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Law Unit 3 Answer-Sheet

The document is a sample answer sheet for a test on Law (Unit 3) for the CA Foundation. 1) The first question discusses remedies for misrepresentation in the sale of goods. If the seller honestly but incorrectly represented where a watch was made, the contract is voidable. If the seller knowingly misrepresented it, the contract would be voidable and damages could be awarded. 2) The second question is about whether a legal expert can recover promised payment for not taking a case for another party during litigation. The agreement not to take the other case is valid and enforceable, so the legal expert can recover the promised payment. 3) The third question discusses various contract law topics like when

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772 views

Law Unit 3 Answer-Sheet

The document is a sample answer sheet for a test on Law (Unit 3) for the CA Foundation. 1) The first question discusses remedies for misrepresentation in the sale of goods. If the seller honestly but incorrectly represented where a watch was made, the contract is voidable. If the seller knowingly misrepresented it, the contract would be voidable and damages could be awarded. 2) The second question is about whether a legal expert can recover promised payment for not taking a case for another party during litigation. The agreement not to take the other case is valid and enforceable, so the legal expert can recover the promised payment. 3) The third question discusses various contract law topics like when

Uploaded by

gargee thakare
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Answer-sheet

Rathi Career Forum


Marks: 30 DT: 04/10/2021 Test- Law (Unit 3) CA Foundation Time: 1 Hr. 10 Mins
Ques. 1 is compulsory & Attempt any Two from the remaining
Q1(a). A, honestly believing that his watch is made in Switzerland agreed to sell it to B by
representing that the watch is made in Switzerland. Subsequently, it is discovered that the watch
is made in India. What is the remedy of B? Will your answer be different had A known that his
watch was made in India? (5M)
Ans: Hint The contract is voidable on the grounds of misrepresentation, since untrue statement was
made by A, in honest ignorance of its falsehood & therefore the only remedy available to B is to
rescind the contract, no damages shall be granted.
However, if A knew that the watch was actually made in India, it will amount to fraud & the
contract shall be not only voidable at the option of B but damages shall also be awarded to him
for his loss.
(b) Mr. Seth an industrialist has been fighting a long drawn litigation with Mr. Raman another
industrialist. To support his legal campaign Mr. Seth enlists the services of Mr. X a legal expert
stating that an amount of Rs. 5 lakhs would be paid, if Mr. X does not take up the brief of Mr.
Raman. Mr.X agrees, but at the end of the ligitation, Mr. Seth refuses to pay. Decide whether Mr.
X can recover the amount promised by Mr. Seth under the provision of the Indian Contract Act,
1872. (5M)
Ans: Hint Restraints imposed under service agreements are valid & enforceable provided they are
reasonable. A clause in a service agreements whereby an employee is prohibited from accepting
any other engagement during his employment is valid & is not regarded as in restraint of trade.
In the given case Mrs. Seth has enlisted (hired) the services of Mr. X a legal expert who agrees not
to take up the brief of Mr. Raman during the course of litigation.
Thus, the agreement is valid & enforceable since the restriction imposed on Mr. X does not
amount to restraint of trade. Mr. X can recover the amount from Mr. Seth.

Q2(a).“Mere Silence does not amounts to Fraud”. Discuss. (5M)


Ans: As a general rule silence as to material fact regarding the contract does not amount to fraud,
since, the contract in party is under no obligation to give full disclosure to the other party on
account of the rule of caveat empty. However he must refrain from active concenment of the facts
relating to the contract. Thus mere silence is no fraud.
There are however 2 statutory exception to the above rule
(i) When the party is under a duty to speak: Where the circumstances of the case are such that it
is the obligation of the contracting party to speak and give full disclosure irrespective of whether
or not had been demanded by the other party. Examples of such contracts are
(i) In case of contract made between parties in fiduciary relation with each other the parties are
under a duty to speak on account of utmost good faith present between them.
(ii) In case of contracts of marriage the parties are under a duty to speak and give disclosure of all
the material facts to the insurer
(iii) In case of contracts of marriage the parties are under a duty to speak and give disclosure of all
the material facts.
(iv) In case of contracts of family settlements also full disclosure is required to be made by the
parties at the time of formation of contract
(v) In case of contract of partnership, since the relation is founded on mutual trust the partners are
under a duty to speak
(vi) In case of contract of guarantee, the creditor is under a duty to disclose all the material facts
which are likely to afact the decision of the surety to extend guarantee.
(vii) In case of change in material fact after the formation of contract but before the conclusion of
contract, the party is under a duty to speak
(viii) In case of any latent defect present in the goods being offered for sale, the seller in under a duty
to speak
(ix) In case of allotment of shares by a company, its officers are under a duty to disclose all the
material facts within in their knowledge, by way of statement in prospectus when the public is
being invited to subscribe to the shares of the company.
(2) When silence is equivalent to speech: For example where A says to B “ If you do not deny it I
will assume that the horse is sound and fit for purchase”. A says nothing. Here is silence shall
amount to speech and hence it shall amount to fraud.
(b) A wanted to sell his automobile parts factory to B. A states that 1,000 automobile parts are
manufactured in a month in the factory. Moreover, there is no marketing problem of the parts.
This fact was true when the negotiation started. The record of the factory was placed before B, &
he was told that he can examine the factory record of any period. The negotiations lasted for six
months & the contract was signed. During this period, the factory production came down to 500
parts per month due to shortage of raw materials. This fact was not disclosed to B. However, the
factory record was already before him(B). Comment on the action taken by B in this case. (5M)
Ans: In this case, B cannot put an end to the contract on the ground of fraud as he could have
discovered the fact with ordinary diligence. The record of the factory was shown to B, & he was
given a reasonable opportunity to examine it.

Q3(a).Ishaan, aged 16 years was studying in an engineering college. On 1st March, 2016 he took a
loan of Rs. 2 lakhs from Vishal for the payment of his fees & agreed to pay by 30th May, 2017.
Ishaan possesses assets worth Rs. 15 lakhs. On due date, Ishaan fails to pay back the loan to
Vishal. Vishal now wants to recover the loan from Ishaan out of his assets. Decide whether Vishal
will succeed referring to the provisions of the Indian Contract Act, 1872. (5M)
Ans: Hint: Claim for necessaries of life supplied to minor can be made from the properties of the
minor if any, education expenses amount to necessaries of life, Vishal can recover the amount of
loan of Rs. 2 Lakhs from the properties of the minor Ishaan.
(b) Discuss the law relating to the effect of mistake on contract. (5M)
Ans: Answer: A contract is said to be created under mistake when the party/ parties to contract are
under an erroneous belief, micro conception or misimpression as to the laws applicable or the
facts essential, to the contract.
The mistake can either be:
(i) Mistake of Law: If a contract is created under mistake of law of the Land, the contract shall be
treated as valid and enforceable since ignorance of law of own country cannot be excusable to
any party (ignorantiajuris non excusat).
However, if the mistake relates to the law of a foreign country, then the same shall be treated
as excusable and the agreement shall be treated as void.
(ii) Mistake of fact: It can be of two types:
(a) Bilterial Mistake: When both the contracting parties are under a mistake as to the facts
essential to the contract such as regarding the quality, existence, quantity, price, etc. of the
subject matter or regarding the possibility of performance of the contract, than the agreement is
said to be void due to bilateral mistake.
(b) Unilateral Mistake: When only one of the contracting parties is under a mistake as to the facts
of a contract, the contract is said to be created under unilateral mistake. Generally a contract
created under unilateral mistake is said to be valid. However, if the unilateral mistake is
regarding the –
(i) Identity of the contracting party
(ii) The nature of contract
(iii) The quality of promise, then the same shall be regarded as void.

Q4(a). “A person who is usually of an unsound mind but occasionally of sound mind may enter into
a valid contract when he is of sound mind.” Explain. (5M)
Ans: As per section 11 of the Contract Act, for a valid contract, it is necessary that each party to
contract must have ‘sound mind’ what is a sound mind? Section 12 of the contract act defines
the terms ‘sound mind’ as follows. ‘a person is said to be of sound mind for the purpose of
making a contract, if, at the time when he makes it, he is capable of understanding it and of
forming a rational judgement as to its effects upon his interest.”
According to this section, therefore, the person entering into the contract must be a person
who understands what he is doing and is able to form a rational judgement as to what he is
about to do, is to his interest or not.
Section 12 further states that:
(i) ‘ A person who is usually unsound mind, but occasionally of sound mind, may make a contract
when he is on sound mind. Thus a patient in a lunatic asylum, who is at intervals of sound mind,
may contract during those intervals.
(b) X & Y were running two organisations trading in Wheat of “Popular Brand” in Uttar Pradesh. X
realized that the wheat business is high yielding. To expand his business X offered Y a sum of Rs.
10 Lakhs on the condition that Y shall not sell “Popular Brand” Wheat in Uttar Pradesh. X failed
in making the promised payment to Y. Y filed a suit against X for non fulfilment of the promise. Is
the suit maintainable? (5M)
Ans: Hint: Agreements resulting the creation of monopoly. Such agreements are treated as opposed
to public policy, illegal & void ab initio. Thus in the given case the contract between X & Y is
opposed to public policy & illegal, since it results in the creation of monopoly. The suit is not
maintainable.
***********************************************BEST OF LUCK*******************************************

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