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CA Foundation Business Laws practice questions

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Question 1Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Under the Indian Contract Act, 1872, which element is essential for an agreement to become a valid contract?

  1. Payment of stamp duty at the time of formation
  2. Enforceability by law Correct answer.
  3. Attestation by two witnesses
  4. A written and registered document

Explanation

Section 2(h) defines a contract as an agreement enforceable by law, so enforceability is the distinguishing element that converts a mere agreement into a contract. Writing, registration, attestation and stamping are required only for particular contracts or for evidentiary purposes, not for validity in general.

Question 2Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A proposal is made to a person present before the proposer. Which communication rule governs revocation of such a proposal?

  1. It may be revoked within seven days of being made
  2. It becomes irrevocable the moment it is spoken
  3. It may be revoked only with the offeree's written consent
  4. It may be revoked at any time before the proposal is accepted Correct answer.

Explanation

Under section 5, a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer. In a face-to-face proposal, acceptance is normally communicated instantly, so the window to revoke is extremely narrow but the rule remains the same.

Question 3Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following is a valid consideration under the Indian Contract Act, 1872?

  1. A promise to commit a lawful act that the promisor was already bound to perform for the same promisee
  2. A promise to refrain from filing a suit Correct answer.
  3. A promise to do something forbidden by law
  4. A promise made without the promisor's free consent

Explanation

Section 2(d) recognises an act, abstinence or promise as consideration, and forbearance to sue is a classic form of valid consideration because it is a detriment to the promisee. Doing what one is already bound to do for the same promisee is not good consideration, and unlawful or vitiated promises fail.

Question 4Indian Contract Act, 1872 - nature, offer, acceptance, consideration

An offer is made by telegram and reaches the offeree on Monday. The offeree posts an acceptance letter on Wednesday that reaches the offeror on Saturday. When is the acceptance complete as against the offeree?

  1. On Saturday, when the letter reaches the offeror
  2. On Thursday, the day after posting
  3. On Wednesday, when the letter is posted Correct answer.
  4. On Monday, when the offer reached the offeree

Explanation

Under section 4, communication of acceptance is complete as against the acceptor when the letter is put in the course of transmission so that it is out of the acceptor's power. Therefore posting on Wednesday completes it against the offeree, though against the offeror it is complete only on Saturday.

Question 5Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A general offer of reward is published for the return of a lost dog. A person who did not know of the offer finds and returns the dog. What is the legal position?

  1. The person cannot claim the reward because there was no knowledge of the offer Correct answer.
  2. The person can claim the reward only if the offer is registered
  3. The person can claim the reward because the act was performed
  4. The person can claim half the reward as compensation

Explanation

Acceptance requires knowledge of the proposal, so a person who performs the requested act without being aware of the offer cannot be said to have accepted it. The general rule is that there must be a meeting of the offer and the act, which presupposes awareness of the offer.

Question 6Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which statement about the intention to create legal relations is consistent with the Indian Contract Act, 1872?

  1. Agreements of a social or domestic nature are presumed not to be intended to create legal relations Correct answer.
  2. Intention to create legal relations is irrelevant to contract formation
  3. Commercial agreements are presumed to lack legal intention unless registered
  4. Every agreement between family members is automatically void

Explanation

Indian courts apply the common law presumption that social and domestic arrangements are not intended to be legally enforceable, while commercial arrangements are presumed to be so intended. The presumption is rebuttable by evidence of the parties' actual intention.

Question 7Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A agrees to sell his car to B if B pays the price within a week. B pays within three days. What type of contract have the parties entered into at the time of the agreement?

  1. A void agreement
  2. A wagering agreement
  3. An agreement without consideration
  4. A contingent contract Correct answer.

Explanation

A contingent contract is one to do or not to do something if some event collateral to the contract does or does not happen, as defined in section 31. The obligation to sell depends on the collateral event of payment within the stipulated week, so the agreement is contingent.

Question 8Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following agreements is expressly declared void by the Indian Contract Act, 1872?

  1. An agreement to employ a person for a fixed salary
  2. An agreement to sell goods at a price fixed by a market committee
  3. An agreement to refer a dispute to arbitration
  4. An agreement in restraint of marriage Correct answer.

Explanation

Section 26 declares every agreement in restraint of the marriage of any person, other than a minor, void. Commercial arrangements, arbitration clauses and ordinary service contracts are not void under the Act.

Question 9Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A minor enters into a contract for the purchase of a laptop and pays part of the price. Subsequently the minor seeks to recover the amount paid. What is the position under the Indian Contract Act, 1872?

  1. The minor can recover only half the amount
  2. The minor can recover the amount because the agreement is void Correct answer.
  3. The minor can recover the amount only after attaining majority
  4. The minor cannot recover the amount because the contract is voidable

Explanation

An agreement with a minor is void ab initio, and section 65 allows a person who has received a benefit under a void agreement to be required to restore it. Courts have held that a minor may recover money paid under a void agreement, subject to equitable restitution of benefits still retained.

Question 10Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following best describes the doctrine of privity of contract?

  1. A third party may enforce a contract if it confers a benefit on him
  2. A contract is enforceable against the whole world
  3. Only a party to a contract can enforce rights arising under it Correct answer.
  4. A contract may be enforced by any person aware of its terms

Explanation

Privity of contract means that only the parties to a contract can sue on it, since rights and obligations arise only between them. Exceptions such as trusts, family arrangements and agency exist, but the general rule remains that a stranger to the contract cannot enforce it.

Question 11Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A offers to sell his house to B for a stated price and adds that the offer will be kept open for ten days. Before the ten days expire, A sells the house to C. What is B's remedy, if any?

  1. B may claim damages for breach of the promise to keep the offer open only if consideration was given for that promise Correct answer.
  2. B may claim damages even though he gave no consideration for the promise to keep the offer open
  3. B may compel A to sell the house to him because the offer was kept open
  4. B has no remedy because offers are always revocable without notice

Explanation

A promise to keep an offer open is itself a contract and requires consideration; without it, the promise is a bare nudum pactum and revocable. If B had paid something for the option, A's sale to C would breach an enforceable obligation and damages could be claimed.

Question 12Indian Contract Act, 1872 - nature, offer, acceptance, consideration

An acceptance that introduces a new condition, not contained in the offer, has what effect under the Indian Contract Act, 1872?

  1. It is a valid acceptance if made promptly
  2. It completes the contract with the new condition included
  3. It is a valid acceptance if made in writing
  4. It operates as a counter-offer and destroys the original offer Correct answer.

Explanation

An acceptance must be absolute and unqualified under section 7; a conditional acceptance varying the terms amounts to a counter-offer. A counter-offer rejects the original proposal, which can no longer be accepted unless renewed.

Question 13Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A, a creditor, agrees to accept a lesser sum from B in full satisfaction of a debt, and B pays the lesser sum. Which statement reflects the traditional position under the Indian Contract Act, 1872?

  1. Payment of a lesser sum discharges the debt because the creditor agreed
  2. Payment of a lesser sum discharges the debt if made before the due date
  3. Payment of a lesser sum does not discharge the whole debt for want of consideration Correct answer.
  4. Payment of a lesser sum discharges the debt if made in cash

Explanation

The rule in Pinnel's case, followed in India, is that payment of a smaller sum in satisfaction of a larger liquidated debt is not good consideration for the creditor's promise to forgo the balance. Exceptions arise where something extra is given, or where the payment is at a different place or earlier time at the creditor's request.

Question 14Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following is an example of a voidable contract?

  1. A contract caused by coercion Correct answer.
  2. A contract in restraint of trade
  3. A contract whose object is unlawful
  4. A contract with a minor

Explanation

Under section 19, an agreement caused by coercion, undue influence, fraud or misrepresentation is voidable at the option of the aggrieved party. Agreements with minors, in restraint of trade and with unlawful objects are void from the beginning.

Question 15Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A sends a letter revoking his offer on Monday, which reaches B on Wednesday. B had posted his acceptance on Tuesday, which reaches A on Thursday. What is the effect of the revocation?

  1. The revocation is ineffective because it was not made in writing
  2. The revocation is effective because it was posted before the acceptance was posted
  3. The revocation is ineffective because acceptance was posted before it reached B Correct answer.
  4. The revocation is effective because it reached B before acceptance reached A

Explanation

Under section 5, a proposal may be revoked only before the communication of acceptance is complete as against the proposer. Acceptance is complete against the proposer when it reaches him, but the revocation must reach the offeree before he posts his acceptance to be effective; here acceptance was posted first.

Question 16Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following agreements is valid despite restraining a party's freedom of action?

  1. An agreement restraining a party from enforcing his legal rights through court
  2. An agreement not to marry any person other than a specified individual
  3. An agreement by a seller of a business not to carry on a similar business within specified local limits Correct answer.
  4. An agreement not to engage in any trade throughout the country for ten years

Explanation

Section 27 saves a goodwill restraint on the sale of a business where the buyer is protected and the limits are reasonable. Restraints on marriage, wide restraints on trade and agreements ousting the jurisdiction of courts are void.

Question 17Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A proposal is accepted by a letter that is posted but never delivered. What is the position regarding the formation of the contract?

  1. A contract is formed only on the offeror's request for a duplicate
  2. A contract is formed only if the offeror learns of the acceptance
  3. No contract is formed because the acceptance never reached the offeror
  4. A contract is formed when the letter of acceptance is posted Correct answer.

Explanation

Under section 4, communication of acceptance is complete as against the proposer when the letter is put in the course of transmission, so that it is out of the acceptor's power. The contract is therefore concluded on posting, though the offeror may be excused from liability if the letter is lost without the acceptor's fault.

Question 18Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following statements about the consideration requirement under the Indian Contract Act, 1872, is accurate?

  1. Past consideration is never valid in India
  2. Consideration must always be adequate to the promise
  3. Consideration may move from a third person, not necessarily from the promisee Correct answer.
  4. Consideration must always move from the promisee himself

Explanation

Section 2(d) requires only that consideration move at the desire of the promisor, not that it move from the promisee, and Indian law permits consideration from a stranger to the promise. Adequacy is irrelevant if consent is free, and past consideration is recognised as valid.

Question 19Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A person who is of unsound mind and occasionally capable of understanding a contract enters into an agreement during a lucid interval. What is the validity of the agreement?

  1. It is voidable at the option of the other party
  2. It is valid only if ratified after recovery
  3. It is valid if the person was capable of understanding its effects at the time of contracting Correct answer.
  4. It is void because the person is of unsound mind

Explanation

Section 12 provides that a person is of sound mind for contracting if he is capable of understanding the contract and forming a rational judgment about its effects on his interests at the time of contracting. A contract made during a lucid interval is therefore valid.

Question 20Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following agreements is opposed to public policy and therefore void?

  1. An agreement to compromise a bona fide dispute
  2. An agreement to share profits of a lawful partnership
  3. An agreement to pay money to a witness in return for giving particular evidence Correct answer.
  4. An agreement to pay a commission to an agent for lawful services

Explanation

Agreements tending to pervert the course of justice, such as trafficking in evidence or inducing a witness to testify in a particular manner, are opposed to public policy and void. Lawful agency commissions, genuine compromises and profit-sharing partnerships are valid.

Question 21Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A agrees to sell to B a certain quantity of oil to be produced from a particular factory. The factory is destroyed by fire before any oil is produced. What is the effect on the agreement?

  1. The agreement becomes void because the event on which it depended became impossible Correct answer.
  2. The agreement remains valid and A must supply oil from another source
  3. The agreement becomes illegal because of the fire
  4. The agreement becomes voidable at B's option

Explanation

Under section 32, a contingent contract to do something on the happening of an uncertain future event becomes void when the event becomes impossible. Destruction of the specified source makes performance of the contingency impossible, so the agreement is void.

Question 22Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following is true of a counter-offer in the law of contract?

  1. It rejects the original offer and can itself be accepted by the original offeror Correct answer.
  2. It keeps the original offer alive until expressly rejected
  3. It amounts to an inquiry and preserves the original offer
  4. It is another name for a standing offer

Explanation

A counter-offer is a new proposal made in response to an offer, and it operates as a rejection of the original offer. Once rejected, the original offer lapses and cannot later be accepted unless the offeror renews it.

Question 23Indian Contract Act, 1872 - nature, offer, acceptance, consideration

A, B and C jointly promise to pay D a sum of money. D may compel which party or parties to pay?

  1. Only all three jointly, and not any one individually
  2. Only the party who received the benefit
  3. Only each one for one-third of the sum
  4. Any one of A, B or C for the whole sum, subject to contribution among them Correct answer.

Explanation

Where several persons make a joint promise, section 43 allows the promisee to compel any one of the joint promisors to perform the whole promise. The performing promisor can then claim contribution from the others.

Question 24Indian Contract Act, 1872 - nature, offer, acceptance, consideration

Which of the following amounts to a valid acceptance of an offer made by a company to the public at large?

  1. Performance of the conditions of the offer by a person with knowledge of it Correct answer.
  2. Silence of a person after reading the offer
  3. A request for further details about the offer
  4. Mental assent to the offer without any external act

Explanation

In a general offer, acceptance is made by performing the conditions laid down, provided the performer knows of the offer. Silence and unexpressed mental assent do not constitute acceptance, and a request for particulars is not acceptance.

Question 25Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Under the Indian Contract Act, 1872, which of the following persons is competent to contract?

  1. A person who has attained the age of majority and is of sound mind Correct answer.
  2. A person disqualified by a court decree from contracting
  3. A minor who has received the consent of his guardian
  4. A person of unsound mind who occasionally has lucid intervals

Explanation

Section 11 requires that a person be of the age of majority, of sound mind, and not disqualified from contracting by any law to which he is subject. Only the first option satisfies all three requirements simultaneously. Guardian consent cannot cure a minor's incapacity.

Question 26Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A minor aged 17 borrows money from a lender by signing a promissory note. Which statement correctly states the legal position on the lender's right to recover?

  1. The lender can enforce the note only after the minor attains majority
  2. The lender can enforce the promissory note against the minor personally
  3. The minor becomes personally liable on attaining majority if he does not repay
  4. The lender can recover the amount from the minor's separate property Correct answer.

Explanation

An agreement with a minor is void ab initio, so no personal liability arises. However, under the rule in equity recognised in Indian case law, the minor's estate or property can be proceeded against for necessaries supplied. The lender cannot enforce the note against the minor personally at any stage.

Question 27Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Which of the following agreements is a void agreement under the Indian Contract Act, 1872?

  1. An agreement made without consideration in writing and registered out of natural love and affection
  2. An agreement to sell goods that are presently unascertained Correct answer.
  3. An agreement whose object is unlawful in part and severable from the lawful part
  4. An agreement in restraint of trade that is reasonable and limited in scope

Explanation

An agreement to sell unascertained goods is a valid executory contract; the goods are merely not yet identified. It is not void merely because the subject matter is unascertained. The option chosen here is the one that does not attract any statutory voidness, since the other three involve restraint of trade, want of consideration, and unlawful object respectively.

Question 28Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract is said to be voidable at the option of the aggrieved party when consent is caused by which of the following?

  1. An agreement with a person of unsound mind
  2. Coercion, undue influence, fraud, misrepresentation, or mistake as to a matter of fact Correct answer.
  3. An agreement without consideration not falling within any exception
  4. Bilateral mistake as to a matter of fact essential to the agreement

Explanation

Section 19 and Section 19A provide that consent obtained by coercion, undue influence, fraud, misrepresentation, or a bilateral mistake of fact makes the agreement voidable at the option of the party whose consent was so caused. The other situations render the agreement void rather than voidable.

Question 29Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Which one of the following is a valid contingent contract under Section 31 of the Indian Contract Act, 1872?

  1. A agrees to pay B Rs 10,000 if B marries C
  2. A agrees to pay B Rs 10,000 if B commits a criminal offence
  3. A agrees to pay B Rs 10,000 if B's house is destroyed by fire Correct answer.
  4. A agrees to pay B Rs 10,000 if B dies

Explanation

A contingent contract is one to do or not to do something if some event, collateral to the contract, does or does not happen. The destruction of B's house by fire is a collateral, uncertain event independent of the parties' will, so the contract is validly contingent.

Question 30Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contingent contract to pay money on the happening of an event becomes enforceable when the event occurs. If the event becomes impossible, the contract is:

  1. Void Correct answer.
  2. Enforceable as if the event had occurred
  3. Revived on the occurrence of a similar event
  4. Voidable at the option of the promisor

Explanation

Section 32 provides that contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced unless and until that event happens. If the event becomes impossible, the contract becomes void.

Question 31Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A railway company is under a statutory duty to carry goods and is paid for the service. A consignor pays the charges, but the company fails to deliver the goods. Which doctrine governs the consignor's claim for refund?

  1. Doctrine of unjust enrichment under quasi contract Correct answer.
  2. Doctrine of quantum meruit
  3. Doctrine of supervening impossibility
  4. Doctrine of anticipatory breach

Explanation

Section 72 provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. Where the consideration wholly fails, the recipient holds the benefit without lawful basis, and the quasi-contractual doctrine of unjust enrichment applies.

Question 32Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Under Section 68 of the Indian Contract Act, 1872, a person who supplies necessaries to a minor is entitled to:

  1. No remedy whatsoever
  2. Recovery only if the minor ratifies the supply after majority
  3. Personal recovery from the minor on attaining majority
  4. Reimbursement from the minor's property Correct answer.

Explanation

Section 68 allows reimbursement from the property of a person incapable of contracting for necessaries suited to his condition in life. The claim is against the minor's estate, not against the minor personally.

Question 33Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract is induced by undue influence where:

  1. One party makes a false statement knowing it to be false
  2. Both parties are under a mistake of law
  3. One party uses force to obtain consent
  4. One party occupies a dominant position and uses it to obtain an unfair advantage Correct answer.

Explanation

Section 16 defines undue influence as the use of a position of dominance over another to obtain an unfair advantage. The relationship must be such that one party is in a position to dominate the will of the other, and the transaction must appear unconscionable.

Question 34Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A tells B, intending to deceive, that a plot of land is free from encumbrance, knowing that it is mortgaged. B buys the land relying on this statement. B later discovers the mortgage. Which remedy is available to B?

  1. B can only claim damages but cannot rescind
  2. B has no remedy because the statement was not in writing
  3. B must complete the purchase and then sue for indemnity
  4. B can rescind the contract and claim damages for fraud Correct answer.

Explanation

A fraudulent misrepresentation of fact induces consent and makes the contract voidable at the option of the deceived party under Section 19. The deceived party may rescind and may also claim damages for the loss suffered.

Question 35Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract caused by coercion is voidable at the option of the party whose consent was so caused. Within what period must the avoidance be sought?

  1. Within one year from the date of the contract
  2. Within the period during which the coercion continues, or within three years after it ceases Correct answer.
  3. There is no limitation period for avoiding such a contract
  4. Within three years from the date of the contract

Explanation

Section 19A provides that the agreement is voidable at the option of the party whose consent was caused by coercion or undue influence. The Limitation Act allows avoidance while the coercion or influence persists, and within three years after it ceases.

Question 36Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A and B enter into an agreement that A will not carry on a similar business within a specified reasonable period and within specified local limits, in return for consideration paid by B on the sale of goodwill. This agreement is:

  1. Void because all restraints of trade are void
  2. Valid because it falls within the statutory exception for the sale of goodwill Correct answer.
  3. Voidable at the option of A
  4. Void only if the restraint exceeds one year

Explanation

Section 27 voids agreements in restraint of trade, but its exception validates a restraint on carrying on a similar business so long as the buyer of goodwill confines it to specified reasonable local limits. The restraint must be reasonable and tied to the goodwill sold.

Question 37Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

An agreement in restraint of marriage of any person other than a minor is:

  1. Void Correct answer.
  2. Voidable at the option of the party restrained
  3. Valid if supported by consideration
  4. Enforceable if limited to a reasonable period

Explanation

Section 26 declares every agreement in restraint of the marriage of any person, other than a minor, to be void. The restraint is void regardless of consideration or duration.

Question 38Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A agrees to sell his horse to B if A's horse survives the winter. The horse dies before the winter ends. What is the effect on the contingent contract?

  1. The contract becomes enforceable against A's estate
  2. The contract is voidable at B's option
  3. The contract becomes void Correct answer.
  4. The contract remains valid and B must pay the price

Explanation

Section 32 provides that a contingent contract to do something if an uncertain future event happens becomes void if the event becomes impossible. The death of the horse before the stipulated event makes performance impossible, so the contract is void.

Question 39Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Which of the following is an essential element for the doctrine of quasi contract to apply?

  1. A written acknowledgement of liability
  2. A prior contractual relationship between the parties
  3. An obligation imposed by law to prevent unjust enrichment Correct answer.
  4. An express promise to pay for the benefit received

Explanation

Quasi contracts are obligations imposed by law, not by agreement, to prevent one person from being unjustly enriched at the expense of another. Sections 68 to 72 create such obligations in defined situations.

Question 40Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A finds a wallet belonging to B on a public road. A keeps it with the intention of returning it to the owner but later refuses to hand it over. Under Section 71 of the Indian Contract Act, 1872, A is:

  1. Liable only if B can prove an intention to reward A
  2. Bound to return the goods to B as a responsibility of a finder of goods Correct answer.
  3. Entitled to retain the wallet until B pays a reward
  4. Not liable because he did not enter into any contract

Explanation

Section 71 imposes a responsibility on a person who finds goods belonging to another and takes them into his custody to take reasonable care of them and to return them to the owner. The obligation arises from the finder's voluntary assumption of custody.

Question 41Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract entered into by a person who is usually of unsound mind but occasionally of sound mind is:

  1. Valid if made during a lucid interval Correct answer.
  2. Valid only with the sanction of a court
  3. Void in all circumstances
  4. Voidable at the option of the other party

Explanation

Section 12 provides that a person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind. A contract made during a lucid interval is therefore valid.

Question 42Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A and B are both under a mistake that a particular cargo ship is still afloat when it has already sunk. They enter into a contract of insurance on the cargo. The agreement is:

  1. Void because of a bilateral mistake as to a matter of fact essential to the agreement Correct answer.
  2. Valid because both parties were equally mistaken
  3. Voidable at the option of either party
  4. Enforceable as a contingent contract

Explanation

Section 20 provides that where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The existence of the subject matter is essential, and its loss makes the contract void.

Question 43Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract is induced by misrepresentation made innocently, without any intention to deceive. Which statement best describes the aggrieved party's position?

  1. He has no remedy because the misrepresentation was innocent
  2. He may rescind the contract and also claim damages for deceit
  3. He must perform the contract and seek compensation separately
  4. He may rescind the contract but cannot claim damages for deceit Correct answer.

Explanation

Innocent misrepresentation makes the contract voidable at the option of the party misled, so rescission is available. Damages for deceit, however, require fraudulent intent, which is absent here.

Question 44Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A agrees to pay B Rs 5,000 if B wins a lottery. Before the lottery is drawn, the scheme is cancelled by the state. The contingent contract is:

  1. Void because the event has become impossible Correct answer.
  2. Valid and B is entitled to the amount
  3. Voidable at A's option
  4. Enforceable because the event was uncertain

Explanation

Section 32 provides that a contingent contract becomes void when the uncertain future event on which it depends becomes impossible. Cancellation of the lottery makes the event impossible, so the contract is void.

Question 45Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

Under the Indian Contract Act, 1872, a person who supplies necessaries to a person incapable of contracting is entitled to reimbursement from the property of that person. Which section creates this right?

  1. Section 72
  2. Section 68 Correct answer.
  3. Section 65
  4. Section 70

Explanation

Section 68 provides that if a person is incapable of entering into a contract, or is a person to whom necessaries are supplied, the supplier is entitled to reimbursement from the property of such incapable person. It is the specific provision on necessaries.

Question 46Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A, a spiritual adviser, induces his disciple B to gift him a large portion of B's property by exploiting B's reverence and trust. The transaction is:

  1. Void because spiritual advisers cannot receive gifts
  2. Valid because gifts are irrevocable
  3. Enforceable only if registered
  4. Voidable at the option of B on the ground of undue influence Correct answer.

Explanation

A spiritual adviser is presumed to be in a position to dominate the will of a disciple, and a gift obtained by exploiting that relationship may be set aside for undue influence under Section 16. The transaction is voidable at the disciple's option.

Question 47Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A contract for the sale of a specific painting is made, but unknown to both parties the painting had already been destroyed by fire. The agreement is:

  1. Enforceable as a contingent contract
  2. Valid because the parties intended to contract
  3. Voidable at the buyer's option
  4. Void under Section 20 for bilateral mistake of fact Correct answer.

Explanation

Where both parties are mistaken about the existence of the subject matter, the mistake is as to a matter of fact essential to the agreement, and Section 20 makes the agreement void. Neither party can enforce it.

Question 48Indian Contract Act, 1872 - capacity, free consent, void/voidable agreements, contingent and quasi contracts

A promises to pay B Rs 1,000 if B refrains from marrying anyone for five years. B is a major. The agreement is:

  1. Voidable at B's option
  2. Void under Section 26 as a restraint on marriage Correct answer.
  3. Valid because B is competent to contract
  4. Enforceable if B receives adequate consideration

Explanation

Section 26 voids every agreement in restraint of the marriage of any person other than a minor. Since B is a major, the restraint is void regardless of the consideration or the duration.

Question 49Indian Contract Act, 1872 - performance, discharge, breach and remedies

A promises to pay B ₹50,000 if B delivers 100 bags of cement to C on 1 March. B tenders delivery to C on 1 March, but C refuses to accept it. What is the effect on B's obligation to A?

  1. B must store the cement for C and deliver it later at B's own cost
  2. B remains liable, because only actual delivery to C completes performance
  3. B is in breach because C's refusal is irrelevant to the contract with A
  4. B is discharged, because tender to the third party named in the contract amounts to performance and refusal by C excuses B Correct answer.

Explanation

Where a promisor undertakes to deliver to a named third person, a valid tender of performance to that person discharges the promisor if the third person refuses to accept. Section 38 of the Indian Contract Act, 1872 provides that an offer to perform is equivalent to performance where the offer is refused by the promisee. B has done all that was required and is therefore not in breach.

Question 50Indian Contract Act, 1872 - performance, discharge, breach and remedies

Under the Indian Contract Act, 1872, in what order must a debtor's payment be applied when the debtor owes several distinct debts to the same creditor and makes no express appropriation?

  1. It must be applied to the debts in the order in which they were incurred
  2. The creditor may apply it to any debt, even a time-barred one, at his discretion
  3. It must be applied rateably among all outstanding debts
  4. It must be applied first to the debt the debtor indicates at the time of payment, failing which to the earliest debt Correct answer.

Explanation

Section 59 allows the debtor to appropriate the payment expressly or by implication at the time of payment. If the debtor does not do so, Section 61 requires appropriation to the debt actually due in order of time, and a time-barred debt cannot be revived by such appropriation. The creditor's discretion under Section 60 arises only where neither party appropriates.