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WBCHSE HS Commercial Law and Preliminaries of Auditing study materials
WBCHSE HS Commercial Law and Preliminaries of Auditing study resources

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Question 1Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Under the Indian Contract Act, 1872, an agreement enforceable by law is defined as which of the following?

  1. A proposal
  2. A contract Correct answer.
  3. An offer
  4. A promise

Explanation

Section 2(h) of the Indian Contract Act, 1872 states that an agreement enforceable by law is a contract. A promise alone becomes an agreement only when it is accepted, and enforceability by law is the additional element that converts the agreement into a contract.

Question 2Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which element must be present for an agreement to ripen into a valid contract under the Indian Contract Act, 1872?

  1. Approval by a notary public
  2. Writing on stamped paper
  3. Lawful consideration and lawful object Correct answer.
  4. Registration with a sub-registrar

Explanation

Section 10 requires free consent, competent parties, lawful consideration, lawful object, and the agreement must not be expressly declared void. Writing, stamping, registration and notarisation are only required for particular classes of contracts, not as a general rule.

Question 3Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A tells B that if B does not stop running a competing shop, A will publish defamatory matter about B. B agrees to close the shop. This agreement is void because consent was caused by which of the following?

  1. Coercion Correct answer.
  2. Fraud
  3. Undue influence
  4. Misrepresentation

Explanation

Section 15 defines coercion as committing or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining of property, to cause a person to enter into an agreement. Threatening to publish defamation is a threat to commit an offence, so the consent is caused by coercion and the agreement is void under Section 19.

Question 4Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which of the following correctly states the position of a minor's agreement under the Indian Contract Act, 1872?

  1. It is enforceable once the minor attains majority
  2. It is valid if the minor derives benefit from it
  3. It is void ab initio Correct answer.
  4. It is voidable at the option of the minor

Explanation

A minor is not competent to contract under Section 11, and the leading judicial position treats a minor's agreement as void from the very beginning. Because the agreement is void ab initio, it cannot be ratified by the minor on attaining majority, although a minor may be a beneficiary of a contract.

Question 5Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

X owes Y Rs. 50,000. Y accepts Rs. 30,000 in full satisfaction of the debt, and the payment is made in the manner Y prescribed. Which section of the Indian Contract Act, 1872 makes this accord and satisfaction binding?

  1. Section 68
  2. Section 63 Correct answer.
  3. Section 62
  4. Section 56

Explanation

Section 63 provides that every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him. A remission accepted in full satisfaction of the debt is therefore binding and extinguishes the balance, provided the acceptance is complete.

Question 6Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

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

  1. An agreement in restraint of marriage Correct answer.
  2. An agreement to sell goods for future delivery
  3. An agreement to indemnify a surety
  4. An agreement to pay a time-barred debt

Explanation

Section 26 declares every agreement in restraint of the marriage of any person, other than a minor, to be void. The other listed agreements are specifically enforceable: future delivery sales are ordinary commercial contracts, indemnity of a surety is valid under Section 126, and a written promise to pay a time-barred debt is valid under Section 25(3).

Question 7Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

An agreement by which a trader agrees to close his business throughout the whole of West Bengal for two years in consideration of a payment is void because it offends which provision?

  1. Section 29, which voids uncertain agreements
  2. Section 30, which voids wagers
  3. Section 28, which voids agreements in restraint of legal proceedings
  4. Section 27, which voids agreements in restraint of trade Correct answer.

Explanation

Section 27 provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void. A restraint covering an entire State for two years is not a reasonable limited exception, so the agreement is void.

Question 8Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which of the following is the correct statement of the rule in Section 25 regarding an agreement made without consideration?

  1. It is valid if it is a promise to pay a time-barred debt made in writing and signed by the debtor Correct answer.
  2. It is void in every case
  3. It is valid if made in writing and registered
  4. It is voidable at the option of the promisor

Explanation

Section 25 lays down exceptions to the general rule that an agreement without consideration is void. One exception is a written promise, signed by the person to be charged, to pay wholly or in part a debt barred by the law of limitation.

Question 9Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A offers by letter to sell his motorcycle to B. A's letter is posted on 1 May, reaches B on 4 May, and B posts his acceptance on 6 May, which reaches A on 9 May. Under the Indian Contract Act, 1872, when is the communication of acceptance complete as against A?

  1. On 9 May Correct answer.
  2. On 6 May
  3. On 4 May
  4. On 1 May

Explanation

Section 4 states that communication of an acceptance is complete as against the acceptor when it comes to the knowledge of the proposer. Since A learns of the acceptance only on 9 May, communication is complete against A on that date, even though it was complete against B on 6 May.

Question 10Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A proposal is said to be revoked by the lapse of a reasonable time in which the proposer prescribes no time for acceptance. This rule flows from which provision?

  1. Section 5
  2. Section 6 Correct answer.
  3. Section 7
  4. Section 8

Explanation

Section 6 provides the modes by which revocation of a proposal may be made, including revocation by lapse of a reasonable time where no time is prescribed. The other sections address revocation before acceptance, the mode of acceptance, and acceptance by performance of conditions.

Question 11Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

An offer is accepted subject to the condition that the price is reduced by 10 per cent. Which of the following best describes this response?

  1. A counter-offer that rejects the original proposal Correct answer.
  2. A valid acceptance if the offeror does not object
  3. An acceptance with a minor clarification
  4. A valid acceptance because it is substantially the same

Explanation

Section 7 requires acceptance to be absolute and unqualified. A purported acceptance that varies the price is not an acceptance but a counter-offer, which operates as a rejection of the original proposal and may itself be accepted by the original offeror.

Question 12Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

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

  1. A stranger to the consideration can never enforce a contract
  2. Only the acceptor can sue on a contract
  3. A stranger to a contract cannot sue upon it, save in recognised exceptions Correct answer.
  4. Only the offeror can sue on a contract

Explanation

The doctrine of privity means that only a party to a contract may enforce rights under it. Indian law recognises exceptions, such as a beneficiary under a trust, a person for whose benefit a family arrangement is made, and certain cases of agency, so the rule is not absolute.

Question 13Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A agrees to sell his house to B if B pays Rs. 5,00,000, and B agrees to buy if A accepts Rs. 4,50,000. Which essential element of a valid contract is most clearly absent here?

  1. Free consent
  2. Certainty of meaning Correct answer.
  3. Competence of parties
  4. Lawful object

Explanation

Section 29 provides that agreements the meaning of which is not certain, or capable of being made certain, are void. The two parties have fixed different prices, so the terms are not certain and no concluded contract arises.

Question 14Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Under the Indian Contract Act, 1872, which of the following agreements is a wagering agreement?

  1. An agreement of insurance on a ship
  2. An agreement to sell a crop at a future date
  3. An agreement to pay Rs. 1,000 depending on whether it rains tomorrow Correct answer.
  4. An agreement to buy shares of a company for delivery

Explanation

A wager is an agreement under which money is payable by one party to another on the happening or non-happening of an uncertain event, and neither party has any interest other than the stake. A bet on tomorrow's rain fits this description and is void under Section 30.

Question 15Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A contract is entered into on the basis of a mutual mistake as to the identity of the subject matter, so that the parties are at cross purposes. What is the effect on the agreement?

  1. It is valid but unenforceable until rectified
  2. It is voidable at the option of either party
  3. It is void under Section 20 because the agreement is caused by bilateral mistake of fact Correct answer.
  4. It is voidable only at the option of the buyer

Explanation

Section 20 provides that where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void. A mutual mistake about the identity of the subject matter goes to the root of the agreement, so it is void and not merely voidable.

Question 16Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A finds B's purse on the road and returns it to B. B later promises to pay A Rs. 500 for the service. Is B bound to pay?

  1. No, because there is no written agreement
  2. No, because the promise is without consideration and is void
  3. Yes, but only if the amount is reasonable and registered
  4. Yes, because a promise to compensate a person who has already voluntarily done something for the promisor is valid under Section 25(2) Correct answer.

Explanation

Section 25(2) makes a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor enforceable even without fresh consideration. Since A had voluntarily returned the purse, B's subsequent promise to pay is binding.

Question 17Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which of the following statements about the consideration in a contract is correct under the Indian Contract Act, 1872?

  1. Consideration must always be in money
  2. Consideration must move only from the promisee
  3. Consideration may be past, present or future Correct answer.
  4. Consideration must always be adequate to the promise

Explanation

Section 2(d) defines consideration to include acts done in the past, present or future at the desire of the promisor. Indian law does not require adequacy of consideration, nor does it insist that consideration move only from the promisee.

Question 18Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A, a major of sound mind, enters into a contract with B, who is of unsound mind at the time of contracting. What is the status of the agreement?

  1. Valid, because A is competent
  2. Valid if B's guardian ratifies it later
  3. Voidable at the option of A
  4. Void, because B is not competent to contract Correct answer.

Explanation

Section 11 requires every party to be of the age of majority, of sound mind and not disqualified by law. Since B is of unsound mind at the time of contracting, the agreement is void, and the competence of A cannot save it.

Question 19Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A contract for the sale of a specific cargo of wheat becomes impossible to perform because the ship carrying the cargo sinks without any fault of either party. What is the effect under the Indian Contract Act, 1872?

  1. The contract is voidable at the buyer's option
  2. The contract becomes void under Section 56 Correct answer.
  3. The contract remains valid and the seller must supply other wheat
  4. The seller is liable for damages for non-delivery

Explanation

Section 56 provides that an agreement to do an act which becomes impossible or unlawful after the contract is made becomes void when the act becomes impossible or unlawful. The destruction of the specific cargo without fault is a supervening impossibility that discharges the contract.

Question 20Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Under the Indian Contract Act, 1872, an agreement is void if it is entered into by a party who is disqualified from contracting by which of the following?

  1. A temporary illness
  2. A low credit rating
  3. Any law to which the party is subject Correct answer.
  4. A pending civil suit

Explanation

Section 11 states that every person is competent to contract who is of the age of majority, of sound mind, and not disqualified from contracting by any law to which he is subject. Statutory disqualifications include, for example, alien enemy status and certain insolvency positions.

Question 21Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A fraudulently tells B that a car has run only 10,000 kilometres when it has actually run 60,000 kilometres, and B buys the car relying on this statement. What is B's legal position?

  1. B has no remedy because he ought to have inspected the car
  2. B may rescind the contract or insist on performance on the terms that the contract be carried out as if the representation were true Correct answer.
  3. B may only claim damages and cannot rescind
  4. B must perform the contract because the sale is complete

Explanation

Section 19 provides that when consent is caused by fraud, the agreement is voidable at the option of the party whose consent was so caused. That party may rescind the contract or insist that it be performed on the basis that the false representation was true.

Question 22Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which of the following agreements is expressly declared void under Section 28 of the Indian Contract Act, 1872?

  1. An agreement to compound a pending suit
  2. An agreement to refer future disputes to arbitration
  3. An agreement to submit an existing dispute to arbitration
  4. An agreement that restricts a party absolutely from enforcing his rights under a contract through the ordinary courts Correct answer.

Explanation

Section 28 renders void any agreement which restricts absolutely the right of a party to enforce his rights or to sue in the ordinary courts. Arbitration agreements are saved because they provide an alternative forum and do not absolutely bar access to justice.

Question 23Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

A agrees to pay B Rs. 10,000 if B agrees to sell A a plot of land, and B accepts. Before performance, A and B agree that B will instead sell a different plot for the same price. What is this arrangement called?

  1. Remission
  2. Novation Correct answer.
  3. Rescission
  4. Waiver of performance

Explanation

Section 62 permits parties to a contract to substitute a new contract for the old one, or to rescind or alter it. When the parties replace the original agreement with a fresh agreement on new terms, the transaction is called novation.

Question 24Introduction to Commercial Law and Indian Contract Act, 1872: Nature of Contract

Which of the following is an exception to the general rule that an agreement in restraint of trade is void under Section 27?

  1. An agreement by an employee never to work anywhere again
  2. An agreement between traders to fix prices for all time
  3. The sale of the goodwill of a business with an agreement not to carry on a similar business within specified local limits Correct answer.
  4. An agreement by a partner not to carry on any business at all after retirement

Explanation

The sale of goodwill of a business may be accompanied by an agreement restraining the seller from carrying on a similar business within specified local limits, so long as the limits are reasonable. This is a recognised exception to Section 27, whereas a total or unlimited restraint is void.

Question 25Offer, Acceptance and Consideration

Under the Indian Contract Act, 1872, a proposal becomes a promise when the person to whom it is made signifies his assent to it. What is this assent called?

  1. Consideration
  2. Acceptance Correct answer.
  3. Counter-proposal
  4. Revocation

Explanation

Section 2(b) provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. Acceptance is therefore the expression of assent that converts a proposal into an agreement.

Question 26Offer, Acceptance and Consideration

A offers to sell his bicycle to B for ₹5,000 and states that B must reply by telegram. B instead posts a letter of acceptance that reaches A. Which statement is correct?

  1. The acceptance is invalid because B did not follow the prescribed mode of communication Correct answer.
  2. The acceptance is valid only if A confirms it a second time
  3. The acceptance is valid because a prescribed mode is only directory
  4. The acceptance becomes valid only on B's death

Explanation

Where the proposer prescribes a particular mode of acceptance, the acceptor must follow that mode. An acceptance given in a different mode is not valid against the proposer unless he accepts it, though the acceptor may be bound if the proposer chooses to treat it as valid.

Question 27Offer, Acceptance and Consideration

Which of the following is generally treated as an invitation to treat rather than an offer?

  1. A display of goods with price tags in a shop window Correct answer.
  2. A signed undertaking to supply goods at a fixed price
  3. A written promise to pay a reward for lost property
  4. A telegram stating definite terms to a named person

Explanation

A display of goods in a shop window with price tags is classically regarded as an invitation to treat, inviting customers to make offers that the shopkeeper may accept or refuse. It lacks the intention to be bound on the stated terms.

Question 28Offer, Acceptance and Consideration

A writes to B offering to sell a plot of land and states that the offer will remain open until 30 June. On 10 June, A sells the plot to C and B hears of this from a friend. What is the legal position of the offer to B?

  1. The offer lapses only if A informs B in writing
  2. The offer remains open until 30 June because A promised to keep it open
  3. The offer becomes an invitation to treat after the sale to C
  4. The offer stands revoked because B learned of A's inconsistent act Correct answer.

Explanation

An offer is revoked when the offeror does an act inconsistent with the continuance of the offer, provided the offeree comes to know of that act. The sale to C is such an inconsistent act, and B's knowledge through a friend is sufficient.

Question 29Offer, Acceptance and Consideration

Acceptance of an offer must, as a general rule, be absolute and unqualified. What is the effect of a purported acceptance that introduces a new condition?

  1. It is a counter-offer that destroys the original offer Correct answer.
  2. It is a valid acceptance subject to later negotiation
  3. It converts the original offer into an invitation to treat
  4. It is a valid acceptance and the new condition is ignored

Explanation

A purported acceptance that varies the terms of the offer is not acceptance but a counter-offer. The counter-offer rejects the original proposal, which can no longer be accepted unless the original offeror revives it.

Question 30Offer, Acceptance and Consideration

A sends an offer by letter on 1 May. B posts the letter of acceptance on 5 May, which reaches A on 9 May. A telegraphs a revocation of the offer on 6 May, which reaches B on 8 May. What is the position?

  1. No contract exists because the revocation reached B before 9 May
  2. A contract was formed on 9 May when the acceptance reached A
  3. No contract exists because the offer was revoked before acceptance was posted
  4. A contract was formed on 5 May because acceptance is complete against the proposer when posted Correct answer.

Explanation

Under Section 4 of the Indian Contract Act, communication of acceptance is complete as against the proposer when the letter is posted. Since B posted on 5 May, before the revocation reached B on 8 May, the contract was concluded on 5 May and the later revocation is ineffective.

Question 31Offer, Acceptance and Consideration

For a valid acceptance to create a binding agreement, which requirement must be satisfied?

  1. It must be conditional upon future approval by the acceptor
  2. It must be made in writing and registered
  3. It must be supported by a separate promise to accept
  4. It must be communicated to the proposer by the acceptor Correct answer.

Explanation

Acceptance must be communicated by the acceptor or his authorised agent to the proposer, since mental assent alone cannot conclude a contract. Silence does not ordinarily amount to communication of acceptance.

Question 32Offer, Acceptance and Consideration

A owes B ₹10,000. B agrees to accept ₹6,000 in full satisfaction of the debt, and A pays ₹6,000 at B's request before the due date. Which principle best explains why B cannot later sue for the balance?

  1. Consideration must always move from the promisee only
  2. Payment of a smaller sum before the due date at the creditor's request is good consideration Correct answer.
  3. Part payment of a debt always discharges it by operation of law
  4. A promise to accept less is void for want of registration

Explanation

Although payment of a smaller sum in satisfaction of a larger debt is generally no consideration, payment made before the due date at the creditor's request is treated as fresh consideration. B is therefore bound by the agreement.

Question 33Offer, Acceptance and Consideration

Which of the following best describes 'consideration' under the Indian Contract Act, 1872?

  1. A moral duty owed by the promisor to the promisee
  2. The formality of writing and signing an agreement
  3. Something done or promised at the desire of the promisor Correct answer.
  4. The intention of the parties to create legal relations

Explanation

Section 2(d) defines consideration as an act, abstinence or promise done at the desire of the promisor, by the promisee or any other person. It is the price for which the promise of the other is bought.

Question 34Offer, Acceptance and Consideration

A finds B's wallet and returns it to B. B, out of gratitude, promises A ₹1,000. Later B refuses to pay. What is A's legal position?

  1. A cannot recover because the act was not done at B's desire Correct answer.
  2. A can recover ₹1,000 because returning the wallet is consideration
  3. A can recover only half the promised amount
  4. A can recover because gratitude is always enforceable

Explanation

Consideration must be given at the desire of the promisor. Since A returned the wallet without any request from B, the act was not done at B's desire and cannot support B's subsequent promise.

Question 35Offer, Acceptance and Consideration

A agrees to sell his car to B if B pays the price and also promises to paint A's house. B promises to pay the price and paint the house. This is an example of which kind of consideration?

  1. Executed consideration
  2. Past consideration
  3. Executory consideration Correct answer.
  4. Unlawful consideration

Explanation

When promises are exchanged and performance is still to take place in the future, the consideration is executory. Here both parties have made promises that remain to be performed.

Question 36Offer, Acceptance and Consideration

A, a stranger to a contract between B and C, is promised a benefit under that contract. Which provision of the Indian Contract Act allows A to enforce the benefit in certain cases?

  1. Section 23, which deals with lawful object
  2. Section 74, which deals with liquidated damages
  3. Section 56, which deals with frustration of contract
  4. Section 2(d), which permits consideration to move from any person Correct answer.

Explanation

Section 2(d) permits consideration to be furnished by the promisee or any other person, so a stranger to consideration may sue. This is a distinctive feature of Indian law compared with the English doctrine of privity.

Question 37Offer, Acceptance and Consideration

Which of the following promises is enforceable without consideration?

  1. A promise made in return for an illegal act
  2. A written and registered promise to pay a time-barred debt Correct answer.
  3. A promise to make a gift of ₹50,000 to a friend
  4. A promise to pay an existing debt already due

Explanation

Section 25(3) makes a written promise, signed by the promisor, to pay a debt barred by limitation enforceable without fresh consideration. This is one of the recognised exceptions to the general rule that agreements without consideration are void.

Question 38Offer, Acceptance and Consideration

A promises to pay B ₹5,000 if B gives up a pending lawsuit against C. B agrees and discontinues the suit. Is A's promise enforceable?

  1. Yes, because forbearance to sue is good consideration Correct answer.
  2. No, because forbearance to sue is never consideration
  3. Yes, but only if the court sanctions the compromise
  4. No, because the compromise was not registered

Explanation

Forbearance to sue a person against whom a claim is made in good faith is valuable consideration. B gave up a legal right at A's desire, so A's promise is supported by consideration.

Question 39Offer, Acceptance and Consideration

An offer must be communicated to the offeree before it can be accepted. Which statement follows from this rule?

  1. A general offer can only be accepted by a named person
  2. A general offer lapses automatically when it is published
  3. A person who performs an act in ignorance of a general offer can claim the reward
  4. A person who knows of a general offer and performs its conditions can accept it Correct answer.

Explanation

Acceptance requires knowledge of the offer, so a person who is aware of a general offer and performs the stipulated conditions accepts it. A person acting in ignorance of the offer cannot be said to have accepted it.

Question 40Offer, Acceptance and Consideration

A makes an offer to B on Monday and dies on Tuesday. B, unaware of A's death, accepts on Wednesday. What is the effect of the acceptance?

  1. A valid contract arises because B accepted without knowledge of the death Correct answer.
  2. No contract arises because the offer lapsed on A's death
  3. No contract arises because the acceptance was delayed
  4. A valid contract arises only if A's heirs ratify it

Explanation

In India, the death of the offeror does not automatically revoke the offer unless the offeree has notice of the death before acceptance. Since B accepted in ignorance of the death, a valid contract comes into existence against A's estate.

Question 41Offer, Acceptance and Consideration

Which of the following is an essential element of a valid offer?

  1. It must be supported by consideration at the time of making
  2. It must be made only to a specific person
  3. It must be communicated to the offeree Correct answer.
  4. It must be registered with a government authority

Explanation

An offer must be communicated to the person to whom it is made, since acceptance requires knowledge of the proposal. The terms must also be definite, but communication is the core requirement.

Question 42Offer, Acceptance and Consideration

A offers to sell goods to B and states that the offer will be deemed accepted if B does not reply within ten days. B remains silent. What is the result?

  1. B's silence is a counter-offer
  2. B's silence is not acceptance, so no contract arises Correct answer.
  3. B's silence revokes the offer
  4. B's silence amounts to acceptance because A prescribed it

Explanation

The general rule is that silence of the offeree does not amount to acceptance, since acceptance requires a positive expression of assent. A cannot impose a duty to reply by declaring that silence will be treated as acceptance.

Question 43Offer, Acceptance and Consideration

A agrees to sell a horse to B and promises to deliver it on 1 June. B promises to pay ₹20,000 on delivery. Before delivery, A refuses to sell. What is the nature of A's promise and B's promise respectively?

  1. A's promise is past consideration and B's is future
  2. Both are executed promises
  3. A's promise is executed and B's is executory
  4. Both are executory promises Correct answer.

Explanation

At the time the agreement is made, neither party has performed. The promises are mutual and to be performed in the future, so both are executory consideration.

Question 44Offer, Acceptance and Consideration

A promises to pay B ₹10,000 if B refrains from smoking for one year. B refrains. Is the agreement enforceable?

  1. Yes, but only if B suffers financial loss
  2. Yes, because forbearance to do a lawful act is good consideration Correct answer.
  3. No, because abstinence cannot be consideration
  4. No, because the promise is too vague

Explanation

Consideration may consist of an act, abstinence or promise. B's refraining from smoking is an abstinence undertaken at A's desire and is lawful, so it is good consideration for A's promise.

Question 45Offer, Acceptance and Consideration

A creditor agrees to accept a smaller amount from his debtor in full satisfaction of the debt, and the debtor pays on the due date. Which statement is correct under the general rule?

  1. The creditor cannot recover because the agreement is registered
  2. The creditor cannot recover the balance because part payment discharges the debt
  3. The creditor can recover the balance because part payment of a debt is no consideration Correct answer.
  4. The creditor can recover only if the debtor paid in cash

Explanation

Under the general rule, payment of a smaller sum in satisfaction of a larger debt due is not good consideration, so the creditor may recover the balance. Exceptions arise only where something additional is done at the creditor's request.

Question 46Offer, Acceptance and Consideration

An acceptance made by a letter that is lost in transit before reaching the proposer is generally binding on the proposer. Which rule justifies this?

  1. The postal rule, under which acceptance is complete against the proposer on posting Correct answer.
  2. The rule that silence amounts to acceptance
  3. The rule that offers lapse on the day they are posted
  4. The rule that acceptance must reach the proposer to be valid

Explanation

Under Section 4, communication of acceptance is complete as against the proposer when the letter is posted, and as against the acceptor when it reaches the proposer. The risk of loss in transit is thus borne by the proposer.

Question 47Offer, Acceptance and Consideration

A offers to sell B a painting for ₹1 lakh. B replies that he will buy it for ₹90,000. A refuses. B then agrees to pay ₹1 lakh. Which statement is correct?

  1. A's refusal ended the matter and no contract can arise
  2. B's acceptance at ₹1 lakh revives the original offer and creates a contract Correct answer.
  3. B's first reply was a valid acceptance of the original offer
  4. B's first reply was an invitation to treat

Explanation

B's reply at ₹90,000 was a counter-offer that rejected the original offer. However, A's refusal does not prevent B from accepting the original offer if A keeps it open; here B's later unqualified acceptance completes the contract.

Question 48Offer, Acceptance and Consideration

Which of the following agreements is void for want of consideration but saved by an exception in Section 25?

  1. An agreement to sell goods at a price fixed by the parties
  2. An agreement made on account of natural love and affection between parties standing in a near relation, expressed in writing and registered Correct answer.
  3. An agreement to pay a debt that is still within the limitation period
  4. An agreement to refrain from trading in a particular locality for a reasonable period

Explanation

Section 25(1) saves a written and registered agreement made on account of natural love and affection between parties standing in near relation, even without consideration. The other situations either involve consideration or fall outside the exception.

Question 49Capacity of Parties, Free Consent and Legality of Object

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, is of sound mind and is not disqualified by law Correct answer.
  2. A person of unsound mind who contracts during a lucid interval of business
  3. A person declared insolvent but not yet discharged
  4. A minor who has been emancipated by his guardian

Explanation

Section 11 lays down that every person is competent to contract who is of the age of majority according to the law to which he is subject, who is of sound mind, and who is not disqualified from contracting by any law. All three conditions must be satisfied cumulatively.

Question 50Capacity of Parties, Free Consent and Legality of Object

An agreement entered into by a minor is, under the law laid down in Mohori Bibee v. Dharmodas Ghose, best described as:

  1. Valid but unenforceable until majority
  2. Voidable at the option of the minor
  3. Void ab initio Correct answer.
  4. Illegal and punishable

Explanation

The Privy Council held that an agreement by a minor is void from the very beginning because a minor lacks the capacity to contract under Section 11. Since there is no contract at all, the question of avoiding or ratifying it later does not arise.