UNIT I

1. Father promised to pay his son a sum of Rs. one lakh if the son passed C.A.
examination in the first attempt. The son passed the examination in the first attempt,
but father failed to pay the amount as promised. Son files a suit for recovery of the
amount. State along with reasons whether son can recover the amount under the
Indian Contract Act, 1872.

2. Shambhu Dayal started “self service” system in his shop. Smt. Prakash entered the
shop, took a basket and after taking articles of her choice into the basket reached the
cashier for payments. The cashier refuses to accept the price. Can Shambhu Dayal be
compelled to sell the said articles to Smt. Prakash? Decide.

3. Examine what is the legal position, as to the following :

. (i) M offered to sell his land to N for Rs, 28,000/-. N replied purporting to
accept the offer and enclosed a cheque for Rs. 8,000/-. He also promised to
pay the balance of ` 20,000/- in monthly installments of Rs. 5,000/- each.
. (ii) A offered to sell his house to B for Rs. 10000/-. B replied that he can
accept the house for only Rs. 8,000/-. A rejected B’s counter offer to buy the
house for Rs. 8,000/-. B later changed his mind and is now willing to buy the
house for Rs. 10,000/-.

4. Ramaswami proposed to sell his house to Ramanathan. Ramanathan sent his

. (i) The telegram of revocation of acceptance was received by Ramaswami

5. Mr. Singh, an old man, by a registered deed of gift, granted certain landed property
to A, his daughter. By the terms of the deed, it was stipulated that an annuity of Rs. 2,
000 should be paid every year to B, who was the brother of Mr. Singh. On the same
day A made a promise to B and executed in his favour an agreement to give effect to
the stipulation. A failed to pay the stipulated sum. In an action against her by B, she
contended that since B had not furnished any consideration, he has no right of action.
Examining the provisions of the Indian Contract Act, 1872, decide, whether the
contention of A is valid?

6. X' agreed to become an assistant for 5 years to 'Y' who was a Doctor practising at
Ludhiana. It was also agreed that during the term of agreement 'X' will not practise
on his own account in Ludhiana. At the end of one year, ‘X' left the assistantship of 'Y'
and began to practise on his own account. Referring to the provisions of the Indian
Contract Act, 1872, decide whether ‘X' could be restrained from doing so?

7. Shambhu Dayal started “self service” system in his shop. Smt. Prakash entered the
shop, took a basket and after taking articles of her choice into the basket reached the
cashier for payments. The cashier refuses to accept the price. Can Shambhu Dayal be
compelled to sell the said articles to Smt. Prakash? Decide.

8. Miss X, a film actress agreed to work exclusively for a period of two years, for a
film production company. However, during the said period she enters into a contract
to work for another film producer. Discuss the rights of the aggrieved film production
company under the Indian Contract Act, 1872.

9. A cheque payable to bearer is crossed generally and marked “not negotiable”. The
cheque is lost or stolen and comes into possession of B who takes it in good faith and
gives value for it. B deposits the cheque into his own bank and his banker presents it
and obtains payment for his customer from the bank upon which it is drawn. The true
owner of the cheque claims refund of the amount of the cheque from B. Provide your
judgement.

10. M owes money to N. Therefore, he makes a promissory note for the amount in
favour of N, for safety of transmission he cuts the note in half and posts one half to N.
He then changes his mind and calls upon N to return the half of the note which he had
sent. N requires M to send the other half of the promissory note. Decide how a rights
of the parties are to be adjusted.

SOLUTION

Answer1.
Problem asked in the question is based on the provisions of the Indian Contract Act,
1872 as contained in section 10. According to the provisions there should be an
intention to create legal relationship between the parties. Agreements of a social
nature or domestic nature do not contemplate legal relationship and as such are not
contracts, which can be enforced. This principle has been laid down in the case of
Balfour vs. Balfour (1912 2 KB. 571). Accordingly, applying the above provisions and
the case decision, in this case son cannot recover the amount of Rs. 1 lakh from father
for the reasons explained above.

Answer2.
Invitation to offer
The offer should be distinguished from an invitation to offer. An offer is the final
expression of willingness by the offeror to be bound by his offer should the party
chooses to accept it. Where a party, without expressing his final willingness, proposes
certain terms on which he is willing to negotiate, he does not make an offer, but
invites only the other party to make an offer on those terms. This is the basic
distinction between offer and invitation to offer.
The display of articles with a price in it in a self-service shop is merely an invitation
to offer. It is in no sense an offer for sale, the acceptance of which constitutes a
contract. In this case, Smt. Prakash by selecting some articles and approaching the
cashier for payment simply made an offer to buy the articles selected by her. If the
cashier does not accept the price, the interested buyer cannot compel him to sell.
[Fisher V. Bell (1961) Q.B. 394 Pharmaceutical society of Great Britain V. Boots
Cash Chemists].

Answer3.
To conclude a contract between the parties, the acceptance must be communicated in
some perceptible form. Any conditional acceptance or acceptance with varying or too
deviant conditions is no acceptance. Such conditional acceptance is a counter proposal
and has to be accepted by the proposer, if the original proposal has to materialize into
a contract. Further when a proposal is accepted, the offeree must have the knowledge
of the offer made to him. If he does not have the knowledge, there can be no
acceptance. The acceptance must relate specifically to the offer made. Then only it
can materialize into a contract. With the above rules in mind, we may note that the
following is the solution to the given problems:

. (i) It is not a valid acceptance and no contract can come into being. In fact this
problem is similar to the facts of Neale vs. Merret [1930] W.N 189, where M
offered to sell his land to N for Rs. 28,000/-. N replied purporting to accept the
offer but enclosed a cheque for Rs. 8,000/- only. He promised to pay the
balance of Rs. 20,000 by monthly installments of Rs. 5,000. It was held that N
could not enforce his acceptance because it was not an unqualified one.
. (ii) This problem is similar to the facts of Union of India v. Bahulal (AIR
1968 Bombay 294) case, wherein A offered to sell his house to B for Rs.
10,000/-, to which B replied that, “I can pay Rs. 8,000 for it”. Consequently,
the offer of ‘A’ is rejected by ‘B’ as the acceptance is not unqualified. But
when B later changes his mind and is prepared to pay Rs. 10,000/-, it becomes
a counter offer and it is up to A whether to accept it or not.

Answer4
The problem is related with the communication and time of acceptance and its
revocation. As per Section 4 of the Indian Contract Act, 1872, the communication of
an acceptance is a complete as against the acceptor when it comes to the knowledge
of the proposer.
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
Referring to the above provisions
. (i) Yes, the revocation of acceptance by Ramanathan (the acceptor) is valid.
. (ii) If Ramaswami opens the telegram first (and this would be normally so in
case of a rational person) and reads it, the acceptance stands revoked. If he
opens the letter first and reads it, revocation of acceptance is not possible as
the contract has already been concluded.

Answer5
Problem as asked in the question is based on the provisions of the Indian Contract
Act, 1872 as contained in section 2(d) and on the principle ‘privity of consideration’.
Consideration is one of the essential elements to make a contract valid and it can flow
from the promisee or any other person. In view of the clear language used in
definition of ‘consideration’ in Section 2(d) “.... the promisee or any other person.....”,
it is not necessary that consideration should be furnished by the promisee only. A
promise is enforceable if there is some consideration for it and it is quite immaterial
whether it moves from the promisee or any other person. The leading authority in the
decision of the Chinnaya Vs. Ramayya (1882) 4 Mad 137., held that the consideration
can legitimately move from a third party and it is an accepted principle of law in
India.

In the given problem, Mr. Singh has entered into a contract with A, but Mr. B has not
given any consideration to A but the consideration did flow from Mr. Singh to A and
such consideration from third party is sufficient to the enforce the promise of A, the
daughter, to pay an annuity to B. Further the deed of gift and the promise made by A
to B to pay the annuity were executed simultaneously and therefore they should be
regarded as one transaction and there was sufficient consideration for it.

Thus, a stranger to the contract cannot enforce the contract but a stranger to the
consideration may enforce it.

Answer6
An agreement in restraint of trade/business/profession is void under Section 27 of the
Indian Contract Act, 1872. But an agreement of service by which a person binds
himself during the term of the agreement not to take service with anyone else directly
or indirectly to promote any business in direct competition with that of his employer
is not in restraint of trade. Therefore X can be restrained by an injunction from
practicing on his own account in Ludhiana.

Answer7
Invitation to Offer : The offer should be differentiated from an invitation to offer. An
offer is the last expression of willingness by the offeror to be bound by his offer when
the party decided to accept it. In case the party fails to express his last willingness
proposes certain terms on which he is ready to negotiate, in the he does make an offer,
but invites. Only the other party to make the offer on those terms. Thus this is the
difference between the [Link] the above problem, the display of articles with a price
in it in a self-service shop is simply and invitation to offer. It is in no sense an offer
for sale, the acceptance of which constitutes the contract. In this case, Smt. Prakash
has selected some articles and approaches the cashier for payment, simply made an
offer to buy the articles selected by her, If the cashier refuses to accept the price, the
interested buyer cannot force him to sell. [Fisher V. Bell (1961)]

Answer8
Agreement in restraint of trade is considered against public policy and therefore void
under Section 27 of the Indian Contract Act. However in case of service agreement
restraint of the nature mentioned in the given problem shall be valid if reasonable.
The facts of the said problem are based on the case of Lumley Vs. Warner. In this
case the aggrieved film production company can restrain Miss X, the film actress to
enter into a contract and work for another film producer, Since she has agreed to work
exclusively for the film production company for two years. Another similar case was
that of Warrior Bros. Vs. Nelson (1937).

Answer9
The cheque in the given case was crossed generally and marked ‘Not Negotiable’.
Thereafter, the cheque was lost or stolen and came into the possession of B, who takes
it in good faith and gives value for it. Section 130 of the Negotiable Instruments Act,
1881 provides that a person taking a cheque crossed generally or specially, bearing in
either case the words ‘not negotiable’, shall not have, and shall not be capable of
giving a better title to the cheque than that which the person from whom he took it
had. In view of these provisions, B, even though he was a holder in due course, did
not acquire any title to the cheque as against its true owner. The addition of the words
‘not negotiable’ entirely takes away the main feature of negotiability, which is, that a
holder with a defective title can give a good title to a subsequent holder in due course.
B did not obtain any better title than his immediate transferor, who had either stolen
or found the cheque and was not the true owner of the cheque. Therefore, as regards
the true owner, B was in no better position than the transferor. B is also liable to repay
the amount of the cheque to the true owner. He can, however, proceed against the
person from whom he took the cheque.
In the given case, both the collecting banker and the paying bankers would be
exonerated. Since the collecting banker, in good faith and without negligence, had
received payment for B, who was its customer of the cheque which was crossed
generally, the banker would not be liable, in case the title proved to be defective, to
the true owner by reason only of having received the payment of the cheque for his
customer (Section 131). Since the paying banker on whom the crossed cheque was
drawn, had paid the same in due course, the banker would also not be liable to the true
owner. (Section 128).

Answer10
The question arising in this problem is whether the making of promissory note is
complete when one half of the note was delivered to N. Under Section 46 of the N.I.
Act, 1881, the making of a P/N is completed by delivery, actual or constructive.
Delivery refers to the whole of the instrument and not merely a part of it. Delivery of
half instrument cannot be treated as constructive delivery of the whole. So the claim
of N to have the other half of the P/N sent to him is not maintainable. M is justified in
demanding the return of the first half sent by him. He can change his mind and refuse
to send the other half of the P/N.