Indian Contract Act MCQ Quiz - Objective Question with Answer for Indian Contract Act - Download Free PDF

The correct answer is '(D), (A), (C), (B), (E)'

Key Points

• Void Agreements under the Indian Contract Act:
  • The Indian Contract Act, 1872, specifies certain agreements that are considered void from the outset. These agreements are unenforceable in a court of law because they either violate public policy or lack essential elements of a valid contract.
  • Chronological arrangement of the provisions in the Act is important to understand the legislative intent and logical flow of the law.
• Chronological Order of Provisions:
  • (D) Agreement without consideration: Section 25 of the Indian Contract Act states that an agreement made without consideration is void unless it falls under specific exceptions (e.g., made on account of natural love and affection, is a gift, or is a promise to compensate for a past voluntary service).
  • (A) Agreement in restraint of marriage: Section 26 declares that any agreement in restraint of marriage, except for minors, is void as it opposes public policy.
  • (C) Agreement in restraint of trade: Section 27 makes agreements that restrain a person's lawful trade, profession, or business void, with certain exceptions (e.g., partnership agreements or trade secrets).
  • (B) Agreement in restraint of legal proceedings: Section 28 states that agreements restricting a party's right to enforce their legal rights in ordinary courts or limiting the time to enforce such rights are void.
  • (E) Agreement which is ambiguous and uncertain: Section 29 provides that agreements with terms that are vague, ambiguous, or uncertain, making them incapable of being understood or enforced, are void.

Additional Information

• Why Other Options Are Incorrect:
  • Option 2 (C, A, B, E, D): This option places "Agreement in restraint of trade" first, which is incorrect as the Act addresses "Agreement without consideration" (Section 25) earlier than the other provisions.
  • Option 3 (B, A, D, C, E): "Agreement in restraint of legal proceedings" is placed first here, which does not align with the actual sequence in the Act.
  • Option 4 (A, C, E, D, B): "Agreement in restraint of marriage" is placed first, which is incorrect as "Agreement without consideration" precedes it in the Act.
• Purpose of Void Agreements:
  • Void agreements are designed to protect public policy, fairness, and contractual freedom while preventing exploitation or restrictions on personal rights.
  • They ensure that certain foundational principles of contract law, such as free consent, lawful object, and consideration, are upheld.

Key Points

Here are the provisions given:
Let's break down each option in relation to the sections they correspond to in the Indian Contract Act, 1872:
(C) What agreements are contracts: This is covered in the very beginning of the Act, starting from Section 10 which deals with what agreements are contracts. It lays down that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
(A) Who are competent to contract: This is detailed in Section 11 of the Act. It states that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.
(B) Effect of mistakes as to law: This is covered under Section 21 of the Act. It explains that a contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact.
(D) Agreement in restraint of marriage is void: This is mentioned in Section 26 of the Act. It declares that every agreement in restraint of the marriage of any person, other than a minor, is void.
Given the above explanations, the provisions in chronological order according to their section numbers in the Indian Contract Act, 1872, are:
1. (C) What agreements are contracts
2. (A) Who are competent to contract
3. (B) Effect of mistakes as to law
4. (D) Agreement in restraint of marriage is void
Therefore, the correct answer is option 3: (C), (A), (B), (D).
- Hence, Statement (C) is correct as it is the starting point of contract formation.
- Statement (A) is correct as it immediately follows, defining the competency of parties to a contract.
- Statement (B) is correct as it deals with the effect of mistakes on the legality of a contract.
- Statement (D) is correct as it specifies a particular type of agreement that is void, coming later in the Act.

The correct answer is 'Mohori Bibee v/s Dharmodas Ghose.'

Key Points

• Mohori Bibee v/s Dharmodas Ghose (1903):
  • This landmark case established the principle that "an agreement by a minor is void ab initio" (void from the beginning) under Indian law.
  • The case involved a minor, Dharmodas Ghose, who took a loan while he was still a minor and later denied repayment on the grounds of his minority status.
  • The Privy Council held that since a minor is not competent to contract under Section 11 of the Indian Contract Act, 1872, any agreement entered into by a minor is void and unenforceable.
  • This case continues to be a fundamental precedent in Indian contract law and ensures the protection of minors from exploitation in contractual arrangements.

Additional Information

• Other Options Explained:
  • Damodara Mudaliar v/s Secretary of State for India: This case dealt with issues related to property law and the rights of individuals against the state, not with contracts involving minors.
  • Dharmodas Ghose v/s Brahmo Dutt: This case is often confused with the Mohori Bibee case, but it does not involve the same legal principle or the Privy Council's decision regarding the void nature of agreements by minors.
  • Damodardass v/s R. Badrilal: This case is unrelated to the principle of minors' incapacity to contract and involves different legal issues.
• Importance of the Decision:
  • The ruling in Mohori Bibee v/s Dharmodas Ghose is a cornerstone of contract law in India, safeguarding minors from legal and financial exploitation.
  • It highlights the protective intent of Section 11 of the Indian Contract Act, 1872, ensuring that minors are not bound by legal agreements they cannot fully understand.

The correct answer is 'Damages in ordinary course, stipulation by way of penalty, and inconvenience of non-performance are consequences of breach of contract (A), (C), (D) only.'

Key Points

• Breach of Contract:
  • A breach of contract occurs when one party fails to fulfill their obligations as stipulated in the agreement.
  • Consequences of breach are primarily governed by the principles of contract law and aim to compensate the aggrieved party.
• Explanation of correct consequences:
  • (A) Damages in ordinary course: When a breach occurs, the injured party is entitled to compensation for losses that arise naturally in the usual course of events.
  • (C) If stipulation by way of penalty is given in contract, then penalty is a consequence: If the contract specifies a penalty for non-performance, the party in breach may be liable to pay this penalty as a consequence.
  • (D) In quantifying damages, the inconvenience of non-performance has to be considered: Courts may take into account the inconvenience and hardship caused to the non-breaching party while determining damages.

Additional Information

• Why other options are incorrect:
  • (B) Remote damages and ordinary damages: Remote damages are not typically recoverable under contract law. The law only allows compensation for losses that are foreseeable or naturally arising from the breach.
  • (D), (B), (C) only: This option incorrectly includes (B), which refers to remote damages, making it an incorrect choice.
• Important principles related to breach of contract:
  • Damages must be reasonable, and the injured party has a duty to mitigate their losses.
  • Liquidated damages (pre-agreed amounts in a contract) are enforceable if they are a genuine pre-estimate of loss but not if they constitute a penalty.

The correct answer is '(D), (A), (C), (B), (E)'

Key Points

• Void Agreements under the Indian Contract Act:
  • The Indian Contract Act, 1872, specifies certain agreements that are considered void from the outset. These agreements are unenforceable in a court of law because they either violate public policy or lack essential elements of a valid contract.
  • Chronological arrangement of the provisions in the Act is important to understand the legislative intent and logical flow of the law.
• Chronological Order of Provisions:
  • (D) Agreement without consideration: Section 25 of the Indian Contract Act states that an agreement made without consideration is void unless it falls under specific exceptions (e.g., made on account of natural love and affection, is a gift, or is a promise to compensate for a past voluntary service).
  • (A) Agreement in restraint of marriage: Section 26 declares that any agreement in restraint of marriage, except for minors, is void as it opposes public policy.
  • (C) Agreement in restraint of trade: Section 27 makes agreements that restrain a person's lawful trade, profession, or business void, with certain exceptions (e.g., partnership agreements or trade secrets).
  • (B) Agreement in restraint of legal proceedings: Section 28 states that agreements restricting a party's right to enforce their legal rights in ordinary courts or limiting the time to enforce such rights are void.
  • (E) Agreement which is ambiguous and uncertain: Section 29 provides that agreements with terms that are vague, ambiguous, or uncertain, making them incapable of being understood or enforced, are void.

Additional Information

• Why Other Options Are Incorrect:
  • Option 2 (C, A, B, E, D): This option places "Agreement in restraint of trade" first, which is incorrect as the Act addresses "Agreement without consideration" (Section 25) earlier than the other provisions.
  • Option 3 (B, A, D, C, E): "Agreement in restraint of legal proceedings" is placed first here, which does not align with the actual sequence in the Act.
  • Option 4 (A, C, E, D, B): "Agreement in restraint of marriage" is placed first, which is incorrect as "Agreement without consideration" precedes it in the Act.
• Purpose of Void Agreements:
  • Void agreements are designed to protect public policy, fairness, and contractual freedom while preventing exploitation or restrictions on personal rights.
  • They ensure that certain foundational principles of contract law, such as free consent, lawful object, and consideration, are upheld.

Key Points

To match List I with List II and explain each pointer comprehensively, let's break down the correct option (option 4) and provide explanations for each match:
(A) Section 162  (III) Termination of gratuitous bailment by death - Section 162 does directly relate to termination of gratuitous bailment by death. —A gratuitous bailment is terminated by the death either of the bailor or of the bailee.
(B) Section 178 (I) Pledge by Mercantile Agent - Section 178 of the Indian Contract Act, 1872, specifically deals with the pledge of goods by a mercantile agent. It outlines the conditions under which a mercantile agent can pledge goods and the rights conferred upon the pledgee in such transactions. 
(C) Section 214  (IV) Agent’s duty to communicate with principal - It is the duty of an agent, in cases of difficulty,
to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
(D) Section 150  (II) Bailor’s duty to disclose faults in goods bailed - Section 150 correctly addresses the bailor’s duty to disclose faults in the goods being bailed. It mandates that the bailor must make known to the bailee any faults in the goods bailed of which the bailor is aware, and which materially interfere with the use of them or expose the bailee to extraordinary risks.

The correct answer is option 4.

Key PointsCases where the doctrine of supervening impossibility applies:

• Difficulty of performance
  • This generally does not apply under supervening impossibility as it usually requires absolute impossibility. Hence statement A is incorrect.
• Commercial impossibility
  • Commercial difficulties or losses are typically not enough to invoke supervening impossibility. Hence statement B is incorrect.
• Strikes and Lock-outs
  • These are usually considered as foreseeable events and do not typically fall under supervening impossibility. Hence statement C is incorrect.
• Outbreak of war
  • An outbreak of war can render the performance of a contract impossible due to legal or physical reasons, and it is recognized under supervening impossibility. Hence statement D is correct.
• Destruction of Subject-matter
  • If the subject matter of a contract is destroyed without any fault of the parties, it can invoke the doctrine of supervening impossibility. Hence statement E is correct.

Additional Information

• Supervening Impossibility
  • This legal doctrine applies when an unforeseen event occurs after the formation of a contract, making performance impossible.
  • It is also known as 'frustration of contract' in some jurisdictions.

Key Points

Correct Answer: 2. Both A and R are true, but R is not the correct explanation of A.

Explanation: The assertion that a contract entered into by a person under the influence of alcohol can be ratified upon sobering up is true. The Indian Contract Act, 1872, provides that a contract is voidable if one of the parties was incapable of understanding the nature and consequences of the agreement at the time of its formation due to intoxication. Upon regaining capacity, the intoxicated person has the option to ratify (confirm) the contract. The reason, while true regarding the general principle on capacity to contract, does not directly explain the specific process of ratification of contracts entered under the influence of alcohol but rather speaks to the broader requirement of capacity for entering into contracts.

The correct answer is  An offer made jestingly

Key PointsExplanation: Under the Indian Contract Act, 1872, a valid offer must be made with the intention to create legal relations. An offer made in jest or without a sincere intention to be bound is not considered a valid offer since it lacks the serious intent necessary for forming a legally binding contract. Offers made to the general public, conditional offers, and those made through agents can all be considered valid, provided they meet the other essentials of a valid contract.

Key Points

Correct Answer: Three parties and three contracts
Explanation: In a contract of Guarantee under the Indian Contract Act, 1872, there are indeed three parties involved: the principal debtor, the creditor, and the surety or guarantor. This arrangement essentially constitutes three contracts:
1. The principal contract between the principal debtor and the creditor.
2. The contract of guarantee between the surety and the creditor, where the surety guarantees the performance of the principal debtor's obligations.
3. An implied contract between the surety and the principal debtor, where the surety can seek indemnification from the principal debtor if the surety has to fulfill the obligations on behalf of the debtor.

The correct answer is Option 3.

Key Points

Matching Cases with Related Legal Principles

• Various landmark cases in legal history have established important principles in contract law, including undue influence, coercion, agreements in restraint of trade, and mistake. Here, we match the cases with their related legal principles.

1. Ranganayakamma vs. Alwar Setti:

   • Related to: Coercion (II)
   • Explanation:
     • This case deals with the concept of coercion under the Indian Contract Act. It involved the forced consent of a widow to adopt a boy under the threat of not performing her husband's last rites.

2. Mannu Singh vs. Umadat Pande:

   • Related to: Undue Influence (I)
   • Explanation:
     • This case involves the concept of undue influence, where a spiritual guru exploited his influence over a devotee to gain monetary benefits.

3. Nordenfelt Case:

   • Related to: Agreement in Restraint of Trade (III)
   • Explanation:
     • This case, formally known as Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., established the principle regarding agreements in restraint of trade. The court held that certain restraints can be valid if they are reasonable in the interests of the contracting parties and the public.

4. Raffles vs. Wichelhaus:

   • Related to: Mistake (IV)
   • Explanation:
     • This case, commonly known as the "Peerless" case, involves a mutual mistake in the identity of the subject matter in a contract, where each party referred to a different ship named "Peerless."

Conclusion:

• The correct matches are:
  • A. Ranganayakamma vs. Alwar Setti - II. Coercion
  • B. Mannu Singh vs. Umadat Pande - I. Undue influence
  • C. Nordenfelt Case - III. Agreement in restraint of trade
  • D. Raffles vs. Wichelhaus - IV. Mistake

Therefore, the correct answer is Option 3: A - II, B - I, C - III, D - IV.

Key Points

Explanation: The assertion that the performance of an existing legal duty cannot be regarded as valid consideration for a new contract is accurate because, under the Indian Contract Act, 1872, consideration involves a promise to do something over and above what one is already legally bound to do. The reason directly supports and explains this concept by stating that consideration must be something beyond the promisor's existing legal obligations. This principle prevents parties from creating binding obligations by simply agreeing to do what they are already legally required to do. 

Key Points

Correct Answer: 1. Both A and R are true, and R is the correct explanation of A.

Explanation: The assertion correctly states that a contract is void if its consideration or object is illegal, which is in accordance with the provisions of the Indian Contract Act, 1872. The reason provided is directly related to and explains why the assertion is true: the Act explicitly renders contracts with illegal consideration or objects as void since they are against the law, immoral, or opposed to public policy. This relationship between the assertion and the reason validates option A.

The Correct Answer is  Option 4.Key Points Explanation: The Indian Contract Act, 1872, imposes the obligation to perform the contract primarily on the promisor. However, upon the promisor's death, the responsibility may pass to his legal representatives or successors, provided the contract involves a personal skill or ability, in which case the obligation may extinguish with the promisor. Third parties not originally involved in the contract generally do not have obligations under the contract unless the contract specifically creates rights or imposes obligations on them.

The correct answer is 'may be a stipulation by way of penalty'

Key Points

• Stipulation for increased interest from the date of default:
  • A stipulation for increased interest from the date of default is a contractual clause that requires the defaulting party to pay a higher rate of interest if they fail to fulfill their obligations on time.
  • This can be seen as a measure to encourage timely payments and compensate the non-defaulting party for potential losses due to the default.
  • However, whether this stipulation is considered a penalty depends on the context and jurisdiction.

Additional Information

• Option 1: A stipulation by way of penalty:
  • This option is incorrect because not all stipulations for increased interest are automatically considered penalties. It depends on the intent and impact of the clause.
• Option 2: Not a stipulation by way of penalty:
  • This option is incorrect as well, since some stipulations for increased interest can indeed be seen as penalties, especially if they are punitive in nature.
• Option 4: May not be a stipulation by way of penalty:
  • While this option might seem correct, it is incomplete. The stipulation may or may not be a penalty based on the context, making Option 3 more accurate.