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KEY ANSWER – CONTRACT LAW

June 2010 Annual Examination

Part A
1. Mrs Puri had bought a precious stone from South Africa during her recent visit.
The stone was a wedding gift for Mrs Puri’s daughter. Mrs Puri handed over the stone
to Mr Chopra, a master in the art of cutting and polishing precious stones, to cut and
polish the stone for her. It was agreed that Mr Chopra would do the job within two
months time and have it ready for Mrs Puri before her daughter’s wedding. Mr
Chopra did an excellent job and had the stone ready in time. However, before he
could deliver it to Mrs Puri, the stone was stolen from a well protected safe in the
basement of Mr Chopra’s workshop. Consequently, Mrs Puri could not give the stone
to her daughter at her wedding. The thief was caught red-handed two days after the
wedding while selling the stone to a stone trader. Mrs Puri demanded the stone back
from Mr Chopra and refused to pay for the services rendered by him with respect to
the cutting and polishing the stone as penalty/damages for Mr Chopra’s failure to
return the stone in time which caused embarrassment for Mrs Puri since she could not
give it to her daughter as planned. Mr Chopra has approached you to seek advice.

You should advise on the following issues:


(a) Does a valid contract of bailment exist between Mrs Puri and Mr Chopra under the
given circumstances?
(b) Explain the general responsibilities of a bailee, and discuss whether Mr Chopra
could be held responsible for the delay in the delivery of the stone to Mrs Puri.
(c) State whether Mr Chopra is required to return the stone to Mrs Puri without
receiving the remuneration for his work. 20

Sec 148
Essential: delivery of possession, of goods, specific purpose, on condition that it will
be returned.
Kaliapourmal Pillai v Visalakshmi
Sec. 150 Duties of bailor
Gratuitous bailor v/s bailor for reward
Maffat v Bateman
Reed v Dean
Duty of reasonable care
Union of India v Udho Ram and Sons
Remedies

2. Kaka Palay, a 17 year old footballer was playing for Everton Football Association.
He was a promising footballer and it was predicted that Kaka will play for his country
and for big football clubs in years to come. In January 2000, WorldNet an Agency
service Company entered into a Exclusive Agency Contract with Kaka and took
responsibility of his advertisements and endorsements. The agreement was for 2
years.
In June 2002, prior to the expiry of the 2 year contract with WorldNet, Kaka who had
turned 18 decided to enter into another Exclusive Agency contract with Prime Sports,
who were offering him better endorsement and financial gains. Kaka’s father Mr.
Samuel wrote to WorldNet about Kaka’s intention to terminate the agreement.
WorldNet approaches to the Court based on two issues:
1. They claim that the agreement with Kaka [who was a minor] was for his
necessaries of life and hence is valid and enforceable.
2. WorldNet also states that they must be permitted to claim damages from Prime
Sports in tort. WorldNet alleges that Prime sports had induced Kaka to commit
breach of contract with them and hence Prime sports must be held liable for
payment of damages to the extent of Rs 50 lakh.

Discuss the liability of Kaka in this case and also the liability of Prime Sports in case
of inducing breach of contract.
20

Contract entered in Jan 2000, effective dated of the contract was later in the same
year [effective date and expiration date]
Sec. 10
Latent and patent incapacity
Position of minors in contract
Mohoribibi v Dharmodas Ghose
Khan Gul v Lakha Singh
Minor liable of necessaries of life
Chappel v Cooper
Minor liable under various labour laws/service contract
Liability for inducing breach of contract: If proved
Sec. 27 Agreement in restraint of trade.
Gujarat Bottling case

3. Aavni wants to sell her house, which in the market is priced at 30 lakh. She sends
letters to two of her friends offering and expressing her willingness to sell the house
to them if they are interested. She makes a preferential bid to her two friends and
invites them on 3rd October 2009 at her house for an auction sale. Aavni prefers to sell
the house in the auction -‘without reserve’.
On 3rd October, Bharati and Chaitra come to Aavni’s house and start the bidding
process. The highest bid was claimed by ‘Bharati’ at Rs 20 lakh and the Auctioneer
puts down the hammer the third time at Rs 20 lakh. Aavni is unhappy with the price.
She suspects foul game by her two friends. She alleges that the two friends have
colluded to rig and lower down the price, deliberately to defeat competition. Aavni
refuses to accept the final bid amount and perform the contract.
Bharati sues Aavni for breach of contract and is seeking the remedy of specific
performance from the Court. Advise Aavni.
20
Essential of offer and acceptance
Mail box rule
Essential of auction sale
Customary practices in auction
With reserve and without reserve
Fair procedure in auction
Cartel, rigging, anti competitive bids: liable for rejection
Breach of contract and liability of parties
Part B
Answer Any 4 [4x10]
1. ‘Mere consent is not enough to constitute a valid contract; it should be free
and voluntary, so that the contracting persons can subject themselves to the
binding obligations that are created by the contract’. Justify the above
statement with the help of case law.
Key: sec. 10, 15, 17, 17 and 18, 20 and 22.
Ranganayakamma v Alwar Chetty
Chikkam Ammiraju v Chikkam Seshamma
Allcard v Skinner
Fiduciary relations
Uberrimae fidei
Silence as a means of frau0d
Derry v Peek
Bell v Lever Brothers Ltd
Philips v Brooks

2. Explain the below para:


According to sec. 55, when there is a promise to do a certain thing or certain
things at or before a specified time, and the promisor fails to perform before
the specified time, the contract or so much of it as has not been performed
becomes voidable at the option of the promise, if the intention was that time
should be the essence of the contract. If such was not the intention, the
contract does not become voidable, but the promise is entitled to compensation
for any loss. If, in such a voidable contract the promisee accepts performance
at any time other than agreed, he cannot claim compensation for any loss
unless at the time he accepts performance he gives the promisor notice of his
intention to so claim.

Sec. 55
China Cotton Exporters v B R c Mills
Bhudra Chand Betts
Mahabir Prasad Rangta v Durga Datta
Hind Construction Contractors v State of Maharashtra

3. Under the contract of Guarantee, examine the rights of a Surety with the help
of case law
Sec. 126
Sec. 140 [Subrogation
Sec. 145 [Indemnity]
Sec. 147 [contribution]
Mamata Ghose v United Industrial Bank
Right of share reduction
Right of set-off
Right against co-sureties Sec. 138

4. Examine the various situations under which a Contract of Agency comes to an


end.
Revocation by Principal
Read v Anderson
Renunciation by Agent
Agreement
Performance by Agent

Termination by Operation of Law


By Efflux of time
Death of the parties
Insanity of the parties
Insolvency of the parties
Destruction of the subject matter
Agency business becoming unlawful
By termination of agent’s authority

5. Write a brief note on ‘Anticipatory Breach’.


Hoschster v De La Tour
Frost v Kinght
Sec. 39

6. Write a note on ‘counter offer’


Sec. 2 b: Acceptance
Conditional acceptance
General principles of offer and acceptance
McPherson v Appanna

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