Tag: CS Foundation Business Law Notes

Indian Contract Act, 1872 – CS Foundation Business Law Notes

Introduction:

1. It is the most important branch of the mercantile law or commercial law.
2. It is not possible to carry on trade or commerce without contract.
3. It deals with general principles relating to formation of contracts.
4. It extends to whole of India, except the state of Jammu & Kashmir.
5. It came into force w.e.f. 1/9/1872.
6. It is not a complete law for all types of contracts.
7. It determine the circumstances in which promise made by the parties to contract shall be legally binding on them.

Meaning of Contract:
1. “An agreement creating and defining obligation between the parties.”

2. “Every agreement and promise enforceable at law is a contract ”

3. Sec. 2(h) of Indian Contract Act defines contract as:
“ An agreement enforceable by law.”
Contract = Agreement + enforceability by law

4. Contract is made by acceptance of one party of an offer made to him by the other party, to do or abstain from doing some act.
Contract = Agreement + Obligation

Meaning of Agreement & Promise:
1. Sec. 2(e) of Indian Contract Act defines it as,
“Every’ promise or every set of promise, forming the consideration for each other.”

2. It has two characteristics:

• Two or more persons are required to make an agreement.
• Both parties must agree to same thing in same sense at the same time.
  (Consensus – ad- idem), (consent to the matter).

3. Sec. 2(b) of Indian Contract defines promise as, – “A proposal (offer) when accepted becomes a promise”.
Agreement = Promise
= Accepted Proposal
= Offer + Acceptance

Meaning of Obligation:
It refers to the legal duty to do or to abstain from doing something to obtain the assent what one has promised to do or abstain from doing.

Rights & Obligations:

• They are created between the parties as a result of a binding contract.
• They are correlative.

Agreements which are not contracts:

• Agreements relating to social matters.
• Domestic arrangements between husband and wife.
• Agreements between family members.

Relevant Case Law:
Balfour v Balfour

Facts: Mr A promised to pay his wife ₹ 30 every month as house hold allowance. Later, the husband failed to pay the amount.

Decision: Held, the wife could not claim as there was no intention to create legal obligation and thus, it is not enforceable by law.

All contracts are necessarily agreements but all agreements need not necessarily be contracts.

Essential elements of a valid contract:
Sec. 10 of Indian Contract Act says, “All, agreements are contracts if they are made:

• by free consent of parties , competent to contract,
• for a lawful consideration,
• with a lawful object, and .
• not hereby expressly declared to be “void”.

It includes:

• Offer and Acceptance
• Intention to create legal relationship
• Lawful consideration and object
• Capacity to contractual
• Free consent
• Lawful object
• Agreement not expressly declared void.
• Consensus -ad-idem i.e. meeting of minds
• Certainty of meaning
• Possibility to perform
• Legal formalities

1. Offer or Proposal:

• It refers to a “proposal” by one party to another to enter into a legally binding agreement with him.
• Sec. 2(a) of the Act defines it as – “When one person signifies to another his willingness to do or abstain from doing something, with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal.”
• Offeror or Promisor: The party making an offer.
• Offeree or Promisee: The party to whom offer is made.

Rules relating to offer:

• It must be capable of creating legal relations
• It must be certain, definite and not vague
• It may be expressed or implied
• It must be distinguished from an invitation to offer
• It may be specific or general
• It must be communicated to the offeree
• It must be made with a view to obtain the consent of the offeree
• It may be conditional
• It should not contain such terms, the non compliance of which would’ amount to acceptance
• Types of offer: General; Specific, Cross, Counter, Open etc.

General & Specific offer:

• Offer made to public at large with or without any time limit is general offer.
• Offer made to a particular and specified person/ persons and that can be accepted by that specific person/ persons only is specific offer.

Relevant Case Law:
Carlill V. Carbolic Smoke Ball Co.

Facts:

• A co. advertised that it would give a reward of £100 to anyone who contracted influenza after using its smoke balls for a certain period according to printed directions.
• Mrs Carlill purchased and used smoke balls as per the printed instructions, even then contracted influenza.
• She claimed the reward of £100.
• Co. resisted the claim on the ground that offer was not made to her and she had also not communicated her acceptance to the offer.

Decision: She could recover the reward as she had accepted the co’s offer by complying with terms.

Similar case Harbhajan Lai V Harcharan Lai

Cross offer:

• It occurs when two persons make identical offers to each other, in ignorance of each other’s offer.
• It leads to termination of the original offer.

Counter offer:

• Upon receipt of an offer from an offeror, if the offeree instead of accepting it, straightaway modifies or varies the offer, he is said to make a counter offer.
• It leads to rejection of original offer.

Standing/Continuing/Open Offer:

• Offer which is made to public at large and kept open for public acceptance for a certain time period.
• It refers to a tender to supply goods as and when required.
• Each successive order given creates a separate contract.
• It does not binds either party unless and until such orders are given.

Relevant Case Law:
Percival Ltd v. L.C.C.

• Offer and Invitation to offer:
• Offer is made to get the consent of other party.
• Invitation to offer is made to initiate the offer according to the invitation.
• Offer is made with an object to make a contract.
• Invitation to offer does not results in any contract formation.
• Example: of invitation to offer: (i) display of goods in a shop window with prices marked upon them, (ii) price catalogues, etc.
• Offer is different from a mere statement of intention.
• Example : announcement of a coming auction sales.

Relevant Case Law:
Harris V. Nickerson – When particular goods are advertised, for sale by auction, the auctioneer does not contract with anyone who attends the sale and is intending to purchase those goods when they are actually put up for sale. Offer is different from a mere communication of information in the course of negotiation. E.g. price statement considering negotiation.

Relevant Case Law:
Harvey V. Facey – Only a statement of lowest price at which the vendor would sell, contains no implied contract.to sell at that price to the person making the inquiry.

Acceptance:

• It means giving consent to the offer.
• Sec. 2(b) of the Contract Act , defines it as- “A proposal is said to be accepted, when the person to whom the proposal (offer) is made signifies his assent thereto.”

Essentials of a valid acceptance:

• It must be absolute and unconditional.
• It must be communicated to offeror.
• It must be in the mode prescribed.
• It must be given within reasonable time.
• Mere silence is not acceptance, offeror can prescribe the mode of acceptance but not the mode of rejection.

Relevant Case Law:
Felthouse V Bindley

Facts-

• F offered by letter to buy his nephew’s horse for £ 30 stating “If I hear no more about it, I shall consider it mine at £ 30.”
• Nephew did not reply, but told the auctioneer not to sell it as he has already sold it to his uncle.
• Auctioneer sold it by mistake.
• F sued the auctioneer.

Decision: F could not succeed as his nephew has not communicated his. acceptance.

• It must be given before the offer lapses or is revoked.
• It must emanate from offer.
• If the offer is one which is to be accepted by being acted upon, no communication of acceptance to the offeror is necessary, unless communication is stipulated for in the offer itself.

Relevant Case Law:
Lalnrtan Shukla V Gouri Dutt

Facts-

• S sent his servant L, to trace his missing nephew.
• Later, S offered a reward for finding out his nephew.
• L traced him ignorant of the reward.
• L claimed his reward later.

Decision – L was not entitled to the reward.

Communication of offer:

• It is complete when it comes to the knowledge of the person to whom it is made.
• It may be communicated either by words spoken or written or may be inferred from conduct of parties.
• If made by post, it will be completed, when the letter containing offer reached the intended person.

Communication of acceptance:
1. It is complete –

• As against the proposer: When it is put in the course of transmission to him so as to be out of power of the acceptor to withdraw the same.
• As against the acceptor: When it comes to the knowledge of the proposer.

2. If sent by post, it is complete:
As against the proposer: when the letter of acceptance is posted. As against the acceptor: when the letter reaches the proposer.

Revocation of offer:

• It means withdrawal or taking back of an offer.
• It can be revoked anytime before its acceptance.

Revocation of acceptance:

• It means withdrawal or taking back of acceptance by the acceptor.
• It may be revoked at any time before its communication is completed as against the acceptor, but not afterwards.

Communication of revocation:
It is complete –
As against the person who makes it: When it is put into a course of transmission to the person to whom it is made so as to be out of power of the person who makes it.

By Post-

• Communication of offer when complete: When offer comes into the knowledge of offeree.
• Communication of acceptance when complete: When offeree or acceptor post the letter of acceptance and it becomes out of power of acceptor to withdraw it.

As against the person to whom it i$ made: When it comes to his knowledge.

Lapse of offer:

• It means end of an offer.
• Offer should be accepted before it lapses.

Offer may lapse in following ways:

1. By Communication of notice of revocation
2. By lapse of time
3. By failure to accept condition precedent
4. By death or insanity of the offeror
5. By counter – offer by the offeree
6. By not accepting the offer, according to prescribed mode
7. By rejection of offer by the offeree
8. By change in law or circumstances.

Note:
If a passenger receives a railway ticket with the words printed, “this ticket is issued subject to the notices, regulations and conditions contained in the current time tables of the railway.” He is bound to accept the terms and conditions whether he has read them or not.

Standing Offer:

• It is an offer made to supply specific goods upto a stated quantity or any quantity be required at a certain rate, during a fixed period. E.g. Government Tenders.
• It is a nature of continuing offer.

Modes of Contract:
Generally contracts are in written form agreed upon by the parties face to face. But when it is not possible for the parties to meet they can enter into the following.
1. Contracts By Post: When the parties are located in different cities or states and its not possible for them to meet then contract is made by sending the documents through post. This is called contract by post. It is subject to same rules as others along with certain exceptions as already stated.

2. Contracts over telephone:

• There is a contract as soon as the offer is accepted by the offeree.
• Offeree has to be sure that his acceptance has reached the offeror because phone lines may go dead or generate noise during conversations.
• Thus, offeree should dial again and communicate his acceptance in such doubt.

Relevant case Law:
Kanhaiyalal V. Dineshwar Chandra

Intention to create legal relationship:

• Both the parties must have an intention to go to court, if the other party does not fulfill his promise.
  Normally, in social and domestic agreements, there is no intention to go to the court.
• In commercial agreements, this intention is always present.
• The test of intention is objective i.e. it depends upon the facts of the case.
• Court may also look into the conduct of parties, wherever necessary.

Lawful Consideration:

• The consideration should be something that is lawful.
• A mere promise is not enforceable at law.
• It means “Quid Pro quo” i.e. “something in return”.

Relevant Case Law:
Currie V Misa

As per Section 2(d):
“When at the desire of the promisor, the promisee or any other person’

• has done or abstained from doing, or
• does or abstains from doing , or
• promises to do or abstains from doing, such act or abstinence or promise is called as consideration for the promise.”

As per Section 2(e),

• “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
• General rule is-
• “No consideration, No contract.”
• Consideration must be at the desire of the promisor.
• Consideration may move from the promisee or any other person.
• “As an act or forbearance of one party, or the promise thereof is the price for which the promise of the other is bought.”
• Consideration may move at the desire of the promisor and not at the desire of the third party.
• There may be stranger to consideration but not stranger to a contract
• Under English Law, it must move from the promisee or any other person. Thus, stranger cannot sue on the contract.
• Under Indian law, however a stranger to consideration can file a suit.

Relevant Case Law:
Chinnayya V. Ramayya

Facts-

• A by a gift deed transferred certain property to her daughter, giving her the direction to pay annuity to A’s brother.
  On the same day, daughter executed a writing in favour of A’s brother, agreeing to pay annuity.
• She declined afterwards stating that no consideration had moved from her uncle.

Decision: Court held that consideration may move from any person. Thus, A’s brother was entitled to file a suit.

Rules of a valid consideration:

• It must move at the desire of the promisor.
• It may be done by promisee himself or by any other person.
• It may be past, present or future.
• It must be real and not vague.
• It must be legal.
• It need not be adequate. (But if not adequate then consent must be free)
• It must be something more than the promisee is already bound to do for the promisor.
• It may not be an illusory.

Relevant Case Law:
Stilk v Myrick

Kinds of Consideration:
1. Past Consideration: It refers to something wholly done, forgone or suffered before making of agreement.

• Under English law, “Past consideration is no consideration.”
• The consideration which is completed or performed at the time of contract is called present consideration.
• But past consideration is a consideration as per the Indian Law.

2. Present or Executed Consideration: It moves simultaneously with promise. The consideration which is completed or performed at the time of contract is called present consideration.

3. Future or Executory Consideration: It is to be moved at a future date i.e promise is to be performed in future.

Exceptions to the rules, “No consideratign, no contract”:
An agreement made is valid if:

• expressed in writing and registered under law,
• made on account of natural love and affection,
• between parties standing in a near relation to each other.

A promise is valid if-

• It is a promise to compensate a person wholly or in part, a person who has already done something voluntarily for the promisor.
• Something which the promisor was legally compellable to do.

A promise to pay, wholly or in part, a debt, which is barred by law of limitation can be enforced if:

• it is in writing,
• it is signed by the debtor or his authorised agent.

Note:
A debt barred by limitation cannot be recovered, a promise to pay such debt is without any consideration.

• It does not applies to completed gifts i.e. gift given and accepted.
• Consideration is not required to effect a valid bailment of goods i.e. gratuitous bailment.
• Not required to create an agency.

Relevant Case Laws:
Poonam Bibi V. Fyaz Buksh

Facts: A husband, by a registered agreement promised to pay his earnings to his wife.

Decision: The agreement, though without consideration, was valid.
Raj Lakshmi V. Bhootnath

Facts: Where a husband by a registered document, after referring to quarrels and disagreements between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence.

Decision: Promise was unenforceable as natural love and affection was missing.

If a person promised to contribute anything to a charity and on his faith, the promisee undertakes a liability to that extent, the contract shall be valid.

Relevant Case Law:
Kedarnath V Gorie Mohammad

Gratuitous Promise:

• A gratuitous contract is a contract without any consideration.
• A gratuitous promise cannot be enforced.
• However, where a promisor makes a promise for which some other person will be benefitted, then the promisor will be liable to the promisee.
• Example – If X gives a loan to Y and Z gives the guarantee to X on behalf of Y, then Z will be liable to X if Y does not repay the loan even though Z was not benefitted by giving the guarantee.

Doctrine of Privity of Contract:

• It means that only those persons, who are parties to a contract, can sue and be sued upon the contract.
• It refers to the relationship between parties who have entered into the contracts.
• The third party cannot sue upon it, even though the contract may be for his benefit.
• Thus, “a stranger to the contract” cannot bring a valid suit under the contract.
• It is different from “stranger to consideration”.

Relevant Case Laws:
Dunlop Pneumatic Tyre Co.V. Selfridge Ltd.
Tweddle v Atkinson

Relevant Case Law:
Khwaja Muhammad v Hussaini Begum

Facts:

• H sued her father in law K to recover ₹ 15,000 on account of arrears of allowance being payable to her by K.
• This was under an agreement between K and H’s father consideration being H’s marriage to K”s son D.
• Both H and D were minors at the time of marriage.

Decision- Promise can be made enforceable by H.

• Marriage settlement, partition and other family arrangements, and other such agreements when they are reduced to writing.
• Acknowledgment of liability or by past performance thereof.
• Assignment of a contract.
• Contracts entered into through an agent.
• Covenants running with the land – The purchaser of immovable property is bound by several conditions created by an agreement affecting the land, even though he is not a party to the original agreement.
• Where the promisor by his own conduct is estopped from denying his liability to perform the promise, the person who is not a party to the contract can sue upon to make the promisor liable.

Note : Nominee is not a assignee

Terms must be certain:

• The meaning of an agreement must be certain and capable of being certain.
• Terms must not be vague.
• If it is not so, then the agreement will not be enforceable by law.
• “A Contract to contract is not a contract”.

Relevant Case Law:
Loftus V Roberts.

Difference between an Agreement and Contract:

Agreement	Contract
(1) Its elements are offer and acceptance.	Its element is an agreement and its enforceability.
(2) It may or may not create legal obligation.	Creation of legal obligation is must in contracts.
(3) It may not be binding, hence may not be enforceable.	It is binding on both the parties, hence enforceable.
(4) It may not result in a contract.	It necessarily constitutes an agreement.

Legal Agreement: An agreement which can be enforced legally.

Illegal Agreements:

• It goes beyond the basic public policy, thus are not enforceable by law.
• It is not only void as between immediate parties but the collateral transactions also become illegal.

Its Consequences:

• Entirely void
• No action can be brought by or against any party.
• Money paid or property transferred under it cannot be recovered
• If its two parts legal and illegal are separable, only legal part can be enforced by the courts
• Agreement collateral to it are also illegal.

Relevant Case Law:
Firm Pratapchand v Firm Kotri

• As a Contract: It means any agreement enforceable by law.
• Void Agreement:
• Agreements not enforceable by law are void.
• They are not always illegal and its collateral transactions are legal.
• It cannot give rise to any legal consequence
• It is void -ab- initio (i.e – void from very beginning)
• Example – minor’s contract
• No damages for non-performance
• It does not exist in the eyes of law.

Difference between Void and Illegal Agreements

Void Agreements	illegal Agreements
(i) All void agreements are not illegal.	(i) All illegal agreements are void.
(ii) They are not punishable.	(ii) They may be punishable with fine, imprisonment or both.
(iii) Collateral agreements are legal.	(iii) Collateral agreements are void.
(iv) Valid contracts sometimes subsequently becomes void, example – agreement entered with a minor	(iv) They are void from very beginning. example – agreement to murder a person.

Classification of Contracts:

Void Contracts:

1. It is not a contract at all as it is without any legal effect.
2. Section 2(j) of Indian Contract Act, 1872, defines it as:
3. “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”

Voidable Contracts:

1. It is an agreement which is binding and enforceable but due to lack of one or more of the essentials of a valid contract, it may be repudiated.
2. Section 2(i) of the Indian Contract Act, 1872 defines it as:
3. “All agreements which are enforceable by law at the option of any one of the parties, and other party has no such option, are known as voidable contracts.”

Difference between void and voidable contracts:

Void Contracts	Voidable Contracts
1. Section 2 (j): Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.	Section 2(i): It may be repudiated at the will of one or more parties but not at the will of other or others.
2. Not enforceable by any party.	Enforceable at the desire of the effected party.
3. It is void from beginning to end.	It is valid in the beginning but is subsequently declared void.
4. Agreement is void only if it is made with the person having no contractual capacity, without consideration etc.	Agreement is voidable, when its consent is based on coercion , fraud etc.
5. Here the contract cannot be executed due to change in circumstances or in law the agreement is void.	The contract can be executed if it is declared valid by the affected party.

Competency/Capacity of Parties to Contract

1. It means that parties to the agreement must have capacity to enter into a valid contract.
2. Person’s may be either natural or artificial.
3. Natural persons means human beings.
4. Artificial persons means corporations.

According to Section 11:

1. “Every person is competent to contract, who, according to the law to which he is subject to:
2. is of the age of majority,
3. is of sound mind.
4. is not disqualified by any other law to which he is subject to”

A person is disqualified to enter into contracts if he is-

1. a minor
2. a person of unsound mind
3. otherwise disqualified by the law of land to enter into contracts
4. an alien enemy
5. an insolvent
6. a convict undergoing imprisonment.
7. In India the age of majority is regulated by the Indian Majority Act, 1875.
8. According to it, every person domiciled in India attains Majority on the completion of 18 years of age.
9. If any guardian has been appointed for the minors or minor is under guardianship of Court of wards, he attains majority on the completion of 21 years of age.

Relevant Case Law:
Mohiri Bibi v Dharmo Das Ghose

Facts:

1. Dharmo das Ghose, a minor, entered into a contract for borrowing a sum of ₹ 20,000 out of which lender paid him ₹ 8,000.
2. Minor executed mortgage of property in favour of lender.
3. Minor sued for setting aside mortgage.
4. Privacy Council had to ascertain the validity of mortgage.
5. u/s 7 of Transfer of Property Act, every person competent to contract is competent to mortgage.

Decision : Any money advanced to a minor cannot be recovered as Sec. 10 and 11 makes the minor’s contract absolutely void.

As per the Transfer of Property Act, a minor cannot transfer a property but he can be a transferee.

Position of minor’s agreement:

1. An agreement entered into by a minor is altogether void i.e. void ab initio
2. Minor can be a promisee or a beneficiary
3. Minor can always plead minority
4. Minor’s agreement cannot be ratified by him
5. Contract by guardian, is enforceable if-
6. It is within his competence and authority,
7. For the benefit of the minor.
8. Minor’s property is liable for necessaries.
9. Court can never direct specific performance of the contract.
10. Minor cannot be a partner in partnership firm. He can however be admitted to benefits of partnership firm.
11. Minor can act as an agent and bind his principal without incurring any personal liability.
12. Minor can never be adjudicated as insolvent.

Relevant Case Laws:
Rose Ferenanaez v. Joseph Gonsalves
Raj Rani v. Prem Adib

Necessaries:
“Goods suitable to the condition in life of such an infant or other person, and to his actual requirement at the time of sale and delivery.”

It Includes:

• Necessary goods
• Services rendered
• Loan incurred to obtain necessaries.

Lunatics Agreement:

• As per Section 12 of the Indian Contract Act,
• “A person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, he is capable of undertaking it and of forming a rational judgement as to its effects upon his interests.”
• A person of unsound mind includes:
  (i) Lunatics (ii) idiots, (iii) drunkards
• Such agreement is void.
• Lunatics estate will be liable for any necessaries supplied to him or his family.
• A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind and he will be bound by it.
• A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Relevant Case Law:
Jugal Kishore v Cheddu

Persons disqualified by law from entering into contract:
1. Alien Enemy: Alien enemy is a foreigner whose state is at peace with India.

• Alien is a person who is not an Indian citizen.
• He becomes alien enemy on declaration of war between India and his country.
• He cannot enter into a contract with an Indian subject.

2. Foreign Sovereigns and Ambassadors:

• They enjoy certain special privileges due to which they cannot be legally proceeded against in Indian courts.
• if contracts are entered into through agents, then agents becomes personally responsible for the performance of the contracts.

3. Convicts:

• Cannot enter into a valid contract while undergoing sentence, nor he can sue.

Note : All of the above points are known as flaws in capacity.

Free Consent:
1. As per the Indian Contract Act,
“ Two or more persons are said to consent when they agree upon the same thing in the same sense.” (Consensus-ad-idem)

2. Free consent means consent given by parties out of their free will, on their own, without any fear, without any force, without any compulsion or threat from the other party.
As per Section 14, consent is said to be free when it is not caused by:

• Coercion
• Under influence
• Fraud
• Misrepresentation
• Mistake

3. In the absence of free consent, contract is usually voidable at the option of the party whose consent is not free.
(i) Coercion:
“It is the committing, or threatening to commit, any act forbidden by the Indian Penal code (IPC), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person, whatever, with the intention of causing any person to enter into an agreement:”

Exceptions of coercion:

• The following threats are not coercion-
• Threat to file a sun,
• Consent given on the basis of legal obligations,
• Threat by workers,
• Threat to detain property by mortgager.
• It may proceed from any person and may be directed against any person or goods.

Relevant Case Law:
Ram Chandra v Bank of Kolhapur

(ii) Undue Influence
A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

It has following two elements:

• a dominant position,
• the use of it to obtain an unfair advantage.

A person is deemed to dominate the will of another if-

• he holds a real or apparent authority over the other ,or
• he stands in a fiduciary relation to the other; or
• he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.

Relationships that are presumed to have undue influence includes:

• Parent and Child
• Guardian and ward
• Religious/ Spiritual Guru and Discipline
• Doctor and Patient
• Solicitor and Client
• Trustee and Beneficiary
• Fiance and Fiancee

Relationship where dominant position is not presumed but has (iii) to be proved by the aggrieved party:

• Creditor and Debtor
• Landlord and Tenant
• Husband and wife.

This presumption can be rebutted by showing that:

• full disclosure of all material facts was made,
• adequate consideration was there, and
• weaker party was in receipt of independent legal advice.

Relevant Case Law:
Marim Bibi v. Cassim Abrahim

Differences between coercion and undue influence:

Coercion	Undue Influence
1. It involves the physical force or threat.	It involves moral or mental pressure.
2. It involves committing or threatening to commit any act forbidden by IPC.	No such illegal act is committed or a threat is given.
3. Relationship between the parties is not necessary.	Some sort of relationship between the parties is absolutely necessary.
4. It need not be proceeded from the promisor or directed against the promisor.	It is always exercised between the parties.
5. If the contract is avoided, any benefit received has to be restored or refunded.	If the contract is avoided, it is at the discretion of the court to direct the aggrieved party to restore or refund the benefit received.

(iii) Fraud [Innocent]:
1. Also known as wilful (innocent) misrepresentation.

2. Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or his party, or to induce him to enter into the contract

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

3. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is no fraud.

But silence amounts to fraud in following cases:

• Where it is the duty of a person to speak
• Where his silence is equivalent to speech
• When a person discloses only the half truth

Following are certain contracts upon which law imposes a special duty to act with the utmost good faith. (Contracts of Uberrimae fidei):

• Insurance contracts
• Prospectus of a company
• Contract for sale of land
• Contracts of family arrangements

In all of the above stated contracts, a person has to disclose all the material information.

(iv) Misrepresentation:
1. Where a person asserts something which is not true, though he . believes it to be true, his assertion amounts to misrepresentation.

2. The aggrieved party can avoid the contract, but cannot sue for damages in normal circumstances.

3. Misrepresentation made by a person may be either –

• innocent, or
• without any reasonable ground.

4. Its damages can be obtained in following cases:

• from a director or promoter making innocent misrepresentation in company’s prospectus.
• from an agent committing breach of warranty of authority
• from a person who has made a certain statement in the court , relying upon which a party has suffered damages, is stopped by the court from denying it.
• negligent representation made by one person to another between whom there exits a confidential relationship.

Differences between fraud and misrepresentation:

Fraud	Misrepresentation
1. It is made intentionally with a view to deceive.	It is made innocently.
2. The person making the wrong statement does not believe it to be true.	The person making the wrong statement believes it to be true.
3. The aggrieved party can rescind the contract and can also claim damages.	The aggrieved party can rescind the contract but cannot claim damages.
4. Where the consent is caused by active fraud, the contract is voidable even though the party defrauded had the means of discovering the truth.	The fact that the other party had the means of discovering the truth is a good plea.

When the consent is caused by coercion, undue influence, fraud and misrepresentation, though the agreement amounts to as contract such a contract is voidable at the option of the party whose consent was so obtained.

(v) Mistake:

• It refers to miscalculation or judgmental error by both or either of the parties.
• It must be a “vital operative mistake.”

Relevant Case Law:
Leaf v. International Galleries

• When both the parties to an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is altogether void.
• Unilateral mistake means mistake on part of only one party.
• Unilateral Mistake is not void.

Cases when the contract is void if there is a unilateral mistake:

• Where the mistake is done as regards the nature of the contract.
• Where the mistake is done as regards the identity of the person contracted with.

It can be avoided, if it was either due to:

• blindness, illiteracy, or senility of a person signing, or
• a trick or fraudulent misrepresentation as to nature of document.

Relevant Case Law:
Foster V. MacKinnon

Facts – An old illiterate man was made to sign a bit! of exchange, by means of false representation that it was guarantee.

Decision – The contract was void.

Mistake as to identity of person operates if:

• Identity is for material importance to the contracts, and
• Mistake is known to the other person.

Relevant Case Law:
Candy V. Lindsays Co.

Facts:

• One Blankarn placed an order with Lindsay & Co. by imitating signatures of Blenkiron, knowing that Blentiron & Co. was a reputed customers of Lindsay & Co.
• Goods were there after sold to Candy (an innocent buyer)
• Lindsay & Co. filed a suit against candy for recovery of goods.

Decision: Candy must return the goods or make the payment of those goods as there was no contract. Thus, candy did not got a good title.

Following conditions need to be fulfilled, for mistake to be void;

• The fact is material to the agreement.
• There is mistake of fact.
• Both the parties are at mistake.

If mistake of Indian Law is caused due to inducement by the other party, it has the same effect as that of fraud and therefore, contract may be avoided, by the party who has induced to enter into the contract.

Mutual mistake may relate to the existence, identity, quantity or quality of the subject – matter:

• Existence: At the time of making contract both parties believe that subject matter is in existence, but it is actually not.
• Identity: There is no consensus ad idem.
• Quantity: Parties were at mistake as to the quantity or extent o subject matter even if it was caused by negligence of third party.
• Quality: It is void only if mistake was on pan of both the parties. It follows the general rule:
• “A party to a contract does not owes any duty to disclose all the facts in his possession to other party during negotiations.”

Relevant Case Law:
Raffles V. Wichelhaus

Facts:

• Contract was made for purchase of bales of cotton which were to arrive by a ship named Peerless’ from Bombay.
• Two ships of same name had to sail from Bombay.
• Buyer intended to buy cargo of one ship but seller intended to sell that of another.

Decision: Contract was held tc be void.

Relevant Case Law:
Henkel V. Pape
Facts:

• P wrote a letter to H enquiring about price of rifles also stating that he might buy 50 rifles.
• On receiving the reply, P telegraphed, “Send three rifles”
• Message was send as “Send the rifles” due to telegraphic mistakes.
• H send 50 rifles.

Decision: There was no contract but P could be held liable to pay for three rifles.

Transaction with pardanashin women:
1. It means complete seclusion.

2. Women fixing and collecting rents from tenants and communicating business matters with men other than own family members is not a pardanashin women.
Relevant Case Law:
Ismail Musafer V. Hafiz Boo

3. It is founded on equity and good conscience.

4. Person entering into a contract with pardanashin women has to prove that:

• no undue influence was used
• she had free and independent advice
• she fully understood the contents of the contract.
• she exercised her free will

5. She has been given a special cloak of protection by law
Relevant Case Law:
Kali Baksh V. Ram Gopal

Legality of objects:
1. As per Section 23, of the Indian Contract Act,

2. “An agreement whose object or consideration is unlawful is void.”

3. “Consideration or object is unlawful:

• If it is forbidden by law, or
• It would, if permitted defeat the provisions of any law or,
• is fraudulent or
• involves injury to the person or property of another, or
• is immoral, or
• opposed to public property.”

4. Circumstances which makes the consideration or object unlawful:
(i) Forbidden by Law : It includes the acts which are punishable under any statute as well as prohibited by regulation or orders made in the exercise of the authority conferred by the legislature.

(ii) Defeat of the provision of law:

• Agreement defeating the provisions of any statutory law, is void
• Law includes any legislative enactment or Rule of Hindu and Muslim law or any other rule for the time being in force in India.

(iii) Fraudulent : Agreement with an object to defraud others is void.

(iv) Injury to the person or the property of another : An agreement having such an object is void.

(v) Immoral:
1. Object of any agreement being immoral is illegal

2. It is also illegal if its consideration is an act of sexual immorality.
Relevant Case Law:
Pearce V. Brookes

3. It covers a wide range of topics.

4. It is a branch of common law and governed by the precedents.
Relevant Case law:
Gheru lal Parakh V. Mahadeodas Maiya

5. No new Lead can be invented and added by any Court.
Relevant Case Law:
Lord Hulsbury, Janson V. Driefontien Consolidated Mines

It includes the following type of agreement:

• Restraint of parental duties
• Restraint of marriage
• Marriage brocage or brokerage agreements
• Restraint of personal liberty
• Restraint of trade.

Negative stipulation in service agreement: An agreement of service by which a person bind himself during the term of the agreement not to take services with else is not in restraint of lawful profession and it is valid.

Restraint of personal duties:

• Parents are natural guardians
• Any agreement against such right or which a party deprives himself of the custody of his child is void.

Restraint of Marriage : Any agreement restraining any person, other than minor not to marry at all or not to marry any particular person is void.

Marriage Brokerage or Brocage contract:

• An agreement to negotiate marriage for reward is void.
• If marriage is performed but the money is not paid, it cannot be recovered in the Court.

Restriction of personal liberty : Agreement unduly restricting the personal freedom of a person are void and illegal.

Restraint of Trade (Sec. 27):
1. Agreement restraining anyone from exercising a lawful profession, trade or business of any kind, is void.

2. Both total or partial restraint are covered.

3. Restraint must be reasonable
Relevant Case Law:
Nordenfelt V. Maxim Nordenfelt Guns Co.

4. Indian Courts are not consistent that whether the reasonable restraints are permitted or not.
Relevant Case Law:
Madhub Chunder V. Racoomer
Mackenzie V. Sitarmiah

5. In an agreement having two parts which can be separated, only those covenants which are in restraint of trade would be void.
Relevant Case Law:
Brahmputra Tea Co Ltd. V. Carth

6. Restriction imposed is reasonable depending upon the facts and circumstances of the case.
Relevant Case Law:
Superintendence Company of India Ltd. V. Krishna Nurgai

Following agreements are not in restraint of trade:
1. Service agreement by which an employee binds himself, during the term of his agreement, not to compete with his employer.
Relevant Case Law:
Niranjan Shanker Golikari V. The Century Spinning and Manufacturing Co. Ltd.

2. Agreement by a manufacturer to sell during a certain period his entire production to a wholesale merchant.

3. Agreement among the sellers of a particular commodity not to sell the commodity for less than a fixed price.
Relevant Case Law:
Fraster Co V. Laxmi Narain

This rule is subject to following exceptions:
1. If a person sells the goodwill of a business and agree with the buyer to refrain from carrying any similar business, within specific reasonable local limits, it is a valid agreement.

2. If an outgoing partner makes an agreement with the continuing partners for not to carry on any similar business within a specified period or within specific local limits, is a valid agreement provided reasonable restrictions are imposed.

3. Contracts between partners not requiring any partner to carry on any business other than that of the firm while he is a partner.
Trade – combinations: An agreement, the object of which is to regulate business and not to restrain it is valid. Thus, an agreement is the nature of business combination between trader or manufacturers like not to sell their goods below as certain price is perfectly valid.

Negative stipulations in service agreement: It refers to an agreement of service by which a person binds himself during the term of the agreement not to take service with anyone else such an agreement is valid.

Agreement Expressly Declared Void:
1. Certain agreements have been expressly declared as void by Contract Act.

2. They are void ab initio.

3. It includes:

• Consideration unlawful in part
• Agreement – meaning of which is uncertain
• Wagering Agreement

(i) Consideration unlawful in part (Sec. 24)

• “If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.”
• Where the legal part of an contract can be severed from the illegal part, the bad part may be rejected and the good one can be retained”
• Where the illegal part cannot be severed, the contract is altogether void.

(ii) Agreement the meaning of which is uncertain (Sec. 29): An agreement, the meaning of which is not certain, is void but where the meaning thereof is capable of being made certain, the agreement is valid.

(iii) Wagering Agreement (Sec. 30):
1. Wager means ‘bet’.

2. They are ordinary betting agreements.

3. It refers to an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.
Relevant Case law:
Thacker V. Hardy

4. Such an agreement is void.

5. If one of the parties has control over the event, agreement is not a wager.

6. Though wagering contracts are void, transactions incidental to wagering transactions are not void.

7. “Where delivery of the goods sold is intended to be given and taken, it is a valid contract but where only the differences are intended to be paid, it will be a wagering contract and unenforceable.”

Note : Lottery, being a game of chance, is a Wagering Agreement. It is void and illegal thus, collateral transactions are also tainted with illegality.

Speculative transactions: It appears to be similar to that of wagering agreement, but has essentially two main features:

• Mutual intention of the contracting parties to acquire or deliver the commodities, and
• Undertaking of risk arising from movement in prices.
• They are generally valid.

Restitution (Sec. 65)

• Under a void contract, if any party has received any benefit from the other party, he must restore it or make compensation for it to the other party.
• There is no restitution where the parties are incompetent to contract example minor.

Relevant Case Law:
Mohiri Bibi V. Dharmodas Ghosh

Contingent Contract (Sec. 31)

• It refers a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
• Example : Contracts of insurance, indemnity and guarantee etc.

Rules regarding its enforcement:

Rules	Enforcement
Happening of future uncertain event.	Cannot be enforced by law unless and until that event happens. Contract becomes void if event becomes impossible.
Non – happening of an uncertain future event.	Can be enforced when the happening of that event becomes impossible and not before.
Behaviour of a person at an unspecified time in future	Event is considered impossible when that person does any thing, which renders it impossible that he should so act within any definite time or otherwise than under further contingencies.
Happening of a specified uncertain event within a fixed time.	Becomes void if- 1. at the expiration of the time, such event has not happen, or 2. before the time fixed, such event becomes impossible.
Non- happening of a specified uncertain event within a fixed time.	Can be enforced by law – 1. when the time fixed has expired and such event has not happened, or. 2. Before the time fixed has expired, it becomes certain that such event will not happen.
Impossible Event	Are void, whether the impossibility of the event is known or not known to the parties at the time of making the agreement.

Differences between wagering agreements and contingent contracts

Wagering Agreements	Contingent Contracts
It is void.	It is valid and enforceable until becomes void.
It is a game of chance.	It is not a game, but contingent upon the happening or non happening of uncertain future event.
Future event is the primary factor.	Future event is only collateral.
Consists of reciprocal promises.	Do not contain reciprocal promises.
Every wager is essentially contingent in nature.	Every contingent contract is not necessarily a wager.

Quasi Contract

• An obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. They are known as quasi contracts.
• They are based on principles of equity, justice and good conscience.
• They are termed as certain relations resembling those created by contracts.
• It is also known as Law of Restitution.

It has following features:

• It does not arises from any agreement between the parties but is imposed by law.
• It is a right only available against a particular person or persons and not against the entire world.

They are of following types:

• Supply of necessaries
• Reimbursement of money due
• Obligation to pay for benefit out of non-gratuitous act
• Responsibility of finder of goods
• Persons receiving goods or money by mistake.
• Quantum merit (as much as earned or reasonable remuneration)

Supply of necessaries (Sec. 68):
1. “If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person, with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.”

2. If necessaries are supplied to a minor or person of unsound mind, the supplier is entitled to claim their price from the property of such a person.

3. If there is no property, nothing will be realizable.

Reimbursement of money due (Sec. 69):

• “A person, who is interested in the payment of money and pays such money, which another is bound by law to pay, is entitled to be reimbursed by the other.”
• A person who has paid a sum of money which another is obliged to pay, is entitled to be reimbursed by that other person provided the payment has been made by him protect this own interest.
• Payment must be bonafide.

Obligation to pay for benefit out of non gratuitous act (Sec. 70):
“Where a person lawfully does something for another person or delivers anything to him; not intending to do so gratuitously and the other person accepts and enjoy the benefits thereof, then he is bound to make compensation to the other in respect of or to restore the thing so done or delivered.”

Responsibility of finder of goods (Sec. 71):
1. “A person who finds goods belonging to another and takes them into custody, is subject to the same responsibility as a bailee”.

2. He should act like a man of ordinary prudence i.e.

• he shall take proper care of goods
• he must take reasonable steps to trace the owner
• he should sell the goods, that they are in deteriorating condition and remit the proceeds to the owner.

3. He is entitled for the reward that may have been, offered by the owner.

4. He is also entitled for the refund of any expenses he may have incurred in protecting and preserving the property.

Person receiving goods or money by mistake (Sec. 72):

• “A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return if –
• Mistake need not be unintentional. It may be even intentional.

Performance of Contracts (Sec. 37):
1. It is one of the modes of discharging the contract. It is the completion or fulfilment of obligations by the respective parties to a contract.

2. As per Sec. 37 of the Indian Contract Act, the parties to the contract must either –

• Perform their respective promises, or
• Offer to perform the same unless such performance is dispensed with or excused under the provision of any other law.

Contracts to be performed by whom.
1. Promisor himself: Sec. 40 states that “if it appears from the nature of the case that it was the intention of the parties to a contract that any promise contained in it needs to be performed by the promisor himself, such promise must be performed by the promisor himself. “Contracts involving the exercise of personal skill or diiigencb, or which are founded on the personal confidence between the parties need to be performed by promisor himself.

2. Agent: If the contract is not found on the personal consideration, the promisor or his representative may employ a competent person to perform it.

3. Representatives: Contract involving the use of personal skill or found to be on personal consideration comes to an end on the promisor’s death. In other cases, the legal representatives of the deceased partner are bound to perform it unless the contrary intention appears from the contract; but their liability is limited to the value of the property they inherit from the deceased.

4. Third persons: As per Sec. 41, “if the promisee accepts the performance of the promise by a third person, he cannot afterwards enforce if against the promisor.”

5. Joint promisors: In case of joint promise, promisee may compel or one more of the joint promisors in the absence of contract to the contrary. If any of them dies, his legal representatives must perform the promise jointly with the surviving promisors.

6. Who Can Demand Performance?
Promisee: Only promisee can demand the performance of the promise irrespective of the fact that it is for the benefit the promisee or any other person.

7. Third party: In some cases, like trust, marriage settlements etc. third party can enforce the promise against the promisor even though he is not a party to the contract.

8. Representatives: In case of death of the promisee his representative may ask for the performance of the promise under a contract.

Types of Performance – It is of following two types:
Actual Performance:
The promisor makes all offer of the performance of the promise and the offer to perform is accepted by the promisee. Thus, when both the parties perform their respective obligations, the contract comes to an end.

Attempted Performance (Tender) (Sec. 38) – The promisor makes an offer of performance to the promisee, but the offer to perform is not accepted by the promisee.

Types of Tender:

• Tender of goods: attempted performance of promise to do something.
• Tender of money: attempted performance of promise to pay something.

Essentials of a Valid Tender:

• Must be unconditional
• Must be for the whole obligation
• Must be given at a proper time
• Must be given at a proper place
• Must give a reasonable opportunity of inspection
• Party giving tender must be willing to perform his obligation
• Must be made to the proper person
• Must be made for the exact amount of money

Effect of Refusal of party to perform promise (Sec. – 39):
The aggrieved party can –
(i) terminate the contract

(ii) indicate by words or by conduct that he is interested in its continuance. If promisee decides to continue the contract, he would not be entitled to put an end to the contract on this ground immediately. In both cases, promisee would be entitled to claim damages that he suffered as a result of breach.

Joint Promise – When, two or more person enter into a joint agreement with one or more persons, it is known as joint promise.

Joint Promisors – Joint Promisors are promisors where liabilities are joint or several.

Hold ‘D’ they will jointly pay his liabilities.

• “D” can compile any one.
• If releases one, then other partners are required to pay whole amount.
• If one pays – Contribution.
• Loss among joint promisors: Even if A becomes insolvent, then B & C will have to pay whole amount of ₹ 30,000 to D.
• In case of Death of joint promisors: Life, if A dies, then his legal representative will contribute the amount. If all the joint promisors dies then the legal representative of all the partners will become liable to pay the amount.

Rights of Joint Promisee:

1. Clean rest with all.
2. On death his representative.
3. Death of all their representative.

Devolution:
It means to pass over from one.person to another – In case of joint promise, two problems arises:

• who is liable to perform the promise,
• who can demand such performance.

This problem is solved by devolution.

Liability of Joint Promisors:
Sec. 42: If two or more persons have made a joint promise, ordinarily all of them during their life time must jointly fulfil the promise. * After the death of any of them, his legal representative jointly with the survivor or survivors should do so.

Sec. 43:

• All the joint promisor are jointly and severally liable. However, the contract between the joint promisor may provide otherwise.
• A joint promisor may claim contribution from other joint promisors, if he is compelled to perform the whole promise.
• A joint promisor may claim contribution from other joint promisors, if any other joint promisor makes a default in performance of his promise.

Sec. 44: Where one of .the joint promisors is released, other joint promisors shall continue to be liable.

Differences between Succession and Assignment:

Succession	Assignment
Transfer of rights and liabilities of a deceased person to his legal representative is called succession.	Transfer of rights by a person to another person is called assignment.
It takes place on death of a person.	It takes places during the lifetime of a person.
It is not a voluntary act.	It is a voluntary act
It may take place even without a written document.	It requires execution of assignment deed.
All rights and liabilities of a person are transferred.	Only rights of a person are transferred.
No notice is required to be given to any person.	Notice must be given to the creditor.
No consideration is required.	Consideration is required.

Contracts which need not to be performed
Sec. 62:
If the parties to the contract agrees to –

• Substitute a new contract for it, or
• rescind it, or
• alter it.

Sec. 63:
If the promisee-

• dispenses with or remits, wholly or in part the performance of the promise made to him.
• extends the time for such performance
• accepts any satisfaction for it.

Sec. 64: If the person at whose option it is voidable rescinds the contract.

Sec. 64: If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promise.

Discharge of Contracts – It means termination of contractual relations between the parties to a contract.

Modes of Discharge of Contract
1. By performance: It occurs when the parties to the contract fulfil their obligations arising under the contract within the time and in prescribed manner. It may be:

• Actual performance
• Attempted performance.

2. By Mutual Agreement: The parties may enter into a fresh agreement which provides for the extinguishment of their rights and liabilities of original contract. Important methods of discharge by a fresh contract:

• Novation: It occurs when an existing contract is substituted by a new one, either between same parties or between the new ones.
• Rescission: It occurs when only the old contract is cancelled and no new contract comes to exist in its place.
• Alteration: It occurs when the terms of contract are so changed by mutual agreement that have the effect of substituting a new contract for the old one.
• Remission: It refers to acceptance of lesser fulfillment of the terms of promise.
• Waiver: It refers to the abandonment of the rights by the party who is entitled to claim performance of the contract.
• Acceptance of any other satisfaction: it occurs when the party entitled to claim performance accepts any other satisfaction instead of the performance of the contract.

3. By Lapse of time: It occurs if a contract is not performed within a specified period as prescribed by the Limitation Act, 1963.

4. By operation of law – It occurs when the contract is discharged by operation of law which includes:

• Material alteration: Where it is done without the knowledge and consent of the other, contract can be avoided by othe, party.
• Insolvency: It can be done under certain particular circumstances.
• Death of a promisor: Contracts involving personal skill or expertise of promisor. When promisor dies, it cannot be performed by anyone else and hence comes to an end.
• Merger of rights: If an inferior right in a contract is merged into a superior right by the party.

5. (i) By Impossibility of performance / frustration (Sec. 53)

Relevant Case Law:
Satyabarta Ghose v Mugmiram

(ii) Discharge by supervening impossibility is done in following ways –

• Death or personal incapacity
• Destruction of subject-matter
• Non – existence or non- occurrence of certain essential things
• Change of Law
• Declaration of war

(iii) Discharge by supervening illegality – If after making the contract, its performance becomes impossible due to alteration of law or act of any person, it is discharged.

(iv) Cases not covered by subsequent impossibility

• Partial impossibility
• Commercial impossibility
• Difficulty of performance
• Default of a third party.
• Strikes, lockouts, etc.

(v) It is also known as frustration under English law.

6. By Breach of contractlt may be –

• Actual Breach: If one party defaults in performing his part of the contract on due date.
• Anticipatory Breach: When a person repudiates the contract before the stipulated time for its performance has arrived.

Let us study breach of contract in detail

Breach of Contract:
1. It means failure of a party to perform his obligations.

2. Consequences of Breach

• It discharges the aggrieved party from performing his obligations.
• The aggrieved party is entitled to proceed against the party at fault.

3. Types of Breach

Anticipatory Breach of Contract:
It occurs when the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time for performance has arrived.

It may be by:

• Express repudiation, or
• Party disables himself.

The aggrieved party may exercise either of following two options:

• May wait till the due date i.e. it may treat the contract as operative.
• May decide not to wait till the due date, but may immediately rescind the contract and bring an action for damages.

Relevant Case Laws:
Hochester v. De La Tour
Avery V. Bowden

Facts:

• B chartered A’s ship
• B agreed to load it with a cargo in Odessa within 45 days.
• B was unable to supply the cargo, but A continued to demand it
• Meanwhile a war brokeout, rendering the performance impossible.

Decision: Contract was discharged and A cannot sue for damages.
Frost v. Knight

Facts –

• Defendant promised to marry the plaintiff on the death of his father.
• Defendant broke off the engagement during lifetime of his father. Decision: Plaintiff could bring an action for damages without waiting for death of defendant’s father.

Remedies available to aggrieved party:

• Rescission of contract
• Claim for specific performance of the contract
• Claim for injunction
• Claim for quantum meruit
• Claim for damages.

(i) Rescission of contract: It means right available to aggrieved party to terminate the contract In this case, the aggrieved party is not required to perform his part of obligation and is entitled to claim compensation for any loss caused to him.

(ii) Claim for specific performances of the contract:
1. In certain cases, when the damages are not adequate remedy, the court may direct the party in breach for specific performance of the contract and the promise is carried out as per the terms of the contract.

2. Usually granted in contracts connected with land.

3. It cannot be granted where –

• Monetary compensation is an adequate relief
• Contract is of personal nature
• It is not possible for court to supervise performance of contract
• Contract is ultra virus.
• One of the parties is a minor.

(iii) Claim for injunction: Injunction refers to an order passed by a competent court restraining a person from doing a particular act. Negative term of contract means doing something, which party has promised not to do or reasonable remuneration.

Thus, where a party to a contract is negativating the terms of a contract, the court may in its discretion issuing an order to the defendant restrain him from doing what he promised not to do.

Relevant Case Laws
Lumley V.Wagner

(iv) Claims for Quantum Meruit
Quantum Meruit” means “as much as is earned” or ‘according to the quantity of work done’ or reasonable remuneration.
1. Claim by party not at fault – In following cases, party not at fault may claim payment:

• One party preventing the other from completion of contract.
• Contract becoming void before its completion.
• Agreement is discovered to be void.

2. Claim by party at fault: In following cases, party at fault may claim payment:

• Divisible contract partly performed
• Indivisible contract performed completely but badly

(v) Claim for damages:

• Damages are a monetary compensation awarded, by the court to the injured party, for the loss or injury suffered by him.
• As per Sec. 73, when a contract is broken, the party at loss or damage from the breach is entitled to receive from the party at fault, compensation for the loss suffered by him.

The loss or damage should have –

• arose naturally in the usual course of things from such breach or
• which the parties knew to be the likely result of such breach.

No compensation for any remote or indirect loss.

Relevant Case Law:
Hadley v. Barendale

Facts:

• X’s mill was stopped due to break down of shaft.
• He delivered the shaft to Y, a common carrier, to be taken to a manufacturer to copy it and make a new one.
• X did not inform Y that delay would result in loss of profits.
• Due to Y’s neglect, delivery was delayed beyond a reasonable time. Decision: Y was not liable for loss of profits during the delayed period.

Types of damages:

(i) General/ Ordinary Damages:

• It helps putting the injured party in the position that he would have been if the contract was performed.
• It refers to the estimated amount of loss actually incurred.
• It applies only to proximate consequences of the breach of contract.

(ii) Special Damages:

• It includes those damages other than that arising directly from breach
• It must be known to parties at the time of entering into contract.

(iii) Exemplary / Punitive Damages:
1. These are awarded not to compensate the aggrieved party, but as a means of punishment to the defaulting party.

2. It is awarded in 2 cases:

• Breach of contract to marry or promise to marry.
• Wrong dishonour of a customers cheque by a banker.

(iv) Nominal Damages:
These are awarded where the plaintiff has proved that there has been a breach of contract but he has not suffered any loss or damage.

(v) Liquidated Damages & Penalty:
When parties to a contract, specify a certain sum in the contract which will becomes payable as a result of breach, such specified sum is known as liquidated damages or penalty.

Under the English law:

• If the amount fixed is a genuine pre-estimate of the loss in case of breach – it is liquidated damages and is allowed.
• If the amount is fixed without any regard to probable loss, but is only to frighten the party and prevent it from committing any breach, it is a penalty and is not allowed.

In Indian law, there is no difference between the two.

Relevant Case Law:
Union of India v. Raman Iron Foundry

Differences between ordinary and special damages:

Ordinary Damages	Special Damages
Damage which was naturally in the usual course of things.	Damages which result from the breach of contract under special circumstances.
Include damages which are due to natural and probable consequences.	Includes damages which the aggrieved party suffers due to indirect loss.

Differences between liquidated damages and penalty

Liquidated Damages	Penalty Damages
If the sum payable by the defaulting party represents a fair and genuine pre-estimate of damages such specified sum is known as liquidated damages, Thus, they are based on probable loss.	If the sum payable by the defaulting party is not based on probable loss, but are disproportionate to the damages, such specified sum is known as penalty.
They are imposed by way of compensation to the aggrieved party.	It is imposed by way of punishment, so as to prevent the aggrieved party from committing a breach.
In England, they are awarded in full.	In England, no amount is awarded to any party.

Contracts of Indemnity:
1. As per Sec. 124, A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or the conduct of any person is called a contract of indemnity.

2. Contract of Indemnity are a part of general class of contingent contracts, thus are conditional.

3. Parties of Indemnity Contract

• indemnifier: The person who promises to make good the loss.
• Indemnified or indemnity Holder: The person whose loss is to be made good.

4. It does not includes events or accidents, which do not depend upon the conduct of any person.
Example : Contract of insurance etc. (except life insurance)

5. Modes

• Expressed
• Implied

6. Essential Elements of Contracts of Indemnity

• Ail essential elements of a valid contract must be present.
• A loss should be incurred or loss has become certain.
• Its purpose is to protect the indemnity holder against any loss.
• It must specify that the indemnity holder is protected from loss, caused due to;
• action of the promisor himself
• action of any other person
• any act, event or accident which is not in the control of parties.

Rights of indemnity Holder (Sec. 125):

• Right to recover damages
• Right to recover costs
• Right to recover sums paid

Contracts of Guarantee (Sec. 126):
1. It is a contract to perform the promise or discharge the liability incurred by a third person in case of his default.

2. Parties to the contract

• Surety – The person who gives the guarantee.
• Principle Debtor – The person in respect of whose default the guarantee is given.
• Creditor – The person to whom the guarantee is given.

3. Essential Elements of Contracts of Guarantee.

• Must have all essentials of a valid contract

Exceptions:
(a) Consideration received by the Principal Debtor is a sufficient consideration to the surety for giving the guarantee.

(b) Contract is valid even if the principal debtor is incompetent to contract.

• The principal debtor is primarily liable.
• Debt must be legally enforceable
• Debt must not be a time barred debt.
• Liability of surety is secondary and conditional
• The creditor should disclose all the facts which are likely to affect the surety’s liability.
• Contract may be either oral or written.

Nature and extent of Surety’s Liability (Sec. 128):

• Liability of surety is same as that of principal debtor.
• Where a debtor cannot be held liable on account of any defect in the document, the liability of the surety also ceases.
• Surety liability continues even if the principal debtor has not been sued or committed to be sued. Thus surety’s liability is separate on the guarantee.

Relevant Case law:
Kashiba V. Shripat

Kinds of Guarantee:

(i) Specific Guarantee

• It is given for a single debt
• It comes to an end when the debt guarantee has been paid.

(ii) Continuing Guarantee (Sec. 129)

• It extends to a series of transactions.
• Surety’s liability extends to all the transactions contemplated until the guarantee’s is revoked.

Differences between Specific and Continuing Guarantee:

Specific Guarantee	Continuing Guarantee
It is given in relation to a specific transaction.	It is provided in relation to a series of transactions.
It is limited upto a special transaction.	It extends to a series of transaction.
It is abolished on the completion of special transaction.	It is abolished only when all the transactions are completed.
It cannot be revoked by surety.	It can be revoked by the surety in relation to future transaction.

Revocation of Continuing Guarantee:
(i) It may be revoked at any time by the surety as to the future transactions by giving notice to creditors (Sec. 130)
Relevant Case Law:
Offord v. Davies

(ii) Upon the death of surety, it is revoked for all the future transactions in the absence of the contract to the contrary. (Sec. 131)
Relevant Case Law:
Lloyds V. Harper

Rights of Surety – Against the principal debtor:
(a) Right of indemnity (Sec. 145): Surety is entitled to recover from principal debtor all payment properly made.

(b) Right of Subrogation (Sec. 140): It means substitution of one person for another. On payment of a debt, surety shall be entitled to all the rights which the creditor can claim against the principal debtor.
Relevant Case Law:
Mamta Ghose V. United Industrial Bank

Against the creditor
(a) Right to claim securities (Sec. 141): Surety is entitled to benefit of every security, which creditor has against the principal debtor, whether surety knows of it or not.
If creditor loses or parts with security without surety’s consent, surety is discharged to the extent of security’s value.

(b) Right to set off: Surety can ask the creditor to set off or adjust any claim which the debtor has against creditor.

(c) Right to share reduction: If the principal debtor becomes insolvent , surety may claim proportionate reduction in his liability.

Against Co-Sureties:
(a) Right to contribution (Sec. 146): All the co- sureties contribute equally except in following cases:

• Co- sureties may fix limits on their respective liabilities.
• Contract may provide co-sureties to contribute in some other proportion.

(b) Right to share benefit of securities – Discharge of a surety:

• Sec. 130: By giving notice to creditor for future transactions in case ot continuing guarantee.
• Sec. 131: In absence of any contract to the contrary , continuing guarantee is revoked on death cf surety.
• Sec. 133: Whore there is any variance in the term of contract between the principal debtor and creditor without surety’s consent, it would discharge the surety in respect of all the transactions taking place subsequent to such variance
• Sec. 134: The surety is discharged, if the principal debtor is discharged by – (i) a contract, (ii) any act or (iii) any omission, the result of which is the discharge of principal debtor.
• Sec. 135: If the creditor makes an arrangement with the principal debtor for composition, for giving time or for not suing him without surety’s consent.
• Sec. 139: If creditor does any act or omission , there by impairing sureties eventual remedy.
• Sec. 141: If the creditor loses or parts with security without surety’s consent, surety is discharged to the extent of security’s value.

Difference between Contracts of Indemnity and Contracts of Guarantee:

Contract of indemnity	Contract of Guarantee
There are two parties-indemnifier and indemnified	There are 3 parties-creditor, principal debtor and surety.
Indemnifier’ liability is primary and independent	Surety’s liability is secondary.
Indemnifier’ liability arises only on happening of a contingency.	Liability of surety is already in existence but crystalizes when the principal debtor fails.
Indemnifier need not necessarily act at the request of indemnified.	Surety must act by extending guarantee at the debtors request.
There is only one contract between the indemnified and Indemnifier.	There are three contracts- 1. between principal debtor and creditor, 2. between creditor and surety, 3. between Surety and principal debtor.
Indemnifier cannot sue a third party for the loss in his own name as there is no privity of contract.	Surety can proceed against the principal debtor in his own name.

Contracts of Bailment:

• As per Sec. 148, Bailment is an act whereby the goods are delivered by one person to another for some purpose, on a contract, that the goods shall, when the purpose is accomplished be returned or otherwise disposed off according to the directions of the persons delivering them.
• It is a voluntary delivery of goods for a temporary purpose.
• Ownership of goods remains with the bailor.
• Goods should be movable goods.

Parties

• Bailor: The person delivering the goods.
• Bailee: The person to whom the goods are delivered.

Essential Elements of Contracts of Bailment

• There must be an expressed or implied contract between the parties.
• It can be made of goods only.
• There must be delivery of goods from one person to another.
• Goods must be delivered for some purpose express or implied.
• The delivery of goods must be conditional.
• The return of the goods may be in the original form or i.e. in an improved form as agreed between the bailor and bailee.

Modes

• Actual Delivery
• Symbolic Delivery
• Constructive Delivery.

Bailment may be gratuitous (without any remuneration or reward) or for reward, (for consideration)

Classification:
Duties of Bailor – Sec. 150: Bailor must disclose all known defects / faults in the goods bailed. He is responsible for defects in the gocds hired to bailee whether bailor was aware of such defects or not.

Sec. 158:
(a) Where the bailment is gratuitous, he must reimburse the bailee for any expenditure incurred in keeping the goods.

(b) He should reimburse any expense which bailee may incur by the way of loss in the process of returning the goods or complying with other directions for returning the goods.

(c) He must compensate the bailee for any loss or damage suffered by bailee in excess of benefit received.

(d) He is bound’to accept the goods after the purpose is accomplished.

Rights of Bailor:

• Right to enforce the duties of the bailee.
• Right to terminate the contract if bailee does any thing which is inconsistent with the conditions of bailment.
• In gratuitous bailment, he has a right to demand back goods even before expiry of bailment period.
• Right to claim the increase or profit from the goods bailed which may have occurred from value of goods.

Duties of Bailee:

• Sec. 151: Duty to take reasonable care of goods.
• Sec. 152: If he takes care of goods as a man of ordinary prudence, he will not be liable for any loss or damage of goods bailed.
• Sec. 153: Duty not to make authorised use of goods.
• Sec. 154: If he makes any unauthorized use of goods , he will be liable to make good the loss.

Sec. 155-157:
(a) Duty not to mix the goods bailed with his own goods without the bailor’s consent. If he does so, he has to make good the loss.
(b) Duty not to set up an adverse title

Sec. 160: Duty to return the goods on expiration of the bailment period. Sec. 161: If he fails to return, he will be responsible to the bailor for any loss, destruction or deterioration of goods there after.

Sec. 163:

• Duty to return any extra profit occurring from goods bailed.
• Duty not to do any thing inconsistent with the bailment conditions.

Rights of Bailee:

• Right to claim compensation for any loss arising from non-disclosure of known/unknown defects in goods.
• Right to claim indemnification for any loss or damage as a result of defective title.
• Right to deliver back the goods to joint bailors as per the agreement.
• Right to deliver goods back to bailor whether has the right to the goods.
• Right to exercise his right of lien.
• Right to take action against third parties.

Termination of Bailment:

Sec. 153: Where bailee makes unauthorized use of the goods bailment becomes voidable at bailors’ option.

Sec. 159: At bailor’s will –
(a) In non-gratuitous bailment, bailor has a right to take back the goods , after the purpose is over.

(b) In gratuitous bailment, he can take back the goods any time, provided in case of loss in excess of benefit, bailee must be compensated.

Sec. 160:
(a) When the period or purpose of bailment is over.

(b) Where the subject matter is destroyed or becomes illegal.

Sec. 162: A gratuitous bailment is terminated by the death of the bailor or bailee.
Lien It refers to right of one person to retain the possession of some goods, belonging to other person, until some debt or liability is discharged.

(a) Particular Lien:

• It is available only against those goods in respect of which bailee has exercised skill and labour.
• Bailees lien is a particular lien.
• It is available to all.

Conditions for exercising Particular Lien:

• If bailee has exercised his labour and skill on goods bailed.
• When work has been completed on time.
• If the payment is due.

(b) General Lien:

• It refers to the right of one person to retain the possession of any goods, belonging to another person , until some debt or liability is discharged.
• It is available to bankers, factors, warfingers, attorneys of High Court and policy brokers.

Differences between General Lien and Particular Lien:

General Lien	Particular Lien
Right to detain / retain any goods of the bailor for balance of amount outstanding.	It is exercisable only on such goods in respect of which charges are due.
It is recognized through an agreement.	It is automatic.
It can be exercised against goods even without involvement of labour or skill.	It comes into play only when some labour or skill is involved.

Finder of Goods:
1. Refers to a person who finds the goods belonging to another person i.e. the goods lost by the true owner – he enjoys all the rights and carries all the responsibilities of a bailee.

2. Though the finder has no right to sell the goods found in the normal course , he may sell the goods if the real owner cannot be found with reasonable efforts or if the owner refuses to pay the lawful changes subject to the following conditions –

• article is in danger of perishing and losing the greater part of the value,
• lawful charges of the finder amounts to two-third of the value of the article found.

Carrier as Bailee – Carrier undertakes to carry goods of all persons safely to its destination He undertakes to make good all losses unless caused by an act of God or public enemies.

Innkeepers:
Their liability is like that of a bailee with regard to the property of the guests.

Relevant Case Law:
Jan & Sar V. Caneron

Pledge/ Pawn
1. As per Sec. 172,
It refers “to the bailment of goods as security for payment of debt or performance of a promise.”

2. It refers to a contract where by an article is deposited with a money lender as a security for the loan repayment or for the performance of promise.

3. Parties
Pawnor: The person who pledges i.e. bailor incase of pledge
Pawnee: The bailee incase of pledge.

4. Essential Elements of Pledge

• There must be expressed implied contract between the parties.
• It can be of goods only
• There must be delivery of goods from one person to another.
• It must be for some purpose.

Duties of Pawner

• Repay the loan or perform the promise
• Pay expenses in cases of default
• Pay the deficit on sale.
• Pay extraordinary expenses incurred for preserving the goods.
• Disclose faults in goods which are material for the use of goods or may put pawnee to extra-ordinary risks.
• Indemnify pawnee if he suffers any loss due to defective title of the pawner.

Rights of Pawner

• Sec. 177: Redeem the goods pledged.
• Right to sue in the event of pawnee refusing to return the goods even after payment of debt etc.
• Receive any increase in goods.
• Receive notice of sale.

Duties of Pawnee:

• Not to use the goods unless authorised by pawner
• Return the goods to pawnor on payment of debt etc.
• Take reasonable care of the goods
• Not to mix the goods with his own goods
• Return any increase in goods pledged with him
• Return any surplus on sale.

Rights of Pawnee:
Sec. 173: Retain the goods pledged only for
(a) the performance of promise, (b) payment of debt, or (c) interest on debt.

Sec. 174: Right of particular lien.

Sec. 175: Seek reimbursement of extra ordinary expenses.

Sec. 176: Right to sue the pawner in the event of pawner failing to redeem the debt or perform the promise. He can sell the goods after giving a notice of sale.

Pledge by non- owners:
A valid pledge can be created by following non- owners:
(a) Pledge by Estoppel.

(b) Pledge by a mercantile agent. (Sec. 178)
Mercantile Agent means an agent of the seller who has been appointed to sell the goods belonging to the seller.

Conditions for pledging:

• Goods came into his possession with the consent of seller/owner of goods.
• Pledge is made by him in the ordinary course of business
• Pawnee acts in good faith.

(c) Pledge by a person in possession under a voidable contract. (Sec. 178 A)

Conditions:

• Person acquires goods under voidable contract
• Person who acquires the goods pledges such goods
• At the time of creation of pledge, voidable contract should not have rescinded
• Pledge is made in good faith.

(d) Sec. 179: Pledge by a person having limited interest in the goods. If a person has a limited interest, he can make a valid pledge to the extent of that interest.

(e) Pledge by a co-owner in possession:
Consent of all joint owners is required, if the goods owned jointly are to be sold or pledged. Conditions for exception –

• Goods are in the sole possession of one joint owners.
• Goods came into his possession with consent of other joint owners.
• Pledge is made in good faith.

(f) Pledge by a seller in possession of goods after their sale.

Conditions:

• Ownership of goods has been passed to the buyer
• Seller continues to be in their possession, even after their sale
• Seller pledges the goods to some other person
• Pledge is made in good faith without any notice of the prior sale
• Pledge by a buyer who has obtained possession of goods under an agreement to sell.

Conditions:

• Ownership has not been passed
• Buyer has obtained possession with the seller’s consent
• Buyer pledges the goods to some other person
• Pledge is made in good faith.

Differences between Bailment and Pledge

Bailment	Pledge
Goods are bailed for purpose other than those referred under pledge.	Under it, goods are bailed as a security for loan or performance of promise.
Bailee generally cannot sell the goods.	Pawnee enjoys the right to sell the goods on pawnor’s default.
He can either retain or sue. Bailee can use the goods only if the terms provide so.	Pawnee has a right to use the goods.

Law of Agency
1. As per Sec. 182,
“ An agent is a person employed –

• to do any act for another, or
• to represent in dealing with third persons.”

2. Principal is a person for whom such act is done , or who is so represented.

3. Agent acts as a mere connecting link between the principal and third party.

4. It is based on two rules:

• A person can do through an agent, whatever he can do himself.
• The acts of the agent are the acts of the principal.

Essential elements:

• Two parties are required
• Agreement between parties is necessary.
• No consideration is required.

True test of Agency:
If a person has the capacity to bind the principal for the acts done by him, then agency exists and such person is called an agent.

Modes of creation of Agency:

Sec 187: Express Agency – It is created either by words spoken or in writing Eg- Power of Attorney (it may be general or special)

Implied Agency: Agency created by conduct of parties. It can be in the following terms:

(a) Sec 237: Agency by Estoppel
It a person by his conduct, words spoken or written leads another to believe that a certain person is acting as his agent, he is estopped later on from denying such facts.
Example : Wife as an agent, where a married women lives with her husband, there is a presumption that she has the authority to pledge his credit for necessaries.

This Presumption is not held where husband shows that –

• he had expressly warned the tradesman not to supply goods to his wife on his credit,
• he had expressly forbidden the wife to pledge his goods,
• his wife was already supplied with sufficient articles,
• she was supplied with sufficient allowance.

(b) Agency by Holding out

• Under this the principal plays a positive role.
• It occurs when any one holds himself out as an agent of another
• It happens through a wilful conduct
• Example : In case of partnerships.

Sec. 189:
Agency by necessity – In case of emergency, the agents can exceed their powers and can take all the steps to minimise his principal’s loss.

Agency by ratification
(a) The principal is not bound by the act of agent if the agent acts:

• On behalf of another without his consent or knowledge
• exceeding his authority.

(b) Principal can create it by subsequent ratification.

(c) Also known as ex post facto agency i.e. agency arising after the event.

(d) Principal becomes bound.

Agency by ratification is possible if following conditions are satisfied:

• The act must have been done on behalf of the named or identifiable principal.
• The principal must be in existence at the time of contract.
• The principal must be competent to contract at the time of making the contract.
• Principal must have full knowledge of the facts.
• Contract can be ratified only as a whole.
• It can be done of a lawful contract.
• It must be done within a reasonable time.
• It should not cause any damages to a third party.

Extent of Agent’s Authority It is governed by two principles:
Sec. 188: Agents authority in normal circumstances. Agent has the power and authority to do all the acts lawful and necessary in the normal circumstances in discharge of his functions.

Agent’s authority in emergency. Agent has the authority in an emergency to do all such acts as a man of ordinary prudence for protecting his principal from losses under similar circumstances. It includes:
(a) Actual / Real Authority.
(b) Ostensible / Apparent Authority.

Note:
As per Sec. 190,
Sub – agent’s appointment is not lawful as the agent is a delegate and a delegatee cannot further delegate.

As per Sec. 191,
A sub – agent is a person –
(i) employed by, and
(ii) acting under the control of the original agent in the business of agency.

Relationship between principal, agent and sub – agent

• Agent and Sub-Agent have the relation like that of agent and principal.
• Sub- agent is not directly responsible to the principal.
• Agent is responsible for the acts of sub- agent to the principal.
• Principal is responsible to third party for acts of both agent and subagent

Substituted Agent
As per Sec. 194,
Where-
the principal appoints an agent, and if that agent identifies another person to carry out the acts ordered by the principal, then the second person is not to be treated as a sub- agent but only as an agent of the original principal.

Mercantile Agent
As per Sec. 2 (9) of the Sales of Goods Act, 1930 “Mercantile Agent is an agent having in the ordinary course of business as such an authority either –

• to sell goods, or
• consign goods for the purpose of sale, or
• to buy goods ,or
• to raise money on the security of goods.

It includes:

• Factors
• Brokers
• Del credere agent
• Auctioneers
• Partners
• Bankers

1. Factors:

• Employed to sell goods placed in his possession.
• Contract to buy goods for his principal.
• Can sell and receive payment for the goods.
• Has an insurable interest in the goods.
• Have general lien in respect of any claim arising out of agency.

2. Brokers:

• Contracts with other for the sale and purchase of goods and securities.
• Goods and securities are not in his possession.
• Gets commission in return called brokerage.
• Acts in principal’s name.
• Has no lien over the goods.

3. Del Credere Agent:

• Gives guarantee to the principal that credit purchasers pay for the goods.
• Gets an extra remuneration in return.
• If third party fails to pay , he is bound to pay the principal , the balance amount.

4. Auctioneers

• Sells goods by auction.
• Cannot warrant his principal’s title to the goods.
• Until sale he is an agent for seller.
• After sale he is an agent for buyer.

5. Partners:
Agent of the firm and his co- partners.

6. Bankers.

• Relationship of debtor and creditor with their customers.
• Agent of customer when he buys or sell securities, collects bills etc on customer’s behalf.
• Has general lien on all goods and securities in his possession.

Duties of Agent:

• Sec. 211: To conduct principal’s business according to his directions.
• Sec. 212: He must always act as a person with skill and diligence.
• Sec. 213: He has to maintain and render proper accounts to the principal whenever demanded. .
• Sec. 214: To communicate and obtain instructions in case of difficulty.
• Sec. 215: He must not deal on his own account.
• Sec. 216: Must not make any secret profit.
• Sec. 217 & 218: To account for money received for the principal.

Not to use the information obtained in the course of agency against the principal. Agent cannot delegate his authority to sub agent generally. The general rule for this is. Delegates non-protest delegare-a delegate cannot further delegate.

Rights of an Agent:

• Sec. 217: Rights of Retention.
• Sec. 219: Right to receive agreed remuneration.
• Sec. 221: Right of lien on principal’s property.
• Sec. 222: Right of indemnification for lawful acts.
• Sec. 223: Right of indemnification against acts done in good faith.

Note:
Sec. 224:
Agent cannot be indemnified for any loss caused by criminal act.

(f) Sec 225: Right to be compensated for any injury caused due to principal’s negligence.
Principle’s liability for agent’s act to Third Parties

There are 3 circumstances in which an agent may contract namely –
(i) The agent acts for named principal (disclosed principal)

(ii) The agent acts for an undisclosed principal

(iii) The agent acts for a concealed principal

• Sec. 226: Acts within the scope of actual apparent authority., it bounds the principal.
• Sec. 227: Acts in excess of agent’s authority is separable, it bounds the principal.
• Sec. 228: Acts in excess of agent’s authority is not separable, principal is not bound by it.
• Sec. 229: Principal is bound by notice given to the principal.
• Sec 238: Principal is bound for any fraud or misrepresentation committed by agent: (i) During the business hours and (ii) Within his authority.
• Admission made by agent, is deemed to be admission made by the principal.
• Unnamed principal, principal becomes liable on being discovered.

Personal liability of the Agent:
(a) It is also known as Doctrine of implied warranty of authority.

(b) It happens under following circumstances:

• where the agent signs the negotiable instrument without indicating that he is signing for the Principal.
• where the contract expressly provides so.
• where the agent works for foreign principal.
• where the agent acts for a Principal who cannot be used.
• where a Government servant enters into a contract on behalf of Union of India.
• where according to usage in trade in certain kinds of business, agents are personally liable.
• where the agency is coupled with interest
• If the agent is working for undisclosed principal
• If the amount is received or paid by agent under mistake or coercion.

Note: Agency coupled with interest (Sec. 202)
It occurs when the agent has an interest in the authority granted to him, or he has an interest in the subject, matter with which he has to deal. It cannot be terminated to the prejudice of interest in the absence of contract to the contrary.

It applies on fulfillment of following conditions:

• agent’s interest should exist at the time of agency’s creation.
• authority given to agent must be intended for protecting the agent’s interest.
• agent’s interest must be substantial
• agent’s interest should be over and above his remuneration.

Termination of Agency:

• Agreement between principal and agent – Performance of contract
• Revocation of authority by principal – Expiration of period
• Revocation of authority by agent
• Death/insanity of principal or agent
• Insolvency of principal
• Dissolution of company
• Destruction of the subject-matter

When Termination of Agency Takes Effect:
(i) Sec 208: As regards agent, when it becomes known to him.

(ii) As regard third parties, when it comes to their knowledge

• Sec. 210: Termination of, the agent’s authority terminates the sub- agents authority
• Sec. 209: Agent has a duty to protect his principal’s interest where the principal dies or becomes of unsound mind.

Irrevocable Agency.
Revocation of agency is not possible in following cases:

• Sec. 202: where agency is coupled with interest.
• Sec. 204: where the authority has been partly exercised.
• where the agency has incurred personal liability.

E-Contract:

• Electronic contracts are not paper based but rather in electronic form are born out of the need for speed convenience and efficiency.
• The conventional law relating to contract is not sufficient to address all the issues that arise in electronic contracts.
• The Information Technology Act, 2000 solves some of the peculiar issues that arise in the formation and authentication of electronic contracts.

As in every other contract, an electronic contract also requires the following necessary ingredients:

• An offer needs to be made
• The offer needs to be accepted.
• There has to be lawful consideration.
• There has to be an intention to create legal relations.
• The parties must be competent to contract.
• There must be free and genuine consent.
• The object of the contract must be lawful.
• There must be certainty and possibility of performance.

Multiple Choice Questions

Question 1.
Which one of the following is correct?
(a) Indian Contract Act, 1882
(b) Indian Contract Act, 1972
(c) Indian Contract Act, 1872
(d) Indian Contract Act, 1888.
Answer:
(c) Indian Contract Act, 1872

Question 2.
The Law of Contract is nothing but
(a) A Child of Commercial dealing
(b) A Child of Religion
(c) A Child of day to day Politics
(d) A Child of Economics.
Answer:
(a) A Child of Commercial dealing

Question 3.
The Indian Contract Act, 1872 extends to-
(a) Whole of India
(b) Whole of India excluding Jammu and Kashmir.
(c) North India Only.
(d) South India Only.
Answer:
(b) Whole of India excluding Jammu and Kashmir.

Question 4.
To form a valid contract, there should be atleast-
(a) Two parties
(b) Three parties
(c) Four parties
(d) Five parties.
Answer:
(a) Two parties

Question 5.
Contractual rights and duties are created by-
(a) State
(b) Statute
(c) Parties
(d) Custom or Usage.
Answer:
(c) Parties

Question 6.
Every Contract is an agreement but every agreement is not a contract. This statement is-
(a) Wrong
(b) Correct
(c) Correct Subject to certain exceptions
(d) Partially correct.
Answer:
(b) Correct

Question 7.
Agreement is defined in section of the Indian Contract Act, 1872.
(a) 2(c)
(b) 2(e)
(c) 2(g)
(d) 2(i)
Answer:
(b) 2(e)

Question 8.
As per section 2(e) of the Indian Contract Act, “Every Promise and every set of promise forming the consideration for each other is a/an
(a) Contract
(b) Agreement
(c) Offer
(d) Acceptance
Answer:
(b) Agreement

Question 9.
A promises to deliver his watch to B and, in return, B Promise to pay a sum of ₹ 2,000. There is said to be a an-
(a) Agreement
(b) Proposal
(c) Acceptance
(d) Offer
Answer:
(a) Agreement

Question 10.
An Agreement is
(a) Offer
(b) Offer+ Acceptance
(c) Offer+ Acceptance + Consideration
(d) Contract
Answer:
(b) Offer+ Acceptance

Question 11.
A Contract is-
(a) A promise to do something or abstain from doing something.
(b) A communication of intention to do something or abstain from doing something
(c) A set of promises.
(d) An agreement enforceable by law
Answer:
(d) An agreement enforceable by law

Question 12.
Contract is defined as an agreement enforceable by Law, vide section of the Indian Contract Act.
(a) 2(e)
(b) 2(f)
(c) 2(h)
(d) 2(i)
Answer:
(c) 2(h)

Question 13.
Which of the following is false? An offer to be Valid must:
(a) Contain a term the non- compliance of which would amount to acceptance.
(b) Intend to create legal relations.
(c) Have certain and unambiguous terms.
(d) Be communicated to the person to whom it is made.
Answer:
(a) Contain a term the non- compliance of which would amount to acceptance.

Question 14.
Over a cup of coffee in a restaurant, X Invites Y to dinner at his house
on a Sunday. Y hires a taxi and reaches X’s house at the appointed time, but x fails to perform his promise. Can Y recover any damages from X? .
(a) Yes, as y has suffered
(b) No, as the intention was not to create legal relation.
(c) Either (a) or (b)
(d) None of these.
Answer:
(b) No, as the intention was not to create legal relation.

Question 15.
Which one of the following is the best statement about the Indian Contract Act?
(a) It is an exhaustive code containing the entire law of contract.
(b) It is an Act to amend certain parts of the law relating to contracts.
(c) It is an Act to define certain parts of the law relating to contracts and contains only the general principles of contract.
(d) It is not an exhaustive code containing the entire law of contracts being an Act to define and amend certain parts of law relating to contract
Answer:
(c) It is an Act to define certain parts of the law relating to contracts and contains only the general principles of contract.

Question 16.
Which of following is a contract?
(a) A engages B for a certain work and promises to pay such remuneration as shall be fixed. B cjoes the work.
(b) A and B promise to marry each Other.
(c) A takes a Seat in a public vehicle
(d) A invites B to a card party. B accepts the invitation.
Answer:
(a) A engages B for a certain work and promises to pay such remuneration as shall be fixed. B cjoes the work.

Question 17.
For binding contract both the parties to the contract must:
(a) Agree upon the same thing in the same sense.
(b) Put the offer and counter offers.
(c) Stipulate their individual offer
(d) Agree with each other.
Answer:
(a) Agree upon the same thing in the same sense.

Question 18.
Which one of the following has the correct sequence.
(a) Offer, acceptance, consideration, offer.
(b) Offer, acceptance, consideration, contract
(c) Contract, acceptance, consideration, offer.
(d) Offer, consideration, acceptance, contract.
Answer:
(b) Offer, acceptance, consideration, contract

Question 19.
Goods displayed in a Shop window with a price label will amount to:
(a) Offer
(b) Acceptance of offer
(c) Invitation to offer
(d) Counteroffer
Answer:
(c) Invitation to offer

Question 20.
What can a catalogue of books, listing price of each book and specifying the place where the listed books are available be termed as?
(a) An offer
(b) An obligation
(c) An invitation to offer
(d) A promise to make available the books at the listed place.
Answer:
(c) An invitation to offer

Question 21.
Which one of the following statement about a valid acceptance of an offer is incorrect?
(a) Acceptance should be absolute and unqualified.
(b) Acceptance should be in the prescribed manner
(c) Acceptance should be made while the offer is subsisting
(d) Acceptance should be communicated
Answer:
(c) Acceptance should be made while the offer is subsisting

Question 22.
A Counter offer is:
(a) A rejection of the original offer
(b) An acceptance of the offer.
(c) A bargain
(d) An invitation to treat
Answer:
(a) A rejection of the original offer

Question 23.
A person making a proposal is called:
(a) Promisor
(b) Vendor
(c) Contractor
(d) Promise
Answer:
(a) Promisor

Question 24.
Which one of the following will constitute a valid acceptance?
(a) An enquiry as to fitness of the subject matter of contract.
(b) A provisional acceptance
(c) Addition of a superfluous term, while accepting an offer.
(d) A conditional acceptance.
Answer:
(a) An enquiry as to fitness of the subject matter of contract.

Question 25.
X Offers by a Letter to sell his car to Y for Rs. 95,000. Y at the some time, offers by a letter to buy X’s car for Rs. 15,000. The two letters cross each other in the post. Is there a concluded contract between X and Y ?
(a) Yes. there is a concluded contract between X and Y.
(b) No, only crossing of offers.
(c) Can’t say
(d) None of these.
Answer:
(b) No, only crossing of offers.

Question 26.
S offers to sell B his car for Rs 50,000. T, standing nearby, says,” I will take it if B does not take it. B is not interested in the car. What will be the position if T says to S“ Here is the money, I take the car.”
(a) There is a contract between S and T
(b) There is no contract between S and T
(c) S may or may not accept the offer.
(d) Both (b) and (c).
Answer:
(d) Both (b) and (c).

Question 27.
Which one of Ihe following statement is true?
(a) Offer and acceptance are revocable
(b) Offer and acceptance are irrevocable
(c) An offer can be revoked but acceptance cannot
(d) An offer cannot be revoked but acceptance can be revoked.
Answer:
(a) Offer and acceptance are revocable

Question 28.
P advertises in a daily newspaper that he will give a prize of Rs 1,000 to the first person to swim the English channel and back during the month of August. F, who has read the advertisement, sets off from Dower on 1st August and reaches the coast of France on 2nd August. On that day, a further advertisement appears in the same newspaper stating that the offer of the prize has been with drawn. On 3rd August F completes the return swim to England. Can F recover the prize?
(a) Yes, as the second advertisement is ineffective so far as F is concerned.
(b) No, as the offer was revocated.
(c) F can only claim for damages.
(d) None of the above.
Answer:
(a) Yes, as the second advertisement is ineffective so far as F is concerned.

Question 29.
The Communication of acceptance through telephone is regarded as complete when:
(a) Acceptance is spoken on phone.
(b) Acceptance comes to the knowledge of party proposing.
(c) Acceptance is put in course of transmission.
(d) Acceptance has done whatever is required to be done by him.
Answer:
(b) Acceptance comes to the knowledge of party proposing.

Question 30.
An auctioneer advertised in a newspaper that a sale of office furniture would be held at Delhi. A broker of Bombay, reached Delhi on the appointed date and time.
But the auctioneer withdrew all the furniture from the auction sale. The broker sues him for his loss of time and expenses. Will he succeed?
(a) Yes, he will succeed.
(b) No, he will not succeed.
(c) Can’t say
(d) None of these.
Answer:
(b) No, he will not succeed.

Question 31.
Which one of the following falls into the category of offer?
(a) Newspaper advertisement regarding sale.
(b) Display of goods by a shopkeeper in his window with prices marked on them
(c) An advertisement for a concert.
(d) Announcement of reward to the public.
Answer:
(d) Announcement of reward to the public.

Question 32.
A sees an article marked “Price Rupees Twenty” in B’s shop .He offers. B Rs 20 for the article. B. refuses to sell saying the article is not for sale. Advise A.
(a) A cannot force B to sell the article at Rs 20
(b) A can force B to sell the article at Rs 20
(c) A can claim damages
(d) A can sue B in the Court.
Answer:
(a) A cannot force B to sell the article at Rs 20

Question 33.
Which one of the following statement is incorrect?
(a) Oral acceptance is a valid acceptance.
(b) Mere silence is not acceptance
(c) Acceptance must be communicated
(d) Acceptance may not be in the prescribed manner
Answer:
(d) Acceptance may not be in the prescribed manner

Question 34.
‘A’ Offered a reward of Rs 1,000. for recovery of some valuable missing article ‘B’ who did not know of this Offer, found the articles and gave the same to ‘A’.
(a) As there is no acceptance of an offer due to want of knowledge, B is not entitled to get the reward of Rs 1,000.
(b) Giving delivery of articles to ‘A’ amounts to an acceptance and hence ‘B’ is entitled to get the reward of Rs 1,000.
(c) Giving delivery of articles to ‘A’ amounts to performance of condition precedent to an offer and hence there is valid acceptances. ‘B’ must get the reward of Rs 1,000.
(d) In the absence of any Legal obligation on ‘A’ no claim for reward of Rs 1,000 is maintainable by ‘B’.
Answer:
(a) As there is no acceptance of an offer due to want of knowledge, B is not entitled to get the reward of Rs 1,000.

Question 35.
Consider the following statement:
1. There is no difference between the English Law and Indian Law with regard to acceptance through post.
2. Both Under the English Law and the Indian Law a contract is concluded when the letter of acceptance is posted.
3.Under the Indian Law when the Letter of acceptance is posted it is completed only as against the proposer.
Which of the above statement is/are correct?
(a) 1 and 2
(b) 2 alone
(c) 3 alone
(d) None
Answer:
(c) 3 alone

Question 36.
In Commercial and business agreements, the intention of the parties to create legal relationship is-
(a) Presumed to exist
(b) To be specifically expressed in writing
(c) Not relevant at all
(d) Not applicable.
Answer:
(a) Presumed to exist

Question 37.
An agreement is a Voidable Contract when it is-
(a) Enforceable
(b) Enforceable by Law at the option of the aggrieved party
(c) Enforceable by both the parties
(d) Not enforceable at all.
Answer:
(b) Enforceable by Law at the option of the aggrieved party

Question 38.
A Contract creates-
(a) Rights in personam
(b) Rights in rem
(c) Only rights and no obligations
(d) Only Obligations and no rights.
Answer:
(a) Rights in personam

Question 39.
An agreement not enforceable by Law is said to be void under section of the Indian Contract Act.
(a) 2(a)
(b) 2(b)
(c) 2(f)
(d) 2(g)
Answer:
(d) 2(g)

Question 40.
Agreements that do not give rise to contractual obligations are not contracts.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(a) True

Question 41.
Agreements of a social nature or domestic nature do not contemplate legal relationship and as such are not contracts, which can be enforced.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(a) True

Question 42.
When the contract is perfectly valid in its substance but cannot be enforced because of certain technical defects. This is called a/ an-
(a) Unilateral Contract
(b) Bilateral Contract
(c) Unenforceable Contract
(d) Void Contract
Answer:
(c) Unenforceable Contract

Question 43.
The term” Proposal or offer” has been defined in – of the Indian contract Act.
(a) Section 2(a)
(b) Section 2(b)
(c) Section 2(c)
(d) Section 2(d)
Answer:
(a) Section 2(a)

Question 44.
The term” Promise” has been defined in of the Indian Contract Act.
(a) Section 2(a)
(b) Section 2(b)
(c) Section 2(c)
(d) Section 2(d)
Answer:
(b) Section 2(b)

Question 45.
The person making the proposal is called
(a) Promisor
(b) Promisee
(c) Participator
(d) Principal
Answer:
(a) Promisor

Question 46.
Offer implied from conduct of parties or from circumstances of the case is called-
(a) Implied offer
(b) Express offer
(c) General offer
(d) Specific offer.
Answer:
(a) Implied offer

Question 47.
An offer made to a – (i) Specific person, or (ii) a group of persons is known as-
(a) Standing offer
(b) Specific offer
(c) Special offer
(d) Separate offer
Answer:
(b) Specific offer

Question 48.
Communication of proposal is complete when it comes to the knowledge of
(a) The person to whom it is made
(b) The proposer
(c) Either (a) or (b)
(d) The Court.
Answer:
(a) The person to whom it is made

Question 49.
Terms of an offer must be-
(a) Ambiguous
(b) Uncertain
(c) Definite
(d) Vague
Answer:
(c) Definite

Question 50.
Offer should not contain a term, the non- Compliance of which would amount to acceptance.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(a) True

Question 51.
When two persons make identical offers to each other, in ignorance of each other’s offer, it is called
(a) Cross offers
(b) Implied offers
(c) Direct offers
(d) Express offers.
Answer:
(a) Cross offers

Question 52.
When there is a Cross offer, the original offer terminates.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(a) True

Question 53.
An offer is revoked-
(a) By the death or insanity of the proposer
(b) By Lapse of time
(c) By Communication of notice of revocation
(d) All of these
Answer:
(d) All of these

Question 54.
A Change in law or Circumstance rendering the original offer unlawful or impossible, will lead to termination of the offer.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(a) True

Question 55.
Acceptance can precede an offer
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(c) False

Question 56.
Acceptance in ignorance of the offer is-
(a) Valid
(b) Invalid
(c) Void
(d) Voidable
Answer:
(b) Invalid

Question 57.
Acceptance should be given within-
(a) The time specified by the Offerer
(b) A reasonable time
(c) Such time as the offer lapses
(d) All of the above
Answer:
(d) All of the above

Question 58.
An acceptance on telephone should be-
(a) Heard by the offeror
(b) Audible to the offeror
(c) Understood by the offeror
(d) All of the above.
Answer:
(d) All of the above.

Question 59.
Section of the Indian Contract Act defines “Consideration”.
(a) Section 2(a)
(b). Section 2(b)
(c) Section 2(c).
(d) Section 2(d)
Answer:
(d) Section 2(d)

Question 60.
Consideration must move at the desire of-
(a) The promisor
(b) The promisee
(c) The promisor or any third party
(d) Both the promisor and the promisee
Answer:
(a) The promisor

Question 61.
Consideration in a contract:
(a) May be past, present or future
(b) May be present or future only
(c) Must be present only
(d) Must be future only.
Answer:
(a) May be past, present or future

Question 62.
Past Consideration is valid in-
(a) England Only
(b) India Only
(c) Neither in England nor in India
(d) both in England and India
Answer:
(b) India Only

Question 63.
Agreement without consideration is valid, when made
(a) Out of love and affection due to near relationship
(b) To pay a time barred debt
(c) To compensate a person who has already done something voluntarily
(d) All of the above
Answer:
(d) All of the above

Question 64.
A debt barred by limitation cannot be recovered. Hence, a promise to pay such a debt is without any consideration and hence invalid.
(a) True
(b) Partly True
(c) False
(d) None of the above
Answer:
(c) False

Question 65.
Inadequacy of consideration does not render a contract invalid.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 66.
If only a part of the consideration or object is unlawful, the Contract is –
(a) ’Valid to the extent the same are lawful
(b) Void to the extent the same are unlawful
(c) Valid as a whole
(d) Void as a whole.
Answer:
(d) Void as a whole.

Question 67.
The expression “Privity of contract” means-
(a) A Contract is Contract between the parties only
(b) A Contract is a private document
(c) Only private documents can be contracts
(d) The contacts may be expressed in some usual and reasonable manner
Answer:
(a) A Contract is Contract between the parties only

Question 68.
Under the Indian Contract Act, a third person –
(a) Who is the beneficiary under the Contract can sue
(b) From whom the consideration has proceeded can sue
(c) Can not sue even if the consideration has proceeded from him.
(d) Can not sue at all for want of privity of contract.
Answer:
(a) Who is the beneficiary under the Contract can sue

Question 69.
In India, a person who is stranger to the Consideration.
(a) Can sue based on the Contract
(b) Can not sue based on the Contract
(c) Can sue depending on the Conditions
(d) Can sue if permitted by the court.
Answer:
(a) Can sue based on the Contract

Question 70.
The Beneficiary of a Trust or other interest in specific immovable property, can enforce it even if he is not a party named in the Trust Deed.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 71.
Capacity to Contract has been defined in –
(a) Section 10
(b) Section 11
(c) Section 12
(d) Section 25.
Answer:
(b) Section 11

Question 72.
Competency to Contract means
(a) Age of the parties
(b) Soundness of mind of the parties
(c) Both (a) and (b)
(d) Intelligence of the parties.
Answer:
(c) Both (a) and (b)

Question 73.
Which of the following is not Competent to Contract?
(a) A minor
(b) A person of unsound mind
(c) A person who has been disqualified from contracting by some Law
(d) All of these
Answer:
(d) All of these

Question 74.
A minor’s agreement is void .This was held in the case of-
(a) Mohiri Bibee V. Dharmadas Ghosh
(b) Nihal Chand V. Jan Mohamed khan
(c) Suraj Narain V. Sukhu Aheer
(d) Chinnaiya V. Ramaiya.
Answer:
(a) Mohiri Bibee V. Dharmadas Ghosh

Question 75.
The age of majority for the purpose of the Indian Contract Act is –
(a) 16 years for girls & 18 years for boys
(b) 18 years for girls & 21 years for boys
(c) 18 years
(d) 21 years.
Answer:
(c) 18 years

Question 76.
A minor’s agreement can be ratified or attaining majority.
(a) True
(b) Partly True
(c) False
(d) None of these
Answer:
(c) False

Question 77.
……………… are goods suitable to the condition in the life of the minor and to nis actual requirements at the time of sale and delivery.
(a) Necessaries
(b) Goods
(c) Life Style Products
(d) Luxuries.
Answer:
(a) Necessaries

Question 78.
“Consensus – ad – idem” means
(a) General Consensus Luxuries.
(b) Meeting of minds upon the same thing in the same sense
(c) Reaching an agreement
(d) Reaching of contract
Answer:
(b) Meeting of minds upon the same thing in the same sense

Question 79.
A Contract which is formed without the free consent of parties, is –
(a) Valid
(b) Illegal
(c) Voidable
(d) Void ab- initio
Answer:
(c) Voidable

Question 80.
Contracts under unilateral mjstake are if such mistake is caused by the fraud or misrepresentation of the other party.
(a) Valid
(b) Void
(c) Illegal
(d) Unenforceable
Answer:
(b) Void

Question 81.
Mistake as to foreign law is treated in the same manner as –
(a) Mistake of India Law
(b) Mistake of Fact
(c) Misrepresentation
(d) Fraud
Answer:
(b) Mistake of Fact

Question 82.
If an agreement suffers from any uncertainty. It is-
(a) Voidable
(b) Void
(c) Unenforceable
(d) Illegal.
Answer:
(b) Void

Question 83.
All illegal agreements are-
(a) Void- ab- initio
(b) Valid
(c) Contingent
(d) Enforceable
Answer:
(a) Void- ab- initio

Question 84.
A promise to give money or money’s worth upon the determination or ascertainment of an uncertain event is called-
(a) Wagering Agreement
(b) Unlawful Agreement
(c) Illegal Agreement
(d) Voidable Agreement
Answer:
(a) Wagering Agreement

Question 85.
In the States of Gujarat and Maharashtra, collateral transactions to a wagering agreement are-
(a) Voidable
(b) Illegal and Void
(c) Valid and Enforceable
(d) Contingent
Answer:
(b) Illegal and Void

Question 86.
A Contingent Contract is a contract to do, or not to do something if some event, collateral to such contract –
(a) happens
(b) does not happen
(c) Neither (a) nor (b)
(d) Either (a) or (b)
Answer:
(d) Either (a) or (b)

Question 87.
Which of these parties cannot demand performance of promise?
(a) Promisee ’
(b) Any of the Joint Promisees.
(c) On the death of a Promisee, his Legal Representative.
(d) Stranger to the Contract
Answer:
(d) Stranger to the Contract

Question 88.
If a new contract is substituted in place of an existing contract it is called-
(a) Alteration
(b) Rescission
(c) Novation
(d) Waiver.
Answer:
(c) Novation

Question 89.
The phrase “Quantum Meruit” literally means –
(a) As much as is earned
(b) The fact in itself
(c) A Contract for the sale
(d) As much as is gained.
Answer:
(a) As much as is earned

Question 90.
Damages awarded to compensate the injured party for the actual amount of loss suffered by him for breach of contract are called –
(a) General / Ordinary Damages
(b) Special Damages
(c) Vindictive Damages
(d) Nominal Damages
Answer:
(c) Vindictive Damages

Question 91.
A finder of lost goods is a-
(a) Bailor
(b) Bailee
(c) True Owner
(d) Thief.
Answer:
(b) Bailee

Question 92.
Which of the following is the essential ingredient of contract of indemnity:
(a) Contract to make good the loss
(b) Loss must be caused to the indemnity holder.
(c) Loss may be caused by promiser or any other person
(d) All of the above.
Answer:
(d) All of the above.

Question 93.
When the goods are delivered by one to another by way of security for the money borrowed, then it is technically known as:
(a) Hire
(b) Pawnee
(c) Pledge
(d) None of the above.
Answer:
(b) Pawnee

Question 94.
Which of the following is not a charge on the property:
(a) Pledge
(b) Bailment
(c) Mortgage
(d) Hypothecation.
Answer:
(b) Bailment

Question 95.
How agency is created:
(a) By Direct appointment
(b) By implication
(c) By necessity
(d) All of the above
Answer:
(d) All of the above

Question 96.
The Delivery of goods by one person to another as security, for the payment of a debt is called-
(a) Bailment
(b) Pledge
(c) Mortgage
(d) Hypothecation
Answer:
(b) Pledge

Question 97.
An agreement enforceable by law is a-
(a) Promise
(b) Contract
(c) Obligation
(d) Lawful Promise
Answer:
(b) Contract

Question 98.
A contract is a combination of two elements-
(a) An Agreement & An Promise
(b) An Agreement & An Obligation
(c) A Promise & An Obligation .
(d) An offer & An Acceptance
Answer:
(b) An Agreement & An Obligation

Question 99.
A proposal when accepted becomes a-
(a) Promise.
(b) Contract
(c) Acceptance
(d) Agreement
Answer:
(a) Promise.

Question 100.
A void agreement is one which is-
(a) Valid but not enforceable
(b) Enforceable
(c) Enforceable by one party
(d) Not enforceable in law
Answer:
(d) Not enforceable in law

Question 101.
Agreement which are not contracts-
(a) Mr. A purchases goods from Mr. B.
(b) Avanshu supplies goods to Mohit’s firm.
(c) An agreement for watching cinema.
(d) None of the above
Answer:
(c) An agreement for watching cinema.

Question 102.
Which one is correct-
(a) All contracts are agreements
(b) AH agreements are contracts
(c) All agreements are not contracts
(d) Both (a) & (c)
Answer:
(d) Both (a) & (c)

Question 103.
An agreement which is enforceable by law at the option of one party-
(a) Valid contract
(b) Void contract
(c) Voidable contract
(d) Illegal contract
Answer:
(c) Voidable contract

Question 104.
Which of the following is false? An offer-
(a) Must be clear, definite, final & complete
(b) Can be vague
(c) Must be communicated
(d) May be general or specific
Answer:
(b) Can be vague

Question 105.
An offer may lapse by-
(a) Revocation
(b) Counteroffer
(c) Rejection by offeree
(d) All of the above
Answer:
(d) All of the above

Question 106.
Which of the following is false? An acceptance-
(a) Must be communicated
(b) Must be absolute
(c) Must be unconditional
(d) May be presumed from silence of offeree
Answer:
(d) May be presumed from silence of offeree

Question 107.
In case of illegal agreements, the collateral agreements are-
(a) Valid
(b) Void
(c) Voidable
(d) None of the above
Answer:
(b) Void

Question 108.
An offer by post may be accepted by-
(a) Post
(b) Over telephone’s
(c) Both (a) & (b)
(d) None of the above
Answer:
(a) Post

Question 109.
An offer is made only when-
(a) The letter is posted
(b) Letter reaches the offeree
(c) Offeree post his acceptance
(d) None of the above
Answer:
(b) Letter reaches the offeree

Question 110.
Which of the following is true?
(a) Consideration must result in benefit to both party
(b) Past consideration is no consideration in India
(c) Consideration is adequate
(d) Consideration must be something, which a promisor is not bound to do
Answer:
(a) Consideration must result in benefit to both party

Question 111.
Which of the following statement is false? Consideration-
(a) Must move at desire of the promiser
(b) May move from any person
(c) Must be illusionary
(d) Must be of some value
Answer:
(c) Must be illusionary

Question 112.
Which of the following is true?
(a) There can be a stranger to a contract
(b) There can be a stranger to a consideration
(c) There can be a stranger to contract & consideration
(d) None of above
Answer:
(b) There can be a stranger to a consideration

Question 113.
Consideration in simple term means-
(a) Anything in Return
(b) Something in Return
(c) Everything in Return
(d) Nothing in Return
Answer:
(b) Something in Return

Question 114.
Which of the following statement is false-
(a) Generally, a stranger to a contract cannot sue
(b) A verbal promise to pay a time barred debt is valid
(c) Completed gifts need no consideration
(d) No consideration is necessary to create an agency.
Answer:
(b) A verbal promise to pay a time barred debt is valid

Question 115.
A Gratuitous Promise can-
(a) Be enforced
(b) Not be enforced
(c) Be enforced in court of law
(d) None of above
Answer:
(b) Not be enforced

Question 116.
Ordinarily, a minor’s agreement is-
(a) Void ab initio
(b) Voidable
(c) Valid
(d) Unlawful
Answer:
(a) Void ab initio

Question 117.
A minor’s liability for ‘necessaries’ supplied to him-
(a) Arises after he attains majority age
(b) Is against only minor’s property
(c) Does not arises at all
(d) Arises if a minor promises for it.
Answer:
(b) Is against only minor’s property

Question 118.
Which of the following statement is not true about minor’s position in a firm?
(a) He cannot become a partner
(b) He can become a partner
(c) He can be admitted only to the benefits
(d) He can become a partner after majority attaining
Answer:
(c) He can be admitted only to the benefits

Question 119.
Which of the following statement is true?
(a) A contract with a minor is voidable at option of minor
(b) An agreement with a minor can be ratified after he attains majority
(c) A person who is usually of unsound mind cannot enter into a contract when he is of sound mind
(d) A person who is usually of sound mind cannot enter into a contract when he is of unsound mind
Answer:
(d) A person who is usually of sound mind cannot enter into a contract when he is of unsound mind

Question 120.
When the consent of both the parties is given by mistake, the contract is-
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(a) Void

Question 121.
The contract is void on account of bilateral mistake of fact, but if there is a mistake of only one party, then contract is-
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(b) Valid

Question 122.
A contract made by mistake about Indian law is-
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(b) Valid

Question 123.
A contract made by mistake about some foreign law, is-
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(a) Void

Question 124.
A mistake as to law not in force in India has the effect as-
(a) Mistake of fact
(b) Mistake of Indian law
(c) Fraud
(d) Misrepresentation
Answer:
(a) Mistake of fact

Question 125.
In case of innocent misrepresentation-
(a) Contract become voidable and damages are payable
(b) Contract become voidable and damages are not payable
(c) Contract become valid and damages are payable
(d) Contract remains valid and damages are not payable.
Answer:
(b) Contract become voidable and damages are not payable

Question 126.
In case of willful misrepresentation or fraud-
(a) Contract becomes voidable & damages are payable
(b) Contract become voidable & damages are not payable
(c) Contract become void & damages are payable
(d) Contract become void & damages are not payable.
Answer:
(a) Contract becomes voidable & damages are payable

Question 127.
Consent is not said to be free when it is caused by
(a) Coercion
(b) Undue influence
(c) Fraud
(d) All of above
Answer:
(d) All of above

Question 128.
When the consent of a party is obtained by fraud, the contract is-
(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Answer:
(b) Voidable

Question 129.
Moral pressure is involved in case of-
(a) Coercion
(b) Undue influence
(c) Misrepresentation
(d) Fraud
Answer:
(b) Undue influence

Question 130.
Which of the following statement is true?
(a) A threat to commit suicide does not amount to coercion
(b) Undue influence involves use of physical pressure
(c) Ignorance of law is no excuse
(d) Silence always amount to fraud
Answer:
(c) Ignorance of law is no excuse

Question 131.
An agreement is void if it is opposed to public policy. Which of the following is not covered under heads of public policy?
(a) Trading with enemy
(b) Trafficking in public offences
(c) Marriage brokerage contracts
(d) Contracts to do impossible acts
Answer:
(d) Contracts to do impossible acts

Question 132.
Wagering means
(a) Betting
(b) Bidding
(c) Both (a) & (b)
(d) None of above
Answer:
(a) Betting

Question 133.
An agreement in restraint of marriage, i.e. agreement preventing a person from marrying is-
(a) Valid
(b) Voidable
(c) Void
(d) Contingent
Answer:
(c) Void

Question 134.
An agreement in restraint of marriage is valid in case of following persons-
(a) Minors
(b) Educated
(c) Married
(d) None of above
Answer:
(a) Minors

Question 135.
In India, wagering agreements are void except in-
(a) Kanpur
(b) Mumbai
(c) Delhi
(d) None of the above
Answer:
(b) Mumbai

Question 136.
If any party has received any benefit under a contract from the other party, he must restore it or make compensation to other party. It is the case of—
(a) Quantum meruit
(b) Restitution
(c) Consideration
(d) Quasi-contract
Answer:
(b) Restitution

Question 137.
The basis of quasi contractual relation is the-
(a) Existence of a valid contract between parties
(b) Prevention of unjust enrichment at expense of other
(c) Provision contained in section 10 of contract act
(d) Existence of a voidable contract between the parties
Answer:
(b) Prevention of unjust enrichment at expense of other

Question 138.
A contingent contract is
(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Answer:
(c) Valid

Question 139.
A contract is said to be discharged or terminated-
(a) When the rights and obligation are completed
(b) When the contract becomes voidable
(c) Both (a) & (b)
(d) None of the above Answer:
Answer:
(a) When the rights and obligation are completed

Question 140.
Which is not the mode of discharge of contract-
(a) Performance of contract
(b) Lapse of time
(c) Breach of contract
(d) Injunction
Answer:
(d) Injunction

Question 141.
A person finds certain goods belonging to some other persons. In such a case, the finder-
(a) Becomes the owner of that good
(b) Is under a duty to trace the real owner
(c) Can sell that good if true owner is not found
(d) Both (b) & (c)
Answer:
(d) Both (b) & (c)

Question 142.
If in a contract, the time lapses and if the party fails to perform the contract within specified time the contract becomes-
(a) Voidable
(b) Void
(c) Illegal
(d), Enforceable in the court
Answer:
(a) Voidable

Question 143.
Change in one or more of the important terms in a contract, it is the case of-
(a) Novation
(b) Rescission
(c) Remission
(d) Alternation
Answer:
(d) Alternation

Question 144.
In both the cases, devolution of joint liabilities and devolution of joint rights, if a promisor dies, who will perform on behalf of him-
(a) Other promiser
(b) His legal representation
(c) Both (a) & (b)
(d) None of the above
Answer:
(c) Both (a) & (b)

Question 145.
A contract which is impossible to perform is-
(a) Voidable
(b) Void
(c) Illegal
(d) Enforceable
Answer:
(b) Void

Question 146.
A party entitled to rescind the contract, loses the remedy where-
(a) He has ratified the contract
(b) Third party has acquired right in good faith
(c) Contract is not separable
(d) All of the above
Answer:
(d) All of the above

Question 147.
The special damages i.e. the damages which arises due to some special or unusual circumstances—
(a) Are not recoverable altogether
(b) Are illegal being positive in nature
(c) Cannot be claimed as a matter of right
(d) Can be claimed as a matter of right
Answer:
(c) Cannot be claimed as a matter of right

Question 148.
Which of the following statement is/are correct-
(a) Ordinary damages afe recoverable
(b) Special damages are recoverable only if parties know about them
(c) Remote or indirect damages are not recoverable
(d) All of these
Answer:
(d) All of these

Question 149.
Exemplary damages are not awarded in such case
(a) Breach of promise to marry
(b) Wrongful dishonour & customers cheque by banker
(c) Breach of any business contract
(d) None of the above
Answer:
(c) Breach of any business contract

Question 150.
Damages which the contracting parties fix at the time of contract in case of breach-
(a) Unliquidated Damages
(b) Liquidated Damages
(c) Nominal Damages
(d) None of the above
Answer:
(b) Liquidated Damages

Question 151.
A order of court restraining a person from doing a particular act, it’s a case of—
(a) Specific performance
(b) Injuction
(c) Both (a) & (b)
(d) None of the above
Answer:
(b) Injuction

Question 152.
Under the Indian Contract Act, the contract of indemnity is restricted to such cases-
(a) Where the loss promise to be reimbursed is caused by the conduct of the promisor or any other person
(b) The loss caused by the any events or accident which does not depend upon conduct of any person
(c) Both (a) & (b)
(d) None
Answer:
(b) The loss caused by the any events or accident which does not depend upon conduct of any person

Question 153.
What is the ratio of parties in contract of indemnity and contract of guarantee-
(a) 2 : 3
(b) 3 : 2
(c) 1 : 3
(d) 2 : 1
Answer:
(a) 2 : 3

Question 154.
In contract of indemnity, what is the liability of indemnifier against the indemnified
(a) Primary
(b) Secondary
(c) No liability
(d) Both (a) & (b)
Answer:
(a) Primary

Question 155.
In case of contract of guarantee, what is the liability of the surety against the principal debtor
(a) Primary
(b) Secondary
(c) No liability
(d) Fully liable
Answer:
(b) Secondary

Question 156.
Which is not the case of discharge of surety
(a) By notice of revocation
(b) By death of surety
(c) If creditor releases the principal debtor
(d) None of the above
Answer:
(d) None of the above

Question 157.
What is the right of the bailee against the goods
(a) Owner
(b) Possessor
(c) Bailee can sell those goods
(d) Both (a) & (b)
Answer:
(b) Possessor

Question 158.
In case of Contract of guarantee, if the creditor loses or parts with any security which the debtor provides him at time of contract, the surety is discharged to the extent of
(a) The value of the security
(b) The surety can be fully discharged
(c) The surety can claim damages
(d) All of the above
Answer:
(a) The value of the security

Question 159.
Which one is not the duties of bailee
(a) The bailee must take care of goods as of his goods.
(b) The bailee cannot use bailor’s goods in an unauthorised manner.
(c) The bailee should return the goods without demand on the expiry of the time period.
(d) He can set up adverse title to the goods.
Answer:
(d) He can set up adverse title to the goods.

Question 160.
A lien which is available only against that property of which the skill and labour have been exercised—
(a) General Lien
(b) Particular Lien
(c) Ordinary Lien
(d) Both (a) & (b)
Answer:
(b) Particular Lien

Question 161.
Which is not the case of termination of bailment
(a) Where the bailee wrongfully uses or dispose of the goods bailed.
(b) When the period of bailment expires
(c) When the object of bailment has been achieved
(d) None of the above
Answer:
(d) None of the above

Question 162.
An agency may also arise by
(a) Estoppel
(b) Necessity
(c) Ratification
(d) All of the above
Answer:
(d) All of the above

Question 163.
A mercantile agent employed to sell goods which have been placed in his possession or contract to buy goods for his principal—
(a) Factors
(b) Brokers
(c) Del Credere Agent
(d) Auctioneers
Answer:
(a) Factors

Question 164.
The threat to commit suicide amounts to
(a) Coercion
(b) Undue influence
(c) Misrepresentation
(d) Fraud
Answer:
(a) Coercion

Question 165.
Consensus-ad-idem is an essential of
(a) Agreement
(b) Promise
(c) Both (a) & (b)
(d) Consideration
Answer:
(a) Agreement

Question 166.
Agreement which are not contracts
(a) Social Matters
(b) Relating to partnership
(c) Domestic Agreements
(d) Both (a) & (c)
Answer:
(b) Relating to partnership

Question 167.
Offeror is-
(a) Party making an offer
(b) Third party
(c) Party to whom offer is made
(d) None of the above
Answer:
(a) Party making an offer

Question 168.
Which one is not a type of offer
(a) Specific
(b) General
(c) Open
(d) Temporary
Answer:
(d) Temporary

Question 169.
Cross offer is
(a) Termination of original offer
(b) Rejection of original offer
(c) Both (a) & (c)
(d) None of these
Answer:
(a) Termination of original offer

Question 170.
Offer can be revoked-
(a) Before its acceptance
(b) By withdrawal of acceptance
(e) Both (a) & (b)
(d) None of these
Answer:
(a) Before its acceptance

Question 171.
Which one is mode of contract-
(a) Contract by post
(b) By SMS
(c) By Internet
(d) By none of the above
Answer:
(a) Contract by post

Question 172.
Quid Pro Quo means-
(a) Meeting of Minds
(b) Something in return
(c) To do something
(d) Promise
Answer:
(b) Something in return

Question 173.
No consideration, no contract is-
(a) True
(b) False
(c) Can’t say
(d) Partly True
Answer:
(a) True

Question 174.
Under English law, consideration may move from-
(a) Promisor
(b) Stranger
(c) Both (a) & (d)
(d) Promisee
Answer:
(d) Promisee

Question 175.
Under doctrine of privity of contract, third party can-
(a) Sue
(b) Cannot Sue
(c) Both (a) and (b)
(d) None of these
Answer:
(b) Cannot Sue

Question 176.
Which one is odd-
(a) Agreement may not result in a contract
(b) Contract constitutes an agreement
(c) Contract creates legal relations
(d) None of these
Answer:
(d) None of these

Question 177.
According to performance, contract are:
(a) Unilateral
(b) Bilateral
(c) Multilateral
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 178.
Voidable contracts is defined under section-
(a) 2(i)
(b) 2(f)
(c) 2(h)
(d) 2(a)
Answer:
(a) 2(i)

Question 179.
A menu card handed by a waiter in a hotel is an offer-
(a) True
(b) Partly True
(c) False
(d) Can’t Say
Answer:
(c) False

Question 180.
Consideration may be in the form of-
(a) A return promise
(b) Forbearance
(c) Doing an act
(d) All of these
Answer:
(d) All of these

Question 181.
If there is no consideration, there will be a-
(a) Void Contract
(b) Voidable Contract
(c) Illegal Contract
(d) No Contract
Answer:
(d) No Contract

Question 182.
Which of the following is a person of unsound mind-
(a) Lunatics
(b) Idiots
(c) Drunkard
(d) All of the above
Answer:
(d) All of the above

Question 183.
A wrong statement made is called-
(a) Misrepresentation
(b) Fraud
(c) Undue Influence
(d) Mistake
Answer:
(a) Misrepresentation

Question 184.
Agreements tending to create monopolies are void as being:-
(a) Immoral
(b) Fraudulent
(c) Forbidden by law
(d) Opposed to public policy.
Answer:
(d) Opposed to public policy.

Question 185.
An agreement for marriage brokerage is not opposed to public policy,
(a) True
(b) False
(c) Partly true
(d) Partly false
Answer:
(b) False

Question 186.
Which one is Contingent Contract-
(a) D promises to pay E Rs 20,000, if goods lying in E’s godown are destroyed by fire
(b) D promise to pay E, if he purchases his goods
(c) D promises to pay E, if he sells his car to him
(d) D promises to pay E to buy his scooter, if he is ready to sell it
Answer:
(a) D promises to pay E Rs 20,000, if goods lying in E’s godown are destroyed by fire

Question 187.
Finder of goods is the next best owner to real amount-
(a) True
(b) False
(c) Partly True
(d) None of the above
Answer:
(a) True

Question 188.
A valid ‘tender’ must be-
(a) Conditional
(b) Unconditional
(c) Made to a third party
(d) Made in a foreign currency
Answer:
(b) Unconditional

Question 189.
To be a valid ‘tender’, it must be-
(a) For the whole obligation
(b) For the necessary part of obligation
(c) For at least 75% of the obligation
(d) None of these
Answer:
(a) For the whole obligation

Question 190.
Because of supervening impossibility, the contract becomes-
(a) Illegal
(b) Void
(c) Voidable
(d) Remains Valid
Answer:
(b) Void

Question 191.
Which of the following is a ground of supervening impossibility-
(a) Strikes
(b) Lock-Outs
(c) Riots
(d) None of the above
Answer:
(d) None of the above

Question 192.
The damages in their nature are-
(a) Restoring
(b) Compensatory
(c) Reimbursing
(d) None of these
Answer:
(b) Compensatory

Question 193.
A contract of indemnity is a type of-
(a) Quasi Contract
(b) Wagering Contract
(c) Contingent Contract
(d) Voidable Contract
Answer:
(c) Contingent Contract

Question 194.
The person who gives a guarantee is called-
(a) Principal Debtor
(b) Surety
(c) Indemnifier
(d) Creditor
Answer:
(b) Surety

Question 195.
A guarantee given for loan taken by a minor is-
(a) Illegal
(b) Void
(c) Valid
(d) Voidable
Answer:
(c) Valid

Question 196.
The liability of surety is
(a) Co-extensive with that of principal debtor
(b) More than principal debtor
(c) Always less than the principal debtor
(d) Always decided by the Court
Answer:
(a) Co-extensive with that of principal debtor

Question 197.
A bailment cannot be made about-
(a) A Car
(b) Furniture
(c) Money
(d) Television
Answer:
(c) Money

Question 198.
In a bailment, there is a transfer of goods-
(a) Custody
(b) Ownership
(c) Possession
(d) Both (b) & (c)
Answer:
(c) Possession

Question 199.
General lien can be exercised by-
(a) Banker
(b) Mechanics
(c) Unpaid Seller
(d) Finder of goods
Answer:
(a) Banker

Question 200.
Which of the following is not an essential element of agency
(a) Principal
(b) Agent
(c) Consideration
(d) An agreement
Answer:
(c) Consideration

Question 201.
A pretended agent is appointed by the-
(a) Principal
(b) Agent
(c) Sub-Agent
(d) None of these
Answer:
(d) None of these

Question 202.
Which of the following is not a mercantile agent-
(a) Factor
(b) Broker
(c) Auctioneer
(d) Insurance agent
Answer:
(d) Insurance agent

Question 203.
A person appointed by an agent to act for the principal, is called-
(a) Agent
(b) Sub-agent
(c) Substituted agent
(d) Pretended agent
Answer:
(c) Substituted agent

Question 204.
The contracts of indemnity, guarantee, bailment, pledge and agency is covered by section-
(a) Section 1 -75
(b) Section 76-100
(c) Section 124-128
(d) Section 124-238
Answer:
(d) Section 124-238

Question 205.
A proposal when accepted becomes a-
(a) Contract
(b) Promise
(c) Agreement
(d) None of the above
Answer:
(b) Promise

Question 206.
Consensus-ad-idem means
(a) Meeting of minds
(b) Meeting of opinion
(c) Equal rights
(d) Existing condition
Answer:
(a) Meeting of minds

Question 207.
Which of the following statements is NOT correct with reference to an agreement?
(a) All contracts are agreements
(b) All agreements are contracts
(c) The parties must intend to create a legal relationship
(d) Agreement gives birth to a contract
Answer:
(b) All agreements are contracts

Question 208.
If Mr. A offers to Mr. B to sell his car at Rs 5,00,000 and Mr. B agrees to buy it at Rs 4,50,000 and Mr. A refuses it. Later on B offers to buy the car for Rs 5,00,000 then
(a) A is bound to sell the car
(b) B can sue A for Breach of Contract
(c) Both (a) and (b)
(d) This will be considered as a fresh offer by B and A is not bound to sell his car
Answer:
(d) This will be considered as a fresh offer by B and A is not bound to sell his car

Question 209.
Which of the following statements is NOT correct?
(a) Acceptance can be expressed or implied
(b) Acceptance can be conditional
(c) Acceptance must be given before the offer lapses
(d) Acceptance must be made in the manner prescribed
Answer:
(b) Acceptance can be conditional

Question 210.
Privity of contract means-
(a) Privacy of the terms of contract
(b) Giving priority to one party
(c) A stranger to a contract cannot sue
(d) Interest of all parties
Answer:
(c) A stranger to a contract cannot sue

Question 211.
If A makes an offer to B on a particular day, then the offer can be revoked by A before-
(a) B accepts the offer
(b) A receives B’s acceptance
(c) B has posted the letter of acceptance
(d) Reasonable period of time
Answer:
(c) B has posted the letter of acceptance

Question 212.
If B accepts A’s offer by posting a letter of acceptance, and afterwards B wants to revoke the agreement, the acceptance can be revoked before —
(a) A has posted his confirmation
(b) If revocation letter reaches before letter the acceptance letter
(c) Reasonable period of time
(d) None of the above
Answer:
(b) If revocation letter reaches before letter the acceptance letter

Question 213.
Which one of the following is not a kind of consideration?
(a) Executory consideration
(b) Executed consideration
(c) Past consideration
(d) Conditional consideration
Answer:
(d) Conditional consideration

Question 214.
Which of the following is not a consequence of an illegal contract?
(a) It is voidable
(b) Void
(c) The collateral agreements are
(d) None of the above also illegal
Answer:
(a) It is voidable

Question 215.
The substitution of a new contract in place of an old contract thereby discharging the rights and liabilities of the old contract is called as-
(a) Substitution
(b) Novation
(c) Discharge
(d) Replacement
Answer:
(b) Novation

Question 216.
The two types of breach are-
(a) Actual breach and Deemed breach
(b) Actual breach and Conditional breach
(c) Actual breach and Anticipatory breach
(d) Actual breach and Remedial breach
Answer:
(c) Actual breach and Anticipatory breach

Question 217.
Where the amount of compensation claimed is left to be assessed by the court, then it is called as-
(a) Judicial damages
(b) Liquidated damages
(c) Unliquidated damages
(d) None of the above
Answer:
(c) Unliquidated damages

Question 218.
Where the contracting parties agree in advance the amount payable in the event of breach, the sum payable is called as-
(a) Liquidated damages
(b) Unliquidated damages
(c) Judicial damages
(d) Preliminary damages
Answer:
(a) Liquidated damages

Question 219.
The damages intended to put the injured party in the same position he was before the contract are called-
(a) Unliquidated damages
(b) Special damages
(c) Exemplary damages
(d) Ordinary damages
Answer:
(d) Ordinary damages

Question 220.
A contract is always based upon-
(a) Consensus-ad-idem
(b) Consideration
(c) Intent to create legal obligation
(d) All of the above
Answer:
(d) All of the above

Question 221.
The law provides for certain remedies in case there is no real agreement. Which of the following remedy .cannot be claimed by the parties?
(a) The agreement to be considered as void
(b) The party at fault can be compelled to pay damages
(c) The contract becomes voidable at the option of the parties
(d) Right to sell the personal property of the other party
Answer:
(d) Right to sell the personal property of the other party

Question 222.
The damages which are accorded to establish the right of decree for breach of contract is called a-
(a) Nominal damages
(b) Liquidated damages
(c) Exemplary damages
(d) Special damages
Answer:
(a) Nominal damages

Question 223.
The damages awarded for breach of promise of marriage or wrongful dishonour of cheque is called as-
(a) Nominal damages
(b) Exemplary damages
(c) Liquidated damages
(d) Special damages
Answer:
(b) Exemplary damages

Question 224.
A contract by which one party promises to save the other by the loss caused by the conduct of the promisor is called as-
(a) Contract of indemnity
(b) Bailment
(c) Contract of guarantee
(d) Contract of warranty
Answer:
(a) Contract of indemnity

Question 225.
The rights of the indemnity holder is covered by-
(a) Sec. 125
(b) Sec. 101
(c) Sec. 224
(d) None of the above
Answer:
(a) Sec. 125

Question 226.
Which of the following remedy is not available to the indemnity holder?
(a) Right to receive the damages paid by him from the promisor
(b) Right to receive from the promisor the cost incurred in any suit
(c) Receive from the promisor an appropriate sum for loss caused to his image
(d) Receive from the promisor, all sums of money paid by him in terms of compromise of the suit
Answer:
(c) Receive from the promisor an appropriate sum for loss caused to his image

Question 227.
A contract to perform a promise or discharge the liability of a third party is called-
(a) Contract of indemnity
(b) Contract of agency
(c) Contract of guarantee
(d) Contract of warranty
Answer:
(c) Contract of guarantee

Question 228.
How many parties are there in a contract of indemnity and guarantee respectively?
(a) 2 and 3
(b) 3 and 2
(c) 2 and 5
(d) 5 and 2
Answer:
(a) 2 and 3

Question 229.
Which of the following statement is true?
(a) There are three parties in a contract of a guarantee
(b) The liability of the surety is co- extensive with that of the principal debtor
(c) A creditor is not bound to proceed against the principle debtor
(d) All of the above
Answer:
(d) All of the above

Question 230.
An agent in NOT personally liable for-
(a) Contract entered with third parties on behalf of employer
(b) Signs the agreement in his own name
(c) Where the agent works for foreign principal
(d) Where the contract expressly provides for the personal liability
Answer:
(a) Contract entered with third parties on behalf of employer

Question 231.
Principal is NOT liable for the agents act if-
(a) Agent acts within the scope of his authority
(b) Agent exceeds his authority
(c) Fraud or misrepresentation committed for benefit of the principal
(d) Work done out of his authority but the principal accepts it
Answer:
(b) Agent exceeds his authority

Question 232.
An agency comes to an end:
(a) By performance of contract
(b) By agreement between the principal and the agent
(c) By renunciation of his authority by the agent
(d) All of the above
Answer:
(d) All of the above

Question 233.
An agency is irrecoverable:
(a) Where the authority of agency is one coupled with interest
(b) Where the agent has incurred personal liability
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

Question 234.
The termination of an agents authority terminates the authority of the sub-agent appointed by the agent.
(a) True
(b) Partly true
(c) False
(d) Partly false
Answer:
(a) True

Question 235.
In case the contract of agency has been terminated and a third party enters into a contract with the agent without knowing this fact, then —
(a) The contract will be binding on the principal
(b) The contract will not be binding on the principle
(c) The contract will only be binding on the agent
(d) None of the above
Answer:
(a) The contract will be binding on the principal

Question 236.
The meeting of the mind is called:
(a) Jus in reum
(b) Consensus -ad-idem
(c) Jus in personam
(d) Void ab initio.
Answer:
(b) Consensus -ad-idem

Question 237.
A husband promised to pay his wife a household allow once Rs 2,500 every month. Later parties separated and the husband failed to pay the amount. This is
(a) Contract
(b) Not a contract
(c) Agreement enforceable by law
(d) None of the above.
Answer:
(b) Not a contract

Question 238.
A general offer can be accepted by
(a) Any person to whom communication reaches
(b) Only by person to whom it is made
(c) A person who lives nearer to person making offers.
(d) All of the above.
Answer:
(a) Any person to whom communication reaches

Question 239.
When offer is made to particular person it can be acceptor by
(a) Any person from public
(b) Any member of his family
(c) Him alone
(d) Any of the above.
Answer:
(c) Him alone

Question 240.
Acceptance must be given within
(a) One year from the date of receiving offer
(b) Prescribed time.
(c) If no time limit is prescribed, it must be given with in a reasonable time
(d) (b) & (c).
Answer:
(d) (b) & (c).

Question 241.
What is the age of attaining majority as per Indian Contract Act, 1872 when the minor is under the guardianship of the court of wards?
(a) 16 years
(b) 18 years
(c) 21 years
(d) 20 years.
Answer:
(c) In India, the age of majority is regulated by the Indian Majority Act, (Act ix of 1875). Every person domiciled in India attains majority on the completion of 18 years of age. But If any minor is under the guardianship of the court of words, he will attain majority on the completion of 21 years of age.

Question 242.
Display of goods in a shop window with prices marked upon them is:
(a) Agreement
(b) Promise
(c) Invitation to offer
(d) Contract.
Answer:
(c) An invitation to an offer is only a circulation of an offer, it is an attempt to induce offers and precedes a definite offer. Acceptance of an invitation to an offer does not result in contract and only an offer emerges in the process of negotiation. Thus, display of goods in a shop window with prices marked upon them is an invitation to offer.

Question 243.
A contract of agency may be created by:
(a) Express agreement
(b) Implied agreement
(c) Ratification
(d) All of the above.
Answer:
(d) A contract of agency may be express or implied but consideration is not on essential element in this contract. Agency may also arise by estoppel, necessity or ratification. In contract of agency an agent is mere connecting link between the principal and a third party. During this period an agent is acting for his principal, he is clothed with the capacity of his principal. Thus, contract of agency can be formed by all the three methods.

Question 244.
A threat to commit suicide is deemed as:
(a) Fraud
(b) Undue Influence
(c) Misrepresentation
(d) Coercion.
Answer:
(d) In Section 15 of Indian Contract Act, 1872 coercion means “the committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement.”

Thus, a threat to commit suicide is an act of Coercion.

Question 245.
In a contract of indemnity, the liability of indemnifier is-:
(a) Secondary
(b) Conditional
(c) Primary
(d) Optional.
Answer:
(c) The person who promises to indemnify or make good the loss is called the indemnifier and in a contract of indemnity, the liability of the indemnifier is primary.

Question 246.
The expression “Quantum Meruit” literally means:
(a) As much as earned
(b) As per the claim of the aggrieved party
(c) As much as work done
(d) None of the above.
Answer:
(a) The expression ‘Quantum Meruit’ literally means “as much as earned or reasonable remuneration:”
It is used where a person claims reasonable remuneration for the services rendered by him when there was no express promise to pay the definite remuneration.

Question 247.
What is the status of a contract when the consent of a party is caused by coercion?
(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Answer:
(b) If the consent of a party is caused by coercion in ahy contract, that contract will be voidable because aggrieved party can avoid that contract as his consent was not free.

Question 248.
Which of the following statements is true about consideration?
(a) Past consideration is valid in India
(b) Consideration must result in benefit to both the parties.
(c) If there is no consideration, there is no contract
(d) Consideration must be adequate.
Answer:
(a) Consideration is the doing or not doing of something which the promisor desires to be done. Consideration may be past, present or future. Consideration need not be adequate, but should be real.

In some cases, without consideration, contract wilt be valid and enforceable.
Example: Natural Love and Affection, completed gift etc.

Question 249.
In which of the following situations original contract need not be performed:
(a) When parties substitute a new contract for the old one
(b) When the parties to a contract agree to rescind it .
(c) When the parties to a contract agree to alter it
(d) All of the above.
Answer:
(d) The general rule is that contract must be performed but there are some situations when original contract need not be performed:

• On novation of a contract.
• On rescission of a contract.
• On alteration of a contract.

Thus, the answer is all of the above.

Question 250.
According to section 2 (h) of the Indian Contract Act, ” is an agreement enforceable by law.”
(a) Consideration
(b) Agreement
(c) Promise
(d) Contract
Answer:
(d) According to Section 2 (h) of the Indian Contract Act, “Contract is an agreement enforceable by law”.

Question 261.
In a contract, when the object and consideration is unlawful it is deemed as:
(a) Void
(b) Voidable
(c) Valid
(d) Contingent
Answer:
(a) In a contract, when the object and consideration is unlawful, it is deemed as Void Contract. Because without any legal effect a contract cannot be enforced in a Court of Law.

Question 262.
Which one of the following damages is not recoverable under the Indian Contract Act, 1872?
(a) Ordinary damages
(b) Special damages
(c) Nominal damages
(d) None of the above.
Answer:
(d) There are following damages which are recoverable under the Indian Contract Act, 1872:

• General/Ordinary Damages.
• Special Damages.
• Exemplary/Punitive Damages.
• Nominal Damages.
• Liquidated Damages & Penalty.
• No damage is recoverable for any remote or indirect loss.

Thus, rest all other damages are recoverable.

Question 263.
What is the legal status of an agreement with uncertain meaning?
(a) Valid
(b) Void
(c) Voidable
(d) Illegal
Answer:
(b) An uncertain agreement means an agreement the meaning of which is not certain or capable of being made certain. Such agreements are void.

Example: A agrees to sell B “my white horse for ? 5,000 or ? 10,000. There is nothing to show which of the two prices was to be given. The agreement is void.

Question 264.
A person who makes a promise is known as:
(a) Promisor
(b) Promisee
(c) Offerer
Answer:
(a) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted, becomes a promise and the person who makes a promise is known as promisor.

Question 265.
‘Vdidable’ contract means:
(a) Parties are incompetent to contract
(b) Free consent of the parties is missing
(c) Consideration is inadequate
(d) The .object of contract is expressly declared void by the act itself.
Answer:
(b) A voidable contract is one which a party can put to an end. He can exercise his option, if his consent was not free.

Note: The Contract will however be-binding if the option is not Exercised within a reasonable period of time.

Question 266.
An agreement in restraint of marriage:
(a) Is voidable at the option of the promisor
(b) Is voidable at the option of the promisee
(c) Is expressly declared as void
(d) Cannot be enforced as there is no privity of contract.
Answer:
(c) An agreement in restraint of marriage is expressly declared void as it is against public policy but is not illegal. An agreement not to marry at all or not to marry any particular person or class of persons is void as it is in restraint of marriage.

Question 267.
For acceptance to be considered as valid it must:
(a) Be absolute ,
(b) Be unqualified
(c) Be both absolute and unqualified
(d) Be conditional.
Answer:
(c) Acceptance must be unqualified and absolute i.e. unconditional and must correspond with all the terms of the offer. A qualified and conditional acceptance amounts to no acceptance at all and is treated as a counter offer due to which the original offer lapses.

Question 268.
The phrase quantum meruit literally means:
(a) As much as earned or reasonable remuneration
(b) The fact in itself
(c) A contract for sale
(d) As much as is gained.
Answer:
(a) The expression ‘Quantum Meruit’ literally means “as much as earned” or reasonable remuneration. It is used where a person claims reasonable remuneration for the services rendered by him when there was no express promise to pay the definite remuneration.

Question 269.
A contract is _________.
(a) A promise to do something or abstain from doing something
(b) A communication of intention to do something or abstain from doing something
(c) A set of promises
(d) An agreement enforceable by law
Answer:
(d) The Indian Contract Act has defined contract in Section 2(h) as “an agreement enforceable by law.”

Question 270.
If a new contract is substituted in place of an existing contract, it is called _________.
(a) Alteration
(b) Rescission
(c) Novation
(d) Waiver
Answer:
(c) A contract may be discharged by mutual agreement of parties. One of the methods to discharge is novation which occurs when an existing contract is substituted by a new one, either between same parties or between new ones.

Question 271.
A contract of indemnity is a _________.
(a) Contingent contract
(b) Wagering contract
(c) Quasi contract
(d) Void agreement.
Answer:
(a) Contingent contract refers to a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Example – contract of insurance, indemnity and guarantee etc.
Thus, contract of indemnity is a contingent contract.

Question 272.
When consent is obtained under undue influence, the contract is termed as _________.
(a) Valid contract
(b) Vdid contract
(c) Voidable contract
(d) Unilateral contract.
Answer:
(c) A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage of the other. When the consent is caused by undue influence, though the agreement amounts to a contract, such a contract is voidable at the option of the party whose consent was so obtained.

Question 278.
A surety may be discharged from liability :
X. By notice of revocation of guarantee
Y. On the failure of payment by the main creditor.
Z. If the creditor does any act which is against the rights of the surety.
Correct option is _________
(a) X and Y
(b) Y and Z
(c) X and Z
(d) X; Y and Z.
Answer:
(c) A surety is discharged in the following ways –

• By giving notice to creditor for future transactions in case of continuing guarantee.
• In absence of any contract to the contrary, continuing guarantee is revoked on death of surety.
• Where there is any variance in terms of contract between the principal debtor and creditor without surety’s consent.
• If principal debtor is discharged by – a contract, any act, or any omission.
• if creditors makes an arrangement with the principal debtor for composition, for giving time or not suing him without surety’s consent.
• if creditor does any act or omission, thereby impairing sureties eventual remedy.
• if creditor loses or parts with security

Question 279.
An agreement for rendering services entered into by a father on behalf of his minor daughter is _________.
(a) Void
(b) Voidable
(c) Valid
(d) Quasi.
Answer:
(a) An agreement by a parent or guardian entered into on behalf of the minor is binding on him provided it is for the benefit or is for legal necessity. However, it has been held that an agreement for service, entered into by a father on behalf of his minor daughter, is not enforceable at law and is therefore, void.

Question 280.
An agent who in consideration of extra commission gives guarantees to his principal that the purchaser of the goods on credit will pay for the goods is called _________.
(a) Sub-agent
(b) Mercantile agent
(c) Brokers
(d) Del credere agent.
Answer:
(d) A del credere agent is a mercantile agent, who in consideration of an extra remuneration guarantees to his principal that purchasers who buy on credit will pay for the goods they take. In the event of failing to pay, the del credere agent is bound to pay his principal the sum owned by third-party.

Question 281.
If the behaviour of a person shows that he is a partner in a firm (when actually he is not), such a person is known as _________.
(a) Nominal partner
(b) Sleeping partner
(c) Sub-partner
(d) Partner by estoppel.
Answer:
(d) If the behaviour of a person arises misunderstanding that he is a partner in a firm (when actually he is not), such a person is estoppel from later on denying the liabilities for acts of the firm. Such person is called partner by estoppel.

Question 282.
The meaning of legal maxim ‘mens rea’ is _________.
(a) A pending suit
(b) Immediate profits
(c) During litigation
(d) A guilty mind.
Answer:
(d) The legal maxim, “mens rea”means a guilty mind.

Question 283.
All contracts are agreements. This statement is _________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) As per Indian Contract Act, a contract is an agreement enforceable by law. While agreements in which the idea of bargain is absent and there is no intention to create legal relations are not contract. Thus, it can be said all contracts are agreement, but all agreements are not contract.

Question 284.
All void agreements are illegal, this statement is _________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(b) An agreement not enforceable by law are void. They are not always illegal and its collateral transactions are legal.
Hence, the above statement in false.

Question 285.
Which of the following is not a chief flaw in a contract?
(a) Mistake
(b) Fraud
(c) Coercion Fraud
(d) None of these
Answer:
(d) According to Contract Act, 1872, chief flaws in contract are as follows:

• Incapacity
• Mistake
• Misrepresentation
• Fraud t
• Undue Influence
• Coercion
• Illegality
• Impossibility

Thus option (d) is correct.

Question 286.
Coercion is _________.
(a) Void
(b) Illegal
(c) Voidable
(d) None of the above
Answer:
(c) “Coercion” is committing or threatening to commit any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property to the prejudice of any person whatever, with the intention of causing any person to: enter into an agreement. Thus, an agreement which is included by coercion is voidable at the’option of party coerced.

Question 287.
Which of the following is not an essential element of a valid contract?
(a) Offer
(b) Legality of object
(c) Lawful consideration
(d) Impossibility of performance
Answer:
(d) According to Sec. 10, of Indian Contract Act, 1872, essential elements of a valid Contract are as follows:

• Proper offer and proper acceptance with intention to create legal relationship.
• Lawful Consideration
• Capacity
• Free Consent
• Lawful agreement

Thus, Impossibility of performance is not essential element of a valid Contract.

Question 288.
Wagering agreements are illegal in _________.
(a) Mumbai
(b) Delhi
(c) Chennai
(d) Kolkata
Answer:
(a) In India except Mumbai, wagering agreements are void. In Mumbai, wagering agreements have been declared illegal by the Avoiding Wagers Act, 1865.

Question 289.
Bonafide means _________.
(a) Said by the way
(b) In good faith
(c) From the beginning
(d) None of the above
Answer:
(b) Bonafide means in good faith.

Question 290.
Offer + Acceptance = _________.
(a) Consideration
(b) Promise
(c) Obligation
(d) Agreement
Answer:
(b) As per Section 2 (b) of Indian Contract Act defines promise as, “A proposal when accepted becomes a promise.”
Thus, Offer + Acceptance = Promise

Question 291.
A contract which becomes impossible to perform is known as _________ contract.
(a) Voidable
(b) Void
(c) Valid
(d) Illegal
Answer:
(b) As per Section 2 (j) of Indian Contract Act, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
Thus, a Contract which becomes impossible to perform is known as void contract.

Question 292.
The expression ‘Quantum Meruit’ means _________.
(a) As much as earned
(b) Equal consideration
(c) On the basis of merit
(d) Meeting of minds
Answer:
(a) The expression “quantum Meruit” means ‘as much as earned’ or reasonable remuneration. It is used where a person claims reasonable remuneration for the services rendered by him when there is no express promise to pay the definite remuneration.

Question 293.
Which amongst the following are the types of lien?
(a) Particular lien
(b) General lien
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(c) Lien refers to the right of one person to retain the possession of some goods, belonging to another person until some debt or liability is discharged.
There are two types of lien:

• Particular Lien
• General Lien

Therefore, answer is option(c).

Question 294.
Which of the following is an invitation to offer;
(a) Application for loan
(b) Participation in an auction sale
(c) Tender for supply of goods in time
(d) List for sale of goods.
Answer:
(b) An invitation to offer is only a circulation of an offer, it is an attempt induce offers and precedes a definite offer. Acceptance of invitation does not result in contract.
Thus Participation in an auction sale is a type of an invitation to offer. In this auctioneers request for bids (which are offered by the bidders)

Question 295.
A person who finds goods belonging to another and takes them into his custody:
(a) Is subject to the same responsibilities as a bailee
(b) Becomes the owner of those goods thereafter
(c) Is allowed to sell them and retain the money realised from such sale
(d) Has no obligation to return those goods.
Answer:
(a) The liability of a finder of goods belonging to someone else is that ‘ of a bailee. This mean that he must take as much care of the goods as a man of ordinary prudence would take of his own goods of the same kind. Therefore, a person who finds belonging to another and takes them into his custody is subject to-the same responsibilities as a bailee.

Question 296.
An agreement the object of which is unlawful is:
(a) Valid
(b) Void
(c) Voidable
(d) Optional.
Answer:
(b) Under section 23, any agreement of which the consideration or object is unlawful is a void agreement.

Question 297.
The person giving guarantee is called:
(a) Sub-debtor
(b) Principal debtor
(c) Surety
(d) Creditor.
Answer:
(c) The person giving guarantee is called surety because he is the person who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person fails to act.

Question 298.
Voluntary transfer of possession by one person to another is known as _________.
(a) Bailment
(b) Delivery
(c) Possession
(d) Transfer.
Answer:
(a) Bailment is a voluntary delivery of goods for a temporary purpose on the understanding that they are to be returned in specie in the same or altered form. The ownership of the goods remains with the bailor, the bailee getting only the possession.

Question 299.
X contracted with Y for supplying of high quality 1000 Quintals of oii. V supplied the desired quantity but of low quality. The contract is _________.
(a) Void
(b) Voidable
(c) Void ab initio
(d) None
Answer:
(b) X contracted with Y for supplying of high quality 1000 Quintals of oil Y supplied the desired quantity but of low quality the contracts is voidable. The buyer can accept the goods or treat the contract as repudiated.

Question 300.
A person who provides guarantee in a contract is called _________.
(a) Debtor
(b) Principal debtor
(c) Surety
(d) Creditor
Answer:
(c) contract of guarantee is a contract to perform the promise, as discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety.

Question 301.
A minor child was provided treatment in hospital by a doctor. The doctor can recover his reasonable expenses from _________.
(a) Can’t recover as there was no contract
(b) Can recover from minor personally
(c) Can recover from guardian’s of minor
(d) Can recover from estate of minor as it was a necessary of life supplied to him.
Answer:
(d) According to Section 68 of the Indian Contract Act, a minors estate is liable to pay a reasonable price for necessaries supplied to him or to any other whom minor is bound to support.

Question 302.
When the consent of a party is obtained by fraud, the contract is:
(a) Valid
(b) Voidable
(c) Illegal
(d) Void
Answer:
(b) An agreement is deemed as voidable if it is effected by these flaws:

• Misrepresentation
• Fraud
• Undue influence
• Coercion

Question 303.
Which of the following statement is true?
(a) Silence always amounts to fraud
(b) A threat to commit suicide does not amounts to coercion
(c) Undue influence involves use of physical pressure
(d) ignorance of law is no excuse.
Answer:
(d) If there is a mistake of law of the land, the contract is binding because every one is deemed to have knowledge of law of the land and ignorance of law is no excuse, (ignarantia juris non excusat).

Question 304.
There was a woman who took a loan from another person at the rate of 100% p.a. interest. This is the case of:
(a) Fraud
(b) Misrepresentation
(c) Undue-influence
(d) Coercion
Answer:
(c) Where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. In the given case the other person is in a dominating position and use it to obtain an unfair advantage. So this is the case of ‘undue influence’.

Question 305.
The following will make a contract voidable:
(a) Fraud
(b) Undue influence
(c) Coercion
(d) All of the above
Answer:
(d) In the following circumstances contract will be voidable:

• Coercion
• Undue influence
• Fraud
• Mistake
• Misrepresentation

Thus, option (d) is correct.

Question 306.
If a contract required by statue to be wholly in writing is not in writing, it is:
(a) Voidable
(b) Void
(c) Valid
(d) Unforceable
Answer:
(b) If statute defined that the contract must be in writing then the parties should compulsorily create the contract in writing. If parties does not create the contract in writing, it is a void contract.

Question 307.
Agreement in restraint of marriage is:
(a) Void
(b) Illegal
(c) Valid
(d) Voidable
Answer:
(a) An agreement in restrain of marriage is expressly declared void as it is against public policy but is not illegal. An agreement not to marry at all or not to marry any particular person or class of person is void as it is in restrain of marriage.

Question 308.
Agreement in restraint of trade is if the restraint imposed is reasonable.
(a) Void
(b) Illegal
(c) Valid
(d) Voidable
Answer:
(c) An agreement by which any person is restrained from exercising a lawful profession, trade or business of any kind, is to the extent void, but this rule is subject to the some exceptions i.e. where a person sells the goodwill of a business and agrees with the buyer to restrain from carrying on a similar business, within specified local limits, so long as the buyer or his successor in interest carries on a like business therein, such an agreement is valid.

Question 309.
A contract made by mistake of the Indian law is:
(a) Void
(b) Enforceable
(c) Illegal
(d) Voidable.
Answer:
(b) Contract made by mistake of Indian law is enforceable and contract is binding because everyone is deemed to have knowledge of law and ignorance of law is no excuse.

Question 310.
An acceptance must be _________.
(a) Conditional
(b) Absolute and unqualified
(c) Optional
(d) Futuristic.
Answer:
(b) An acceptance must be unqualified and absoluu. It must correspond with all the terms of the offer.

Question 311.
A contract dependant on the happening of future uncertain event is a:
(a) Void Contract
(b) Voidable Contract
(c) Uncertain Contract
(d) Contingent Contract.
Answer:
(d) The contract dependent on the happening of future uncertain event is the contingent contract. Contract of insurance and contract of indemnity and guarantee are popular instances.

Question 312.
An agreement enforceable by law is a:
(a) Offer
(b) Obligation
(c) Contract
(d) Promise
Answer:
(c) According to Sec. 2(b) of the Indian Contract Act. “A contract is a agreement enforceable by law”.

Question 313.
Consequences of coercion, fraud, misrepresentation is that the contract is:
(a) Still enforceable
(b) Void
(c) Voidable
(d) Illegal
Answer:
(c) Consent is said to be free when it is not caused by:

• Coercion
• Undue Influence
• Fraud
• Misrepresentation
• Mistakes.

When a free consent is absent, the contract is said to be voidable.

Question 314.
A contract dependent on the happening of future uncertain event is a:
(a) Uncertain contract
(b) Void contract
(c) Voidable contract
(d) Contingent contract
Answer:
(d) Contingent contract is a contract that is dependant upon happening or non happening of a future uncertain event.

Question 315.
Which is not true in case of a finder of goods?
(a) If the owner is found, but the owner refuses to pay lawful charges, then he can retain the goods until payment is received.
(b) He can sell the goods if the goods are of perishable nature.
(c) He can retain the goods till the owner is found.
(d) He cannot sell the goods in any condition.
Answer:
(d) Since the position of the finder of the goods is that of a bailee, he is supposed to take the same amount of care with regard to the goods as is expected of a bailee under Section 151. He is also subject to all the duties of a bailee, including a duty to return the goods after the true owner is found. If he refuses to return, he could be made liable for conversion’ He can even sell the goods if the goods are of perishable nature. Hence option D would be the answer.

Question 316.
The mercantile agents include:
(a) Promoters.
(b) Bidder.
(c) Factor.
(d) Manufacturer
Answer:
(c) Mercantile Agent include factors among the other options as he is employed to sell the goods in his possession, contract to buy goods for his principal, can sell and receive payment, has an insurable interest and have a general lien in respect of any claim.

Question 317.
Which of the following statement is false regarding acceptance?
(a) Acceptance must be communicated
(b) Acceptance must be accepted by a perspn having authority to accept
(c) Acceptance must be absolute and unconditional
(d) Acceptance may be presumed from silence of offeree
Answer:
(d) The general rule is that silence does not constitute acceptance. In order for silence to be considered acceptance, there usually are some prior dealings between the two parties and that it is customary for the two parties to treat silence as an acceptance. Another way j that silence may be considered acceptance is where both parties J have agreed that silence can be treated as acceptance.

Question 318.
If a creditor does not file a suit against the buyer for recovery of the price within three years, the debts becomes:
(a) Not time -barred
(b) Time barred and hence irrecoverable
(c) Renewed
(d) Time barred but recoverable.
Answer:
(b) A debt barred by limitation cannot be recovered and a promise to pay such debt without any consideration. Thus, if a creditor does not ; file a suit against a buyer for recovery of price within a specified time j then the debt will be said to be called as time barred debt and hence irrecoverable.

Question 319.
Which is the example of wagering agreement?
(a) To purchase a lottery ticket ”
(b) Speculative trading in stock exchange
(c) Speculative trading in commodity exchange
(d) Trading on future goods
Answer:
(a) Lottery being a game of chance is a wagering agreement. It is void and illegal, thus option (a) is correct.

Question 320.
The person giving guarantee is called:
(a) Sub Debtor
(b) Surety
(c) Principal Debtor
(d) Creditor
Answer:
(b) In a contract of guarantee, the person who gives guarantee is called Surety.

Question 321.
Express contract means:
(a) Contract which is made by words either spoken or written
(b) Contract which is made by both words and deeds
(c) Contract which is made by promises
(d) Contract which is made by deeds
Answer:
(a) Express contract mean any contract which is made with the words either written or oral.

Question 322.
An agreement whereby one of the parties agrees to close his business for a consideration of certain sum of money being paid by another party is:
(a) Void
(b) Valid
(c) Enforceable
(d) Voidable
Answer:
(a) Any agreement in restraint of trade is void (Sec. 7).

Question 323.
The buyer will get a good tittle if he buys in good faith, from a mercantile agent who is in possession of good with the consent of the _________.
(a) Seller
(b) Principal
(c) Buyer
(d) Owners
Answer:
(c) If any person buys in good faith from mercantile agent who is possession of goods with the consent of seller can also convey good tittle.

Question 324.
‘Voidable’ contract means:
(a) Parties are incompetent to contract
(b) Free consent of the parties is missing
(c) Consideration is inadequate
(d) The object of contract is expressly
Answer:
(b) Voidable contract means when the consent of party is not free or in other words, it is contract in which parties does not give their consent wilfully. Consent obtained from ‘coercion’ ‘Undue Influence’ ‘Mistake’, ‘Misrepresentation’. ‘Fraud’ is not free so, contract without free consent is not valid contract but it is voidable contract. Aggrieved party can claim damages or rescind contract within reasonable time otherwise it is valid contract.

Question 325.
An agreement in restraint of marriage:
(a) Is voidable at the option of the promisor
(b) Is voidable at the option of the promisee
(c) Is expressly declared as void
(d) Cannot be enforced an there is no privity of contract.
Answer:
(c) An agreement in restraint of marriage is opposed to public policy and hence, it is declared to be void.

Question 326.
For acceptance to be considered as valid, it must:
(a) Be absolute
(b) Be unqualified
(c) Be both absolute and unqualified
(d) Be conditional
Answer:
(c) Acceptance must be absolute and unqualified. If acceptance is not absolute and unqualified then it s not a valid acceptance.

Question 327.
Who is not a Mercantile Agent:
(a) Factor
(b) Bidder
(c) Broker
(d) Auctioneers
Answer:
(b) A Mercantile Agent works as :

• Factor
• Commission Agent
• Del-Credere Agent
• Broker
• Auctioneers etc.

Thus, option (b) is correct.

Question 328.
Crime against Society is _________.
(a) Stalking
(b) Forgery
(c) Trafficking
(d) (b) and (c) both
Answer:
(d) Trafficking, forgery, murder etc. at any offence committed against social welfare is a crime against society.

Question 329.
A Contract is:
(a) A promise to do something or abstain tram doing something
(b) A communication of intention to do something or abstain from doing something
(c) A set of promises
(d) An agreement enforceable by law
Answer:
(d) The Indian Contract Act has defined contract in Section 2(h) as “an agreement enforceable by law”.

Question 330.
If a new contract is substitute in place of an existing contract, it is called:
(a) Alteration
(b) Rescission
(c) Novation
(d) Waiver
Answer:
(c) Novation occurs when an existing contract is substituted by new one either between same parties or between the new ones. Therefore if a new contract is substituted in place of existing contract it is called Novation.

Question 331.
A contract of indemnity is a:
(a) Contingent contract
(b) Wagering contract
(c) Quasi contract
(d) Void agreement
Answer:
(a) Contingent contract refers to a contract to do or not to do something if some event, collateral to such contract, does or does not happen.

Example : contract of insurance indemnity and guarantee, etc. Thus, contract of indemnity is a contingent contract.

Question 332.
When consent is obtained under undue influence, the contract is termed as:
(a) Valid Contract
(b) Void Contract
(c) Voidable Contract
(d) Unilateral Contract
Answer:
(c) A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage of the other. When the consent is caused by undue influence, though the i agreement amounts to a contract, such a contract is voidable at the ; option of the party whose consent was so obtained.

Question 333.
A surety may be discharged from liability:
X. By notice of revocation of guarantee
Y. On the failure of payment by the main creditor
Z. If the creditor does any act which is against the rights of the surety
(a) X and Y
(b) Y and Z
(c) X and Z
(d) X, Y and Z
Answer:
(c) A surety is discharged in the following ways:
(i) By giving notice to creditors for future transactions in case of continuing guarantee.

(ii) In absence of any contract to the contrary, continuing guarantee is revoked on death of surety.

(iii) Where there is any variance in terms of contract between the principal debtor and creditor without surety’s consent.

(iv) If principal debtor is discharged by:

• a contract
• any act or
• any omission

(v) If creditors makes an arrangement with the principal debtor for composition, for giving time or not suing him without surety’s consent.

(vi) If creditor does any act or omission, there by impairing sureties eventual remidy.

(vii) If creditor losses or parts with security without surety’s consent. Thus, the answer is X and Z.

Question 334.
An agreement for rendering services entered into by a father an behalf of his minor daughter is:
(a) Void
(b) Voidable
(c) Valid
(d) Quasi
Answer:
(a) An agreement by a parent or guardian entered into on behalf of the minor is binding on him provided it is for the benefit or is for legal necessity. However, it has been held that an agreement for service, entered into by a father on behalf of his minor daughter is not enforceable at law and is therefore void.

Question 335.
An agent who in consideration of extra commission gives guarantees to his principal that the purchaser of the goods on credit will pay for the goods is called:
(a) Sub-agent
(b) Mercantile agent
(c) Brokers
(d) Del credere agent
Answer:
(d) A del credere agent is a mercantile agent, who in consideration of an extra remuneration guarantees to his principal that purchasers who buy oh credit will pay for the goods they take. In the event of failing to pay. the del credere agent is bound to pay his principal the sum owned by third-party.

Question 336.
Agreement is a:
(a) Promise
(b) Contract
(c) Enforcable by law
(d) None of above.
Answer:
(d) As per Section 2 (e) of Indian Contract Act, “every promise and every set of promise forming the consideration for each other, is an agreement”. It is evident from the definition given above that an agreement is based on a promise and an agreement gives birth to contract.

Question 337.
Quasi contract emerge froms _________.
(a) Contingency
(b) Existence of valid contract
(c) Prevention of on just enrichment on cost of other
(d) Existence of voidable contract between parties
Answer:
(c) “Certain relations resembling those created by contact” are known as quasi contract. Sometimes obligations are imposed by parties by law on the basis of principal of equity which states “no one can enrich himself on the cost of other”. It is an obligation which is created in absence of any agreement.

Question 338.
An illegal contract is _________.
(a) Void ab initio
(b) Voidable
(c) Valid
(d) None of Above.
Answer:
(a) An agreement with an unlawful object and consideration is known as illegal agreement. It has no legal effects as between immediate parties and transactions collateral to it also become tainted with illegality and are therefore void-ab-initio. Parties to an unlawful agreement cannot get any help from court.

Question 339.
Agreement with minor for beneficiary is:
(a) Illegal
(b) Valid
(c) Void
(d) Can’t say
Answer:
(b) According to indian Contract Act, 1872, agreement with minor is a void agreement as a minor is incompetent to enter into a contract. But when agreement by a parent or guardian entered into on behalf of minor is binding on him provided it is for his benefit or is for legal necessity.

Question 340.
Best class of example for contingent contract:
(a) Indemnity
(b) Guarantee
(c) Both A and B
(d) Wagering Agreements
Answer:
(c) A contingent contract is one where the promisor performs the obligation only when certain condition are met. The contract of insurance, indemnity and guarantee are considered to be the best examples of contingent contract.

CS Foundation Business Environment and Law Notes