Q1.
Rajnikant & Chiranjivi – Titanic Goods (4 Marks)
Question: Rajnikant agrees to sell some specific goods coming on a ship named “Titanic” to
Chiranjivi, which will be delivered on arrival of “Titanic.” The ship arrived at the port but
goods were not found on the ship. Chiranjivi had to procure the goods from the open market
at higher price. Afterwards, Chiranjivi sued Rajnikant for recovery of extra payment he made
for goods. State with reasons whether Rajnikant is liable to compensate Chiranjivi under the
provisions of the Sale of Goods Act, 1930.
Answer:
Legal Provision: Section 7 of the Sale of Goods Act, 1930: A contract for the sale of
specific goods is void if the goods, without the knowledge of the seller, have perished
at the time of making the contract.
Facts & Analysis: Rajnikant agreed to sell specific goods arriving on ship Titanic.
The goods were not on board when it arrived, meaning the contract's subject matter
never existed. Being specific goods, the contract fails automatically if goods do not
exist.
Conclusion: The contract is void ab initio. Rajnikant is not liable to compensate
Chiranjivi for extra payments.
Q2. Saurabh & Vivek – Sale under Coercion (3 Marks)
Question: Saurabh purchased an electric scooter of Vivek for ₹5,000 on gunpoint. Vivek
wanted to avoid the contract on the basis of coercion, but before doing so, Saurabh sold the
scooter to Vinay, a bona fide purchaser. Vivek sued Saurabh and Vinay. Decide, referring to
the provisions of the Sale of Goods Act, 1930.
Answer:
Legal Provisions: Section 19 of the Indian Contract Act, 1872 makes contracts
obtained under coercion voidable. Sale of Goods Act, 1930 protects bona fide
purchasers.
Facts & Analysis: Vivek’s consent was obtained under duress, making the contract
voidable. Saurabh sold the scooter to Vinay, a bona fide purchaser with no notice of
coercion. Vivek cannot reclaim the scooter from Vinay but may sue Saurabh for
damages.
Conclusion: Vivek can claim damages from Saurabh but cannot recover the scooter
from Vinay.
Q3. Eligibility, Minimum Partners & Designated Partners under LLP Act,
2008 (6 Marks)
Question: Discuss provisions of the LLP Act, 2008 relating to partners: eligibility,
disqualifications, minimum number, consequences of reduction, and concept of designated
partners.
Answer:
Eligibility & Disqualifications: Any individual or body corporate can be a partner.
Disqualified if of unsound mind, undischarged insolvent, or pending insolvency
application.
Minimum Number of Partners: LLP must have at least 2 partners at all times.
Reduction below 2 makes the sole partner personally liable if business is carried on
beyond 6 months.
Designated Partners: At least 2 designated partners required; one must be resident in
India (≥120 days/year). Responsible for statutory compliance, filing documents, and
returns.
Conclusion: LLP Act ensures proper governance, minimum partners, and
accountability via designated partners.
Q4. Y’s Fraudulent Purchase of Timber (7 Marks)
Question: X, Y, Z are partners in M/s XYZ & Co. Y purchased timber on behalf of the firm
but used it personally to deceive the timber dealer W. Decide: (i) Is firm liable? (ii) If part
delivered to firm, rest used by Y?
Answer:
Legal Provision: Sections 18 & 19 of Indian Partnership Act, 1932: Partners are
agents of the firm; firm liable for acts done in ordinary course of business.
Analysis: (i) Timber was used entirely by Y; W had no notice. Y acted within
ordinary course. Firm is liable for payment to W. (ii) If part of timber delivered to
firm, rest misused, firm still liable to W. Internal recovery can be made from Y, but
W’s claim is valid.
Conclusion: Firm must pay W in both cases.
Q5. Unlimited Company Liability (4 Marks)
Question: Nolimit Private Company is incorporated as an unlimited company with share
capital of ₹10,00,000. Mr. Samuel sues shareholder Mr. Innocent for recovery of company
debt. Decide.
Answer:
Provision: In unlimited companies, members’ liability is unlimited for company
debts.
Application: Shareholder liability is not restricted. Mr. Innocent is personally liable.
Conclusion: Mr. Samuel can recover dues from Mr. Innocent.
Q6. Section 8 Company & Dividend (3 Marks)
Question: Can a profitable Section 8 company distribute dividend? Was a general meeting
with 14 days’ notice valid?
Answer:
Dividend: Section 8 prohibits distribution of profits to members. Maximum dividend
= 0%.
Notice: Section 101 requires 21 clear days; 14-day notice invalid unless 95%
members consent.
Conclusion: No dividend; meeting invalid without consent.
Q7. Sale of Goods – AC & Fitness for Purpose (7 Marks)
Question: Anant purchased AC on technician’s advice; AC insufficient for room. Can he
avoid contract after installation?
Answer:
Provision: Section 16(1) – implied condition of fitness for purpose. Buyer relying on
seller’s skill can repudiate if goods unfit.
Application: Anant relied on technician’s advice; AC not fit. Breach of implied
condition.
Conclusion: Contract can be avoided; seller must refund/replace AC.
Q8. Contract of Guarantee (6 Marks)
Question: Define contract of guarantee; explain essential features.
Answer:
Definition (Sec 126): Contract to perform promise or discharge liability of a third
person in case of default. Parties: principal debtor, creditor, surety.
Essential Features: Tripartite agreement, consideration, secondary liability, free
consent, competency of parties, legality of object.
Conclusion: Ensures creditor security; surety liable only on default.
Q9. Promissory Note – Arjun vs Nakul (7 Marks)
Question: Nakul made promissory note to Sahdev; Sahdev endorsed to Arjun via agent.
Agent died; Arjun found note. Can he recover amount?
Answer:
Provision: Negotiation requires endorsement + delivery. Delivery to agent = valid
delivery.
Application: Delivery to agent completed negotiation; Arjun is holder.
Conclusion: Arjun can recover ₹10,000 from Nakul.
Q10. Ratification (6 Marks)
Question: Define ratification; explain rights and effect.
Answer:
Definition (Sec 196): Principal may adopt or reject acts done on his behalf without
authority.
Rights: Can ratify or disown; ratification must be of entire act, with full knowledge.
Effect: Binds principal as if act done with prior authority; relation of principal-agent
created retrospectively.
Conclusion: Ratification validates unauthorized acts retrospectively.
Q11. Auction – Sale Rules (7 Marks)
Question: (i) When is sale complete? (ii) Effect of pretended bidding? (iii) Seller reserving
right to bid?
Answer:
Sale Completion: Fall of hammer or customary announcement.
Pretended Bidding: If seller employs fake bidders, sale voidable.
Seller Bidding Right: Allowed only if expressly reserved; otherwise, considered
pretended bidding.
Conclusion: Sale completes on hammer fall; fake bidding voidable; reserved right
must be notified.
Q12. Nolimit Private Company – Unlimited Liability (4 Marks)
Question:
A private company registered as an unlimited company has share capital of ₹10,00,000. A
creditor sues a shareholder for company debts. Can the shareholder be held liable?
Answer:
Provision: In unlimited companies, members/shareholders have unlimited liability
for company debts beyond capital contribution.
Analysis: If the company cannot pay debts, creditors can pursue shareholders
personally.
Conclusion: The creditor can recover dues from the shareholder personally.
Q13. Section 8 Company & Dividend Distribution (3 Marks)
Question:
Can a Section 8 company distribute profits as dividends? Is a general meeting with 14 days’
notice valid?
Answer:
Dividend: Section 8 prohibits payment of dividends to members; profits must further
company objectives.
Notice: Section 101 requires 21 clear days; 14-day notice invalid unless 95%
members consent.
Conclusion: No dividend; general meeting invalid without proper notice.
Q14. Sale of Goods – AC & Fitness (7 Marks)
Question:
Anant purchases AC on technician’s advice; it is insufficient for room. Can he avoid contract
after installation?
Answer:
Provision: Section 16(1) – implied condition of fitness for purpose; reliance on
seller’s skill.
Analysis: AC not fit; implied condition breached.
Conclusion: Contract can be avoided; refund or replacement must be provided.
Q15. Contract of Guarantee (6 Marks)
Question:
Define contract of guarantee; explain essential features.
Answer:
Definition (Sec 126): Promise to perform a third party’s liability in case of default.
Features: Tripartite, consideration, secondary liability, free consent, competent
parties, lawful object.
Conclusion: Protects creditor; surety liable only on default.
Q16. Promissory Note – Arjun vs Nakul (7 Marks)
Question:
Promissory note endorsed to Arjun via deceased agent. Can Arjun recover amount?
Answer:
Provision: Endorsement + delivery valid; delivery to agent = delivery to principal.
Application: Negotiation complete; Arjun is holder.
Conclusion: Arjun can recover ₹10,000 from Nakul.
Q17. Ratification (6 Marks)
Question:
Define ratification; explain rights and effect.
Answer:
Definition (Sec 196): Principal can adopt acts done without authority.
Rights: Ratify or disown; must be entire act; full knowledge required.
Effect: Act becomes valid ab initio; relationship of principal-agent created
retrospectively.
Conclusion: Unauthorized acts validated upon ratification.
Q18. Auction – Sale Rules (7 Marks)
Question:
(i) When is contract complete in auction? (ii) Effect of pretended bidding? (iii) Can seller
reserve right to bid?
Answer:
Completion: Fall of hammer or customary announcement.
Pretended Bidding: Voidable by buyer.
Seller Right: Expressly reserved bids allowed; otherwise voidable.
Conclusion: Sale valid at hammer fall; fake bids voidable; reserved right must be
announced.
Q19. Section 68 – Necessaries for Lunatic (3 Marks)
Question:
Kajal, a lunatic, purchases a diamond set on credit. Can the jeweller claim from her husband?
Answer:
Provision (Sec 68): Supplier entitled to reimbursement for necessaries suitable to
person’s condition.
Analysis: Diamond set is luxury, not necessary.
Conclusion: Jeweller cannot claim from Ajay; purchase not binding.
Q20. Sale of Goods – Rajnikant & Sonia (4 Marks)
Question:
Rahul contracts with Sonia to purchase jute by a fixed date. Sonia delivers late but assures
quality. Can Rahul avoid the contract?
Answer:
Provision (Sec 55, Indian Contract Act, 1872): When time is of essence, delay
allows avoidance.
Application: Rahul made time essential for quality verification. Late delivery
breaches condition.
Conclusion: Rahul can avoid contract; seller liable for breach.
[End of Part 2 – Questions 12–20]
All answers include provisions, facts, application, and conclusion in CA-level detail for exam
preparation.