BCOC 133 Business Law Solved Question Paper June 2026 for Bachelor of Commerce (General) BCOMG

Communication of offer and acceptance, and the elements of fraud

Question 1 (a): Explain the rules regarding communication of offer and acceptance. (5 + 5)

Question 1 (b): What elements must be present in the act to constitute fraud? (10)

Under the Indian Contract Act, 1872, a contract comes into being only when a proposal (offer) and its acceptance are both communicated. Section 3 says communication, acceptance and revocation take place through any act or omission by which a party intends to communicate, and Section 4 fixes the exact moment each communication is complete.

(a) Rules regarding communication of offer

1. Complete on knowledge: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Section 4). A letter of offer posted on Monday is communicated only when the offeree reads it.
2. No acceptance without knowledge: A person can accept only an offer he knows of. In Lalman Shukla v Gauri Dutt (1913), a servant who traced a missing boy before learning of the reward could not claim it.
3. Express or implied: An offer may be made in words, spoken or written, or implied from conduct (Section 9). A bus running on its route is an implied offer to carry passengers at the stated fare.
4. Specific or general: It may be made to one person or to the public at large. In Carlill v Carbolic Smoke Ball Co (1893), anyone who performed the stated conditions accepted the general offer.
5. Revocation window: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards (Section 5).

(a) Rules regarding communication of acceptance

1. Absolute and unqualified: Acceptance must match the offer exactly (Section 7(1)). A reply that changes the terms is a counter-offer, which ends the original offer.
2. Usual and reasonable manner: Acceptance must be expressed in a usual and reasonable manner unless the offer prescribes one (Section 7(2)). If the prescribed manner is ignored, the proposer may insist on it within a reasonable time.
3. Timing under Section 4: It is complete as against the proposer when put in the course of transmission to him, out of the acceptor's power, and as against the acceptor when it comes to the knowledge of the proposer.
4. Silence is not acceptance: A mental decision or silence does not bind. In Felthouse v Bindley (1862), an uncle's statement that he would treat his nephew's silence as acceptance created no contract.
5. By the right person, in time: Acceptance must come from the offeree or his authorised agent, within the time fixed or a reasonable time, or the offer lapses (Section 6).
6. Instantaneous modes: On the telephone the contract is made where the acceptance is heard, as the Supreme Court held in Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas (1966).

Illustration from Section 4: A proposes by letter to sell a house to B. B accepts by a letter sent by post. The acceptance is complete as against A when B posts the letter, and as against B when A receives it. Until A receives it, B can still revoke his acceptance by a faster message (Section 5).

(b) Acts that amount to fraud under Section 17

Section 17 defines fraud as certain acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party or his agent, or to induce him to enter into the contract.

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true.
2. The active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any act or omission that the law specially declares to be fraudulent.

(b) Elements that must be present

1. Representation of a fact: It must relate to a fact, not an opinion, forecast or sales talk. Calling a horse the best in the city is puffery; saying it has never been lame is a statement of fact.
2. The representation is false: A true statement cannot be fraud, however unfairly it is used.
3. Knowledge of falsity or recklessness: The maker must know it is false, or make it without belief in its truth, or not care whether it is true or false, as laid down in Derry v Peek (1889).
4. Intention to deceive: The statement must be made to induce the other party to act on it. A careless remark with no aim of influencing the deal is not fraud.
5. Made by a party or his agent: It must come from a party to the contract, with his connivance or through his agent. A stranger's lie does not make the contract voidable for fraud.
6. The other party is actually deceived: He must rely on the statement and act on it. A buyer who checks the facts himself and does not rely on the claim cannot plead fraud.
7. Loss or damage: The deceived party must suffer loss. Fraud without damage gives no cause of action.

(b) Silence and fraud

Mere silence about facts likely to affect the other party's decision is not fraud (Explanation to Section 17). It becomes fraud where there is a duty to speak, such as in a fiduciary relationship, or where the silence is in itself equivalent to speech.

Illustration: A sells a horse at auction to B, knowing it is unsound, and says nothing. This is not fraud. If B is A's daughter who has just come of age, the relationship creates a duty to speak and A's silence becomes fraud.

Effect of fraud (Section 19): the contract is voidable at the option of the party defrauded, who may instead insist on performance and on being placed where he would have been had the representation been true. Exception: where consent was caused by misrepresentation or fraudulent silence and the party could have found the truth with ordinary diligence, the contract is not voidable.

Essentials of bailment and the rights and duties of a bailee

Question 6: Discuss the essentials of a contract of bailment and state the rights and duties of bailee. (20)

Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. (Section 148, Indian Contract Act, 1872)

The person delivering is the bailor and the person receiving is the bailee. Everyday examples include giving a watch for repair, a suit to a dry cleaner, a scooter to a friend for a day or luggage to a railway cloakroom.

Essentials of a contract of bailment

1. A contract between the parties: Bailment arises from an agreement, express or implied. A finder of lost goods is an exception: Section 71 gives him the same responsibility as a bailee.
2. Delivery of goods: Possession must pass to the bailee. Delivery can be actual, by handing over the goods, or constructive, such as handing over the keys of a godown (Section 149).
3. Only movable goods: Bailment applies to goods, not to land or buildings. Depositing money in a bank creates a debtor and creditor relationship, not bailment.
4. Delivery for a purpose: The goods are handed over for a definite purpose such as repair, safe custody, carriage, use or security for a debt.
5. Return of the same goods: The specific goods must be returned or disposed of as the bailor directs, even in altered form, such as cloth returned as a stitched suit. Returning other goods of equal value is not bailment.
6. Ownership stays with the bailor: Only possession passes. This separates bailment from sale, where ownership passes to the buyer.

Duties of a bailee

1. Reasonable care (Section 151): The bailee must take as much care of the goods as a man of ordinary prudence would take of his own goods of the same bulk, quality and value, whether the bailment is paid or gratuitous.
2. No liability if proper care is taken (Section 152): Without a special contract, the bailee is not responsible for loss or damage if he has taken the care required by Section 151.
3. No unauthorised use (Sections 153 and 154): Using the goods against the terms of the bailment makes the bailee liable for any damage from that use, and an act inconsistent with the terms lets the bailor end the bailment.
4. No mixing without consent (Sections 155 to 157): Goods mixed with consent are shared in proportion; if mixed without consent but separable, the bailee bears the cost of separation; if inseparable, he must compensate the bailor.
5. Return the goods (Section 160): The goods must be returned or delivered as directed, without demand, when the time expires or the purpose is accomplished.
6. Liability for delay (Section 161): If the goods are not returned at the proper time, the bailee is responsible for any loss, destruction or deterioration from that time, even without negligence.
7. Hand over increase or profit (Section 163): Any natural increase or profit from the goods, such as the calf of a bailed cow, belongs to the bailor and must be delivered with the goods.

Rights of a bailee

1. Compensation for faults (Section 150): The bailor must disclose known faults that interfere with use or expose the bailee to extraordinary risk. In a bailment for hire, the bailor is liable for such faults even if he was unaware of them.
2. Necessary expenses (Section 158): Where the bailee is to receive no remuneration, the bailor must repay the necessary expenses incurred for the purpose of the bailment.
3. Indemnity for defective title (Section 164): The bailor must make good any loss the bailee suffers because the bailor was not entitled to make the bailment or to receive the goods back.
4. Safe re-delivery (Sections 165 and 166): Goods bailed by joint owners may be returned to any one of them, and a bailee who in good faith returns goods to the bailor is not liable to the true owner.
5. Court protection (Section 167): Where a third person claims the goods, he may apply to the court to stop delivery to the bailor and have the title decided, so the bailee is not caught between rival claims.
6. Particular lien (Section 170): A bailee who has spent labour or skill on the goods, such as a tailor or a mechanic, may retain them until paid for those services.
7. General lien (Section 171): Bankers, factors, wharfingers, attorneys of a High Court and policy brokers may retain goods bailed to them as security for a general balance of account.
8. Suit against wrongdoers (Section 180): If a third person wrongfully deprives the bailee of the goods or damages them, the bailee may sue as if he were the owner.

Conclusion: Bailment moves possession but not ownership, and the Act balances the bailee's duty of care against his rights of lien, indemnity and compensation. For full marks, write the definition, the six essentials with an example each, then the duties and rights with their section numbers.