Paper 2 – Business Laws

Time: 3 Hours
Maximum Marks: 100

Instructions

1. Question No. 1 is compulsory.
2. Attempt any four questions from Q2–Q6.
3. Support answers with relevant provisions of law.
4. Working notes should form part of answers where required.

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Question 1 (Compulsory) – 20 Marks

(a) Multiple Choice Questions (2 × 5 = 10)

1. Under the Indian Contract Act, 1872, a contract without consideration is:
   A. Always valid
   B. Void
   C. Illegal
   D. Voidable
2. An agreement made with a minor is:
   A. Void
   B. Voidable at minor’s option
   C. Valid if beneficial
   D. Illegal
3. Which of the following is not an essential element of a valid contract?
   A. Free consent
   B. Lawful consideration
   C. Social obligation
   D. Competency of parties
4. A contract where both parties are under mistake of fact is:
   A. Valid
   B. Void
   C. Voidable
   D. Illegal
5. A contract contingent upon happening of an uncertain future event is called:
   A. Void agreement
   B. Contingent contract
   C. Quasi contract
   D. Wagering agreement

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(b) Short Answer Questions (2 × 5 = 10)

1. Define Offer and Acceptance.
2. What is Free Consent?
3. Distinguish between Void Agreement and Voidable Contract.
4. Define Consideration under the Indian Contract Act.
5. What is Doctrine of Indoor Management?

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Question 2 – Indian Contract Act (20 Marks)

A offered to sell his car to B for ₹5,00,000. B accepted the offer and promised to pay within 10 days. Before payment was made, A sold the car to C.

Meanwhile, B had already incurred expenses of ₹10,000 for arranging funds.

Required:

1. Whether a valid contract existed between A and B.
2. Whether A was legally allowed to sell the car to C.
3. What remedies are available to B under the law.

Support your answer with provisions of the Indian Contract Act, 1872.

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Question 3 – Capacity to Contract (20 Marks)

Ravi, a 17-year-old minor, purchased a laptop worth ₹50,000 on credit from a shopkeeper. Later, he refused to pay claiming that he was a minor.

The shopkeeper argues that Ravi looked like an adult and used the laptop for his studies.

Required:

1. Is the contract valid under the Indian Contract Act, 1872?
2. Can the shopkeeper recover the money?
3. Explain the legal position regarding contracts with minors.

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Question 4 – Contingent & Wagering Agreements (20 Marks)

Explain the difference between:

1. Contingent Contract
2. Wagering Agreement

Also state the legal validity of both under the Indian Contract Act, 1872, with examples.

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Question 5 – Companies Act, 2013 (20 Marks)

Explain the following concepts under the Companies Act, 2013:

1. Memorandum of Association
2. Articles of Association
3. Doctrine of Ultra Vires
4. Doctrine of Indoor Management

Support your answer with examples.

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Question 6 – Sale of Goods Act, 1930 (20 Marks)

X agreed to sell 500 bags of rice to Y at ₹2,000 per bag. The goods were to be delivered after 10 days.

Before delivery, a fire destroyed the entire stock without any fault of the seller.

Required:

1. Whether the contract becomes void.
2. Who bears the loss in this case.
3. Explain the concept of Transfer of Risk under the Sale of Goods Act, 1930.

Business Laws – Solutions / Answer Key

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Question 1 – MCQs

1. Contract without consideration is generally void under Section 25 of the Indian Contract Act, 1872.
   ✅ Answer: B – Void
2. Agreement with a minor is void ab initio. A minor cannot enter into a contract.
   ✅ Answer: A – Void
3. Social obligation is not essential for a valid contract. Essential elements: offer, acceptance, lawful consideration, free consent, competent parties, lawful object.
   ✅ Answer: C – Social obligation
4. Contract where both parties are under mistake of fact → void contract (Section 20).
   ✅ Answer: B – Void
5. Contract contingent on an uncertain event → Contingent Contract (Section 31).
   ✅ Answer: B – Contingent contract

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Short Answer

1. Offer & Acceptance

• Offer (Proposal): Expression of willingness to do or abstain from something, made with the intention to obtain assent (Section 2(a)).
• Acceptance: Expression of assent to the proposal in a manner prescribed or usual (Section 2(b)).

2. Free Consent
   Consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake (Sections 13–19).
3. Void vs Voidable

Void	Voidable
Not enforceable by law	Enforceable at the option of aggrieved party
Example: Agreement with a minor	Example: Agreement under undue influence

4. Consideration
   Something of value exchanged between parties. Must be lawful and real (Section 2(d)).
5. Doctrine of Indoor Management
   Protects outsiders dealing with a company from internal irregularities. They can assume internal rules have been followed (Royal British Bank v. Turquand, 1856).

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Question 2 – Indian Contract Act

Facts: A sells car to B, B accepts, but A sells to C before payment. B spent ₹10,000 arranging funds.

Solution:

1. Validity of Contract

• Yes, valid contract exists between A and B once B accepted the offer (Section 10).
• Consideration: Promise to pay ₹5,00,000 → lawful.
• Capacity: Both parties competent.

2. Sale to C

• Not allowed, because the car is already contracted to B. A is in breach.
• B has right to sue for specific performance or damages (Sections 37–73).

3. Remedies for B

• Damages for breach: Compensation for loss, including ₹10,000 spent.
• Specific performance: Court can direct A to deliver car to B.
• Rescission: Cancel contract and recover expenses.

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Question 3 – Capacity to Contract (Minor)

Facts: Ravi (17 years) buys laptop on credit.

Solution:

1. Validity of Contract

• Contract with minor = void ab initio (Section 10 & 11).
• Minor cannot be held liable for contractual obligations.

2. Recovery by Shopkeeper

• Shopkeeper cannot recover the price under contract law.
• However, minor may have to return goods if misused or beneficial (Section 68 – Natural obligations).

3. Legal Position:

• Minor’s contracts: Void, cannot sue or be sued.
• Exceptions: Contracts for necessaries (food, clothing, education) → minor liable to pay reasonable value (Section 68).

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Question 4 – Contingent & Wagering Agreements

Feature	Contingent Contract	Wagering Agreement
Definition	Contract dependent on uncertain future event	Agreement betting on chance or event
Legal Status	Valid under Section 31	Void under Section 30
Example	Payment on delivery of goods	Betting on cricket match outcome

✅ Key:

• Contingent contract becomes enforceable if event occurs.
• Wagering agreement is unenforceable by law.

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Question 5 – Companies Act, 2013

1. Memorandum of Association (MOA)

• Legal document defining objectives, powers, and scope of company.
• Must be filed with ROC at incorporation.

2. Articles of Association (AOA)

• Rules governing internal management of company.
• Cannot override MOA.

3. Doctrine of Ultra Vires

• Acts beyond the MOA are void.
• Protects shareholders and creditors.

4. Doctrine of Indoor Management

• Outsiders can assume that internal procedures are properly followed.
• Example: Bank accepting company’s resolution for loan.

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Question 6 – Sale of Goods Act, 1930

Facts: 500 bags of rice contracted; destroyed by fire before delivery.

Solution:

1. Whether contract void?

• Yes, Section 7 of Sale of Goods Act (goods perishing before sale) → Contract becomes void if risk not passed.

2. Who bears the loss?

• Seller bears loss if risk has not passed.
• Risk passes when goods delivered to buyer per contract terms (Section 26).

3. Transfer of Risk Concept

• Risk passes with property unless contract specifies otherwise.
• In case of unascertained goods, risk passes when goods are identified and agreed upon.

Disclaimer

This mock test paper is created for practice purposes. The questions and solutions are inspired by the CA Foundation exam pattern and previous year trends, but are not taken from or affiliated with the Institute of Chartered Accountants of India (ICAI).