CLAT 2022 || New Pattern Legal Reasoning Quiz || 07.03.2022 for CLAT UG Exams

Question 1

Direction: Each set of questions in this section is based on the reasoning and arguments, or facts and principles set out in the preceding passage. Some of these principles may not be true in the real or legal sense, yet you must conclusively assume that they are true for the purposes of this Section. In some instances, more than one option may be the answer to the question; in such a case, please choose the option that most accurately and comprehensively answers the question.

Passage

Unlike in countries like Germany and France where the term is coded in civil laws, the Indian Contract Act – the 148-year old legislation which determines the circumstances in which promises in a contract shall be legally binding -- is silent on the term `force majeure’. Though the Act allows an agreement for performing an ‘impossible’ act to be considered void, the court outcome of disputes has varied from case to case, depending on the facts of each. And, even if the term ‘force majeure’ -- or, superior force in Latin -- is mentioned in a contract between two parties, `epidemics’ or `pandemics’ are rarely, if ever, included in the definition of ‘force majeure’ which typically covers catastrophes like an earthquake, flood, and war.

“Inevitably, all contracts will be put to the litmus test. Very few contracts in India includes pandemic as a force majeure event as such events are never anticipated. This will affect many. Some impacted by the lock-down may also be affected as acts of government may not be under the terms of force majeure. It all depends on terms between the parties,” It appears that despite the overwhelming nature of the COVID19 outbreak, there could be a slew of disputes, even litigations, in trade and businesses well after the world is free of the lethal virus.

"We are receiving several queries from players across sectors. While some of the cases may get amicable resolved, in others litigation is inevitable. We are approaching each case on its own merit. The sustainability of the claim would depend on the language of the force majeure clause and the facts of each case. In the absence of a FM clause in a contract, one would have to test the case in the backdrop of section 56 of the Contract Act,”

In cases, where contracts do not have a force majeure clause, Sec 56 of the Contract Act comes into play; it deals with `frustration of contract’ – a situation where fulfilling a contract becomes impossible or unlawful after the execution of the contract. Traditionally, courts have chosen a narrow interpretation of the law in ruling on disputes where Section 56 had kicked in. “The threshold to invoke the ‘doctrine of frustration’ is formidably higher than that of force majeure. It has to pass judicial tests and proving frustration is more difficult than proving force majeure,”

There are chances where companies may face an allegation that it has used the COVID19 situation to wriggle out of payment or performance. Businesses will then have to demonstrate it was indeed hit by the massive disruptions caused by the pandemic outbreak and, not by financial difficulty and general slowdown. The force majeure clause of every contract will have certain compliance requirements as well such as the obligation to issue a notice to the other party. Similarly, a party unable to perform a contract must compile evidence on the steps taken to mitigate, and also adequate proof on how Covid-19 has impacted its ability to perform the contract.”

(Extracted and Edited from: https://economictimes.indiatimes.com/news/politics-and-nation/how-coronavirus-may-cause-legal-wrangles/articleshow/74815141.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

According to the author,litigation in India is inevitable as:

Question 2

Direction: Each set of questions in this section is based on the reasoning and arguments, or facts and principles set out in the preceding passage. Some of these principles may not be true in the real or legal sense, yet you must conclusively assume that they are true for the purposes of this Section. In some instances, more than one option may be the answer to the question; in such a case, please choose the option that most accurately and comprehensively answers the question.

Passage

Unlike in countries like Germany and France where the term is coded in civil laws, the Indian Contract Act – the 148-year old legislation which determines the circumstances in which promises in a contract shall be legally binding -- is silent on the term `force majeure’. Though the Act allows an agreement for performing an ‘impossible’ act to be considered void, the court outcome of disputes has varied from case to case, depending on the facts of each. And, even if the term ‘force majeure’ -- or, superior force in Latin -- is mentioned in a contract between two parties, `epidemics’ or `pandemics’ are rarely, if ever, included in the definition of ‘force majeure’ which typically covers catastrophes like an earthquake, flood, and war.

“Inevitably, all contracts will be put to the litmus test. Very few contracts in India includes pandemic as a force majeure event as such events are never anticipated. This will affect many. Some impacted by the lock-down may also be affected as acts of government may not be under the terms of force majeure. It all depends on terms between the parties,” It appears that despite the overwhelming nature of the COVID19 outbreak, there could be a slew of disputes, even litigations, in trade and businesses well after the world is free of the lethal virus.

"We are receiving several queries from players across sectors. While some of the cases may get amicable resolved, in others litigation is inevitable. We are approaching each case on its own merit. The sustainability of the claim would depend on the language of the force majeure clause and the facts of each case. In the absence of a FM clause in a contract, one would have to test the case in the backdrop of section 56 of the Contract Act,”

In cases, where contracts do not have a force majeure clause, Sec 56 of the Contract Act comes into play; it deals with `frustration of contract’ – a situation where fulfilling a contract becomes impossible or unlawful after the execution of the contract. Traditionally, courts have chosen a narrow interpretation of the law in ruling on disputes where Section 56 had kicked in. “The threshold to invoke the ‘doctrine of frustration’ is formidably higher than that of force majeure. It has to pass judicial tests and proving frustration is more difficult than proving force majeure,”

There are chances where companies may face an allegation that it has used the COVID19 situation to wriggle out of payment or performance. Businesses will then have to demonstrate it was indeed hit by the massive disruptions caused by the pandemic outbreak and, not by financial difficulty and general slowdown. The force majeure clause of every contract will have certain compliance requirements as well such as the obligation to issue a notice to the other party. Similarly, a party unable to perform a contract must compile evidence on the steps taken to mitigate, and also adequate proof on how Covid-19 has impacted its ability to perform the contract.”

(Extracted and Edited from: https://economictimes.indiatimes.com/news/politics-and-nation/how-coronavirus-may-cause-legal-wrangles/articleshow/74815141.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

ABC enters into a contract with XYZ to supply diesel. The contract specifically excludes any liability arising from an act of god like fire, floods etc. However, there is another clause which says that liability cannot be exempted in case any liability arises from change in law. Due to Corona, Government imposes restrictions on transport of goods and hence ABC was not able to supply diesel to XYZ.

Question 3

Direction: Each set of questions in this section is based on the reasoning and arguments, or facts and principles set out in the preceding passage. Some of these principles may not be true in the real or legal sense, yet you must conclusively assume that they are true for the purposes of this Section. In some instances, more than one option may be the answer to the question; in such a case, please choose the option that most accurately and comprehensively answers the question.

Passage

Unlike in countries like Germany and France where the term is coded in civil laws, the Indian Contract Act – the 148-year old legislation which determines the circumstances in which promises in a contract shall be legally binding -- is silent on the term `force majeure’. Though the Act allows an agreement for performing an ‘impossible’ act to be considered void, the court outcome of disputes has varied from case to case, depending on the facts of each. And, even if the term ‘force majeure’ -- or, superior force in Latin -- is mentioned in a contract between two parties, `epidemics’ or `pandemics’ are rarely, if ever, included in the definition of ‘force majeure’ which typically covers catastrophes like an earthquake, flood, and war.

“Inevitably, all contracts will be put to the litmus test. Very few contracts in India includes pandemic as a force majeure event as such events are never anticipated. This will affect many. Some impacted by the lock-down may also be affected as acts of government may not be under the terms of force majeure. It all depends on terms between the parties,” It appears that despite the overwhelming nature of the COVID19 outbreak, there could be a slew of disputes, even litigations, in trade and businesses well after the world is free of the lethal virus.

"We are receiving several queries from players across sectors. While some of the cases may get amicable resolved, in others litigation is inevitable. We are approaching each case on its own merit. The sustainability of the claim would depend on the language of the force majeure clause and the facts of each case. In the absence of a FM clause in a contract, one would have to test the case in the backdrop of section 56 of the Contract Act,”

In cases, where contracts do not have a force majeure clause, Sec 56 of the Contract Act comes into play; it deals with `frustration of contract’ – a situation where fulfilling a contract becomes impossible or unlawful after the execution of the contract. Traditionally, courts have chosen a narrow interpretation of the law in ruling on disputes where Section 56 had kicked in. “The threshold to invoke the ‘doctrine of frustration’ is formidably higher than that of force majeure. It has to pass judicial tests and proving frustration is more difficult than proving force majeure,”

There are chances where companies may face an allegation that it has used the COVID19 situation to wriggle out of payment or performance. Businesses will then have to demonstrate it was indeed hit by the massive disruptions caused by the pandemic outbreak and, not by financial difficulty and general slowdown. The force majeure clause of every contract will have certain compliance requirements as well such as the obligation to issue a notice to the other party. Similarly, a party unable to perform a contract must compile evidence on the steps taken to mitigate, and also adequate proof on how Covid-19 has impacted its ability to perform the contract.”

(Extracted and Edited from: https://economictimes.indiatimes.com/news/politics-and-nation/how-coronavirus-may-cause-legal-wrangles/articleshow/74815141.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

ABC enters into a contract to supply a PQR garment to XYZ. Due to corona, there is a rise in demand in PQR garments which is also used in manufacturing masks needed for Corona. Due to this demand, the PQR garment has virtually disappeared from the Indian Markets and has become exorbitantly expensive. Their contract specifically excluded liability arising due to an act of god including pandemics. ABC fails to deliver the PQR garment to XYZ, and XYZ sues ABC for non-performance. Decide.

Question 4

Direction: Each set of questions in this section is based on the reasoning and arguments, or facts and principles set out in the preceding passage. Some of these principles may not be true in the real or legal sense, yet you must conclusively assume that they are true for the purposes of this Section. In some instances, more than one option may be the answer to the question; in such a case, please choose the option that most accurately and comprehensively answers the question.

Passage

Unlike in countries like Germany and France where the term is coded in civil laws, the Indian Contract Act – the 148-year old legislation which determines the circumstances in which promises in a contract shall be legally binding -- is silent on the term `force majeure’. Though the Act allows an agreement for performing an ‘impossible’ act to be considered void, the court outcome of disputes has varied from case to case, depending on the facts of each. And, even if the term ‘force majeure’ -- or, superior force in Latin -- is mentioned in a contract between two parties, `epidemics’ or `pandemics’ are rarely, if ever, included in the definition of ‘force majeure’ which typically covers catastrophes like an earthquake, flood, and war.

“Inevitably, all contracts will be put to the litmus test. Very few contracts in India includes pandemic as a force majeure event as such events are never anticipated. This will affect many. Some impacted by the lock-down may also be affected as acts of government may not be under the terms of force majeure. It all depends on terms between the parties,” It appears that despite the overwhelming nature of the COVID19 outbreak, there could be a slew of disputes, even litigations, in trade and businesses well after the world is free of the lethal virus.

"We are receiving several queries from players across sectors. While some of the cases may get amicable resolved, in others litigation is inevitable. We are approaching each case on its own merit. The sustainability of the claim would depend on the language of the force majeure clause and the facts of each case. In the absence of a FM clause in a contract, one would have to test the case in the backdrop of section 56 of the Contract Act,”

In cases, where contracts do not have a force majeure clause, Sec 56 of the Contract Act comes into play; it deals with `frustration of contract’ – a situation where fulfilling a contract becomes impossible or unlawful after the execution of the contract. Traditionally, courts have chosen a narrow interpretation of the law in ruling on disputes where Section 56 had kicked in. “The threshold to invoke the ‘doctrine of frustration’ is formidably higher than that of force majeure. It has to pass judicial tests and proving frustration is more difficult than proving force majeure,”

There are chances where companies may face an allegation that it has used the COVID19 situation to wriggle out of payment or performance. Businesses will then have to demonstrate it was indeed hit by the massive disruptions caused by the pandemic outbreak and, not by financial difficulty and general slowdown. The force majeure clause of every contract will have certain compliance requirements as well such as the obligation to issue a notice to the other party. Similarly, a party unable to perform a contract must compile evidence on the steps taken to mitigate, and also adequate proof on how Covid-19 has impacted its ability to perform the contract.”

(Extracted and Edited from: https://economictimes.indiatimes.com/news/politics-and-nation/how-coronavirus-may-cause-legal-wrangles/articleshow/74815141.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

ABC enters into a contract of supplying PQR Garments to XYZ during the Corona Pandemic for making medical supplies. Their contract specifically excludes non-performance due to Corona Virus as a defense. Further, their contract does not a have a force majeure clause. After 2 days, the Government makes a law making it illegal to supply PQR Garments in order to regulate medical supplies. Will ABC be liable?

Question 5

Direction: Each set of questions in this section is based on the reasoning and arguments, or facts and principles set out in the preceding passage. Some of these principles may not be true in the real or legal sense, yet you must conclusively assume that they are true for the purposes of this Section. In some instances, more than one option may be the answer to the question; in such a case, please choose the option that most accurately and comprehensively answers the question.

Passage

Unlike in countries like Germany and France where the term is coded in civil laws, the Indian Contract Act – the 148-year old legislation which determines the circumstances in which promises in a contract shall be legally binding -- is silent on the term `force majeure’. Though the Act allows an agreement for performing an ‘impossible’ act to be considered void, the court outcome of disputes has varied from case to case, depending on the facts of each. And, even if the term ‘force majeure’ -- or, superior force in Latin -- is mentioned in a contract between two parties, `epidemics’ or `pandemics’ are rarely, if ever, included in the definition of ‘force majeure’ which typically covers catastrophes like an earthquake, flood, and war.

“Inevitably, all contracts will be put to the litmus test. Very few contracts in India includes pandemic as a force majeure event as such events are never anticipated. This will affect many. Some impacted by the lock-down may also be affected as acts of government may not be under the terms of force majeure. It all depends on terms between the parties,” It appears that despite the overwhelming nature of the COVID19 outbreak, there could be a slew of disputes, even litigations, in trade and businesses well after the world is free of the lethal virus.

"We are receiving several queries from players across sectors. While some of the cases may get amicable resolved, in others litigation is inevitable. We are approaching each case on its own merit. The sustainability of the claim would depend on the language of the force majeure clause and the facts of each case. In the absence of a FM clause in a contract, one would have to test the case in the backdrop of section 56 of the Contract Act,”

In cases, where contracts do not have a force majeure clause, Sec 56 of the Contract Act comes into play; it deals with `frustration of contract’ – a situation where fulfilling a contract becomes impossible or unlawful after the execution of the contract. Traditionally, courts have chosen a narrow interpretation of the law in ruling on disputes where Section 56 had kicked in. “The threshold to invoke the ‘doctrine of frustration’ is formidably higher than that of force majeure. It has to pass judicial tests and proving frustration is more difficult than proving force majeure,”

There are chances where companies may face an allegation that it has used the COVID19 situation to wriggle out of payment or performance. Businesses will then have to demonstrate it was indeed hit by the massive disruptions caused by the pandemic outbreak and, not by financial difficulty and general slowdown. The force majeure clause of every contract will have certain compliance requirements as well such as the obligation to issue a notice to the other party. Similarly, a party unable to perform a contract must compile evidence on the steps taken to mitigate, and also adequate proof on how Covid-19 has impacted its ability to perform the contract.”

(Extracted and Edited from: https://economictimes.indiatimes.com/news/politics-and-nation/how-coronavirus-may-cause-legal-wrangles/articleshow/74815141.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

ABC enters into a contract of supplying PQR Garment to XYZ which is manufactured in various countries. The contract between ABC and XYZ included an “act of god” clause which also exempted liability arising due to change in law and pandemics. ABC contacted its supplier from China to import PQR Garment. However, Government of India bans all imports from China due to a fear that imports may be contaminated with Corona Virus.

Question 6

Direction: Study the following passage and answer the given questions.

The Bombay High Court dismissed the appeals filed by Steel importers under section 9 of the Arbitration and Conciliation Act seeking directions to restrain the encashment of letter of credit by Korean Based Steel Exporters.

Steel Importers namely Standard Retail Pvt. Ltd., Integral Industries Pvt. Ltd., Vinayaga Marine Petro Ltd. &Anr, Hariyana International Pvt. Ltd and Prabhat Steel Traders Pvt. Ltd invoked “Force Majeure” clause in their contracts with the Korean Based Steel Exporters namely M/s Global Corp. & M/s Hyundai Corporation, stating that in view of the COVID-19 Pandemic and the lockdown declared by the Central/State Government its contracts stands terminated as unenforceable on account of frustration, impossibility and impracticability.

Under the contracts the Steel Exporters which has its head office at South Korea was to supply certain steel products, the shipment of which were to be dispatched from South Korea, to the Petitioners at Mumbai. The contracts were subject to the General Terms and Conditions, including clauses “Force majeure” and “Governing Law and Arbitration”. The petitioner invoked clause “Force Majeure” and seeks interim relief by restraining the respondents/Korean Based Steel Exporters bank in encashing the letter of credit.

A single Judge bench of Justice A . A . Sayed heard the petitions filed by Steel Importers has made an observation stating that the Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between the Petitioners who are buyers and the Respondents, who is the seller.

“The contract terms are on Cost and Freight basis (CFR) and the Respondent No. 1/Steel Exporters has complied with its obligations and performed its part of the contracts and the goods have been already shipped from South Korea. The fact that the Petitioners would not be able to perform its obligations so far as its own purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent No. 1,” held by the court.

The Court also mentioned that the Government notifications/ Advisories issued declares the distribution of Steel as an essential service and there are no restrictions on its movement in all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services. Therefore, the court rejected the petition stating that the “Force Majeure” clause in the aforesaid contracts is applicable only to the Respondent No. 1 and cannot come to the aid of the Petitioners.

Extracted and Edited from: https://www.indialegallive.com/constitutional-law-news/courts-news/force-majeure-clause-contract-doesnt-come-aid-steel-importers-bombay-hc-95817

Assuming that an entity AZB Importers India Pvt. Ltd. agreed forsupplying steel to one MAC Distributors India Pvt. Ltd. To that end, AZB Importers furnished a guarantee of 10 crores to MAC Steel Distributors in the event of non-performance. Here, AZB Importers India Pvt. Ltd. had a contract with a South Korean Industry for importing Steel. However, South Korean Industry denied steel imports due to Corona Virus restrictions in South Korea. Subsequently, MAC Steel Distributors invokes the Bank Guarantee. Also, at the relevant time no restrictions were imposed in India. Can AZB Importers raise a defense of force majeure? Choose one of the follow:

Question 7