sale = ownership passed to Mohan. Risk follows ownership, not possession. Even though goods are
physically with Sunil, Mohan (owner) bears the risk.

Q37. Rita orders a blue saree online. Receives red. Seller says 'all sales final.' Can Rita reject?
(A) No — she agreed to 'no returns'
(B) Yes — breach of implied condition of sale by description (blue ≠ red)
(C) No, unless manufacturing defect
(D) Yes, but only warranty claim
Answer: (B)
Sec. 15: Goods must match description. Blue ≠ Red = breach of condition. 'No returns' policy cannot override
statutory implied conditions. Rita can reject.

Q38. Patel (unpaid seller) has cement in his warehouse. Khan demands delivery. Can Patel refuse?
(A) No, delivery was agreed
(B) Yes — right of lien as unpaid seller (Secs. 47-49)
(C) No, must deliver and sue separately
(D) Yes, but needs formal notice
Answer: (B)
Unpaid seller in possession = right of lien. Can retain possession until price is paid. No formal notice needed for
exercising lien.

Q39. Vikram buys a washing machine. Two weeks later, a third party claims ownership with proof.
What implied condition was breached?
(A) Quality
(B) Fitness for purpose
(C) Condition as to title (Sec. 14(a))
(D) Quiet possession warranty
Answer: (C)
Sec. 14(a): Implied condition that seller has the RIGHT TO SELL. This is a condition (not warranty), so Vikram can
reject and recover full price. Quiet possession (warranty) is secondary to the title condition.
Q40. 200 shirts ordered by sample. Bulk matches sample in color and size but has hidden stitching
defects. Buyer's right?
(A) No right — bulk matches sample
(B) Reject — implied condition: bulk free from hidden defects not apparent on reasonable sample examination
(Sec. 17)
(C) Warranty claim only
(D) Accept and claim repair costs
Answer: (B)
Sec. 17: In sale by sample, implied condition that bulk shall be free from defects rendering goods unmerchantable,
which would NOT be apparent on reasonable examination of the sample. Hidden stitching defects = covered.

Q41. X steals a watch and sells to Y (good faith). Y sells to Z (good faith). True owner finds Z. Can
owner recover?
(A) No, Z is bona fide purchaser
(B) Yes — nemo dat quod non habet. Thief had no title to pass.
(C) No — two sales have occurred
(D) Yes, but must compensate Z
Answer: (B)
Sec. 27: Nemo dat rule — no one can give better title than they have. A thief has NO title. None of the exceptions to
nemo dat apply to stolen goods. True owner can recover from Z.

Q42. Mangoes (perishable) sold. Buyer doesn't pay and is unreachable. After 3 days, mangoes start
rotting. Seller's right?
(A) Must wait for buyer
(B) Resell under right of resale (Sec. 54) — no notice needed for perishable goods
(C) Sue for damages only
(D) Must get court permission
Answer: (B)
Sec. 54: Unpaid seller can resell perishable goods WITHOUT giving notice to the buyer. For non-perishable goods,
reasonable notice is required first.

Q43. Buyer buys goods on 3 months' credit. Before credit period expires, buyer demands delivery.
Can seller (unpaid) refuse?
(A) Yes, right of lien
(B) No — lien NOT available when credit period hasn't expired
(C) Yes, until full payment
(D) Yes, right of stoppage in transit
Answer: (B)
Right of lien is NOT available during an unexpired credit period (unless buyer becomes insolvent). The credit
agreement means the seller agreed to give time. Seller must deliver during the credit period.

Q44. Buyer receives goods, uses them for 2 months, then complains they don't match the sample.
Can he reject?
(A) Yes, breach of condition allows rejection anytime
(B) No — by extensive use, buyer is deemed to have accepted (Sec. 42); can only claim warranty damages
(C) Yes, if he returns goods in original condition
(D) No, 2 months is unreasonable regardless
Answer: (B)
Sec. 42: Buyer deemed to have accepted when: (a) intimates acceptance, (b) does act inconsistent with seller's
ownership (2 months of use), or (c) retains beyond reasonable time. Once accepted, can only claim damages
(warranty), not reject.
Q45. S sells goods to B. Goods in transit. S wants to exercise lien. Can he?
(A) Yes, lien can be exercised anytime
(B) No — lien requires possession; goods are with carrier; use stoppage in transit instead
(C) Yes, carrier is seller's agent
(D) No rights once goods leave warehouse
Answer: (B)
Lien = right to retain POSSESSION. Seller no longer has possession (carrier does). Correct right: stoppage in transit
(if buyer is insolvent) under Secs. 50-52.

Q46. Advertisement says: 'Laptop for sale — Rs. 40,000.' Priya goes to shop and says 'I accept.'
Shopkeeper says it's sold. Can Priya enforce?
(A) Yes, she accepted the offer
(B) No — advertisement is an invitation to offer, not an offer. No contract.
(C) Yes, price was clearly stated
(D) No, no written agreement
Answer: (B)
An advertisement is an invitation to offer (invitation to treat), NOT an offer. Priya's 'I accept' is actually her offer to buy,
which the shopkeeper can accept or reject. No contract formed.

Q47. A sells goods under a voidable contract to B (fraud). Before A rescinds, B sells to C (good faith).
Can A recover from C?
(A) Yes — A's ownership was never affected
(B) No — C gets good title because B sold before the voidable contract was rescinded (Sec. 29 SGA)
(C) Yes — fraud vitiates everything
(D) No — only if C paid fair price
Answer: (B)
Sec. 29 SGA: Person in possession under a voidable contract can pass good title to a buyer in good faith — provided
the voidable contract has NOT been rescinded before the sale. B sold to C before A rescinded, so C gets good title.

Q48. Dinesh buys a second-hand TV 'as is, where is' without any quality promise. TV stops after 2
days. Can Dinesh claim?
(A) Yes, implied warranty of quality applies
(B) No — caveat emptor applies; buyer bought with knowledge of condition
(C) Yes, 2 days is unreasonable
(D) No, but can return under consumer protection
Answer: (B)
Caveat emptor = let the buyer beware. 'As is, where is' = buyer accepts the condition. No reliance on seller's
judgment (Sec. 16(1) doesn't apply), no sale by description (Sec. 15 doesn't apply). Buyer bears the risk.