Contract Act 1872 of Pakistan by ryt91970

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									      THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

                             EXAMINERS’ COMMENTS



               SUBJECT                                        SESSION
              Mercantile Law                     Foundation Examination – Spring 2009

General:

This was comparatively an easy paper. The overall performance slightly improved from
Autumn 2008 examinations but still, it was far below the desired levels.

One of the prerequisites for securing good marks in the professional examinations is the
importance of covering the entire syllabus. Multiple factors, for instance, selective
studies, unnecessary deliberations on irrelevant matters, lack of comprehension of the
requirements of the question, improper application of law to practical situations etc. are
some of the facets which contribute towards poor performances.

In mercantile law papers, it is a common observation that students generally prepare for
Contract Act, 1872 and Partnership Act, 1932 paying little or no heed to other civil laws
like legal systems in Pakistan, Carriage of Goods by Sea Act, 1925, Trust Act, 1882 and
The Negotiable Instruments Act, 1881 which ultimately results in below average
performances. Some of the students are very elaborative while others extremely brief. It
must be mentioned here that only a balanced approach produces good results.

Question wise comments are as under:

Q.1    It was one of the poorly attempted questions. Nearly 50% of the candidates didn’t
       bother to answer the question at all. Those who attempted could not comprehend
       the exact requirement of the question and instead of explaining the proper
       application towards ‘Appeal’, its basis and the procedure, ended up unnecessarily
       elaborating on the role of City Court, High Court and Supreme Court.

Q.2    It was an easy question straight from sections 5 and 6 of Contract Act, 1872 and
       very well attempted too. Some of the students, however, mixed up the
       requirements of the question, explaining communication of offer, acceptance of
       proposal and in few cases essentials of a valid contract, instead of restricting
       themselves to the requirements of the question.

Q.3    In part (a) of this question the candidates failed to produce the desired answers.
       Most of the them didn’t comprehend the requirements of the question and instead
       of writing the principles of determining compensation for loss or damages caused
       due to breach of contract, as stated under section 73 of the Contract Act, 1872,
       started explaining the types of breaches and different kinds of damages e.g.
       anticipatory breach, actual breach, ordinary or special damages, exemplary or
       vindictive damages etc.

       The situation given in part (b) required an answer based on section 62 of the
       Contract Act, 1872. The students were simply required to explain that when
       parties to a contract agree to substitute it with a new contract, they can not demand
       the performance of the original contract. Most of the answers were based on
       Yes/No and very few candidates managed to give the required justification.


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                              Examiners’ Comments on Mercantile Law – Spring 2009

Q.4   Part (a) of the question was quiet straightforward and based on sections 168 and
      169 of the Contract Act 1872 and the performance of the candidates was quiet
      satisfactory.

      Part (b) was also attempted well by the students and majority of them secured
      good marks. Some of the candidates, however, just wrote that “Yes, Mehreen is
      entitled to claim the cost of insurance”, without supporting their decision by
      mentioning that the pawnee is entitled to recover from the pawnor, the
      extraordinary expenses incurred on the preservation of pledged goods.

Q.5   (a)   Majority of the students correctly defined the contract of Indemnity and
            secured full marks on this part of the question. However, some of them
            mixed up the concept of Indemnity with Guarantee and could not secure
            any marks.

      (b)   The performance in this part of the question was also satisfactory. Most of
            the candidates secured good marks. However, few of them instead of
            stating the conditions under which a surety is not discharged from liability
            started narrating the circumstances when surety is discharged from his
            liability.

Q.6   (a)   This part of the question pertained to sections 27 through 30 of the Sale of
            Goods Act, 1930 and was attempted well by majority of the students. It was
            a 4 mark question and the requirement was to list down the exceptions to
            the general rule “A person cannot pass a better title than what he himself
            has”. However, many students filled pages in describing each exception
            and wasted considerable amount of time which earned no extra credit to
            them.

      (b)   Very few of the candidates were able to perform well in this question which
            was based on section 45 of the Sale of Goods Act, 1930. Most of the
            students couldn’t properly define an unpaid seller. There were also
            divergent views over the status of the seller if he sells on ‘Credit’.

      (c)   In this part also, the performance was very poor. Majority of the students
            could not identify the circumstances under which a seller loses his right of
            lien and stoppage of goods in transit as referred to in Sections 48, 49 and 51
            of Sale of Goods Act, 1930.

Q.7   (a)   This part of the question solicited the requirements of section 202 through
            204 of Contract Act, 1872. Majority of the students attempted the question
            but failed to enumerate all the requirements. Some of them could not
            comprehend the requirements of the question and listed the situation in
            which an agency is terminated and failed to secure any marks.

      (b)   In this part the candidates were required to explain the rules as to when the
            termination of the agent’s authority takes effect. It was based on sections
            208 & 210 of the Contract Act, 1872. An average performance was
            witnessed in majority of the cases.




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                              Examiners’ Comments on Mercantile Law – Spring 2009

      (c)   This part of the question was based on section 212 of the Contract Act,
            1872. Some candidates stated that the principal (Aslam) is justified in his
            claim without specifying any reason for their conclusion. A large majority
            was of the view that since the agent acted on behalf of the principal
            (Aslam), the agent was not liable to reimburse the cost incurred by the
            principal (Aslam). In fact, the agent was liable in this situation because the
            principal had to incur the cost on account of the agent’s negligence. Some
            of the students stated that since the loss was not a direct consequence of the
            agent’s neglect, the agent was not liable. Such answers were treated as
            correct as they provided logical reasoning to support their conclusions.

Q.8   (a)   This part of the question was very easy. It was based on the requirements of
            section 30 of the Partnership Act, 1932 and many students who had
            properly studied the relevant section, were able to secure full marks. Some
            students wrote about Hasan’s right to take part in the decision making
            process and inspect the books of account etc, which was not relevant to the
            requirement of the question.

      (b)   This part of the question was based on Section 55(3) of the Partnership Act
            1932. The candidates were simply required to cover two points in their
            answers

            •   that the rule related to agreements in restraint of trade do not apply in
                the given situation as the Partnership Act specifically allows such an
                agreement to be valid notwithstanding anything contained in the
                Contract Act, 1872.

            •   The exception allowed under the Partnership Act is subject to the
                condition that the restrictions imposed should be reasonable.

            Majority of the students wrote the first point but did not mention the second
            point.

      (c)   It was a straightforward question based on section 55(2) of the Partnership
            Act, 1932. It was well attempted and a large number of candidates secured
            full marks.

      (d)   Majority of the candidates who attempted to answer this part of the
            question could not properly highlight the concept of “Holding Out” as has
            been narrated under section 28(1) and (2) of the Partnership Act, 1932. Few
            candidates could not comprehend the question and discussed the doctrine of
            “Agency by estoppel” as described under section 237 of the Contract Act,
            1872.

Q.9   (a)   Around 16% of the students didn’t attempt this part of the question. It was
            based on the requirements of section 93 and 94 of the Negotiable
            Instruments Act, 1881. The performance was once again poor which
            conforms a long standing observation of the examiners that students pay
            very little attention to the Negotiable Instruments Act.

      (b)   This was an easy question and therefore the overall performance was
            reasonable. However, most of the candidates could not take full advantage
            of the situation as they were unable to narrate all the conditions stated in
            section 98 of the Negotiable Instruments Act, 1881.

                                                                              Page 3 of 4
                                Examiners’ Comments on Mercantile Law – Spring 2009

       (c)   Answer to this part carried two points i.e.

             (i)    The banker is discharged from his liability by payment in due course
                    even if the endorsement is forged because the banker is not expected
                    to know the signatures of payees who are not the bank’s client.

             (ii)   The banker is not discharged from his liability if it makes payment on
                    a cheque on which the drawer’s signatures are forged because it is the
                    banker’s responsibility to match the drawers signature.

Q.10   It appears that candidates do not allocate proper time in studying the Carriage of
       Goods by Sea Act as the answers were usually based on the common knowledge.
       Few students instead of listing down the contents of a bill of lading, started
       defining, what is a bill of lading and also deliberated on the condition of a ship,
       its route, time and date of harboring and negotiability of the instrument etc.
       which were absolutely irrelevant.

Q.11   (a)   The overall performance in this part was poor. Most of the students could
             not properly comprehend the requirements of the question and deliberated
             on the extinction of the trust (Section 77) instead of revocation of the trust
             as narrated under section 78 of the Trust Act, 1882.

       (b)   This segment was based on the requirements of section 62 of the Trust Act,
             1882. The performance remained very poor as the students generally
             emphasized on filing suit against the trustee and claiming damages instead
             of re-conveyance of the property back to the trust.

       (c)   This was an easy question and was attempted well by majority of the
             students. They were able to apply the principles contained in Section 15 of
             the Trust Act, 1882 to the situation given in the question and produced
             good answers.


                                       (THE END)




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