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.

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 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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