CMA FOUNDATION LAW BOOK

INDEX

Chap. Chap. Name Page

No. No.

INTRODUCTION 1 – 18
1
MCQ 18 – 35

INDIAN CONTRACT ACT, 1872 36 – 75

2
MCQ & EXTRA QUESTIONS 76 – 153

SALE OF GOODS ACT, 1930 154 – 171

3
MCQ & EXTRA QUESTIONS 172 – 196

NEGOTIABLE INSTRUMENTS ACT, 1881 197 – 212

4
MCQ & EXTRA QUESTIONS 213 - 223
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CHAPTER - 1
Introduction
Law, in the simplest of terms -
“Law is a set of rules…” (for the society) – Concept of Law by H.L.A. Hart.

SOURCES OF LAW
The founding stone of source of law in modern India, post-Independence, is the Constitution of
India which provides us the basic principles of law. However, there are various other sources of
law, which has been developed with respect to customs, personal beliefs, pre-existing statutes,
ordinances, regulations and judicial pronouncements.

Sources of law in India can be broadly classified as the below mentioned:

1) All statutes (preceding and proceeding the adoption of the Constitution of India, 1950),
2) Case Laws (judicial precedents) and customary law (personal laws)
3) Ordinances, regulations and other mandates that effects.

STATUTES

The statutes are enacted by the Parliament and State Legislatures according to their domain,
mentioned in the 7th Schedule of the Constitution of India (the Union List, The State List and the
Concurrent List).
There are laws known as delegated legislation in the form of rules, and regulations, as well as
bye-laws made by Central Government, State Governments and local authorities under the
authority conferred or delegated by Parliament or the concerned State Legislature.
Laws made by Parliament may extend throughout, or in any part of the territory of India and
those by State Legislatures may generally apply only within the territory of the State concerned.
This is also inclusive of all the statutes which have already been enacted before the adoption of
the Constitution of India, 1950 unless repealed in part or in whole.

JUDICIAL PRECEDENTS

All laws go through rigorous scrutiny under the public eye, once it comes into effect. The
concerned
entities therefore, challenge laws, regulations before the court of law accordingly. The
Constitution of India, 1950 therefore provides for provision under Article 141 for the same, which
illustrates - Law declared by Supreme Court to be binding on all courts.— The law declared by the
Supreme Court shall be binding on all courts within the territory of India.
Although, the Supreme Court of India or the High Courts of the respective states do not legislate,
they have time and again provided with the correct interpretations for our understanding, and
thereby acted as a source of law.

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PERSONAL LAWS

Personal Laws are mostly based on individual faith, hence mostly guided by customs and practice.
Example – Hindu Marriage Act, 1955, The Indian Christian Marriage Act,1872, The Kazis Act, 1880,
etc.

ORDINANCE/REGULATIONS

Article 13(3) of the Constitution mentions law includes any Ordinance, order, bye-law, rule,
regulation, notification, custom or usage having in the territory of India the force of law;

In times of exigencies the President of India has the power, under Article 123 to promulgate
Ordinances during recess of Parliament. Similar powers have been provided to the Governor of a
State, under Article 213 of the Constitution of India, in territorial limit of the concerned state.
The authorities (Panchayati Raj), notified under Article 243 of the Constitution of India, have the
power delegated, to frame the required regulations for governance as local rural administration
along with various institutions/organisations empowered to legislate rules/regulations.

SOURCES OF LAW AND LEGAL SYSTEM IN INDIA BEFORE INDEPENDENCE – BRIEF HISTORY

The study of Indian legal history can primarily be divided into four periods:

1) The Ancient Period

2) The Medieval Period
3) The British Administrative Period
4) Indian Legal Period

1. The Ancient Period of law and governance can be found in and around the geographical
boundaries of modern-day India, 1500 years before and after the beginning of approximately
the first decade of the Gregorian calendar.
This era is mostly ruled and governed by kings having their own territories, and having laws
and regulations that were very localized and specific to their geographical boundaries. So,
with every passing territory, the set of laws differed.
There were some underlying texts that have had their universal presence, i.e. Vedas,
Smritis (Manu-Smriti being one of the most popular texts to have been in circulation),
Upanishads and Arthashastra in the post Mauryan Empire era.
One of the salient features of the ancient Indian law was that it was based on the principle
of “dharma”, basing righteousness and duty as its guiding principle, which was a
conglomeration of both legal and religious duties.

Ancient Indian Courts can be divided into six categories based on their rank.
The jurisdiction of each was determined by the importance of the dispute, the minor disputes
being decided by the lowest court and the most important by the king. The decision of each
higher Court superseded that of the court below.

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They are as follows:

➢ The Kula - Family Councils or groups
➢ The Shreni - Trade or Professional Councils
➢ The Gana - Village Assembly
➢ Adhikrita - Court appointed by the King
➢ Sasita - King’s Court
➢ Nripa - The King

But, as foreign invasions began to rise in numbers along-with the magnitude of these attacks,
it became inevitable that the Indian sub-continent continue in the model of governance, that
it had for centuries. Along with it, came changes to administration and subsequently to the
legal system concerned.

2. The Medieval Period begins around the 12th century majorly influenced by foreign invasions
and the idea of justice and laws they imported along-with themselves (overlapping with
other legal systems under rulers of different faith).
Various Invasions & Kings in India Included:
Mohammed Ghori (defeated Prithviraj Chauhan at the Second Battle of Tarain in 1192 AD)
Qutubuddin Aibak (became the first Sultan of Delhi, belonging to the slave dynasty)
The medieval period in India had major influence from Delhi Sultanate ruled by Slave
Dynasty to Lodhi Dynasty (1206-1526)
Zahiruddin Babur (defeated Ibrahim Lodhi)
Rule of the Mughal Empire effectively up to A.D. 1707 and then after the death of Bahadur
Shah Zafar, the Mughal rule and influence in India practically came to an end.

During the Sultanate period, there were several courts of Justice, related to different
branches of law. For example- Diwan-i-Mazlim deals with disputes concerning with
administration or bureaucracy.

During the Mughal period courts were categorized according to the subject and
requirement in contention.
➢ the central administration of justice was done by the central judicial system.
➢ The chief judicial functionary of the state was the Qazi-ul-Quzat who was appointed by
the emperor to hear appeals and supervise the provincial courts.
➢ He was to be assisted by Mufti and Mir Adil
➢ the former was given the duty to expound (present & explain) the law on which the
Qazi would deliver the verdict, whereas the latter was associated with the functions of
bringing the parties to the court and enforcing the decrees.
➢ Similarly, there was a Chief Qadi of the provincial court that dealt with all the cases
which were of civil and criminal nature and served as the highest forum of appeal
within the province.
➢ In the capital, the military had its own judge, Qadi-e-Askar, who moved from place to

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place with the troops and whose office corresponds to the present-day Court Martial.

With the decline of the of the Mughal Empire, prominence of the European Powers rose in
the sub-continent, and the introduction of modern legal system took place.

3. The British Administrative Period lasted for approximately around 200 years. The
Portuguese, the British, the Danes, the Dutch, and the French also reached India. All of these
nations came to India for trade, but, out of them, the English people succeeded to establish
their presence in India.
The East India Company enjoyed more than trade rights, if one is to see the complete picture,
and what followed in the aftermath of its arrival in India.
The Charter of Elizabeth, 1600 empowered them legislative right, although limited, it led to
the establishment of a new judicial system in India.
But over time, new charters were executed along with several new powers being granted.
The East India Company turned from the perspective of an entity interested in revenue, to
one that was invested in administrative and political influence over the region, which was
strengthened during the Battle of Plassey in 1757, and the subsequent grant of Dewani rights
(1765) in Bengal.
However, in this process of acquiring territories after territories, the need for resolution of
disputes, also arose, and it’s out of this necessity the introduction of British legal system, as
suited for the Britishers, was implemented in territories under British occupancy.

They made various reforms some of which are prevalent till date:
a) Establishment of Mayor’s Court – 1726
b) Warren Hastings with his Judicial Plan of 1772 which is known as The Adalat System now.
c) Establishment of High Courts - The Indian High Courts Act, 1861 which suggested the
establishment of High Courts in place of Supreme Court in three Presidencies: Calcutta,
Madras, and Bombay.
d) The Government of India Act, 1935 (along with the introduction of the Federal Court in 1937)

Along-with the above-mentioned introductions, the British have introduced law as a codified
subject. In this course of time, they have also provided us with The Indian Penal Code, 1860,
the Indian Contract Act, 1872 (which was further divided into The Sale of Goods Act, 1930 &
The Indian Partnership Act, 1932) , the Indian Evidence Act, 1872, etc.

4. Indian Legal Period (1950 – Present Day) – The Indian (post Independence) legal history,
begins with the Abolition of Privy Council Jurisdiction Act, 1949 (earlier Privy Council seated
in England acted as the Highest Court of Appeal, since 1726). This Act accordingly abolished
the jurisdiction of Privy Council to entertain new appeals and petitions as well as to dispose
of any pending appeals and petitions. It also provided for transfer of all cases filed.

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The Drafting Committee for the Constitution was formed and appointed Mr. B.R. Ambedkar
as its Chairman on 29th August 1947. On 26 November 1949, the Constitution of India was
passed and adopted by the Constituent Assembly (celebrated as Law Day). On 26th January
1950, the Constitution of India was adopted.
With this, the Supreme Court of India was established on 26th January 1950, under Article
124 (1) of the Constitution of India, with a strength of 8 (1 + 7) judges. Currently it has a
strength of 34 judges (33 judges of the Supreme Court of India and 1 Chief Justice of India).

LEGISLATIVE PROCESS IN INDIA

The legislative process in India derives its authority from the Constitution of India. The structure
of the Indian polity is that of federal (two tier structure - Central and State Government) nature
(decided in S.R. Bommai vs Union of India, SC). However, India is a federation with a unitary bias
and is referred as a quasi-federal state because of its strong central machinery.
The Indian legislative process has two major law making bodies, The Parliament of India and the
State Legislature.
Article 79 of the Constitution states that The Parliament for the Union which shall consist of the
President and two Houses to be known respectively as the Council of States (Rajya Sabha) and
the House of the People (Lok Sabha).
Article 168 of The Constitution states that for every State there shall be a Legislature which shall
consist of the Governor and one House (Legislative Assembly). In some states, there are two
houses, Article 168 (2) of the Constitution of India, where there are two Houses of the Legislature
of a State:
1) Legislative Council and
2) Legislative Assembly.
The legislative bodies in India, i.e. the Parliament and State Legislative Assembly derive its power
to frame laws from Article 245 of the Constitution of India.

POWER TO LEGISLATE

Article 245, states that subject to the provisions of Constitution, Parliament may make laws for
the whole or any part of the territory of India, and the Legislature of a State may make laws for
the whole or any part of the State.
The power to make laws can further be found in Article 246 of the Indian Constitution which is to
be read with the Schedule 7 of the Indian Constitution.
The Parliament has exclusive power to make laws with respect to any of the matters enumerated
in List I. (Seventh Schedule-Union List).
The Legislature of any State has exclusive power to make laws for such State or any part thereof
with respect to any of the matters enumerated in List II (Seventh Schedule-State List).
The Parliament and the Legislature of any State have power to make laws with respect to any of
the matters enumerated in List III. (Seventh Schedule-Concurrent List).

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INCONSISTENCY BETWEEN LAWS MADE BY PARLIAMENT AND LAWS MADE BY THE

LEGISLATURES OF STATES

If any provision of a law made by the Legislature of a State is repugnant to any provision of a
law made by Parliament which Parliament is competent to enact, or to any provision of an
existing law with respect to one of the matters enumerated in the Concurrent List, Law made by
Parliament, whether passed before or after the law made by the Legislature of such State, or, as
the case may be, the existing law, shall prevail
Where a law made by the Legislature of a State with respect to one of the matters enumerated
in the Concurrent List contains any provision repugnant to the provisions of an earlier law made
by Parliament if it has been reserved for the consideration of the President and has received his
assent, prevail in that State.

INTRODUCTION OF BILL

In order to formulate a law, all legislative proposals have to be brought in the form of bills. The
process of law making begins with the introduction of a Bill in either House of Parliament. A bill
can be introduced either by a Minister (Government Bill) or a member other than a Minister
(Private Member’s Bill.

Article 107 introduction and passing of Bills

Subject to the provisions of Articles 109 and 117 with respect to Money Bills and other financial
Bills, a Bill may originate in either House of Parliament. (A money bill is not introduced in the
Council of States/Rajya Sabha – Article 109).
A bill undergoes readings in each House before it is submitted to the President for assent.
Therefore, as every bill goes through several rounds of debates and scrutiny the time frame for
the same too is long, sometimes months.

POWER OF THE PRESIDENT TO PROMULGATE ORDINANCES

Many times, there are certain exigencies where the time and/or the circumstances do not permit
for a law to be passed through the normal procedure. If at any time, except when both Houses
of Parliament are in session, the President is satisfied that circumstances exist which render it
necessary for him to take immediate action, he may promulgate such Ordinances as the
circumstances require. (The tenure of an ordinance can vary from six weeks to six months,
depending upon the circumstance)
Similar powers have been provided to the Governor of a State, under Article 213, in territorial
limit of the concerned state.

Article 368 states that notwithstanding anything in this Constitution, Parliament may in exercise
of its constituent power amend by way of addition, variation or repeal any provision of this
Constitution in accordance with the procedure laid down in this article.

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However, with all these powers conferred there remains a risk of introduction/deletion of
certain laws, which are in contravention of the rights that are fundamental to human survival
with a dignified life and enhancement of the same. The Supreme Court of India, in Keshavananda
Bharati vs State of Kerala, mentioned any amendment which is in contravention of the
Fundamental Rights of an individual, will be unconstitutional.
However, despite all such checks and balances, powers are transgressed, and disputes arise. In
order to seek the correct understanding and validity of the law/bye law concerned, we approach
the Court to address the merit in the situation, and decide accordingly.

LEGAL METHODS AND COURT SYSTEM IN INDIA

The judiciary has been established under the Constitution as an institution of last resort, for
common public, as well as all legal entities under law, inclusive of the State Governments and the
Government of India. The Supreme Court of India is the apex institution, in its hierarchy,
followed by the High Courts in respective States, followed by the Sub-Ordinate Courts.

HIERARCHY OF COURTS IN INDIA

The Constitution has provided us with a single integrated judicial system with a pyramidal
structure which consists of different types of courts each having varying powers depending on
their tier and jurisdiction.

SUPREME COURT

Supreme Court is the apex court under the Indian Judicial system (governed under Chapter IV of
Part V- Art 124-147) comprising of the Chief Justice and other Judges appointed by the
President. It was established on 26th January 1950 with a strength of 8 (1 + 7) judges. Currently
it has a strength of 34 judges (33 judges of the Supreme Court of India and 1 Chief Justice of
India).
The Constitution bestows the following powers to the Supreme Court:

a. Original Jurisdiction - Art 131 provides for the original jurisdiction whereby the Court can
decide disputes between the Government of India and one or more states, between two
or more states, between Government of India and State (s) on one side and State(s) on
the other side.

b. Writ Jurisdiction - Any person has the right to approach the Court against violation of his
fundamental rights, as expressly provided under Article 32 which guarantees constitutional
remedies in the form of writs.

c. Appellate Jurisdiction - Being the highest court of appeal, the Supreme Court has power to
hear all appeals against any order of the High Court.

d. Advisory Jurisdiction - The Supreme Court can advise the President on any question of
public importance.

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e. Punishment for Contempt - Under Article 129 The Supreme Court of India and the High
Court of each state under Article 215 are declared as a Court of record with the power to
punish for contempt of itself.

f. Review Jurisdiction - The Court under Art 137 can review its own orders or judgments.

HIGH COURT

High Courts are the second highest courts in the hierarchy dealt in Chapter V of Part VI of the
Constitution. The Constitution bestows the following powers to the High Court:

a. Original Jurisdiction - The Court has original jurisdiction and can decide disputes related
to enforcement of fundamental rights, settlement of disputes relating to election to the
Union and State Legislatures and jurisdiction over revenue matters.

b. Writ Jurisdiction - Any person has the right to approach the Court against violation of his
fundamental rights as well as legal rights under Article 226. Thus, it has a wider scope
than that with the Supreme Court.

c. Appellate Jurisdiction - An appeal against orders of subordinate courts in both civil and
criminal matters lies with the High Court.

d. Power of superintendence - Article 227 of Constitution empowers all High Courts to

practice superintendence over all the courts or tribunals within its territorial
jurisdiction. Moreover, under Article 228, the High Court can transfer any case pending
before a subordinate court to itself if it involves a substantial question of law.

e. Punishment for Contempt - Like the Supreme Court, the High Court is also declared as a
Court of record with the power to punish for contempt of itself.

LOWER/SUBORDINATE COURTS

Chapter VI of Part VI of the Indian Constitution incorporates provisions related to the subordinate
courts. These courts are established and controlled by the High Court. The Lower/Subordinate
court structure can be divided into the following two branches of the legal system-

CRIMINAL COURT STRUCTURE

Section 6 of the Criminal Procedure Code, 1973 prescribes for the constitution of following four
classes of criminal courts:
a) Court of Session –
- Every State has session divisions
- each of them having a Court of Sessions
- presided over by the Sessions Judge
- appointed by the High Court.

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- Power to try any criminal matter and pass any punishment authorized by law
- Punishment of death penalty has to be confirmed by the High Court.

b) Court of Metropolitan Magistrate

- A special court established by the State Government in consultation with the High
Court in metropolitan areas (areas with population of more than a million).
- These Courts are subordinate to the Sessions Court.
- Chief Metropolitan Magistrate can pass any punishment authorized by law, except
death penalty, penalty of life imprisonment or imprisonment for a term of more than
seven years.

c) Court of Chief Judicial Magistrate

- The State Government in consultation with the High Court establishes number of
Courts of the Judicial Magistrate.
- Judicial Magistrate of First Class (JMFC) and second class headed by the Chief Judicial
Magistrate (CJM).
- These Courts can pass any punishment authorized by law, except death penalty,
penalty of life imprisonment or imprisonment for a term of more than seven years.

d) Executive Magistrates
- The functions and powers of an Executive Magistrate are more or less administrative
in nature and are for maintaining law and order.
- They are appointed by the respective State Government. Their essential job is not as
a judicial officer.

CIVIL COURT STRUCTURE

- The district court is the highest civil court in a district.

- It has judicial as well as administrative powers including the power of
superintendence with both appellate and original jurisdiction.
- the appointment of district judges shall be done by the Governor in consultation with
the High Court in every district or more than one district.
- Following courts are subordinate to the district courts which have jurisdiction based
on subject matter, pecuniary or territorial jurisdictions
a. Sub-Judge
b. Additional Sub-Judge
c. Munsiff Courts

Judiciary not only acts as a watchdog of democracy but also as the guardian of the Constitution.
The Indian judiciary being independent and impartial is ideal for a big country like India to ensure
proper administration of justice at all levels starting from the grass root.

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THE TRIBUNAL SYSTEM IN INDIA

- Tribunals are institutions established for discharging judicial or quasi-judicial duties.

- The objective is to reduce case load of the judiciary or to bring in subject expertise for
technical matters.
- The Supreme Court has ruled that tribunals, being quasi-judicial bodies, should have the
same level of independence from the executive as the judiciary.
- The Supreme Court has also recommended that all administrative matters be managed by
the law ministry rather than the ministry associated with the subject area and creation of an
independent National Tribunals Commission for the administration of tribunals.
- Currently, tribunals have been created both as substitutes for High Courts and as subordinate
to High Courts.
- In the former case, appeals from the decisions of Tribunals lie directly with the Supreme
Court. In the latter case appeals are heard by the corresponding High Court.

COMPOSITION OF TRIBUNALS

- The members of a tribunal may be selected from departments of the central government as
well as from various other fields of expertise.
- The presence of expert members (technical members) along with judicial members is a key
feature of tribunals which distinguishes them from traditional courts.
- Only persons with a judicial background (such as Judges of the High Court and lawyers eligible
for appointment as High Court Judges) may be considered for appointment as Judicial
Members.

APPELLATE COURTS FOR SOME TRIBUNALS IN INDIA

Name of Tribunal Act establishing the Tribunal Appellate Court

Industrial Tribunal The Industrial Disputes Act, 1947 High Court
Income-Tax Appellate Tribunal The Income-tax Act, 1961 High Court
Customs, Excise and Service Tax A.T. The Customs Act, 1962 High Court
Central Administrative Tribunal The Administrative Tribunal Act, 1985 Supreme Court
Railway Claims Tribunal The Railway Claims Tribunal Act, 1987 High Court
Securities Appellate Tribunal The SEBI Act, 1992 Supreme Court
Telecom Disputes Settlement and
Appellate Tribunal The TRAI Act, 1997 Supreme Court
National Company Law A. T. The Companies Act, 2013 Supreme Court
Armed Forces Tribunal The Armed Forces Tribunal Act, 2007 Supreme Court
National Green Tribunal The National Green Tribunal Act, 2010 Supreme Court

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ALTERNATE DISPUTE RESOLUTION (ADR)

The process by which disputes between the parties are settled or brought to a result without the
intervention of Judicial Institution and without any trial is known as Alternative Dispute
Resolution. Generally, ADR uses neutral third party who helps the parties to communicate,
discuss the differences and resolve the dispute.

MODES OF ALTERNATE DISPUTE RESOLUTION (ADR)

ARBITRATION

The dispute is submitted to an arbitral tribunal which makes a decision (an “award”) on the
dispute that is mostly binding on the parties. Except for some interim measures, there is very
little scope for judicial intervention in the arbitration process.

CONCILIATION

A non-binding procedure in which an impartial third party, the conciliator, assists the parties to a
dispute in reaching a mutually satisfactory agreed settlement of the dispute.
The parties are free to accept or reject the recommendations of the conciliator. However, if both
parties accept the settlement document drawn by the conciliator, it shall be final and binding on
both.

MEDIATION

In mediation, an impartial person called a “Mediator” helps the parties try to reach a mutually
acceptable resolution of the dispute.
The mediator does not decide the dispute but helps the parties communicate so they can try to
settle the dispute themselves. Mediation leaves control of the outcome with the parties. This is
more or less an informal way of arriving at a settlement/arrangement.

LOK ADALAT

The Legal Services Authorities Act was passed in 1987 to encourage out-of-court settlements.
Lok Adalat or “People’s Court” comprises of a forum which facilitates negotiations in the presence
of a judicial officer. The order of the Lok-Adalat is final and shall be deemed to be a decree of a
civil court and shall be binding on the parties to the dispute. The order of the Lok-Adalat is not
appealable in a court of law.

IMPORTANT PROVISIONS RELATED TO ADR

Section 89 of the Civil Procedure Code, 1908 provides that, if it appears to court that there exists
elements of settlement outside the court then court formulate the terms of the possible
settlement and refer the same for: Arbitration, Conciliation, Mediation or Lok Adalat.
The Acts which deal with Alternative Dispute Resolution are

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i. Arbitration and Conciliation Act, 1996 and,

ii. The Legal Services Authority Act, 1987

Since courts in India are already burdened by a huge backlog of cases, many statutory provisions
make mediation a compulsory prerequisite to filing of a suit in court. Various acts providing
for the same are:
- Industrial Disputes Act, 1947 – assigns conciliators the responsibility to mediate and settle
industrial disputes and prescribes the procedure to be followed in great detail.
- Code of Civil Procedure, 1908 –prescribes mediation for all family and personal matters due
to their sensitive nature.
- Companies Act, 2013 –provides for the referral of disputes to mediation by the National
Company Law Tribunal and the Appellate Tribunal.
- Micro, Small and Medium Enterprises Development Act, 2006
- Real Estate (Regulation and Development) Act, 2016
- Commercial Courts Act, 2015
- Consumer Protection Act, 2019

ADVANTAGES OF ALTERNATIVE DISPUTE RESOLUTION

1. Less Time Consuming: It is often faster than litigation in Court

2. Cost effective method: ADR as a process in general is less expensive than litigation process.
3. ADR proceeding and awards are generally non-public, and can be made confidential.
4. If the subject matter of the dispute is highly technical, arbitrators with an appropriate
degree of expertise can be appointed as one cannot choose judge in litigation.

REGULATORY BODIES IN INDIA

Regulatory bodies are the part and parcel of governance in their respective sectors, a watchdog
and also a guardian in case of any irregularity. Listed below, are few of the important regulatory
bodies affecting our day to day life:

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

- The Securities and Exchange Board of India (SEBI) is established under the SEBI act of 1992,
- To prevent malpractices in the capital markets.
- Its primary objective is to protect the interest of the investors, prevent malpractices, and
ensuring the proper and fair functioning of the markets.

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FUNCTIONS OF SEBI

(i) Protective functions: To protect the interests of the investors and other market
participants. It includes – preventing insider trading, spreading investor education and
awareness, checking for price rigging, etc.
(ii) Regulatory functions: These are performed to ensure the proper functioning of various
activities in the markets. It includes – formulating and implementing code of conduct and
guidelines for all types of market participants, conducting an audit of the exchanges,
registration of intermediaries like brokers, investment bankers, levying fees, and fines
against misconduct.
(iii) Development functions: These are performed to promote the growth and development of
the capital markets. It includes – Imparting training to various intermediaries, conducting
research, promoting self-regulation of organizations, facilitating innovation, etc.

POWERS OF SEBI

a) To make/change laws relating to the functioning of the stock exchange

b) To access records and financial statements of the exchanges
c) To conduct hearing and give judgments on cases of malpractices in the markets.
d) To approve the listing and force delisting of companies from any exchanges.
e) To take disciplinary actions like fines and penalties.
f) To regulate various intermediaries like brokers.

RESERVE BANK OF INDIA (RBI)

- The Reserve Bank of India (RBI) is India’s central bank.

- It was established under the Reserve Bank of India act in 1935.
- The primary purpose of RBI is to conduct the monetary policy and regulate and supervise the
financial sector, most importantly the commercial banks and the non-banking financial
companies.
- It is responsible to maintain price stability and the flow of credit to different sectors of the
economy.

FUNCTIONS OF RBI

a) It issues the license for opening banks and authorizes bank branches.
b) It formulates, implements, and reviews the prudential norms like the Basel framework.

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c) It maintains and regulates the reserves of the banking sector by stipulating reserve ratios.
d) It inspects the financial accounts of the banks and keeps a track of the overall stress in the
banking sector.
e) It oversees the liquidation, amalgamation or reconstruction of financial companies.
f) It regulates the payment and settlement systems and infrastructure.
g) It prints, issues and circulates the currency throughout the country.

The RBI is the banker to the government and manages its debt issuances, and is also
responsible to maintain orderly conditions in the government securities markets (G-Sec). RBI
manages the foreign exchange under the Foreign Exchange Management Act, 1999.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (IRDAI)

- The Insurance Regulatory and Development Authority of India was set up under the IRDA
Act, 1999.
- To protect the interests of the insurance policyholders and to develop and regulates the
insurance industry.
- It issues advisories to insurance companies regarding the changes in rules and regulations.
- It promotes the insurance industry & also controls the various charges and rates related to
insurance.

THREE MAIN OBJECTIVES OF IRDA

(i) To ensure fair treatment and protect the interests of the policyholder.
(ii) To regulate the insurance companies and ensure the industry’s financial soundness.
(iii) To formulate standards and regulations so that there is no ambiguity.

IMPORTANT FUNCTIONS OF IRDA

a) Granting, renewing, cancelling or modifying the registration of insurance companies.

b) Levying charges and fees as per the IRDA act.
c) Conducting investigation, inspection, audit, etc. of insurance companies and other
organizations in the insurance industry.
d) Specifying the code of conduct and providing qualifications and training to intermediaries,
insurance agents etc.
e) Regulating and controlling the insurance premium rates, terms and conditions and other
benefits offered by insurers.
f) Provides a grievance redressal forum and protect the interests of the policyholder.

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PENSION FUNDS REGULATORY AND DEVELOPMENT AUTHORITY (PFRDA)

- The Pension Fund Regulatory and Development Authority was established under the PFRDA
act, 2013.
- It is the sole regulator of the pension industry in India.
- Initially, PFRDA covered only employees in the government sector but later, its services were
extended to all citizens of India including NRI’s.
- Its major objectives are – to provide income security to the old aged by regulating and
developing pension funds and to protect the interest of subscribers to pension schemes.
- The National Pension System (NPS) of the government is managed by the PFRDA.
- It is also responsible for regulating custodians and trustee banks.
- The Central Record Keeping Agency (CRA’s) of the PFRDA performs record keeping,
accounting and provides administration and customer services to subscribers of the pension
fund.

FUNCTIONS OF PFRDA

(i) Conducting enquiries and investigations of intermediaries and other participants.

(ii) Increasing public awareness and training intermediaries about retirement savings, pension
schemes.
(iii) Settlements of disputes between intermediaries and subscribers of pension funds.
(iv) Registering and regulating intermediaries.
(v) Protecting the interest of pension fund users.
(vi) Stipulating guidelines for investment of pension funds.
(vii) Formulating code of conduct, standards of practice, terms and norms for the pension
industry.

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

- The Association of Mutual Funds in India (AMFI) was set up in 1995.

- It is a non-profit organization that is works for the development of mutual fund industry.
- Aiming to make the mutual funds more accessible and transparent to the public.
- It provides vital information and spreads awareness about mutual funds to Indian investors.
- It is a division of the Securities and Exchange Board of India.

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- Most mutual funds firms, asset management companies, brokers, fund houses,
intermediaries etc in India are members of the AMFI.
- AMFI ensures smooth functioning of the mutual fund industry by implementing high ethical
standard and code of ethics including integrity, due diligence, disclosures, professional
selling and investment practice.
- It protects the interests of both – the fund houses and investors.
- The AMFI updates the Net Asset Value of funds on a daily basis for investors and potential
investors.
- It has also streamlined the process of searching mutual fund distributors.

MINISTRY OF CORPORATE AFFAIRS (MCA)

- The Ministry of Corporate Affairs (MCA) regulates the corporate sector

- It is primarily concerned with the administration of the Companies Act, 2013 and other
legislations.
- It frames the rules and regulations to ensure functioning of the corporate sector according
to the law.
- The objective of MCA is to protect the interest of all stakeholders, maintain a competitive
and fair environment and facilitate the growth and development of companies.
- The Registrar of Companies (MCA), is a body under the MCA that has the authority to
register companies and ensure their functioning as per the provisions of the law.
- The issuance of securities by the companies also comes under the purview of the Companies
Act.

NATIONAL HOUSING BANK (NHB)

- National Housing Bank, is the apex regulatory body for overall regulation and licensing of
housing finance companies in India.
- It is under the jurisdiction of Ministry of Finance.
- It was set up on 9 July 1988 under the National Housing Bank Act, 1987.
- The primary function of NHB is to “operate as a principal agency to promote housing finance
institutions both at local and regional levels and to provide financial and other support to
such institutions and for matters connected therewith or incidental thereto”.

PRIMARY AND SUBORDINATE LEGISLATION

Primary Legislation is the law that derives its source from the enactments passed by the
Parliament or the State

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Legislatures, the bodies empowered by the Constitution by its provisions. In addition to these the
President and the Governor have limited powers to issue ordinances when the Parliament or the
State Legislature are not in session.

Secondary Legislation/Sub-Ordinate Legislation

Subordinate legislation is the legislation made by an authority subordinate to the legislature.
Subordinate legislation is that which proceeds from any authority other than the sovereign power
and is, therefore, dependent for its continued existence and validity on some superior or supreme
authority. Most of the enactments provide for the powers for making rules, regulations, bye-laws
or other statutory instruments which are exercised by the specified subordinate authorities. Such
legislation is to be made within the framework of the powers so delegated by the legislature and
is, therefore, known as delegated or subordinate legislation. The sub-ordinate legislation cannot
go beyond the act or the objective of the act, or the same would be held invalid.

Subordinate legislation further can be classified into the following types:-

a) Local laws: In India, local bodies like Panchayats and Municipal Corporations have been
recognized by the Constitution through the 73 rd and 74th Constitutional amendments. The
rules and bye-laws enacted by them are examples of local laws. These two bodies are one of
the largest sources of sub-ordinate legislation, as regulations in these territories need to be
revised very rapidly.

b) Laws made by the Executive: The three organs of the State namely legislature, executive and
judiciary are vested with three different functions. The prime responsibility of law-making
vests with the legislature, while the executive is vested with the responsibility to implement
the laws enacted by the legislature. However, the legislature delegates some of its law-
making powers to executive organs which are also termed delegated legislation.

In welfare and modern states, the amount of legislation has increased manifold and it is not
possible for legislative bodies to go through all the details of law. Therefore, it deals with only
a fundamental part of the legislation and wide discretion has been given to the executive to
fill the gaps. Delegated legislation is resorted to, on account of reasons like paucity of time,
technicalities of law and emergencies.
The need and importance of subordinate legislation have been underlined by the Supreme
Court in the Gwalior Rayon Mills Mfg. (Wing.) Co. Ltd. vs. Asstt. Commissioner of Sales Tax
and Others as:
Most of the modern socio-economic legislations passed by the legislature lay down the guiding
principles and the legislative policy. The legislatures because of limitation imposed upon by
the time factor hardly go into matters of detail. Provision is, therefore, made for delegated
legislation to obtain flexibility, elasticity, expedition and opportunity for experimentation.
The practice of empowering the executive to make subordinate legislation within a prescribed
sphere has evolved out of practical necessity and pragmatic needs of a modern welfare State.

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The legislature lays down the policy and purpose of the legislation and leaves it to the
executive, experts and technocrats to provide for working details within the framework of the
enactment by way of rules, regulations, bye-laws or other statutory instruments. Powers have
also been conferred under various provisions of the Constitution of India on the different
functionaries to frame rules, regulations or schemes dealing with various aspects.

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EXERCISE
CMA Institutes Question Bank:

1. What are the sources of law?

a. Constitution of India
b. Constitution of India, judicial precedents, customary laws, statutes and ordinance
c. Statutes enacted by the Parliament of India and State Legislatures
d. Religion
2. Which Article in the Constitution of India, 1950 has provisions for introduction of a bill in
the Parliament of India?
a. Article 119
b. Article 141
c. Article 107
d. Article 243
3. Money Bill is introduced in which House of the Parliament?
a. Council of People – Lok Sabha
b. Council of States – Rajya Sabha
c. Both the Houses
d. None of the Houses
4. Under what Article of the Constitution of India, 1950 is The President of India empowered
to make an Ordinance?
a. Article 243
b. Article 123
c. Article 129
d. Article 368
5. The essence of Sub-Ordinate legislation can be found in which Article of the Constitution
of India, 1950?
a. Article 12
b. Article 32
c. Article 13

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d. Article 14
6. When was the Constitution of India passed by the Constituent Assembly?
a. 26th January 1950
b. 26th November 1949
c. 25th November 1949
d. 15th August 1947
7. Which is the highest Court in India?
a. High Court
b. Supreme Court of India
c. International Court of Justice
d. Sessions Court
8. Which Articles of the Constitution of India have the power to entertain petitions of
violation of Fundamental Right?
a. Article 32
b. Article 226
c. Article 226 and Article 32
d. Article 356
9. Which is the highest civil court in a district?
a. Sessions Court
b. Supreme Court of India
c. District Court
d. High Court
10. Which Article of the Constitution of India empowers the legislature to make laws?
a. Article 12
b. Article 243
c. Article 141
d. Article 245
11. When was the Supreme Court of India established?
a. 26th November 1949
b. 26th January 1950
c. 28th January 1950
d. 1st October 1937

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12. Which Article of the Constitution of India stipulates law made by the Supreme Court of
India?
a. Article 141
b. Article 245
c. Article 368
d. Article 352
13. What is the Schedule in the Constitution of India, for Separation of Subject for Legislature?
a. 9th Schedule
b. 7th Schedule
c. 32nd Schedule
d. 14th Schedule
14. What kind of structure does the Indian Constitution have?
a. Unitary
b. Federal
c. Autocracy
d. Totalitarian
15. Under which Article can we amend the provisions of the Constitution of India?
a. Article 356
b. Article 368
c. Article 254
d. Article 245
16. Which is the lowest court to approach for criminal matters?
a. Munsif Court
b. Judicial Magistrate
c. Sessions Court
d. District Court
17. Mention the number of judges in the Supreme Court of India including Chief Justice of India
currently.
a. 23
b. 32
c. 34
d. 36

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18. Fundamental Rights are mentioned under which part of the Constitution of India?
a. Part-II
b. Part-III
c. Part-IX
d. Part-XII
19. Municipalities are provided for authority under which part of the Constitution of India?
a. Part IX
b. Part IXA
c. Part III
d. Part I
20. Under what Article of the Constitution of India, 1950 is the Governor of a State empowered
to make an Ordinance?
a. Article 123
b. Article 243
c. Article 245
d. Article 213
21. What Are Personal Laws?
a. Laws relating to inter personal behaviour
b. Customs (religious beliefs) that have now been codified
c. Laws that a person makes
d. Laws based on opinion
22. Which Article of the Constitution of India, deal with inconsistency between laws made by
Parliament and laws made by the Legislatures of States?
a. Article 245
b. Article 254
c. Article 368
d. Article 32
23. What is a Private Bill?
a. A bill introduced by a member other than a Minister
b. Bill introduced by a private citizen
c. Bill introduced by a Private company
d. A bill relating affairs which are private to individual

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24. The Parliament for the Union of India which shall consist?
a. The President, the Council of States (Rajya Sabha) and the House of the People (Lok
Sabha)
b. Rajya Sabha
c. Lok Sabha
d. Legislative Assembly
25. Secondary/Sub-ordinate legislation cannot go beyond:
a. The ambit of the Act
b. The ambit of the Act or the Constitution of India
c. The Constitution of India
d. Directive Principles of State Policy

ANSWERS
1B 8C 15 B 22 B
2C 9C 16 B 23 A
3A 10 D 17 C 24 A
4B 11 B 18 B 25 B
5C 12 A 19 B
6B 13 B 20 D
7B 14 B 21 B

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DSR’S QUESTION BANK

1. Which of the following legislation proceeds from the sovereign power in the State or which
derives its power directly from the Constitution?
(a) Decentralized legislation
(b) Supreme legislation
(c) Delegated legislation.
(d) Subordinate legislation
2. Bye-law making power granted to the executive by the Legislature is called
(a) Colorable Legislation
(b) Delegated legislation
(c) Administrative legislation
(d) None
3. _________is that which proceeds from any authority other than the sovereign power, and is
therefore dependent for its continued existence and validity on some superior or supreme
authority.
(a) Decentralized legislation
(b) Supreme legislation
(c) Subordinate legislation
(d) All of the above
4. In the modern state, the best source of law is
(a) Convention
(b) Custom
(c) Legislation
(d) Precedents
5. Subordinate legislation emanates from
(a) Any authority other than the sovereign power
(b) Dictators to subordinates
(c) Usages of immemorial antiquity
(d) Any subordinate being
6. Law made by Parliament is known as:
(a) Supreme law
(b) Common law
(c) Rule of law
(d) Statute law or legislation
7. A dispute resolution method where a person facilitates parties to exchange information,
ideas and possible alternative solutions
(a) Arbitration
(b) Negotiation
(c) Mediation
(d) Litigation

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8. A mediator should not have which of the following qualities

(a) Prejudiced
(b) Flexible
(c) Permissive
(d) Imaginative
9. Which of the following matters cannot be referred to ADR
(a) Customer complaints
(b) Civil cases
(c) Criminal cases
(d) Cases of trade disputes
10. The number of conciliators, unless otherwise agreed by the parties, shall
(a) not be even
(b) be even
(c) one
(d) three
11. In _______ of their dispute a neutral third party assists the disputing parties in reaching a
settlement
(a) Arbitration
(b) Mediation
(c) Negotiation
(d) Infiltration
12. Mediation is not
(a) Recognized by legislation in India
(b) Recognized as an alternate dispute resolution mechanism for all disputes in India
(c) Recognized as an alternate dispute resolution mechanism for certain kinds of disputes
approved by legislation
(d) not an alternative dispute resolution mechanism
13. Conciliation proceeding comes to an end when
(a) it appears to the conciliator that there exists the possibility of a settlement
(b) the conciliator formulates the terms of a settlement
(c) the parties along with the conciliator draw up a plan for settlement
(d) the settlement agreement signed by the parties comes into existence
14. ADR stands for
(a) Automated Discovery Response
(b) Alternate Dispute Resolution
(c) Alternative Dispute Resolution
(d) Automated Dispute Resolution
15. As per the Supreme Court verdict in the cannot change the basic structure of the
Constitution.
(a) Indra Sawhney v. Union of India (1992)
(b) Kesavananda Bharati v. State of Kerala (1973)
(c) Maneka Gandhi v. Union of India (1978)

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(d) Vishaka v. State of Rajasthan (1997)

16. The Supreme Court of India came into being on
(a) 26th of January, 1950
(b) 28th January, 1950
(c) 15th of August, 1949
(d) 26th of November, 1949
17. Who appoints the Chief Justice of India?
(a) Judges of Supreme Court and High Court
(b) President of India
(c) President of India in consultation with senior judges of Supreme Court and High Court
(d) President of India in consultation with senior judges of Supreme Court
18. Which among the following is a correct meaning of office of Qazi-ul-Quzat under the
Mughals?
(a) Head of the Finance department
(b) Censor of Public morals
(c) Supreme Authority in Justice
(d) In charge of charities
19. Which one of the following is not part of the four correct methods of ADR.?
(a) Legislation
(b) Mediation
(c) Conciliation
(d) Negotiation

20. What are the correct advantages of Negotiation law?

(a) Cheap Process
(b) It’s Quick
(c) Might not come to a decision
(d) Both A & B

21. Mention the similarity with mediation and conciliation in…

(a) both use a messenger
(b) is the same
(c) sound the same
(d) none of these

22. Roles of an arbitrator is…

(a) Acts like a judge
(b) Sit and talk
(c) Acts like a police officer
(d) Acts like a jury

23. What are the correct disadvantages of Arbitration is…?

(a) Fees expensive
(b) Legal point

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(c) Flexible
(d) Both A and B

24. Which one of the following is the ADR methods have a person that decides the dispute?
(a) Fact-finding
(b) Mediation
(c) Conciliation
(d) Arbitration

25. What is the benefit of ADR?

(a) Prevents appeals.
(b) Saves time
(c) Costs more money.
(d) Is not always binding.

26. According to the Constitution of India, who of the following is empowered to issue Writ?
(a) Governor of the State
(b) Prime Minister
(c) Supreme Court of India
(d) President of India.
27. For enforcement of Fundamental Rights, High Court can issue_____
a) Writ
b) Circular
c) Act
d) Ordinance
28. The oldest High Court in India is….
a) Bombay High Court
b) Calcutta High Court
c) Madras High Court
d) Allahabad High Court
29. Which of the following articles of the Constitution of India, 1950 provides that the law
declared by Supreme Court is binding on all Courts?
a) Article, 32
b) Article, 141
c) Article, 129
d) Article, 372
30. Under which provision of the Constitution, the Supreme Court reviews its own judgement?
a) Article, 132
b) Article, 137
c) Article, 139
d) Article, 141
31. Which one is NOT correct about the independence of the judiciary in our country?
a) The judiciary has the power to penalise those who are found guilty of contempt of court.

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b) The judges are financially dependent on both the executive and legislature for their
salaries and allowances.
c) The Constitution prescribes a very difficult procedure for removal of judges
d) The legislature is not involved in the process of appointment of judges
32. The Indian judicial system is based on:
a) Both integrated and dual system
b) Dual court system
c) Multiple court system
d) Single integrated system
33. A person appointed as a judge of the Supreme Court, before entering upon his Officer, has
to make and subscribe an oath or affirmation before the
a) Vice President
b) President, or some person appointed by him
c) Chief Justice of India
d) None of the above
34. A Judge of the Supreme Court may resign his office by writing to:
a) The President
b) The Prime Minister
c) The Law Minister
d) The Attorney General of India
35. The judges of the Supreme Court can be removed by the
a) Parliament
b) Law minister
c) The President alone
d) Prime Minister
36. Under which article can the Supreme Court issue a writ?
a) Article 131
b) Article 32
c) Article 143
d) Article 226
37. Which of the following organizations controls the insurance business in India?
a) RBI
b) SEBI
c) IRDAI
d) LIC
38. Which of the following is the predecessor of the IRDA Act, 1999?
a) The Insurance Act, 1938
b) The Life Insurance Corporation Act, 1956
c) The Marine Insurance Act, 1963
d) The Public Liability Insurance Act, 1991
39. Which of the following statements are correct under duties, powers and functions of
IRDAI?

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a) Protection of the interests of the policy holders in matters concerning assigning of

policy, nomination by policy holders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance
b) Regulating investment of funds by insurance companies.
c) Supervising the functioning of the Tariff Advisory Committee
d) All of the above
40. What does ‘R’ stand for in ‘IRDA’?
a) Regulation
b) Regulatory
c) Research
d) Rate
41. Which of the following statement(s) is/are correct with respect to the role of RBI in the
Indian economy?
I. It is the controller of money supply.
II. RBI acts as a banker to the Government of India.
a) Neither I nor II
b) Both I and II
c) Only II
d) Only I
42. Who is the “lender of the last resort” in India?
a) SBI
b) RBI
c) NABARD
d) SEBI
43. In Which year was the RBI nationalized?
a) 1971
b) 1956
c) 1949
d) 1935
44. Which of the following institutions is responsible for regulating the formal sources of credit
in India?
a) RBI
b) TRAI
c) NABARD
d) IRDA
45. Which of these institutions fixes the Repo Rate and the Reverse Repo Rate in India?
a) Ministry of Finance
b) State Bank of India
c) Comptroller and Auditor General of India
d) Reserve Bank of India
46. RBI was set up on the basis of the recommendation of
a) Indian Central Bank Enquiry Committee

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b) Royal Commission
c) Simon Commission
d) Nehru Report

47. “Law is a set of rules…..” (for the society) – this concept of law is given by
(a) George Orwell
(b) Mark
(c) H.L.A. Hart
(d) George Eliot
48. The _______ are enacted by the parliament and state legislatures according to their
domain mentioned in 7th schedule of the constitution of India.
(a) Case laws
(b) Statutes
(c) Regulations
(d) Ordinances
49. Which of the followings comes under personal laws_____
(a) Hindu Marriage Act, 1955
(b) The Kazis Act, 1880
(c) The Indian Christian Marriage Act, 1872
(d) All the above
50. Power of Governor of State to promulgate ordinances is given under
(a) Articles 213
(b) Articles 215
(c) Articles 220
(d) Articles 211
51. The study of Indian legal history can primarily be divided into ____periods:
(a) 5
(b) 7
(c) 6
(d) 4
52. One of the salient features of the ancient Indian law was that it was based on the principle
of
(a) Karma
(b) Dharma
(c) Both a and b
(d) None of the above
53. Ancient Indian Courts can be divided into _____ categories based on their Rank.
(a) 7
(b) 6
(c) 9
(d) 2
54. The Kula represent the meaning_____
(a) The king
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(b) Trade or professional councils

(c) Family councils or groups
(d) King’s court
55. ______ deals with disputes concerning with administration or bureaucracy:
(a) Diwan – i – Mazlim
(b) Diwan – i – Hukum
(c) Diwan – i – Zafar
(d) None of the above
56. During _____ period courts were categorised according to the subject and requirement in
contention
(a) Medieval
(b) Sultanate
(c) Mughal
(d) British
57. ____ of the provincial court dealt with all the cases which were civil and criminal nature
(a) chief Qadi
(b) mufti
(c) qadi-e-Askar
(d) Qazi – ul – Quzat
58. The British Administrative period lasted for approximately around _____ years.
(a) 100
(b) 200
(c) 500
(d) 300
59. The charter of_____, 1600 empowered East India Company the legislative right
(a) Dutch
(b) The Danes
(c) Elizabeth
(d) None
60. Warren Hastings judicial plan of 1772 is known as________
(a) The Federal court
(b) The Adalat System
(c) High Court
(d) None
61. The Indian High Court’s Act 1861 suggested the establishment of High Court in place of
supreme court in which three presidencies
(a) Madras, Mumbai, Pune
(b) Calcutta, Madras, UP.
(c) Madras, Bombay, Calcutta
(d) Calcutta, C.G., Madras
62. Earlier to 1949 _________ seated is England acted as the Highest Court of Appeal since
1726

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(a) Northern Council

(b) Privy Council
(c) East Zone Council
(d) Autonomous council
63. The Drafting committee for the constitution was formed and appointed with ________ as
its chairman
(a) Mr. B. R. Ambedkar
(b) Mr. Manmohan Singh
(c) Mr. Lal Bahadur Shastri
(d) Mahatma Gandhi
64. The constitution of India was passed and adopted by the constituent Assembly on
(a) 27 November, 1942
(b) 26 November, 1942
(c) 26 November, 1949
(d) 26 November, 1941
65. The Supreme Court of India was established under which article?
(a) 121(2)
(b) 124(1)
(c) 120(2)
(d) 124(2)
66. What was the strength of Judges at the establishment of supreme court?
(a) 8 (1+7)
(b) 7 (1+6)
(c) 10(1+9)
(d) 5(1+4)
67. The legislative process in India derives its authority from
(a) Parliament
(b) Council
(c) Constitution of India
(d) All of the above
68. The Indian Legislative process has two major law-making bodies they are?
(a) Parliament of India & State Legislature
(b) State & Central Legislature
(c) Parliament & council Legislature
(d) None
69. Two Houses of Parliament are known respectively as
(a) Lok Sabha & Rajya Sabha
(b) Lok Sabha and Vidhan Sabha
(c) Both a and b
(d) None of the above
70. Which article of Constitution states about constitution of Legislatures in State
(a) Article 168

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(b) Article 170

(c) Article 158
(d) Article 160
71. The legislative bodies in India, derive its power to frame laws from
(a) Article 245
(b) Article 244
(c) Article 250
(d) Article 222
72. Which article of constitution gives power for local governance
(a) Article 222
(b) Article 243
(c) Article 202
(d) Article 242
73. Which article gives to parliament, the power to amend constitution:
(a) Article 366
(b) Article 361
(c) Article 368
(d) Article 360
74. The constitution of India has provided with a single integrated Judicial system with
a_______
(a) Up – Down Structure
(b) Pyramidal Structure
(c) Bottom – up Structure
(d) Democratic Structure
75. Any person can approach the Supreme court against violation of his fundamental rights. This
power is prescribed under_____
(a) Article 33
(b) Article 21
(c) Article 30
(d) Article 32
76. The supreme court of India and the high court of each state under _____ are declared as a
court of record with the power to punish for contempt of itself
(a) Article 215
(b) Article 300
(c) Article 222
(d) Article 251
77. Any person has the right to approach the Court against violation of his fundamental rights.
This is known as ____________ of the courts
a) Appellate Jurisdiction
b) Original Jurisdiction
c) Advisory Jurisdiction
d) Writ Jurisdiction

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78. The court under _____ can review its own orders or judgements
(a) Article 173
(b) Article 137
(c) Article 170
(d) Article 120
79. Any person has the right to approach the High Court against violation of his fundamental
rights as well as legal rights under ____
(a) Article 222
(b) Article 221
(c) Article 226
(d) Article 227
80. _____ of the criminal procedure code, 1973 prescribes for the constitution of various
criminal courts.
(a) Section 5
(b) Section 6
(c) Section A
(d) Section 6 & 5
81. What is full form of CJM
(a) Chief Judicial Master
(b) Chief Justice Magistrate
(c) Chief Judicial Magistrate
(d) None of the above
82. What is the other name of ‘people’s court’?
(a) Rajya Sabha
(b) Lok Sabha
(c) Lok Adalat
(d) Rajya Adalat
83. Which Act deal with Alternative Dispute resolution?
(a) Arbitration and conciliation Act, 1996
(b) The legal services Authority Act, 1987
(c) Both a and b
(d) None of the above
84. Which is the function of SEBI?
(a) Regulatory function
(b) Protective functions
(c) Development function
(d) All the above
85. RBI Manages the foreign exchange under
(a) FEMA, 1992
(b) FEMA, 1999
(c) FEMA, 1990
(d) FEMA, 1929
86. Full form of IRDAI?
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(a) Information Regarding Development Authority of India.

(b) Information Regulatory and Development Authority of India.
(c) Insurance Regulatory and Development Authority of India.
(d) Insurance Regarding & Development Authority of India.
87. The Association of Mutual funds in India (AMFI) was set up in____
(a) 1955
(b) 1992
(c) 1959
(d) 1995
88. ____ensures smooth functioning of the mutual fund industry by implementing high ethical
standard.
(a) AMIF
(b) AMFI
(c) AIFM
(d) AFMI
89. ______is a ministry within the government of India.
(a) MCA
(b) AMFI
(c) IRDAI
(d) None
90. The objective of MCA is to protect the interest of all____
(a) People
(b) Stakeholders
(c) Company owners
(d) None of these
91. NHB was set up on____?
(a) 10th July, 1981
(b) 10th July, 1988
(c) 10th July, 1982
(d) 10th July, 1980

ANSWERS
1. B 13. D 25. B 37. C 49. D 61. C 73. C 85. B
2. B 14. B 26. C 38. A 50. A 62. B 74. B 86. C
3. C 15. B 27. A 39. D 51. D 63. A 75. D 87. D
4. C 16. A 28. B 40. B 52. B 64. C 76. A 88. B
5. A 17. B 29. B 41. B 53. B 65. B 77. D 89. A
6. D 18. C 30. B 42. B 54. C 66. A 78. B 90. B
7. C 19. D 31. B 43. C 55. A 67. C 79. C
91. B
8. A 20. D 32. D 44. A 56. C 68. A 80. B
9. C 21. A 33. B 45. D 57. A 69. A 81. C
10. C 22. A 34. A 46. B 58. B 70. A 82. C
11. B 23. D 35. A 47. C 59. C 71. A 83. C
12. B 24. D 36. B 48. B 60. B 72. B 84. D

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CHAPTER – 2
INDIAN CONTRACT ACT, 1872

SOME BASICS
- Before enactment of the Indian contract Act, 1872 the courts applied English laws as suited
to Indian conditions customs & usages.
- On noticing some difficulties in English common laws, the courts started deciding cases on
the basis of Hindu Personal law & Muslim Personal Laws.
- On still finding it unfit to address business complexities. The Indian contract Act, 1872 was
enacted.
- This Act, is based on English Common Law.
- Earlier it contained the provisions relating to sales of Goods &partnership also which were
later on enacted as separate acts as sales at Goods Act & Partnership Act in the year 1930 &
1932 respectively.
- This Act is not an exhaustive Act, as it does not cover all branches of the law of contract.

COMMENCEMENT & EXTENT

- Indian Contract Act, 1872, extents to the whole of India.
- It came into force on 1st September, 1872.
WHAT IS CONTRACT?
WHAT IS CONTRACT?

According to Section 2(h) of the Act, the term contract is defined as "an agreement enforceable
by law". On analysing the definition, we find that, the contract consists of two essential
elements: -an agreement, and-enforceability by law.

1. The term ‘agreement’ given in Section 2(e) of the Act is defined as "every promise and every
set of promises, forming the consideration for each other". Again Section 2(b) defines
promise as "when the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. Proposal when accepted, becomes a promise". Thus,
we say that, an agreement is the result of the proposal made by one party to the other party
and that other party gives his acceptance thereto.
Agreement=Offer/Proposal + Acceptance
2. Enforceability by law-An agreement to become a contract must give rise to a legal obligation
which means a duty enforceable by law. Thus, from above definitions it can be concluded
that –

Contract=Accepted proposal + Enforceability by law

Will all agreements give rise to a contract?

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An agreement to become a contract must give rise to a legal obligation. Agreement can be social
obligation or legal obligation. An agreement giving rise to social obligation is not a contract. That
is why it is said that the term agreement is a wide term it includes both social and legal obligations
but only those agreements which the parties intend to enforce legally culminates into contract.
An agreement is regarded as a contract when it is enforceable by law. Some agreements which
are nit contract are: (1) Social Agreements (2) Domestic Agreement among Husband & Wife
(Balfour Vs. Balfour) (3) Illegal & Immoral acts (4) Agreements specifically declared void under
law.

Definitions u/s. 2 of the Indian Contract Act, 1872

Section Defines As

2 (a) Proposal/Offer When one person signifies to another, his

willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a
proposal.
2 (b) Promise 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.
2 (c) Promisor and The person making the proposal is called the
Promisee “promisor”, and the person accepting the proposal
is called the “promisee”.
2 (d) Consideration When, at the desire of the promisor, the promisee
or any other person has done or abstained from
doing, or does or abstains from doing, or promises
to do or to abstain from doing, something, such act
or abstinence or promise is called a consideration
for the promise.
2 (e) Agreement Every promise and every set of promises, forming
the consideration for each other, is an agreement.
2 (f) Reciprocal Promises Promises which form the consideration or part of
the consideration for each other are called
reciprocal promises.
2 (g) Void Agreement An agreement not enforceable by law is said to be
void.
2 (h) Contract An agreement enforceable by law is a contract.

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2 (i) Voidable Contract An agreement which is enforceable by law at the

option of one or more of the parties thereto, but
not at the option of the other or others, is a
voidable contract.
2 (j) Void Contract A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable.

ESSENTIAL ELEMENTS OF A VALID CONTRACT [Sec. 10]

Section 10 of the Act states that “all agreements are if they are made by free consent”

1) Proper offer and acceptance (Agreement) - There must be an agreement to constitute a

contract. An agreement consists of two elements – offer & Acceptance.

2) Intention to create legal obligation/relationship -An agreement purely of a social or

domestic nature is not a contract. There should be an intention on the part of parties to
create a legal obligation.

3) Free consent-The consent of the parties must be free & genuine. It should not be obtained
by Fraud, Coercion, Mistake, Misrepresentation or Undue Influence.

4) Parties must be Competent to contract -The parties to an agreement must be competent of

entering into a contract. The following have been declared as incompetent to contract.
a. A minor
b. A person of unsound mind
c. Person barred or disqualified from contracting under any other law.

5) Lawful object -The object of the agreement must not be illegal or unlawful.

6) Lawful Consideration - Every agreement must be supported by a lawful consideration from

both the sides. Consideration means “something in return”.

7) The agreement must not be expressly declared void.

8) Certainty of meaning - The meaning of the agreement must be certain or capable of being
ascertained. A contract the meaning of which is uncertain is void.
For ex. – ‘Praveen’ agrees to sell his bike to ‘Ketan’ for Rs. 30000. Praveen is having two bikes.
The agreement is not enforceable as it is not certain that which bike ‘Praveen’ is selling to
Ketan.

9) Possibility of performance - An agreement to do any impossible Act cannot be enforced.

For ex. – “Virat” Promises to bring moon & stars for you. Such agreements cannot be
enforced

10) Legal Formalities - If certain Legal Formalities are required to be complied for a particular
type of contract, they must be fulfilled.

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CLASSIFICATION OF CONTRACT:

(A) BASED ON ENFORCEABILITY:

(i) Valid Contract: An agreement enforceable by law is a valid contract. In other words,
it satisfies all the requirements of a valid contract as laid down in section 10. If any
of the essential requirements is missing it becomes a void contract.

(ii) Void agreement: An agreement not enforceable by law is said to be void. A void
agreement has no legal consequences.

(iii) Voidable contract: An agreement which is enforceable at the option of one or more
parties thereto but not at the option of other or others is a voidable contract.

(iv) Void contract: A Contract which ceases to be enforceable by law becomes void when
it ceases to be enforceable. Void agreement and void contract are different. Void
agreement is void ab-initio but void contract is a valid contract at the beginning but
subsequently becomes void when it ceases to be enforceable.

(v) Unenforceable contracts: These are the contracts which cannot be enforced in a
court of law because of some technical defects (ex. Oral Contract or Time barred
Debt). These contracts become fully enforceable if the technical defects are removed.

(vi) Illegal Contracts: An illegal agreement is destitute of any legal effect from the very
beginning. All illegal agreements are void agreements but all void agreements are
not illegal.

(B) BASED ON METHOD OF FORMATION:

(i) Formal contracts: This term is usually found in English laws. Validity of these contracts
depends upon their form. They are valid even if they lack consideration.
These contracts are of two types;
Contract under seal - These are in writing and signed by the parties to them.
Contract of Records: These includes the court judgments and recognizance. Obligations in such
cases arise out of judgment and not under the contract.

(ii) Simple Contract: All contracts other than formal are called simple contracts or parole
contracts.

(C) BASED ON EXTENT OF PERFORMANCE:

(i) Executed Contracts: An executed contract is one which has been completely
completed by both the parties.
Ex: S agrees to buy P’s motorcycle. P delivers the motorcycle & S pays for it.

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(ii) Executory contracts: It is a contract which is wholly unperformed. If one party has
performed his part of obligation but the other party has not yet completed his
obligation on the contract, the contract still remains executory contract.
Ex: A agrees to buy B’s car and pay for it after 10 days.

(D) BASED ON OBLIGATION:

(i) Unilateral Contract: Under this type of contract, there is an obligation on the part
of only one party when the contract is concluded.

(ii) Bilateral Contract: Here there is an obligation on both the parties to the contract.

(iii) Multilateral Contract: In this type of contract more than two parties are involved.
These are very complex contracts and generally take international character.

(E) ON THE BASIS OF MODE OF CREATION:

(i) Express contract: The contracts entered into between the parties by words spoken
or written are known as express contracts.

(ii) Implied or inferred contract: The contracts which are made by an act or conduct of
the parties and not by words are termed as implied contract. (Proposal or acceptance
is made otherwise than in words)

(iii) E-contract: This is a kind of contract formed in the course of E-commerce by

interaction of two or more person competent to contract using electronic means,
such as e-mail. This involves interaction of an individual with an electronic agent, such
as computer program or interaction of at least two electronic agents that are
programmed in such a way to generate contract. This contract is conceptually akin to
the traditional paper contract and requires all the essential requirements of a valid
contract like free consent, capacity of the parties, consideration and legality of objects
and consideration.

OFFER AND ACCEPTANCE

A proposal is defined as, ‘when one person signifies to another his willingness to do or abstain
from doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.’2(a)
The term proposal used in the Indian Contract Act is like the term “offer” used in English laws.
The person making proposal or offer is called the promisor or offeror and the person to whom
offer is made is called the offeree and the person accepting the offer is called the promisee or
acceptor.

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TYPES OF OFFERS:

(i) Express and Implied offer: An offer, which is made by words, either spoken or written,
is called express offer and the one, which is inferred from the conduct of a person or the
circumstances of the case, is called an implied offer.
An example of implied offer is “State Government buses running on different routes to
carry passengers at the scheduled tariff rates. This is a case of implied offer by State
Government buses and once a person board in the bus he is said to have accepted the
offer by his act/conduct.”

(ii) Offer and Invitation to offer: An offer must be distinguished from an invitation to offer.
When a person proposes certain terms on which he is willing to negotiate & invites other
party to make an offer on those terms, it is known as invitation to offer. An invitation to
offer is just an expression of initial intention which may lead to an offer.
In case of an offer there should be expression of willingness to do or to abstain from
doing with a view to obtaining the assent of the other party.
Examples of an invitation to offer include: An auction sale, Display of goods with a price
tag, Price lists & catalogues, Prospectus issued by Company.

(iii) Offer can be specific or general: An offer is said to be specific when it is addressed to a
definite person or persons. Such offer can be accepted only by the person or persons to
whom it is made. A general offer on the other hand is addressed to public in large and
may be accepted by anybody fulfilling the terms and conditions.

RULES REGARDING AN OFFER

(i) An offer must be made with an intention to create legal obligation. A social Initiation
does not create any legal relation even it accepted.
(ii) An offer may be expressed (i.e., by words spoken or written) or implied (from contract
of the parties)
(iii) An offer must be definite, certain & not vague i.e., to say all the terms & conditions of
the offer must be clear at the time of making offer
(iv) An agreement to agree in future is not a valid offer.
(v) Mere silence does not amount to an offer by conduct.
(vi) The offer must be communicated to the offeree.
(vii) An offer may be general or specific.
(viii) It must be an offer & not an invitation to offer.
(ix) An offer may be conditional. However, an offer should not contain a term, non-
compliance of which would amount to acceptance.
(x) The offer must be made with an intention to obtain the consent of the offeree.

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ACCEPTANCE OF OFFER

“When the person to whom an offer is made signifies his assent thereto, the proposal is said to
be accepted”.
[Sec. 2 (b)]
Acceptance is the consent given to the proposal (offer). A binding contract between the offeror&
the offeree comes into existence on the acceptance of the proposal. An offer when accepted
becomes a promise.

ESSENTIAL OF A VALID ACCEPTANCE

(1) An acceptance must be absolute & unqualified: An offer must be accepted completely & on
the exact terms. An acceptance with a variation is not an acceptance. It is a mere counter
offer which the original offeror may not accept.

(2) The acceptance must be in prescribed Manner/ mode: Where the proposer has prescribed
a particular mode of acceptance, then the acceptor should follow that mode. The acceptance
may be according to same usual & reasonable manner, where no mode is prescribed.
If the offer is not accepted in the prescribed manner, then the offeree may reject the
acceptance within a reasonable time. However, if offeree does not reject such acceptance
within a reasonable time, he becomes bound by the acceptance.

(3) An offer must be accepted by the person to whom it is made. However, in case of a general
offer, it may be accepted by any member of the public.

(4) An acceptance may be expressed or implied

(5) Acceptance must be communicated - A mere mental acceptance is no acceptance. It must

be communicated to the offeror. The acceptance cannot be implied from the silence of the
offeree.
However, communication of acceptance is not necessary in case of general offer.

(6) Acceptance must be given before lapse of offer or within a reasonable period - The
acceptance must be made before lapse or termination of offer. An offer must be accepted
within the time specified in it. However, in absence of any specified time it may be accepted
within a reasonable time.

(7) An acceptance must be in response to an offer i.e., an acceptance cannot precede an offer.

COMMUNICATION OF OFFER AND ACCEPTANCE

Communication of offer: The communication of an offer is complete when it comes to the

knowledge of the person to whom it is made (Section 4). When a proposal is made by post its
communication will be complete when the letter containing the proposal reaches the persons to
whom it is made.

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Communication of acceptance: Communication of an acceptance is complete:

(i) as against the proposer, when it is put in course of transmission to him so as to be out
of the power of the acceptor to withdraw the same;
(ii) as against the acceptor, when it comes to the knowledge of the proposer.

Revocation of offer and acceptance: [Section 5]

Revocation means taking back or withdrawal of offer or acceptance. A proposal may be revoked
at any time before the communication of its acceptance is complete as against the proposer, but
not afterwards.

How is Revocation made: [Section 6]

Section 6 of the Act provides the modes for revocation of an offer or acceptance.

(i) By the communication of notice of revocation by the proposer to the other party.
(ii) By the lapse of the time prescribed in such proposal for its acceptance,
(iii) By the failure of the acceptor to fulfill a condition precedent to acceptance.
(iv) By the death or insanity of the proposer,
(v) If a counter offer is made to it.
(vi) If an offer not accepted according to prescribed or usual mode.

VOID AND VOID AGREEMENTS

(A) Voidable contract: An agreement which is enforceable by law at the option of one or more
parties thereto but not at the option of other is a voidable contract.

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Example: A promise to sell his farm to B for 5.0 lakhs. B was not prepared for this but A
by force compelled B to sign the agreement. Here the consent of B was obtained by
coercion. The contract is voidable at the option of B.

(B) Void agreement: An agreement not enforceable by law is said to be a void agreement. A
void agreement does not create any legal rights or obligation, hence is null and void ab
initio.
(C) Void contract: A contract which ceases to be unenforceable by law becomes void when it
ceases to be enforceable by law. Void contract is initially a perfectly valid contract but
subsequent development turns it into a void contract.

The following agreements have been specifically declared void:

a. Agreement by a minor or a person of unsound mind.
b. Agreement of which the consideration or object is unlawful.
c. Agreement made under a bilateral mistake of fact material to the agreement.
d. Agreement of which the consideration or object is unlawful in part and the illegal part
cannot be separated from the legal part. [Sec (24)]
e. Agreement made without consideration.
f. Agreement in restraint of marriage.
g. Agreement in restraint of trade.
h. Agreement in restraint of legal proceedings.
i. By which any party thereto is restricted absolutely from enforcing his rights
under or in respect of any contract.
ii. Which extinguishes the rights of any party thereto, or discharges any party
thereto from any liability, under or in respect of any contract on the expiry of a
specified period so as to restrict any party from enforcing his rights, is void to
that extent.
i. Agreements the meaning of which is uncertain.
j. Agreements by way of wager.
k. Agreements contingent on impossible events.
l. Agreements to do impossible acts.

CONSIDERATION, LEGALITY OF OBJECT AND CONSIDERATION

Consideration means something in return. When someone promises to do or not to do something

for somebody else, he also in turn needs some reciprocal gesture from other party in return which
in common parlance we mean consideration.

Sec.2(d) defines consideration as, ‘When at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or abstains from doing, or promises to
do or to abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise.’

Legal Rules Regarding Consideration:

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1. Consideration must move at the desire of the promisor: It must move at the desire of the
promisor. Any act or abstinence at the desire of third party is not consideration.

2. Consideration may move from the promisee or any other person: Consideration may be
furnished even by a stranger under Indian Law. Consideration can be from any direction,
even a stranger to contract can offer consideration. Under English law consideration must
move from promise and no one else.

3. Consideration must be something of value: One of the important things to note about
consideration is that consideration need not be adequate. So long as the consent of the
parties is free inadequacy of consideration is immaterial.

4. It may be an act, abstinence or forbearance or a return promise:

Promise to not to smoke is a negative act (abstinence),
Promise to not to refer the matter to court (abstinence).
Promise to perform at the wedding anniversary or birthday party (promise to do).

5. It may be past, present or future which the promisor is already not bound to do: According
to Indian Law Consideration may be past, present or future. But under English Law
Consideration may be present or future. Past consideration is no consideration according
to English Law.

6. It must not be unlawful: The consideration or object of an agreement is lawful, unless —

➢ It is forbidden by law;
➢ or is of such a nature that, if permitted, it would defeat the provisions of any law
➢ or is fraudulent;
➢ or involves or implies injury to the person or property of another;
➢ or the Court regards it as immoral, or opposed to public policy

NO-CONSIDERATION, NO CONTRACT [SEC. 25]

VALIDITY OF AN AGREEMENT WITHOUT CONSIDERATION

Consideration is one of the most essential elements for the formation of a contract. It means
something in return. It is the price paid for the contract. It has been contained in the Latin maxim
– “Ex nudopacto non oritur actio which means – out of the nude fact no cause of action arises.”
In other words, a contract without any consideration is void.
However, there are certain exceptions wherein certain agreements without consideration are
also valid.

(a) Natural love & affection: Where an agreement expressed in writing & registered made on
account of natural love & affection between the parties standing in near relation is
enforceable, even if there is no consideration.

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(b) Compensation for past voluntary services: A promise to compensate wholly or in part to a
person who has already voluntarily done something for the promisor is enforceable, even if
there is no consideration.

(c) Promise to pay time barred debt: A promise to pay a time barred debt made in writing &
signed by the debtor is enforceable.

(d) Complete Gift: “No consideration No contract” does not apply to gifts made & accepted.

(e) Agency: No consideration is required between the principle & agent to create an agency.

(f) Charity: Where the promise undertakes a liability on the faith of promise by a person to
contribute to charity, the contract is valid [ Kedarnath v Gorie Mohammad]

(g) Contract of Guarantee: Under section 127, no consideration is needed for a contract of
guarantee.

DOCTRINE OF PRIVITY OF CONTRACT

PRIVITY OF CONTRACT
Only those persons who are parties to contract can sue upon a contract & a stranger or a third
party to a contract cannot bring a valid suit under the contract. This rule is called “Doctrine of
Privity of Contract”
But, a ‘Stranger to contract” must be distinguished from “Stranger to consideration”. There may
be a stranger to a consideration but there can be no stranger to a Contract.
[Chinnayya V. Ramayya]
However, there are certain exceptions to this rule. Which are as under: -
(i) In case of a trust, the beneficiary can enforce his right under the trust.
(ii) In case of partition or other family arrangements, if some provision is made for benefit of
some member of the family, he or she may enforce such provisions even if he or she is not a
party to such a contract or settlement. [H sued K, her father-in-law for recovery of Rs.15,000
being pin money payable to her under an agreement between K & H’s father – [Khwaja
Mohammad v. Hussaini Begum]
(iii) If a person is required under a contract to pay a certain sum of money to a third party, & he
acknowledges the same to that person, he is bound to pay such amount to that Third party.
For ex. A sold his house to B for Rs. 5, 00,000 & told him to pay the same to ‘C’ his creditor.
B paid only 2,00,000 to ‘C’ promising to pay the balance 500. It was held pay that ‘C’ can sue
‘B’ for recovery of the balance even though there is no contract between them.
(iv) When the benefit of a contract has been assigned, the Assignee can enforce the contract ex.
Assignee in case of an insurance policy.
(v) The provision of marriage expenses of female members of a joint Hindu family. Entitles the
female member to sue for such expenses on partition.
(vi) A principal can enforce the contracts entered into by his agent (who is a acting within
authority).

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CAPACITY OF PARTIES, FREE CONSENT

CAPACITY TO CONTRACT
As per section 11 “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, & not disqualified from contracting
by any to which he is subject”,
Thus, the following types of persons are not competent to contract.
→ A minor
→ A person of unsound mind [Lunatic, Idiot, drunkard]
→ A person who is disqualified from contracting under any law. [Alien, Enemy, Foreign,
Sovereigns, Insolvent, Convict, Companies etc.]

MINOR
Law relating to Minor’s agreement/Position of Minor’s
Law relating to minor’s agreement are as follows-
1. A contract made with or by a minor is void-ab-initio: A minor is not competent to contract
and any agreement with or by a minor is void from the very beginning. In the leading case of
Mohori Bibi v. Dharmodas Ghose held that minor’s contracts are absolutely void.

2. No ratification after attaining majority: A minor cannot ratify the agreement on attaining
majority as the original agreement is void ab initio.
3. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not
competent to contract, nothing in the Contract Act prevents him from making the other party
bound to the minor. Thus, a promissory note duly executed in favour of a minor is not void
and can be sued upon by him, because he though incompetent to contract, may yet accept
a benefit. A minor cannot become partner in a partnership firm. However, he may with the
consent of all the partners, be admitted to the benefits of partnership.-
4. A minor can always plead minority: A minor can always plead minority and is not stopped
to do so even where he has taken any loan or entered into any contract by falsely
representing that he was major.
5. Contract for supply of Necessaries: Minor is liable to pay out of his property for the
necessaries supplied to him by the other.
6. Contract by guardian - how far enforceable: Though a minor’s agreement is void, his
guardian can, under certain circumstances enter into a valid contract on the minor’s behalf.
Where the guardian makes a contract for the minor, which is within his competence and
which is for the benefit of the minor, there will be valid contract which the minor can enforce.
7. A Minor cannot be adjudged as insolvent.
8. A minor can be appointed as agent, but he is not personally liable for his acts.

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PERSON OF SOUND MIND:

Sound Mind person for the Purposes of Contracting (Section 12)
A person is said to be of sound mind for the purposes of making a contract if, at the time
when he makes it, he is capable of understanding it and of forming a rational judgment as to
its effect upon his interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a
contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

Illustrations:
a. A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those
intervals.
b. A sane man, who is delirious from fever or who is so drunk that he cannot understand the
terms of a contract or form a rational judgment as to its effect on his interests, cannot
contract whilst such delirium or drunkenness lasts.

OTHER DISQUALIFIED PERSON: -

(a) Alien Enemy - Any alien enemy (Citizen of a contract at war with Govt. of India) cannot
enter into any contract with any Indian Citizen without the permission of Govt. of India.
Any contract entered before war is suspended during the war.
(b) Foreign sovereigns & Ambassadors - They have certain privileges & immunities in every
country. They can sue Indian Citizens but an Indian Citizen cannot sue them.
(c) Convicts - A convict cannot enter into a valid contract while undergoing sentence
(imprisonment), nor can sue.
(d) Insolvents - An undischarged insolvent cannot enter into a contract relating to his
property.
(e) Company or Statutory Body - Any act done by a company or statutory body in excess of
the powers given in the memorandum (or statue) is ultra vires & Void.

FREE CONSENT
Consent -
As per section 13 – Two or more persons are said to consent when they agree upon the
same thing in same sense. Consent involves meeting of minds i.e. consensus –ad-idem.
For ex. – ‘A’ has two motorcycles, one was a ‘Honda’ & other was ‘Bajaj’. He wants to sell his
’Honda’ Motorcycle. ‘B’ who knows of only A’s Bajaj Motorcycle, offers to buy A’s motorcycle
for Rs. 30,000. ‘A’ accepts the offer thinking it to be an offer for his ‘Honda” motorcycle. Here
the two parties are not thinking of the same subject matter in the same sense. Hence there
is no consent & the contract is not valid.

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Free consent -
For a contract to be valid mere consent of parties is not enough, the consent should also be
free.
As per section 14 of the Act - the consent is said to be free when it is not caused by
(i) Coercion
(ii) Undue influence
(iii) Fraud
(iv) Misrepresentation
(v) Mistake

COERCION [Sec. 15]

According to section 15 of the Indian Contract Act,
“Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal
Code, or the unlawful detaining, or threatening to detain, any property to the prejudice of
any person. Whatever, with the intention of causing any person to enter into an agreement”
Under coercion the consent of the party is obtained by use of force or under a threat.
Coercion may come from a person party to the contract or even third person not connected
with the contract directly.
For ex.: ‘X’ threatens to will ‘Y’ if he does hit transfer his house in ‘X’ favour for a very low
price.
Threat to Commit Suicide -
Suicide through forbidden by Indian Penal code is not punishable as a dead person cannot
be punished. However, attempt to commit suicide is a punishable offence. Section 15, has
declared commit suicide an act to coercion.
Effect of Coercion: When consent of a party is obtained by coercion, the contract becomes
voidable at the option of the party whose consent was so obtained.

Some special case:

1) Mere threat to prosecute or file a suit against a person does not constitute coercion
2) Unlawful detention or threat to detain any property to the prejudice of any person
amounts to coercion
3) Charging high interest rates or high prices is not a coercion.

UNDUE INFLUENCE: [Sec. 16]

Section 16 of the Indian Contract Act defines undue influence as under:
1. A contract is said to be induced by “undue influence” where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will
of the other and uses that position to obtain an unfair advantage over the other.

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2. In particular and without prejudice to the generality of the forgoing principle, a person
is deemed to be in a position to dominate the will of another
a. Where he holds a real or apparent authority over the other, or where he stands in
a fiduciary relation to the other; or
b. Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act,
1872 (1 of 1872). There is presumption of undue influence in the following relationships:
1. Parent and Child
2. Guardian and Ward
3. Doctor and Patient
4. Solicitor and Client
5. Trustee and Beneficiary
6. Religious advisor and Disciple
7. Fiancé and Fiancée
There is however no presumption of undue influence in case of relationship of —
1. Landlord and Tenant
2. Debtor and Creditor
3. Husband and Wife.
The wife has to be pardanashin for such presumption. In these relationships undue influence
has to be proved
Effect of undue influence: Section 19A provides that when the consent is caused by undue
influence, the agreement is voidable at the option of the party whose consent was so caused. The
aggrieved party may opt to rescind the contract. If the aggrieved party seeks to rescind the
contract, he must restore the benefit so obtained under the contract from other party.

FRAUD [Sec. 17]:

According to section 17 of the Indian contract Act -
“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party there to or a
contract: -
1. The suggestion, as to a fact, of that which is not true, by one who does not believe it to
be true.
2. The active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without intention of performing it
4. Any other act fitted to deceive.
5. Any other act or omission as the law specially declares to be fraudulent.
Essential elements of Fraud -

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1. The fraudulent Act must be committed with an intention to deceive.

2. The fraudulent Act must be committed with the knowledge of the false.
3. The fraudulent Act must have been committed by a party to the contract.
4. The fraudulent Act must be committed upon the party to the contract or his agent.
5. The fraudulent Act have actually deceived the other party.
6. The party acting on the representation must have suffered some loss.

Does Silence amounts to fraud?

As per explanation to Section 17 mere since as to facts likely to affect the willingness of a
person to enter into a contract is not fraud unless the circumstances of the case are such that
having regard to them it is the duty of the person keeping silence to speak or unless silence
itself is equivalent to speech.
Thus, mere silence is not fraud.
However, silence amounts to fraud in the following cases-
1. There is a duty to speak.
2. Where silence is equivalent to speech.
Consequences of Fraud -
1. The contract is voidable at the option of aggrieved party.
2. Aggrieved party can insist on performance of contract
3. The aggrieved party can file a suit for damages.
However, the consent caused by misrepresentation or silence is not voidable if the other Party
whose consent was so caused had the means of discovering the truth with ordinary diligence.
Some Examples -
(i) ‘A’ sells a horse to ‘B’ by auction which ‘A’ knows to be unsound. A says nothing to B about
the horse’s unsoundness. This is not fraud by A.
(ii) However, if B says to A -” if you do not deny, I shall assume the horse is sound. A says nothing.
Here A’s silence is equivalent to speech

MISREPRESENTATION

Misrepresentation (Section 18): Where a person asserts something which is not true, though he
believes it to be true, his assertion amounts to misrepresentation. Misrepresentation may be
either innocent or without reasonable ground. Misrepresentation is misstatement of facts by
one, which misleads the other who, consequently, can avoid the contract.
According to Section 18, there is misrepresentation:
1. When a person positively states that a fact is true when his information does not warrant it
to be so;

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2. When there is a breach of duty by a person without intention to deceive which brings an
advantage to him, and loss to the other;
3. When a party causes the other party to the agreement to make a mistake as to the subject
matter.

For example, A makes a positive statement to B that C will be made the director of a company. A
makes the statement on information derived, not directly from C but from M. B applies for shares
on the faith of the statement which turns out to be false. The statement amounts to
misrepresentation, because the information received second-hand did not warrant A to make the
positive statement to B [Section 18(1)].

MISTAKE

A mistake means an erroneous or incorrect belief about something mistake may be of two types:-
(a) Mistake of law, &
(b) Mistake of fact.
Mistake of law - Mistake of law may be (a) mistake of Indian law, & (b) mistake of foreign law.
(a) Mistake of Indian Law - The general rule is that ignorance of law is no excuse & a party
cannot be allowed to get relief on the ground that it had done a particular act in ignorance
of law. Thus, a contract is not voidable because it was caused by a mistake to any law in force
in India.
(b) Mistake of foreign law - A mistake of foreign law is created as a mistake of fact. Thus contract
will be void it both the parties are under the mistake of a foreign law.

Mistake of fact - mistake of Fact may be (a) bilateral mistake (b) unilateral mistake
(a) Bilateral mistake - When both the parties to an agreement are under a mistake as to a matter
of fact essential to the agreement, the agreement is void. Bilateral mistake may relate to the
existence title, identity, quality, quantity or price etc. of the subject matter. In such cases
there is no agreement as there is absence of consent. Also there may be a mistake about
possibility of performance.
Examples of bilateral mistake -
(1) A gold coin was sold under mistake as to its weight. It was actually supposed to of 50 grams
but was only of 40 grams. The agreement is void.
(2) A person took a lease of a land, unknown to both the parties that it belonged to him only.
The lease was void.
(3) Unilateral Mistake - According to sec.22 a contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to a matter of fact. Hence a
unilateral mistake does not make the agreement void.
Ex. A agreed to by a car from B thinking (in himself) it to be a Honda city. Later he found it at time

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of delivery that it was a ‘amaze’. A cannot cancel the contract.

The various types of mistakes falling under bilateral mistakes are as under:
1. Mistake as to subject matter covers following cases:
a. Mistake as to existence of subject matter: If both the parties are at mutual mistake as
to existence of the subject matter the agreement is void.
b. Mistake as to identity of subject matter: It usually happens when both the parties have
different subject matter of contract in their mind. The contract is void due to mistake
of identify of subject matter.
c. Mistake as to the quality of the subject matter: If the subject matter is something
essentially different from what the parties thought to be, the agreement is void.
d. Mistake as to quantity of subject matter: Bilateral mistake as to quantity of subject
matter would render the contract void.
e. Mistake as to title of subject matter: The agreement is void due to bilateral mistake as
to title of the subject matter.
f. Mistake as to price of the subject matter: Mutual mistake as to price of the subject
matter would render the agreement void.
2. Mistake as to possibility of performance of Contract. Impossibility may be:
a. Physical impossibility: A contract is void if it is identified to be non-feasible due to
physical factors, like time, distance, height, etc.
b. Legal impossibility: A contract is void if it provides that something shall be done which
as a matter of law cannot be done.

QUASI CONTRACT & CONTINGENT CONTRACT

Under certain circumstances, the law creates and enforces legal rights and obligations although
the parties have never entered into a contract. Such obligations imposed or created by law are
known as “Quasi-Contracts”. In other words, Contracts constituted by law are known as Quasi-
Contracts.

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Example: A delivers goods to B mistaking him to be C, and B consumes them. B is bound to

pay compensation to A for the value of goods. Law imposes such a duty on B. This is a quasi-
contract.

Types of Quasi Contract

1. Claims for necessaries supplied: Where necessaries are supplied to a person who is
incompetent to contract, the supplier is entitled to recover the price from the property of
the incompetent person under section 68 of the Indian Contract Act.
Example:
A supplies B, a minor, with necessaries suitable to his condition in life. A is entitled to be
reimbursed from B’s property.

2. Payment by an interested person: Section 69 provides that a person who is interested in the
payment of money of which another is bound by law to pay, and who therefore, pays it, is
entitled to be reimbursed by the other”. In order to apply section 69, the following conditions
must be satisfied.
a. The payment made should be bonafide for the protection of one’s interest.
b. The payment should not have been made gratuitously or voluntarily.
c. Another person must be bound by law to pay.
d. The payment must be made to a third party and not to himself.

3. Benefits of non-gratuitous act: Section 70 deal with the obligation of a person enjoying
benefit of a non-gratuitous act. When a person lawfully does anything for another person or
delivers anything to him, not intending to do so gratuitously, such person who enjoys the
benefit must reimburse the former or must restore to him the thing so delivered.

4. Responsibility of finder of goods: A person who finds goods belonging to another and takes
them into his custody is liable as a bailee. The finder of goods must try to find out the real
owner of the goods and deliver the goods to him on demand. The obligations are imposed
on finder of goods by Section 71 of the Indian Contract Act.

5. Money paid by mistake or under coercion: According to section 72, a person to whom
money has been paid or anything delivered by mistake or under coercion, must repay or
return it.

Example:
A and B jointly owe Rs.100 to C.A alone pays the amount to C, and B, not knowing this fact, later
on also pays Rs.100 to C. C is bound to repay the amount to B.

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CONTINGENT CONTRACT

A contingent contract is a contract to do or not to do something if some event, collateral to such

contract does or does not happen.
Example: Contracts of Insurance are of this class

ESSENTIALS OF CONTINGENT CONTRACT

The following are the essentials of a contingent contract. They are:

1. There must be a contract to do or not to do something.
2. The performance of the contract depends upon the happening or non-happening of some
event in future.
3. The event must be uncertain.
4. The event must be collateral or incidental to the contract.
RULES REGARDING ENFORCEMENT OF CONTINGENT CONTRACT
a. Contract contingent on happening of an uncertain event: Where a contingent contract is
made to do or not to do anything if an uncertain event happens, it cannot be enforced
until that event has happened. And if happening of such an event becomes impossible,
the contract becomes void.
b. Contract contingent upon non-happening of an uncertain event: Where a contract is
made to do or not to do anything if an uncertain event does not happen, such a contract
cannot be enforced until that event has become impossible.
c. A future event in which a person will act at an unspecified time can be deemed
impossible when such person does anything that renders the contract impossible that he
should so act within any definite time or otherwise than under future contingencies.
d. An agreement contingent on impossible event is void.
PERFORMANCE OF CONTRACT
Obligation of Parties to Contracts (Section 37)
The parties to a contract must either perform, or offer to perform, their respective promises,
unless such performance is dispensed with or excused under the provisions of this Act, or of any
other law.
Promises bind the representatives of the promisor in case of the death of such promisor before
performance, unless a contrary intention appears from the contract.
Example:
A promises to deliver goods to B on a certain day on payment of Rs,1,000. A dies before that day.
A’s representatives are bound to deliver the goods to B, and B is bound to pay Rs.1,000 to A’s
representatives.

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EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE

When the promisor has made the offer of performance to the promisee and offer has not been
accepted, then the promisor is not responsible for non-performance, nor does he loses his right
under the contract.
Provided the offer of performance must be-
• Unconditional
• At proper place and time
• Promisee must have a reasonable opportunity of seeing that the things offered (where the
performance is to deliver) are the things which the promisor is bound to deliver.
EFFECT OF REFUSAL TO PERFORM PROMISE
Where the promisor has refused to perform or has disabled himself from performing his promise
completely,
Then two rights accrue to the aggrieved party (promisee):
1. To terminate the contract
2. To indicate by words or by conduct that he is interested in continuance
DEVOLUTION OF JOINT LIABILITIES [SEC.42-45]
Devolution of Joint Liabilities (Section 42)
When two or more persons have made a joint promise then, unless a contrary intention appears
by the contract, all such persons, during their joint lives, and after the death of any of them, his
representative jointly with the survivor, or survivors, and after the death of the last survivor, the
representatives of all jointly, must fulfil the promise.
Any one of Joint Promisors may be compelled to perform (Section 43)
When two or more persons make a joint promise, the promisee may, in the absence of express
agreement to the contrary, compel any one or more of such joint promisors to perform the whole
of the promise.
Each promisor may compel contribution– Each of two or more joint promisors may compel every
other joint promisor to contribute equally with himself to the performance of the promise, unless
a contrary intention appears from the contract.
Sharing of loss by default in contribution– If any one of two or more joint promisors makes
default in such contribution, the remaining joint promisors must bear the loss arising from such
default in equal shares.
Examples:
A. A, B and C jointly promise to pay D Rs.3,000. D may compel either A or B or C to pay him
Rs.3,000.
B. A, B and C jointly promise to pay D the sum of Rs.3,000. C is compelled to pay the whole. A
is insolvent, but his assets are sufficient to pay one-half of his debts, C is entitled to receive
Rs.500 from A’s estate, and Rs.1,250 from B.

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Effect to release of one Joint Promisor (Section 44)

Where two or more persons have made a joint promise, a release of one of such joint promisors
by the promisee does not discharge the other joint promisor or joint promisors; neither does it
free the joint promisor so released from responsibility to the other joint promisor joint promisors.

Devolution of Joint Rights (Section 45)

When a person has made a promise to two or more persons jointly, then, unless a contrary
intention appears from the contract, the right to claim performance rests, as between him and
them, with them during their joint lives, and, after the death of any of them, with the
representative of such deceased person jointly with the survivor or survivors, and. after the death
of the last survivor, with the representatives of all jointly.

TIME AND PLACE OF PERFORMANCE

• When the time for performance is not specified in the contract and promisor has to perform
the promise without any demand (i.e. without being asked) by the promisee, the
performance must be made within a reasonable time.
• Where the day for performance is specified in the contract, but the time is not specified, the
promise may be performed during the usual business hours on that day.
• Where the place of performance is not specified in the contract, then the promisor must first
apply to the promise to appoint a reasonable place for the performance of promise.
• Where no such place is appointed, the promise should be performed at a proper place during
usual business hours

RECIPROCAL PROMISES

Performance of Reciprocal Promises [Sec. 51 – 54 and 57]

Promisor not bound to perform unless reciprocal promisee ready and willing to perform
(Section 51)
When a contract consists of reciprocal promises to be simultaneously performed, no promisor
need perform his promise unless the promisee is ready and willing to perform his reciprocal
promise.

Order of Performance of Reciprocal Promises (Section 52)

Where the order in which reciprocal promises are to be performed is expressly fixed by the
contract, they shall be performed in that order; and, where the order is not expressly fixed by the
contract, they shall be performed in that order which the nature of the transaction requires.
Example:
A and B contract that A shall build a house for B at a fixed price. A’s promise to build the house
must be performed before B’s promise to pay for it.

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Liability of party preventing event on which the contract is to take effect (Section 53)
When a contract contains reciprocal promises, and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any loss which he may
sustain in consequence of the non-performance of the contract.

Effect of default as to that promise which should be first performed, in contract consisting of
Reciprocal Promises (Section 54)
When a contract consists of reciprocal promises, such that one of them cannot be performed, or
that its performance cannot be claimed till the other has been performed, and the promisor of
the promise last mentioned fails to perform it, such promisor cannot claim the performance of
the reciprocal promise, and must make compensation to the other party to the contract for any
loss which such other party may sustain by the non - performance of the contract.

Example:
A contracts with B to execute certain builder ’s work for a fixed price, B supplying the scaffolding
and timber necessary for the work. B refuses to furnish scaffolding or timber, and the work cannot
be executed. A need not execute the work, and B is bound to make compensation to A for any
loss caused to him by the non-performance of the contract.

Reciprocal Promises to do things legal, and also other things illegal (Section 57)
Where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly,
underspecified circumstances, to do certain other things which are illegal, the first set of promises
is a contract, but the second is a void agreement.

APPROPRIATION OF PAYMENTS

Application of Payment where debt to be discharged is indicated (Section 59)

Where a debtor, owing several distinct debts to one person, makes a payment to him, either with
express intimation, or under circumstances implying that the payment is to be applied to the
discharge of some particular debt, the payment, if accepted, must be applied accordingly.

Illustrations:
a. A owes B, among other debts, Rs.1,000 upon a promissory note which falls due on the first
June. He owes B no other debt of that amount. On the first June A pays to B Rs.1,000. The
payment is to be applied to the discharge of the promissory note.
b. A owes to B, among other debts, the sum of Rs.567. B writes to A and demands payment
of this sum. A sends to B Rs.567. This payment is to be applied to the discharge of the debt
of which B had demanded payment.

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Application of payment where debt to be discharged is not indicated (Section 60)

Where the debtor has omitted to intimate and there are no other circumstances indicating to
which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful
debt actually due and payable to him from the debtor, whether its recovery is or is not barred by
the law in force for the time being as to the limitation of suits.
Application of Payment where neither party appropriates (Section 61)
Where neither party makes any appropriation, the payment shall be applied in discharge of the
debts in order of time, whether they are or are not barred by the law in force for the time being
as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in
discharge of each proportionately.

DISCHARGE OF CONTRACT

When the rights and obligations created by a contract come to an end, the contract is said to be
discharged or terminated. In other words, discharge of contract means termination of contractual
relationship between the parties.

1. Discharge by performance: Performance is the usual mode of discharge of a contract.

Performance may be:
a. Actual performance
b. Attempted performance.
Actual performance is the fulfillment of the obligations arising from a contract by the parties to
it, in accordance with the terms of the contract.
Offer of performance is also known as attempted performance or tender of performance. A valid
tender of performance is equivalent to performance.
2. Discharge by agreement: The parties may agree to terminate the existence of the contract by
any of the following ways:
a. Novation (Sec. 62)
b. Alteration (Sec. 62)
c. Rescission (Sec. 62)

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d. Remission (Sec. 63)

e. Waiver (Sec. 63)
a. Novation: Substitution of a new contract in place of the existing contract is known as
“Novation of Contract”. It discharges the original contract.
b. Alteration: Alteration means change in one or more of the terms of the contract. In
case of novation there may be a change of the parties, while in the case of alteration,
the parties remain the same. But there is a change in the terms of the contract.
c. Rescission: Rescission means “cancellation”. All or some of the terms of a contract
may be cancelled. Rescission results in the discharge of the contract.
d. Remission: Remission means acceptance of a lesser performance that what is actually
due under the contract. There is no need of any consideration for remission.
Example: A has borrowed Rs. 500 from B. A agrees to accept Rs. 250 from B in satisfaction of the
whole debt. The whole debt is discharged.
e. Waiver: Waiver means giving up or foregoing certain rights. When a party agrees to
give up its rights, the contract is discharged.
Example: A promises to paint a picture of B. B afterwards forbids him to do so. A is no longer
bound to perform the promise.
3. Discharge by lapse of time: Every contract must be performed within a fixed or reasonable
period. Lapse of time discharges the contract.
4. Discharge by operation of law: A contract may be discharged by operation of law in the
following cases:
a. Death
b. Insolvency
c. Unauthorized material alteration.
d. Merger
5. Discharge by breach of contract: Breach means failure of a party to perform his obligations
under a contract. Breach brings an end to the obligations created by a contract.
6. Discharge by impossibility of performance Impossibility of performance results in the discharge of the contract.
An agreement which is impossible is void, because law does not compel to do impossible things.
Example: A and B wanted to marry each other. Before the time fixed for marriage, A goes mad. The contract becomes
void.
BREACH OF CONTRACT & ITS REMEDIES
Breach of contract means the failure of a party to perform his obligation or promise. A breach
may be:
• Anticipatory breach of contract
• Actual breach of contract.
Anticipatory breach of contract: When the promisor absolutely refuses to perform his promise
and signifies his unwillingness even before the time for performance is arrived, it is called
anticipatory breach of contract.

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Example: A agreed to supply 100 kg of rice to B on 30 th September but before the due date of
performance (i.e. 30th September), A informed that he is not going to supply 100 kg of rice at all.
On A’s refusal to supply the goods the anticipatory breach occurs.

Actual breach of contract: Where promisor refuses to perform his promise on the due date i.e.
date of performance, it is called actual breach of contract.
Example: A agreed to sell his car to B on 1st march. But on 1st march, A refused to sell the car to
B. On A’s refusal, actual breach of contract occurs.
REMEDIES FOR BREACH OF CONTRACT
1. SUIT FOR RESCISSION: When court declares a contract to be rescinded, the aggrieved party
is freed from all his obligations under the act and become entitled to claim compensation for
any damages which he has sustained due to non-fulfillment of contract. In order to claim
damages for breach of contract, it is necessary to apply to court for rescission of contract.
2. SUIT FOR DAMAGES: As per section 73, “When a contract has been broken or a breach of
contract occurs, the party who suffers from breach has the right to claim compensation for
any loss caused to him, which arose in usual course of things from such breach, or which the
parties knew, when they made the contract, to be likely to result from the breach of it”.
Under this section, compensation is given for only direct and consequential losses and no
compensation is given for any remote and indirect losses.
3. SUIT FOR QUANTUM MERUIT: Quantum Meruit means “as much as is earned” or “According
to the quantity of work done”. This remedy arises when after part of the performance of the
contract, there is a breach of contract or the contract is discovered void. In the following
cases in which a claim for quantum meruit may arise:
a. Where the work has been done and accepted
b. Where a person does something or delivers something another person with a intention
to receive payment for the same
c. Where the contract is divisible and is partly performed and one of the party to the
contract refuses to perform the remaining part
4. SUIT FOR SPECIFIC PERFORMANCE: Where the damages are not adequate remedy, the court
may direct the defaulting party to carry out his promise according to the terms of the
contract. The court may in its discretion on a suit for specific performance direct for specific
performance, but such a decree is not granted in each and every case, it is granted generally
where it is just and equitable.
5. SUIT FOR INJUNCTION: Injunction is an order of a court restraining a person from doing a
particular act. This order is issued where a party to a contract is negotiating the terms of a
contract.

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SPECIAL TYPES OF CONTRACTS

CONTRACT OF INDEMNITY:
Indemnity means” security or protection against a loss”.

As per Sec 124 of the Indian Contract Act 1872,” A contract by which one party promises to save the other from
loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a
contract of indemnity.”

Example: P contracts to indemnify Q against the consequences of any proceedings which R may take against Q
in respect of a certain sum of money.

OBJECTIVE:

To protect the promisee against unanticipated losses.

PARTIES TO CONTRACT OF INDEMNITY:

1. Promisor or indemnifier: Person who promises to bear the loss

2. Promisee or indemnified/indemnity holder: Person whose loss is covered or who is compensated.

ESSENTIALS OF CONTRACT OF INDEMNITY:

1. Parties to a contract: There are two parties namely; Indemnifier & Indemnified/indemnity holder.
2. Protection of loss: Main objective of contract of indemnity is to protect the promisee from any loss
incurred by him due to the conduct of promisor himself or any other person.
3. Express or implied: It can be expressed (by words spoken or written) or implied (by actions or conduct).
4. Essentials of a valid contract: A contract of indemnity is a special type of contract. All the essential
elements of a valid contract shall be present in it and all the provisions contained in sections 1 to 75
are applicable to it.
5. Number of contracts: There is only one contract between indemnifier & indemnified.

RIGHTS OF PROMISEE/INDEMNIFIED:

1. Right to recover damages: An indemnity holder has the right to recover from the indemnifier all
damages which he may be compelled to pay in any suit covered under the contract of indemnity.
2. Right to recover costs incurred in defending a suit: An indemnity holder has the right to recover from
the indemnifier all costs which he may have paid or compelled to pay while defending a suit. The only
condition is he must have acted as per the orders of indemnifier.
3. Right to recover sums paid under compromise: An indemnity holder also has the right to recover sums
paid under any compromise or settlement, if it is as per the orders of the indemnifier.
4. Right to sue for specific performance: The indemnity holder is entitled to sue for specific performance
if he has incurred absolute liability and the contract covers such liability.

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Commencement of Liability of Promisor/Indemnifier

Indemnifier is not liable until the indemnified has suffered the loss. Indemnified can compel the
indemnifier to make good his loss although he has not discharged his liability. In the leading case
of Gajanan Moreshwar vs. Moreshwar Madan (1942), an observation was made by the judge that
“If the indemnified has incurred a liability and the liability is absolute, he is entitled to call upon
indemnifier to save him the liability and pay it off.”

Contract of Guarantee
A contract of guarantee is a contract to perform promise or discharge the liability of a third person
in case of his default.

Example: A (provided loan to B)

B C

(took loan from A) (gave guarantee on behalf of B to A)

If B will not be able to pay back to A, then C will be liable to pay B’s loan amount to A, as he has
provided guarantee.

After wards B has to reimburse the amount to C.

Parties to Contract of Guarantee: -

‘

1) Principal Debtor: - A person for whom guarantee is given.

2) Creditor: - The person to whom guarantee is given.
3) Surety: - Person who gives guarantee to creditor on behalf of debtor.

Essentials of contract of Guarantee: -

1. It may be oral/written.
2. It may be expressed or implied.
3. All essentials of a valid contract must be present.
4. It is not necessary that the guarantee must receive any consideration promise made for the
benefit of the principal debtor is sufficient consideration to the surety for giving guarantee.
5. Parties must be competent.
6. Existence of a recoverable debt.
7. No misrepresentation & concealment of facts. Creditor should disclose all the facts to surety
that are likely to affect surety’s liability.
8. Conditional/secondary liability of surety.

Kinds of Guarantee: -
1. Specific Guarantee: - Guarantee given for a single debt/specific transaction.

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2. Continuing Guarantee: - Guarantee which extends to a series of transactions.

3. Retrospective Guarantee: - Guarantee for the debt already outstanding.
4. Prospective Guarantee: - Given in regard to a future debt.
5. Entire debt Guarantee: - Covers whole debt.
6. Partial debt Guarantee: - Covers only part of debt.
➢ Revocation of continuing Guarantee -
1) By notice
2) By death of surety
➢ Nature & extent of surety’s liability -
1. Secondary
2. Contingent / dependent
3. Arises immediately on default of debtor
4. Coextensive (same as that of debtor)
5. Can limit his liability
6. Continuing Guarantee
➢ Rights of surety -
Rights

Right against Right against Right against

Principal Debtor Creditor co-sureties

➢ Right of subrogation Right to request the creditor Right to equal

to proceed against debtor. Contribution.
➢ Right of indemnity Right of set off. Right to pay in
Different sums.
➢ Right to insist Right of securities. Right to
Principal debtor securities.

Right to share reduction. Effect of

➢ Right to securities Right to require employer release of to terminate the
employee
surety services.

Against principal Debtor: -

1) Right of subrogation: -

When surely makes the payment for all the dues which he owed towards the creditor on
behalf of principal debtor, he is entrusted with the rights of creditor.

2) Right of indemnity: -

In every contract of guarantee there is an implied promise by principal debtor to indemnity

the surety & the surety is entitled to recover from the principal debtor whatever sum he
has rightfully paid under the guarantee.

3) Right to insist principal debtor to honour his obligation.

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4) Right to securities with the creditor.

Against the creditor

1) Right the request creditor: - Surety has a right to request the creditor to proceed against
debtor.
2) Right of set off: - If the creditor sues the surety, for payment of principal debtor’s liability,
the surety may have the benefit of set off, if any, that the principal debtor had against the
creditor.

Example: X took a loan of 30000 from Y which was guaranteed by Z. There was one
contract between X & Y in which Y had to pay 10000 to X. On default by X, Y filed suit
against Z. Now Z is Liable to pay [30000-10000] 20000.

3) Right to benefit of creditor’s securities.

Example: A advances to B 2,00,000 on the guarantee of D. A has also a further security for
2,00,000 by a mortgage of B’s furniture. A cancel the mortgage. B becomes insolvent
& A sues D on his guarantee. D is discharged from liability to the amount of the value of
furniture.

4) Right to share reduction: - Surety has right to claim proportionate reduction in his liability if
the principal debtor becomes insolvent.

Example: P took a loan of 50000 from Q which was guaranteed by R. P become insolvent &
only 25% is realised from his property. Now Q will receive 12500 from P & Z is liable to pay
37500 (50000-12500).

Against of the co sureties: -

1) Co sureties liable to contribute equally: - Unless otherwise agreed, each surety is liable to
contribute equally for discharge of whole debt or part of debt, remains unpaid by debtor.
Example: A, B & C are sureties to D for the sum of Rs. 300000 lent to E.E makes default in
payment. A, B & C are liable, as between themselves, to pay Rs. 100000 each.
Example: A, B & C are sureties to D for the sum of Rs. 100000 lent to E and there is contract
between A, B & C that A is to be responsible to the extent of one quarter, B to the extent of
one quarter and C to the extent of one half. E makes default in payment. As between
themselves, A is liable to pay Rs. 25000, B Rs. 25000 & C Rs. 50000.

2) Bound to pay in different sums: - Principle of equal contribution is however subject to

maximum limit fixed by a surety to his liability.
Example:
A, B & C as sureties for D enter into three several bonds, each in a different penalty, namely,
A in the penalty of Rs. 100000, B in the penalty of Rs. 200000 and C in that of Rs. 400000,

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conditioned for D’s duly accounting to E. D makes default to the extent of Rs. 300000.A, B &
C are liable to pay Rs. 100000.
Example:
A, B & C as sureties for D enter into three several bonds, each in a different penalty, namely,
A in the penalty of Rs. 100000, B in the penalty of Rs. 200000 and C in that of Rs. 400000,
conditioned for D’s duly accounting to E. D makes a default to the extent of Rs. 700000. A, B
& C have to pay each the full penalty of his bond.

DISCHARGE OF SURETY
1. By revocation
a. By notice
b. By death of surety
c. By novation
2. By act or conduct of creditor
a. Variation in the terms of the contract
b. Release or discharge of principal debtor
c. Compounding with or giving time to the principal debtor
d. Creditors act or omission impairing surety eventual remedy
e. Loss of security
3. By invalidation of contract of guarantee
a. Obtained by misrepresentation
b. Obtained by concealment
c. Co-sureties does not join
d. Lacks essential element of a valid contract.

Cases where surety not discharged

1. Agreement with third person: Where a contract to give time to the principal debtor made
by the creditor with a third party and not with the principal debtor, the surety is not
discharged.
2. Mere forbearance to sue: Mere forbearance on the part of the creditor to sue the
principal debtor or to enforce any other remedy against him does not discharge the
surety.
3. Release of one co-surety: Release of one co-surety does not discharge other co sureties
from their liability.
4. Death/insolvency of principal debtor.

CONTRACT OF PLEDGE
Pledge, Pawnor & Pawnee defined u/s 172

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• The bailment of goods as security for payment of a debt or performance of a promise is

called “Pledge”.
• The bailor in this case is called the “Pawnor”.
• The bailee in this case is called the “Pawnee”.

NOTE: Bailment is the delivery of goods by one person to another for some purpose, upon a
contract that they shall, when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of the person delivering them. Person delivering
the goods is called the bailor & the person to whom they are delivered is called the
bailee.

ESSENTIALS OF PLEDGE:
• Pledge is a species of bailment.
• Bailment of goods as security of debt.
• No change in ownership of goods.
• Subject matter is goods.
• Goods shall be in existence.
• Delivery of goods from Pawnor(Pledger) to Pawnee(Pledgee) is necessary.

Example: A lends money to B against the security of jewellery deposited by B with him. This
bailment of jewellery is a pledge as security for lending the money. B is pawnor & A is
a pawnee.

RIGHTS OF PAWNEE:
1. Right to retain the pledged goods [Sec 173]: The pawnee may retain the goods pledged, not
only for payment of debt or the performance of the promise, but for the interest, of the debt,
and all the necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged.

Example:

Where M pledges goods for certain loan from a bank, the bank has a right to retain the stock not
only for adjustment of a loan but the also for payment of interest.

2. Right to retention of subsequent debts [Sec 174]: The pawnee can retain the goods pledged
for any debt or promise other than debt or promise for which they are pledged. But he can
exercise this right only when there is a contract to this effect.
3. Pawnee’s right to extraordinary expenses incurred [Sec 175]: The pawnee is entitled to
receive from the pawnor extraordinary expenses incurred by him for the preservation of the
goods pledged.He cannot retain the goods, but he can sue the pawnor for such expenses.
4. Pawnee’s right where pawnor makes default [Sec 176]: If the pawnor makes default in
payment of the debt, or performance at the stipulated time of the promise, in respect of
which goods were pledged, the pawnee has the following rights:
• The pawnee may bring a suit against the pawnor upon the debt or promise, and retain
the goods pledged as a collateral security or

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• He may sell the thing pledged on giving the pawnor reasonable notice of the sale.
• If the proceeds of such sale are less than the amount due in respect of the debt or
promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are
greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

RIGHTS OF A PAWNOR:

As the bailor of goods, pawnor has all the rights of the bailor.

Right to redeem [Sec 177]: Pawnor may redeem the goods pledged at any subsequent time
before the actual sale of them, but he must, in that case, pay, in addition, any expenses which
have arisen from his default.

NOTE: Redemption means to recover back the goods by making the payment of debt.

PLEDGE BY NON-OWNERS
1. Pledge by mercantile agent [Sec 178]:
If a mercantile agent pledges goods while acting in the ordinary course of business and
who is in possession of goods or document of title to goods, the pledge will be considered
valid.
CONDITION: Pawnee should act in good faith and had no notice that pawnor has no authority to
pledge.
Other situations where pledge by non-owners is considered valid:

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• Pledge by person in possession under voidable contract.

• Pledge by a co-owner in possession.
• Pledge by seller or buyer in possession.

CONTRACT OF AGENCY
Section 182 of the Indian Contract Act, 1872 defines Agent & Principal as:

Agent means a person employed to do any act for another or to represent another in dealing
with the third persons.

The principal means a person for whom such act is done or who is so represented.

Thus, it can be concluded that agent is a connecting link between his principal & third parties.

Contract of agency is based on two important principles: -

(a) Whatever a person can do personally shall also be allowed to be done through an agent except
in case of contracts involving personal services such as painting, marriage, singing, etc.

(b) He who does act through a duly authorized agent does it by himself, i.e., the act of the agent
are considered the acts of the principal.

Rule of agency is based on the maxim “Qui Facit per alium, facit per se” i.e. he who acts through
an agent is himself acting.

Essential features of Contract of agency: -

1. Agreement between Agent & Principal
2. Competency of Principal
3. Competency not required for an agent
4. Contractual relationship
5. Creation of legal relation
6. Consideration not required
7. Intention of the person to act.

CREATION OF AGENCY
1. By Express Agreement (sec 186) -
Contract of agency may be expressed or implied. Express means, it may be oral or in writing.
it is a practice to appoint agents by using power of attorney on a stamped paper.

2. By Implied Agreement -
An implied agency may be created from the conduct, situation or relationship of the parties.
Sec 187 defines express & implied authority: -

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Express authority: An authority given by words spoken written.

Implied authority: An authority inferred from the circumstances of the case, conduct of parties.

Implied Agency includes: -

(a) Agency by Estoppel: -

If the principal by his conduct or statement leads another person to believe that a person is
his agent, he cannot deny him as his agent later. (Doctrine of Estoppel) Ex: - ‘A’ says ‘B’ in the
presence of C that he is the agent of ‘C’. If ‘C’ does not deny the statement, he cannot deny
‘A’ as his agent later.
(b) Agency by Holding Out: -
It is branch of the Agency by Estoppel. If one person knowingly admits another to act on his
behalf and allows him to do so, later he cannot deny the act of that person. If he does not
want to do so he should express his objection to that act immediately. Example: ‘A’ allowed
his wife ‘B’ to manage his property and to mortgage it. A is bound by her acts.
(c) Agency by necessity -
Agency of necessity is created in case of emergencies. In these cases, the persons who
perform their services as agents do not seek prior permission or appointment from the
principals. The principals are also in certain difficult situations and they could not give their
assent or refusal, but accept the services rendered by such persons. Therefore, law confers
authority on a person to act as an agent for another, without the consent of that person
(principal). Such an agency is called ‘Agency by Necessity’.
Cases where agency by necessity may arise:
a. When an agent exceeds his authority in an emergency (Sec. 189)
b. Relationship between husband and wife –
c. Living together
d. Living separately
e. Carrier of goods acting as Bailee does anything to protect to preserve the goods.
3. Agency by ratification -
Where acts are done by one person on behalf of another, without his knowledge / authority,
he may elect to ratify or to dis own such acts.
Ratification means approving a previous act or transaction.

Essentials of a valid Ratification

• It may be expressed or implied
• Complete knowledge of the facts
• No damage to third parties
• Ratification of the whole transaction (or complete rejection)
• Within reasonable time

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• Communication of ratification to other party

• Ratification of lawful acts.

4. By operation of law –
Agency by operation of law arises where the law treats one person as an agent of another.

EXTENT OF AGENT’S AUTHORITY

Authority of an agent means his capacity to bind the principal to third parties.
(a) Agent’s authority in normal circumstances (sec. 188)
i. An agent having an authority to do an act has authority to do every lawful thing which
is necessary to do such act.
ii. An agent having an authority to carry on a business has authority to do every lawful
thing necessary for conducting business.
(b) Agent’s authority in emergency (sec 189)
An agent has authority in an emergency to do all such acts for protecting his principal from
loss, as would be done by a man of ordinary prudence.

(Sec 190) When agent cannot delegate

An agent cannot lawfully employ another to perform acts which he has expressly or impliedly
undertaken to perform personally, unless by ordinary custom of trade a sub agent may or from
the nature of agency, a sub agent must be employed.
This is based on the Latin principle “Delegatus non potest delegare”.
Meaning: - A delegatee cannot further delegate.
Exceptions: -
1. Express consent of principal
2. Implied consent of principal
3. Unforeseen of trade
4. Customs of trade
5. Nature of agency.

SUB AGENT [SEC 191]

A “sub-agent” is a person employed by, and acting under the control of, the original agent is the
business of the agency.
This is based on the Latin principle “delegatus non potest delegare”.

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Representation of principal by sub agent properly appointed [Sec 192]:-

1) Principal is liable of third parties for the acts of sub agent.
2) The agent is responsible to the principal for the acts of sub-agent.
3) The sub agent is responsible for his acts to the agent, but not to the principal except in case
of fraud or willful wrong.

Where sub agent is improperly appointed [Sec 193]: -

1) The agent is responsible for his acts both to the principal & to third persons.
2) The principal is responsible for the acts of the sub agent.
3) The sub agent is not responsible to the principal at all.

SEC 194 (SUBSTITUTED AGENT)

Where an agent, holding an express or implied authority to name another person to act for the
principal in the business of the agency, has named another person accordingly, such person is not
a sub-agent, but an agent of the principal for such part of the business of the agency as is
entrusted to him.

Simply stating,

A substituted agent refers to a person appointed by the original agent with the principal’s
knowledge & consent to handle a specific part of the agency’s business.

Example:

(a) A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the
purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A’s agent
for the conduct of the sale.
(b) A authorizes B, a merchant in Calcutta, to recover the money due to A from C & Co. B instructs
D, a solicitor, to take legal proceedings against C & Co. for the recovery of the money. D is
not a sub-agent, but is solicitor for A.

Agent’s duty in naming such person [Section 195]: In selecting such agent for his principal, an
agent is bound to exercise the same amount of discretion as a man of ordinary prudence
would exercise in his own case; and, if he does this, he is not responsible to the principal for
the acts or negligence of the agent so selected.

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Example: A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good
reputation to choose a ship for A. The surveyor makes the choice negligently and the ship
turns out to be unseaworthy and is lost. B is not, but the surveyor is, responsible to A.

Example: A consigns goods to B, a merchant, for sale. B in a due course, employs an auctioneer
in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the
sale. The auctioneer afterwards becomes insolvent without having accounted for the
proceeds. B is not responsible to A for the proceeds.

LIABILITIES OF PRINCIPAL

1. Agent Acting for a Named Principal The rights and liabilities of a named principal for the acts
of his agent may be discussed as below:
a. Acts of an Agent within the Scope of his Authority. If an act is carried on by an agent
within his authority, his acts are binding on the principal. However, the act done should
be lawful.

Acts of an Agent Exceeding his Authority It can be under two heads as shown below:

1. Where the work can be separated – Where an agent exceeds his agency to do the work of
the principal, the principal is bound by that part of the work which is within his authority if it
can be separated from the part of the work which is beyond his authority.
Example:
A, owner of a ship and cargo, authorizes B to procure an insurance policy for Rs. 4,000 on the
ship. B procures a policy for Rs. 4,000 on the ship and another for Rs. 6,000 on the cargo. A is
bound to pay the premium for the policy on the ship, but not the premium for the policy on the
cargo.

2. Where the work cannot be separated – When an agent does more than what he is
authorized to do, and such act cannot be separated from that which is within his authority,
the principal is not bound by the transaction. He is in such a case entitled to repudiated the
whole transaction. So if the agent does something in excess of his powers, the transaction is
not binding on the principal.

Example:

A authorized B, an agent to buy 500 sheep. But B purchased 500 sheep and 200 lambs, for a sum
of Rs.6,000. In this case, the principal may repudiate the whole transaction.

a. Notice Given to Agent: The principal is bound by the notice given to the agent in the course
of business.
Thus, the knowledge of the agent is the knowledge of the principal. However, if the
knowledge is not acquired by the agent in the course of his employment, it cannot be
imputed to the principal.

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b. Liability by Estoppel: The principal is liable for the unauthorized acts of the agent, if the
principal has created an impression on the third party by his conduct, that the agent has the
authority to do such acts. Example: A, an owner of a house held out that B, the auctioneer
had authority to sell the house. B sold the house by auction to a third party for an amount
less than the amount authorized by A. It was held that the purchaser is not affected by A’s
instructions to the auctioneer not to sell below a certain price.
c. Liability for Misrepresentation or Fraud: The principal is liable for the misrepresentation or
fraud committed by his agent while acting in the course of his business. It is immaterial
whether the misrepresentation or fraud has been committed for the benefit of the principal
or of the agent himself. Example: A offered to buy a residentialflats consisting of number of
flats in it and enquired C, the property manager of B, whether all the tenants were paying
their rents regularly. C informed A that the tenants were paying rent regularly with
immaterial exceptions. This statement turned out to be false. B was held liable for fraud
because his agent (property manager) who knew the real facts had made a false statement.
3. Agent Acting for an Unnamed Principal - When an agent contracts, as an agent for a principal
but does not disclose his name, the principal is liable for the contract of the agent. But the
unnamed principal should be in existence at the time of the contract and the acts must be
within the scope of agent’s authority. Example: A appointed B as his agent to purchase some
goods. B entered into an agreement with C for purchasing those goods. B signed the
agreement as a broker “to my principal” but did not disclose the name of the principal. Here,
B is not personally liable because he contracted in the capacity of an agent. However, the
agent is personally liable if he declines to disclose the identity of the principal when asked by
the third parties.

4. Agent Acting for an Undisclosed Principal - In case of an agent acting for an undisclosed
principal, the mutual rights and liabilities of the agent, principal and the third party are as
follows:

a) Rights and liabilities of agent where agent contracts in his own name - So he is bound by the
contract. He is personally liable to the third party also. On such contracts, he can sue and be
sued in his own name because in the eyes of law he is the real contracting party. In such
cases, the principal and the agent have their respective rights against each other.

b) Rights and Liabilities of Principal - The principal has the right to intervene and require the
performance of the contract from the third party. In such cases, the other party may sue either
the principal or the agent or both. The principal if he likes may also require the performance
of the contract from the other party. But in such a case, he should allow, the benefit of all
payments made by the third party to the agent, to the third party.

Example:

A contracted with B, a shopkeeper, to purchase furniture. A advanced a part payment of the price
to B. Afterwards, A discovered that B is the agent of C. In this case, C may ask A to perform the
contract. But he must account for the advance money received by his agent B.

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c) Rights and Liabilities of Third Party - If the third party has discovered that there is a principal,
he may file a suit against the principal, or his agent or both. In such a case, the third party must
allow the principal, the benefit of all payments received by him from the agent.

Example: A sold 100 bales of cotton to B on credit. Afterwards, A discovered that B was acting
as an agent of C. In this case, A may sue either B or C, or both for the performance of
the contract.

Personal Liability of Agent- Sec. 230:

In the absence of any contract to that effect, an agent cannot personally enforce contracts
entered into by him on behalf of his principal, nor is he personally bound by them.

Presumption of contract to contrary. -Such a contract shall be presumed to exist in the following
cases: -

(1) Where the contract is made by an agent for the sale or purchase of goods for a merchant
resident abroad;

(2) Where the agent does not disclose the name of his principal;

(3) Where the principal, though disclosed, cannot be sued. An agent is not personally liable for
the contracts entered into by him on behalf of his principal unless there is a contract to the
contrary. Such a contract is presumed in the following circumstances:

(i). Where the Contract Expressly Provides

(ii). Where the Agent Acts for a Foreign Principal
(iii). Where the agents acts for an unnamed principal
(iv). Where the principal cannot be sued
(v). Where the Agent Contracts in Excess of his Authority
(vi). Where the Agent Acts for an Undisclosed Principal
(vii). Where the Trade Usage or Customs makes him Personally Liable
(viii). Where the Agent Acts for a Non-existing Principal
(ix). Where an Agent Receives or Pays Money by Mistake or Fraud
(x). Where the Agent Signs the Negotiable Instruments in his own Name
(xi). Pretended Agent
(xii). Where the Agent’s Authority is Coupled with Interest.

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Multiple Choice Questions

ESSENTIAL ELEMENTS OF CONTRACT, OFFER & ACCEPTANCE

1. Valid Contracts –
a. Are made by free consent
b. Are those where the parties to the contract are competent to enter into an agreement
c. Have lawful consideration & lawful object
d. All of the above [d]
2. Contract, which ceases to be enforceable by law becomes a/an –
a. Unenforceable contract
b. Void agreement
c. Void contract
d. Voidable contract [c]
3. A invites B for his son’s wedding. B accepts the invitation. In this case, there is a/an
a. Agreement
b. Contract
c. Acceptance
d. Offer [a]
4. According to Section 2(i), an agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of the other or others, is a –
a. Void agreement
b. Voidable contract
c. Unlawful contract
d. Void Contract [b]
5. An agreement is a voidable contract when it is –
a. Enforceable
b. Enforceable by law at the option of the aggrieved party
c. Enforceable by both the parties
d. Not enforceable at all [b]
6. …………is made by words either spoken or written
a. Express Contract
b. Implied Contract
c. Tacit Contract
d. Unlawful Contract [a]
7. Drawing Cash from ATM, sale by fall of hammer at an auction sale, etc, are examples of
a. Express Contract
b. Implied Contract
c. Tacit Contract
d. Unlawful Contract [c]
8. All illegal agreements are void; but all void agreements are not illegal

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a. True
b. Partly true
c. False
d. None of the above [a]
9. If A says to B “I offer to sell my house to you for Rs.25 lakhs and B accepts the offer by saying
clearly “I accept your offer”, it is an –
a. Implied offer
b. Express offer
c. General offer
d. Specific offer [b]
10. A bid at an auction sale is
a. An implied offer to buy
b. An express offer to buy
c. An invitation to offer to buy
d. An invitation to come to bid. [a]
11. An offer which is allowed to remain an offer for acceptance over a period of time is known
as a/an
a. Standing offer
b. Specific offer
c. Express offer
d. Implied offer [a]
12. An offer may be
a. Conditional
b. Unconditional
c. Both a and b
d. Either a or b [d]
13. When a person, proposes certain terms on which he is willing to negotiate and invites the
other party to make an offer on those terms, he is said to make a/an
a. Proposal
b. Offer
c. Invitation to offer
d. Acceptance [c]
14. M offers to sell his car for Rs.3.8 lakhs to N. N says he would buy it for Rs.3.5 lakhs. This is a
case of
a. Cross offers
b. Implied offers
c. Direct offers
d. Express offers [a]
15. An offer may terminate/lapse by –
a. Revocation of offer by the offeror
b. Rejection of offer by the offeree

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c. Either a or b
d. Neither a nor b [c]
16. An offer is revoked
a. By the death or insanity of the proposer
b. By lapse of time
c. By communication of notice of revocation
d. All of these [d]
17. When the proposal or acceptance is made otherwise than in words, the promise is said to be
a. Expressed
b. Implied
c. Accepted
d. Rejected [b]
18. In case, where a proposal and its acceptance are not made by words and are inferred from
the conduct of the parties. They are known as
a. Implied offers
b. Expressed offers
c. Specific offers
d. General offers [a]
19. S sent his servant L, to trace his missing nephew. Later, S offered a reward for anyone who
found out his missing nephew. L, ignorant of the announcement, traced the boy.
Subsequently, he claimed the reward, when he came to known of it. L is not entitled to the
reward since –
a. No reward can be given for tracing missing persons
b. Offer was not made to an ascertained person
c. It is the servant’s duty to help his master
d. Acceptance cannot precede the offer [d]
20. Performance of conditions of an offer; for the acceptance of any consideration for a
reciprocal promise which may be offered with a proposal, is a/an
a. Acceptance of the offer
b. Rejection of the offer
c. Counter offer
d. Revocation of the offer [a]
21. If the offeror prescribes the mode and manner of acceptance, the acceptance
a. Should be in the manner and mode prescribed
b. Need to be in the manner and mode prescribed
c. Can be in any reasonable manner and mode
d. All of the above [a]
22. Acceptance should be given within –
a. The time specified by the offeror
b. A reasonable time
c. Such time as the offer lapses

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d. All of the above [d]

23. Who said ‘acceptance is to a proposal what a lighted match stick is to a train of gun-powder’?
a. Anson
b. Baumol
c. Salmond
d. Drucker [a]
24. Consideration and object of an agreement is unlawful if it –
a. Is forbidden by law or would defeat the provisions of any law
b. Involves or implied injury to the person or property of another
c. Is fraudulent
d. All of the above [d]
25. Amar promises to drop prosecution which he has instituted against Balu for robbery. Balu
promises to restore value of things taken. The agreement is –
a. Contingent
b. Valid
c. Voidable
d. Void [b]
26. If an act is not forbidden by law but performance of the act would defeat the provisions of
law, an agreement to do such an act would be –
a. Legal
b. Void
c. Voidable
d. Valid [d]
27. Which of the following agreements are not void?
a. Agreements entered into through a mutual mistake of fact between the parties.
b. Agreements, the object or consideration of which is unlawful
c. Agreements, made without consideration
d. Agreements, made for inadequate consideration. [a]
28. All illegal agreements are
a. Void ab-initio
b. Valid
c. Contingent
d. Enforceable [c]
29. Agreement entered into with a Minor is an example of
a. Valid agreement
b. Voidable agreement
c. Void agreement
d. Illegal agreement [c]
30. The maxim ‘in pari delicto, potior est – conditio defendentis’ means
a. The defendant can be pardoned if his condition demands so
b. The defendant has to prove his innocence beyond doubt

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c. In cases of equal guilt, the defendant is in a better position

d. The law assumes that the defendant is innocent [a]
31. Who said – ‘A wagering Agreement is a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event’.
a. Anson
b. Pollock
c. Drucker
d. Cockburn [b]
32. Transactions for sale and purchase of stocks and shares or for sale and delivery of goods,
with a clear intention to give and take delivery of shares or goods are
a. Wagering agreements
b. Not wagering agreements
c. Contingent contract
d. Voidable agreements [b]
33. The Indian contract principles contract Act came into force on
a. 1st September 1872
b. 15 September, 1872
c. 1st October, 1872
d. 15th October, 1872 [a]
34. Which of the following eminent jurists has defined the contract as an agreement creating
and defining obligations between the parties?
a. Pollock
b. Halsbury
c. Salmond
d. Anson [a]
35. The term ‘Contract’ is defined in which of the following sections of the Indian Contract Act.?
a. Section 2(a)
b. Section 2(b)
c. Section 2(e)
d. Section 2(h) [d]
36. A proposal when accepted becomes a ______.
a. Promise
b. Offer
c. Acceptance
d. Contract [a]
37. “Every agreement and promise enforceable at law is a contract.” This definition is given by
a. Salmond

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b. Anson
c. Halsbury
d. Pollock [d]
38. The conditions of enforceability of an agreement are laid down in
a. Section 2(a)
b. Section 2(e)
c. Section 9
d. Section 10 [d]
39. The law of contract creates the right known as
a. Jus in rem
b. Jus in personam
c. Consensus ad idem
d. None of these [b]
40. A jus in personam means a right against
a. A specific person
b. The public at large
c. A specific thing
d. None of these [a]
41. As per Section 10, which of the following is not a condition for the enforceability of an
agreement?
a. An agreement must be made by the free constant of the parties
b. An agreement must be made by the parties who are competent to contract
c. An agreement must not be certain in its meaning
d. An agreement must not be expressly declared to be void [c]
42. A contract is an agreement
a. Enforceable by law
b. To indulge in Litigation
c. With mala fide intention
d. For social obligations. [a]
43. Which of the following is not an essential of a valid contract?
a. Registration of agreement
b. Free consent of parties
c. Competency of parties
d. Lawful consideration and object [a]
44. The parties to an agreement must agree upon the same thing in the same sense. This means
that there must be

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a. Free consent
b. Competency to contract
c. Consensus old idem
d. Jus in personam [b]
45. Free consent is an essential element of a valid contract and the consent of a party is not free
where it is obtained by.
a. Fraud
b. Coercion
c. Undue influence
d. All of these [d]
46. An agreement with a party who is not competent to contract is
a. Void
b. Voidable
c. Valid
d. Illegal [a]
47. A agrees to sell his white car to B for Rs. 50,000 or Rs. 70,000. It is not a valid agreement as
it is
a. Forbidden by law
b. For unlawful consideration
c. Not certain
d. Impossible [c]
48. An agreement to do an impossible act is
a. Voidable
b. Valid
c. Void
d. Illegal [c]
49. A valid contract is one which
a. Is enforceable at the option of one party
b. Satisfies the conditions of enforceability laid down in Section 10
c. Is enforceable at the direction of the court
d. Is not enforceable direction of the court of law [b]
50. A void contract is one which
a. Is enforceable at the option of one party
b. Is enforceable at the option of both the parties.
c. Is enforceable at the direction of court

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d. Ceases to be enforceable by law [d]

51. A voidable contract is one which
a. Can be enforced at the option of aggrieved party
b. Can be enforced at the option of both the parties.
c. Is enforceable at the direction of the court
d. Is forbidden by the court of law [a]
52. In the Indian Contract Act, a voidable contract is legally defined in
a. Section 2(b)
b. Section 2(i)
c. Section 2(j)
d. Section 2(k) [b]
53. A promised to marry B. Later on B Died. This contract of marriage
a. Becomes void on the death of B
b. Is void from the very beginning
c. Is valid as a should now marry B’s relative
d. Is illegal being forbidden by law [a]
54. An implied contract is one which comes into existence on account of
a. Act or conduct of the parties
b. Non-availability of a paper for writing
c. Inability of the parties to write or speak
d. Directions given by a court of law [a]
55. A contract in which only one party has to perform his obligation is a contract with executed
consideration and is known as
a. Executed contract
b. Executor contract
c. Unilateral contract
d. Bilateral contract [c]
56. A contract in which, under the terms of a contract, one or both the parties have still to
perform their Obligations in future, is known as
a. Executed contract
b. Executor contract
c. Unilateral contract
d. None of these [d]
57. Which of the following statements is incorrect?
a. An offer is the starting point in the making of an agreement

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b. An offer is the proposal by one party to another to enter into a legally binding
agreement with him
c. An offer, which is valid in itself, is sufficient to create legal relationship without any
response from the other party
d. An offer should be made with a view to obtain the assent of the person to the
proposed act. [c]
58. Which of the following is not the legal requirement (i.e., essential element) of a valid offer?
a. It must be communicated to the offeree.
b. It must be made with a view to obtain offeree’s assent
c. It must express offeror’s final willingness.
d. It must be made to a specific person and not to public at large [d]
59. A sent his servant B to trace his missing nephew. After B left, A announced a reward of Rs.
5,000 for anybody who discovered the boy. B discovered the missing boy without knowing
about the reward. In this case.
a. B is not entitled to the reward as he did not know about the offer when he
discovered
b. B is entitled to the reward as the offer has been communicated to him while sending
him to trace the missing boy.
c. No valid contract comes into existence as the offer of reward is not made to any
specific person.
d. Offer is not valid as unilateral contracts are not recognized [a]
60. A general offer made to the public at large is valid and a binding contract is made with a
person who having the knowledge of the offer
a. Comes forward and acts accordingly
b. Acts accordingly and his act is ratified by the offeror
c. Seeks offeror’s permission to accept the offer
d. Informs the public that he is willing to accept the offer. [a]
61. In which of the following cases, the principle of an offer to public at large was recognized?
a. Balfour v. Balfour
b. Harvey v. Facie
c. Carlill v. Carbolic Smoke Ball Co.
d. Both (a) and (b) [c]
62. The person to whom offer is made is known as ‘offeree or promisee’ and no acceptance, he
is legally known as the
a. Promisor’s agent
b. Acceptor

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c. Acceptor on promisor’s behalf

d. Acceptor for honor [b]

63. Which of the following is not the legal requirement (i.e. essential element) of a valid
acceptance?
a. It must be communicated
b. It must be absolute and unconditional
c. It must be accepted by a person who has the authority to accept.
d. It must be presumed from silence if not communicated within specified time. [d]
64. A, by a letter, offer to sell his TV of B for Rs. 10,000. Without knowing A’s offer, B, by a letter,
offer to buy same TV from A for Rs. 10,000. In this case.
a. A binding contract comes into existence as B’s letter is equivalent to the
acceptance of A’s offer.
b. No binding contract comes into existence as B’s letter is merely a cross offer
c. Both A and B will be guilty of breach of contract
d. The contract would be enforceable only with the permission of the court. [b]
65. Legal provision relating to completion of communication of offer and acceptance is contained
in
a. Section 1
b. Section 2
c. Section 3
d. Section 4 [d]
66. A, by a letter dated 25th December, 2006, offers to sell his house to B for Rs. 50 lakhs. The
letter reaches B on 27th December, 2006, who posts his acceptance on 28th December, 2006,
which reached A on 30th December, 2006. In this case, the communication of offer is
complete on
a. 25th December, 2006
b. 27th December, 2006
c. 28th December, 2006
d. 30th December, 2006 [b]
67. In contract through post, the offeror becomes bound by the contract when the letter of
acceptor’s acceptance is
a. Posted to the offeror
b. Received by the offeror.
c. Signed by the acceptor
d. None of these [b]

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68. Where the officer and acceptance are made by letters, the contract is complete at a place
where the letter of acceptance is
a. Written
b. Signed
c. Posted
d. Received [c]
69. The legal rule relating to revocation of offer is that it can be revoked at any time before the
communication of its acceptance is complete against
a. The acceptor
b. The offeror
c. Acceptor’s family
d. Offeree’s family [d]
70. An acceptance may be revoked by the acceptor at any time before the letter of acceptance
is
a. Posted by the acceptor
b. Received by the offeror
c. Signed by the acceptor
d. None of these [b]
71. Where no time is fixed for the acceptance of the offer, than the offer can be accepted
a. At any time up to one year
b. At any time up to tree years
c. Within reasonable time which depends upon the facts and circumstances of the
case
d. After seeking due permission from the court irrespective of time limit [c]

72. A offered to sell his car to B for Rs. 1,00,000. But B offered to buy it for Rs. 95,000. A refused
to sell for Rs. 95,000. Subsequently, B offered to purchase the car for Rs. 1,000. In this case
a. A is bound to sell the car to B as he has accepted the offer of Rs. 1,00,000
b. A contingent contract comes into existence which can be enforced if no other
person buys A’s car
c. No contract comes into existence as by offering Rs. 95,000, B has rejected the
original offer
d. B is guilty of breach of contract [c]
73. Which of the following types of agreements have been expressly declared to be void?
i. Agreements without consideration [Section 25]
ii. Agreements in restraint of marriage [Section 26]

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iii. Agreements in restraint of trade [Section 27]

iv. Agreements which are conditional i.e., Contingent contract
a. (i), (ii), (iv)
b. (ii), (iii), (iv)
c. (i), (iii), (iv)
d. (i), (ii), (iii) [d]
74. Agreements in restraint of marriage have been declared void under
a. Section 26
b. Section 27
c. Section 28
d. Section 29 [a]
75. An agreement in restraint of marriage is valid in case of
a. Married persons
b. Educated persons
c. Minors
d. None of these [c]
76. Agreements in restraint of trade gave been expressly declared void under
a. Section 26
b. Section 27
c. Section 28
d. Section 29 [b]
77. Where an agreement in restraint of trade is divisible, then the
a. Unrestricted part is valid and enforceable
b. Whole agreement is void and unenforceable
c. Whole agreement is valid and enforceable
d. Restraint is not valid in the eyes of law [a]
78. A agrees to pay a certain sum of money to B, a rival shopkeeper, if he closes his business in
A’s locality only. This agreement is
a. Valid
b. Voidable
c. Void
d. None of the above [c]
79. An agreement which restrains the seller of a goodwill from carrying on a similar business
within specified local limits is –
a. Void

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b. Voidable
c. Valid
d. Contingent [c]
80. Agreements in restraint of legal proceedings have been declared as void under
a. Section 26
b. Section 27
c. Section 28
d. Section 29 [c]
81. A legal action for breach of contract may initiated within three years from the date of breach.
An agreement which provides that no action would be taken after two years is.
a. Valid, as it puts a partial restraint only
b. Void, as it curtails (i.e., cuts short) the period of limitation which is expressly
prohibited under Section 28
c. Illegal, as such restraints are unlawful
d. Enforceable with the permission of court [a]
82. An agreement between the parties to refer any future dispute which may arise between
them to arbitration is
a. Void
b. Valid
c. Voidable
d. Illegal [b]
83. A agrees to sell his scooter to B for Rs. 5,000 or Rs. 10,000. Thus agreement is
a. Valid
b. Void
c. Voidable
d. Contingent [b]
84. A agrees to sell to B all the production of his only factory situated in Okhla. This agreement
is
a. Void, as there is o certainty about the product to be sold
b. Valid, as all the production is agrees to be sold, there is no uncertainty in the
agreement
c. Voidable, at the option of B
d. None of these [b]
85. An agreement to pay money or money’s worth on the happening or non-happening of a
specified uncertain event, is known as
a. Uncertain agreement

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b. Wagering agreement
c. Contingent contract
d. Quasi-contract [b]
86. A new promise to pay the stake money already won upon a wager is
a. Valid
b. Void
c. Voidable
d. Contingent [b]
87. Agreement to do impossible acts have been declared void under
a. Section 28
b. Section 29
c. Section 30
d. Section 56 [d]

CONSIDERATION, LEGALITY OF OBJECT AND CONSIDERATION

88. As a general rule, an agreement made without consideration is

a. Void
b. Voidable
c. Valid
d. Unlawful [a]
89. The term consideration is used in the sense of quid pro quo which means
a. Something for value
b. Some price
c. Something in return
d. None of these [c]
90. Consideration must move at the desire of _________
a. Promisor
b. Promisee
c. Promisor or any third party
d. Both promisor and promise [a]
91. Which of the following are the legal requirements (i.e., essential elements) of a valid
consideration?
i. Consideration must be real and not illusory.
ii. Consideration must be of some value in the eyes of law
iii. Consideration must be adequate.

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iv. Consideration must be lawful

a. (i), (ii), (iii)
b. (ii), (iii), (iv)
c. (i), (ii), (iv)
d. (i), (ii), (iii) [c]
92. An agreement made with free consent to which the lawful consideration is inadequate, is
a. Void
b. Valid
c. Voidable
d. Unlawful [b]
93. A found B’s purse and gave it to him. B promised to give Rs. 500 to A as reward. In this case,
for B’s promise, there is
a. Past consideration
b. Present consideration
c. Future consideration
d. No consideration. [a]
94. An agreement without consideration is void. This general rule is recognized under.

a. Section 2 (d)
b. Section 10
c. Section 25
d. None of these [c]
95. For the enforcement of an agreement without consideration based on natural love and
affection which of the following conditions is not required?
a. It must be between near relatives
b. It must be ratified by the court of law
c. It must be in writing
d. It must be registered [b]
96. A promise to pay for past services is valid and binding even though it is without consideration
However, for the validity of such promise, the past services should have been rendered
a. Voluntarily
b. At promisor’s request
c. Under compulsion
d. Under some contract [a]
97. An agreement without consideration is void. This general rule is recognized under:
a. Section 2(d)

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b. Section 10
c. Section 25
d. None of these [d]
98. For the enforcement of an agreement without consideration based on natural love and
affection which of the following conditions is not required?
a. It must be between near relatives.
b. It must be ratified by the court of law
c. It must be writing
d. It must be registered [c]
99. A promise to pay for past services is valid and binding even though it is with consideration
However, for the validity of such promise, the past services should have been rendered
a. Voluntarily
b. At promisor’s request
c. Under compulsion
d. Under some contract [b]
100. As per the rule of privity of contract a stranger to a contract cannot sue
a. A stranger to consideration cannot sue
b. A stranger to contract can sue
c. A stranger to consideration can sue
d. None of the above [a]

101. A person who is not party to a contract

a. Can sue
b. Cannot sue
c. Can sue with the permission of court
d. Can sue only in recognized exceptional case [d]
102. In which of the following important cases, the exception of ‘trust or charge’ to the rule of
privity of contract was recognized?
a. Lalman Shukla v. Gauri Datt
b. KhwajaMohd. Khan v. HussainiGegum
c. Carlill v. Carbolic Smoke Ball Co.
d. Balfour v. Balfour [b]
103. A person who is not a party to the contract but in whose favor some trust or charge under
some specific property is created
a. Can sue
b. Cannot sue

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c. Can sue with court permission

d. Can sue with permission of other parties [a]
104. All agreements are contracts only if they are made for lawful consideration and with lawful
object. It is emphasized in
a. Section 10
b. Section 23
c. Both (a) and (b)
d. None of these [a]
105. An agreement with unlawful object or unlawful consideration is void. It is emphasized in
a. Section 10
b. Section 23
c. Both (a) and (b)
d. None of these [b]
106. The consideration or object of an agreement is consideration unlawful where it is
i. Forbidden by law
ii. Fraudulent Immoral
iii. inadequate
a. (i), (ii), (iii), (iv)
b. (ii), (iii), (iv)
c. (i), (ii), (iv)
d. (i), (ii), (iii) [d]
107. Agrees to pay Rs. 2 Lakhs to B if he kills C. The agreement is
a. Valid
b. Voidable
c. Valid
d. Void [d]
108. A agrees to pay Rs. 25,000 to B if he becomes surety for A in a criminal case pending in the
court of law. This agreement is
a. Void
b. Voidable
c. Allowed
d. Voidable [a]
109. An agreement is said to be opposed to policy when it.
a. Is injurious to the welfare of the society
b. Tends to prejudice the welfare of the society
c. Either (a) or (b)

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d. Is against provision of any law [c]

110. A agrees to pay Rs. 50,000 to B if he gives false evidence in his favour in a case pending
against him in a court of law. This agreement is
a. Valid as such agreements are usually made and are recognized by courts.
b. Void as it interferes with administration and thus opposed to public policy
c. Enforceable after seeking permission of the court
d. Conditional depending upon the decision of the case [b]
111. An illegal agreement is void. However, a collateral transaction to an illegal agreement e.g.,
money borrowed to carry on an illegal business, is
a. Valid
b. Voidable
c. Void
d. Uncertain [c]
112. Where an agreement consists of two parts one legal and the other illegal, and the legal part
is separable form the illegal one, such legal part is
a. Void
b. Valid
c. Voidable
d. Illegal [b]
113. Who defined Consideration as “An act or forbearance of one party, or the promise thereof,
is the price for which, the promise of the other is bought and the promise of the other is
bought and the promise thus given for value is enforceable’?
a. Salmond
b. Austin
c. Pollock
d. Blackstone [c]
114. K engages M, an artist, to paint a portrait of his uncle and promises to pay M Rs.10,000 for
the work. Later, K refuses to pay stating that consideration must move from his uncle. Which
of the following statement is correct?
a. K is bound to pay M
b. K is not bound to pay M
c. Uncle is bound to pay M
d. M cannot claim anything from K or his uncle [a]

115. Past consideration is valid in –

a. England only
b. India only
c. Neither a nor b

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d. Both a and b [b]

116. An agreement not supported by consideration is called
a. NudumPactum
b. Consensus ad idem
c. Ab initio
d. Ignorantiajuris non excusat [a]
117. What does the maxim ‘Ex Nudopacto non orituractio’, mean?
a. An agreement without consideration is void
b. An agreement without consideration is valid
c. An agreement with consideration is void
d. An agreement with consideration cannot be enforced [a]
118. Inadequacy of consideration does not make the contract
a. Void
b. Voidable
c. Valid
d. Neither a nor b [d]
119. The expression ‘Privity of Contract’ means
a. A contract is contract between the parties only.
b. A contract is a private document
c. Only private documents can be contract
d. The contracts may be expressed in some usual and reasonable manner [a]
120. Only those person, who are parties to a contract, can sue and be sued upon the contract.
This Rule is called the doctrine of –
a. Promissory estoppels
b. Right of privilege suit
c. Privity of contract
d. Rights in rem [c]

CAPACITY OF PARTIES, FREE CONSENT

121. The capacity to contract (i.e. competence of the parties) is defined in
a. Section 10
b. Section 11
c. Section 24
d. Section 25 [b]
122. An agreement by or with a party not competent to contract is ….
a. Valid
b. Voidable
c. Forbidden
d. Void [d]

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123. Every person is competent to contract who is

a. Of sound mind
b. Not disqualified from contracting
c. Both a and b
d. None of these [c]
124. Under English Law, for all purposes, a minor is a person who is under the age of
a. 15 years
b. 18 years
c. 21 years
d. 25 years [b]
125. The soundness of mind for the purposes of entering into a valid contract is defined in
a. Section 10
b. Section 11
c. Section 12
d. Judicial decisions [c]
126. Flaw in capacity to contract may arise from
a. Uncertainty of object
b. Unsoundness of mind
c. Want of consideration
d. Illegality of object [b]
127. The leading case of the point that minor’s agreement is void ab initio, is
a. Lalmanshukla v. GauriDatt
b. Carlill v. Carbolic Smoke Ball Co.
c. Mohori bibi v. Darmodas Ghose
d. Nash v. Imman [c]
128. The expression void ab initio means the contract
a. Becoming void at a later stage
b. Void from the very beginning
c. Enforceable after rectifying the defect
d. Voidable at the option of minor [b]
129. A minor, who by fraudulently representing his age borrows some money
a. Can be sued for tort of deceit (i.e. fraud)
b. Cannot be sued for tort of deceit
c. Becomes a fraud person in the eyes of law
d. Suffers permanent capacity to contract. [b]

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130. A minor, who by false representation of his age has obtained some property or goods, is
a. Guilty of tort of deceit (fraud)
b. Liable to restore the same if traceable in his possession
c. Not liable to restore even if traceable in his possession
d. At liberty to use the goods as his own [b]
131. The rule that ‘a contract for minor’s benefit is enforceable’ is provided in
a. Section 10 of the Indian Contract Act, 1872
b. Section 25 of the Indian Contract Act, 1872
c. Section 33 of the Specific Reliefs Act, 1963
d. Judicial precedents i.e., judicial decisions given by courts. [d]
132. A minor:
a. Can be declared as insolvent
b. Cannot be declared as insolvent
c. Can be declared insolvent for limited purpose.
d. Is regarded as insolvent under law. [b]
133. Which of the following conditions should be satisfied for liability of minor’s estate for
necessaries supplied to him?
a. Goods supplied should be reasonably necessary for minor’s support in life.
b. Minor should not have already sufficient supply of such necessaries.
c. Both a and b should be satisfied
d. None of these, as estate’s liability is absolute [c]
134. Which of the following is correct about minor’s agreements?
i. Minor’s agreements are void ab initio
ii. Minor can ratify contract on attaining majority
iii. Minor can be beneficiary to a contract.
iv. Minor is personally liable to pay for necessaries
a. (i), (ii)
b. (i), (iii)
c. (ii), (iii)
d. (ii), (iv) [b]
135. A person is said to be of sound mind for the purposes of making a contract if he is capable of
understanding it and of forming a rational judgement as to its effects upon his interest, at
the time when
a. Contract is intended to be enforced
b. He attends the court
c. He makes the contract

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d. Other party attends the court [c]

136. A contract made by a drunken or intoxicated person is…..
a. Valid
b. Voidable
c. Void
d. Unlawful [c]
137. In reference to lunatics, the term ‘lucid intervals’ means the period when he is
a. Under medical treatment
b. Of sound mind
c. Of unsound mind
d. None of these [b]
138. Under the English Law, an agreement made by a person of unsound mind is
a. Void ab initio
b. Voidable at the option of person of unsound mind
c. Voidable at the option of other person
d. Forbidden under the provisions of English Common Law [b]

139. A person of unsound mind can enter into a valid and enforceable contract if he is of sound
mind
a. At the time of making contract
b. At the time of enforcing contract
c. Both at the time of making as well as enforceable the contract
d. None of these, as such a contract is void ab initio [a]
140. Contracts with an alien enemy before the declaration of war, which are against the national
interest, are
a. Terminated
b. Not affected at all
c. Suspended and revived after war
d. None of these [a]
141. A convict who is sentenced for imprisonment
a. Cannot enter into contract throughout his life
b. Cannot enter into contract during the period of imprisonment
c. Can enter into a valid contract even during imprisonment
d. Can enter into only a contract of marriage. [b]
142. Which of the following persons are not disqualified by law to enter into a valid contract?.
i. Idiot
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ii. Insolvent
iii. Person of 19 years
iv. Diplomatic staff of foreign state
a. (i), (ii)
b. (iii), (iv)
c. (i), (iv)
d. (ii), (iv) [b]
143. The term ‘free consent’ is defined in
a. Section 12
b. Section 13
c. Section 14
d. Section 15 [c]
144. The ‘consent’ means that the parties should have identity of mind i.e. they should agree on
the same thing in the same sense. Under English Law it is called.
a. Error in consensus
b. Error in causa
c. Consensus ad idem
d. None of the above [c]
145. Error in consensus is the complete absence of consent and prevents the existence of
following essential element of a contract
a. Competence of parties
b. Consideration
c. Consensus ad idem
d. Offer and acceptance [c]
146. The consent of a party is not free when it is caused by….
a. Coercion
b. Undue influence
c. Misrepresentation
d. All of these [d]
147. In cases where both the parties to an agreement are under a mistake as to the fact essential
to the agreement, the agreement is
a. Void
b. Voidable
c. Valid
d. Illegal [a]
148. Thereat to commit any act forbidden by the Indian Penal Code in order to obtain consent to

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a contract amounts to
a. Mistake
b. Misrepresentation
c. Coercion
d. Undue influences [c]
149. Threatening to detain any property of a person in order to obtain his consent to a contract
amounts to
a. Undue influence
b. Mistake
c. Misrepresentation
d. Coercion [d]
150. Committing or threatening to commit ay act forbidden by IPC, or unlawful detaining or
threatening to detain any property amounts to coercion under Section 15, if such act is done
with the intention of
a. Causing the other party to enter into contract
b. Injuring the other party
c. Causing loss to the other party
d. All of the above [a]
151. When the consent of a party is obtained by coercion, the contract is voidable at the option
of
a. Either party to the contract
b. A party whose consent was so obtained
c. A party who obtained the consent
d. Court deciding the case [b]
152. Threat to commit suicide amounts to
i. Fraud
ii. Coercion
iii. Undue influence
iv. Offence under IPC
a. (i) and (ii)
b. (ii) and (iii)
c. (iii) and (iv)
d. (ii) and (v) [d]
153. The circumstances in which one party is presumed to dominate the will of another are
provided in
a. Section 15

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b. Section 16(1)
c. Section 16(2)
d. Section 18 [c]
154. The fiduciary relationship
a. Is considered coercive
b. Raises the presumption of undue influence
c. Does not raise the presumption of undue influence
d. Raises the presumption of fraud being employed [b]
155. Which of the following relations fall in the category of ‘fiduciary relations’ and usually raise
the presumption of undue influence?
a. Solicitor and client
b. Doctor and patient
c. Spiritual adviser and devotee
d. All of these [d]
156. Contracts with a pardanashin woman raises the presumption of
a. Domination of will
b. Undue influence
c. Both of these
d. None of these [b]
157. When a contract is challenged in a court of law on the ground of undue influence, the burden
of proof lies upon the
a. Stronger party to prove that other party’s consent was not obtained by undue influence
b. Weaker party to prove that his consent was obtained by undue influence
c. Court to prove the undue influence
d. None of these [b]
158. The important case Derry v. Peek (1889) 14 App. Cas. 337, deals with
a. Coercion
b. Undue influence
c. Misrepresentation
d. Fraud [d]
159. Which of the following acts constitute fraud?
i. A promise made without any intention of performing it
ii. Positive assertion of a fact to be true when a person’s information does not warrant
to be so, though he believes it to be true.
iii. The active concealment of a fact by one having knowledge of belief of the fact.
iv. The suggestion about a fact which is not rue by one who does not believe it to be true

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a. (i), (ii), (iii)

b. (i), (iii), (iv)
c. (ii), (iii), (iv)
d. (i), (ii), (iv) [b]
160. A promise made without any intention of performing it amounts to…
a. Unintentional representation
b. Misrepresentation
c. Fraud
d. None of the above [c]
161. A, by auction, sold to b a horse which A knew to be unsound. A told nothing to B about the
horse’s unsoundness. In this case, A has obtained B’s consent by
a. Fraud
b. Misrepresentation
c. Undue influence
d. None of these [d]
162. Silence amounts to fraud, where
a. There is duty to speak
b. Silence is equivalent to speech
c. A person discloses half truth only
d. All of the above cases [d]
163. A contract induced by fraud is voidable at the option of the party whose consent is obtained
by fraud. It means that such a party.
a. Must put an end to the contract
b. Must cancel the old contract and make a fresh one on new terms
c. Must enforce the contract and claim damages for fraud
d. May put an end to the contract if he so chooses [d]

164. Where a party commits a fraud but fraud does not induce the other party to enter into the
contract the contract is
a. Voidable
b. Not voidable
c. Void
d. Void ab initio [b]
165. The aggrieved party i.e., the party whose consent was obtained by fraud may
a. Rescind (i.e. revoke) the contract only
b. Rescind or affirm the contract
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c. Affirm (i.e. accept) the contract only

d. None of the above [c]
166. A fraudulently, sold his car to B. afterwards, B came to know about the fraud, but instead of
complaining, he further sold the car to C. in this case, B’s right to rescind the contract is
a. Lost
b. Not lost
c. Strengthened
d. None of these [a]
167. The important element which distinguishes misrepresentation from fraud is that the
misrepresentation is an
a. Intentional statement
b. Innocement statement
c. Important statement
d. Irrelevant statement [b]
168. Any breach of duty which, without any intent to deceive, gains an advantage to the person
committing it by misleading another to his prejudice falls in the category of
a. Fraud
b. Undue influence
c. Misrepresentation
d. None of above [c]
169. When the consent of party is obtained by misrepresentation, the contract is voidable at the
option
a. A party whose consent so obtained
b. A party who obtained the consent
c. Either party to the contract
d. Court which has to decide the case [a]
170. A contract induced by misrepresentation is voidable at the option of aggrieved party. It
means that such a party
a. Must rescind (i.e. cancel) the contract
b. Must cancel the old contract and make a fresh one on new terms
c. Must enforce the contract the claim damages
d. May put an end to the contract if he so chooses. [d]
171. The aggrieved party i.e. the party whose consent was obtained by misrepresentation, may
a. Rescind (i.e. revoke) the contract only.
b. Affirm (i.e. accept) the contract only
c. Either rescind or affirm the contract

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d. None of above [c]

172. Where only one party to an agreement is under a mistake about the essential fact, it is called
a. Unilateral mistake
b. Bilateral mistake
c. Common mistake
d. Mutual mistake [a]
173. As per Section 20, where both the parties to an agreement are under a mistake as to a matter
of fact essential to the agreement, the agreement is
a. Void
b. Valid
c. Voidable
d. Illegal [d]
174. An agreement for the sale of a truck, existing at the time of bargain, which was destroyed in
an accident subsequent to the bargain, is void under
a. Section 20
b. Section 22
c. Section 50
d. Section 56 [a]
175. A agreed to buy a horse from B. At the time of bargain, the horse was dead though neither
party was aware of this fact. In this case, the agreement is
a. Void
b. Valid
c. Voidable
d. Illegal [c]
176. In case of bilateral mistake about essentials facts, there is complete absence of consent,
which is described by Salmond as
a. Consensus ad idem
b. Error in causa
c. Error in consensus
d. None of the above [a]
177. Where an agreement is impossible to perform, but the fact of impossibility to unknown to
both the parties the agreement is
a. Void
b. Voidable
c. Illegal
d. Valid [a]

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178. The effect of bilateral mistake of fact is that it renders the agreement void. It is provided in
a. Section 19
b. Section 20
c. Section 21
d. Section 22 [b]
179. A unilateral mistake of fact affects the validity of the contract if the unilateral mistake
a. Is about some fact essential to the contract
b. Has the effect of defeating the true consent of the parties
c. Both a and b
d. None of the above [c]
180. A intends to enter into an agreement with B only and with no other person. C fraudulently
representing himself as B entered into an agreement with A, who believed him to be real B.
in this case, the contract is void on account of
a. Unilateral mistake about identity
b. Bilateral mistake about identity
c. Common mistake about identity
d. Mutual mistake about identity [a]
181. Where there is fraudulent representation about the contents (not the nature) of a document,
the contract is
a. Valid, as the contents are not material to contract
b. Voidable, as there is fraud by one party
c. Void, as there is mistake about document.
d. Illegal, as fraud is an illegal act, [b]
182. Which of the following agreements are void?
i. Agreement made under the mistake of Indian law
ii. Agreement made under the mistake of Foreign Law
iii. Agreement made under unilateral mistake of fact.
iv. Agreement made under bilateral mistake of fact
a. (i), (ii), (iii)
b. (ii), (iii), (iv)
c. (i), (ii), (iv)
d. (i), (iii), (iv) [b]
183. Two persons have the capacity to contract
a. If both are not of unsound mind
b. If none is disqualified from contracting by any law to which he is subject
c. If both have attained the age of majority

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d. All of the above [d]

184. A corporation cannot enter into Contracts that are
a. Ultra vires (beyond powers of) its Memorandum of Association
b. Strictly of a personal nature as it is only an artificial person
c. Either a or b
d. Neither a nor b [c]
185. On attaining the age of majority, a Minor is –
a. Is void
b. Cannot be ratified
c. Becomes void
d. Becomes valid [b]
186. Parents or Guardian shall……. for breach of contract by Minor
a. Be held liable
b. Not be held liable
c. Be imprisoned
d. Not be questioned [b]
187. D, a Minor, entered into a contract for borrowing a sum of Rs.20,000 out of which lender
paid him a sum of Rs.8,000. D executed mortgage of property in favor of the lender. The
mortgage is –
a. Valid to the extent of Rs.8,000 only
b. Valid to the extent of Rs.20,000
c. Totally invalid
d. Validated on attaining majority [c]
188. A minor, by misrepresenting his age, borrows some money. He –
a. Can be sued for fraud
b. Cannot be sued for fraud
c. Is liable to return the money
d. Is liable to return the money on attaining majority [b]
189. J supplies to L, a Minor, necessaries suitable to his condition of life. J is entitled to be
reimbursed
a. From L’s property
b. By L personally
c. By L’s guardians
d. Any of the above [a]
190. A threatens to shoot B, if B does not agree to sell his property to A at a stated price. B’s
consent in this case has been obtained by –
a. Undue Influence
b. Fraud
c. Misrepresentation
d. Coercion [d]
191. X, threatens to kill a if he does not sell his house to B at a very low price. Even if X is a stranger
to the transaction between A and B, the agreement is caused by –
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a. Undue Influence
b. Coercion
c. Fraud
d. Misrepresentation [c]
191. The concept of ‘Duress’ under English Contract Law is similar to –
a. Undue Influence
b. Coercion
c. Fraud
d. Misrepresentation [b]
192. A person to whom money has been paid or anything delivered by mistake or coercion shall –
a. Be entitled to hold the money or thing
b. Repay such money or return such thing
c. Pay monetary compensation
d. All of the above [b]
193. D’s son forged B’s name to a Pro Note. B under threat of persecuting D’s son and exercising
undue influence, obtains a bond from D for the amount of the forged note. The Bond –
a. Is valid
b. Is void ab initio
c. Is illegal
d. Can be set aside by the Court [b]
194. A minor girl who lost her parents lived with her cousin brother who was in the position of
her parents. She executed an unconscionable gift deed in his favor. This gift deed can be set
aside on grounds of –
a. Mistake
b. Undue influence
c. Fraud
d. Coercion [d]
195. Which of the following relationships raise presumption of undue influence?
a. Parent and Child
b. Guardian and Ward
c. Religious/Spiritual Guru and Disciple
d. All of the above [b]
196. Which of these does not constitute Fraud?
a. Suggestion as a Fact, of something which is not true, by a person who does not believe
it to be true
b. Active concealment of a Fact by one having knowledge or belief of the fact
c. Innocent statement, honestly believing the same to be true
d. Promise made without any intention of performing it [d]
197. Duty to speak exits in case –
a. Where the parties stand in a fiduciary relationship
b. Where contract is a one of ubberrimae fidei (requiring utmost good faith)
c. Both a and b
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d. Neither a nor b [c]

198. A, intending to deceive B, falsely represents that five hundred mounds of Indigo are made
annually at A’s factory and thereby induces B to buy the factory. The contract is –
a. Voidable
b. Void
c. Unenforceable
d. Illegal [c]
199. …..is an erroneous belief about something.
a. Representation
b. Mistake
c. Fraud
d. Misrepresentation [b]
200. An old illiterate man was made to sign a bill of exchange, by means of a false representation
that it was a guarantee. The contract is –
a. Illegal
b. Valid
c. Void
d. Voidable [c]
201. A woman, falsely misrepresenting herself to be wife of a well known Baron obtained two
pearl necklaces from a firm of jewelers on the pretext of showing them to her husband before
buying. She pledged them with a broker who took them in good faith. In this case
a. There was no contract between jeweler and the impersonating woman.
b. Sale made by jeweler to the woman to the woman is valid
c. Pledge made by the woman to the Broker is valid
d. Jeweler has to bear the risk of bad debts [a]
202. Cundy Vs. Lindsay Case deals with –
a. Coercion
b. Undue influence
c. Mistake as to the nature of transaction
d. Mistake as regards identity [d]
203. Table napkins were sold at an auction described as “with the crest of Charles I and the
authentic property of that Monarch”. Bur napkins were only Georgian. The agreement is void
due to
a. Mistake as to existence of subject matter
b. Mistake as to identity of goods
c. Mistake as to quantity of goods
d. Mistake as to quality of goods [d]
204. The maxim “Ignorantia juris non excusat” stands for
a. Law will not punish ignorant people
b. Law will punish illiterate people
c. Ignorant people can excuse law
d. Ignorance of law of land is no excuse. [d]
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205. The validity of contract is not affected by –

a. Mistake of fact
b. Mistake of law
c. Misappropriation
d. Fraud [b]

QUASI CONTRACT, CONTINGENT CONTRACT

206. A contract dependent on the happening or non-happening of future uncertain event is a

a. Contingent contract
b. Uncertain contract
c. Void contract
d. Voidable contract [a]
207. Legally, the term contingent contract is defined in _________.
a. Section 30
b. Section 31
c. Section 56
d. Section 68 [b]
208. A promises to pay Rs. 500 B if it rains on the first Monday of next month. It is a
a. Wagering agreement
b. Contingent contract
c. Void contract
d. Voidable agreement [b]
209. A agrees to purchase B’s horse for Rs. 20,000, if the horse proves lucky. It is
a. A contingent contract as its horse for Rs. 20,000, if the horse proves lucky. It is
b. Not a contingent contract as the event (i.e., luck of the horse) is part of main contract
c. Void contract on account of uncertainty
d. Both (b) and (c) [d]
210. A agrees to pay Rs. 50,000 to B if he (B) marries C. It is
a. A wagering agreement
b. A contingent contract
c. An uncertain contract
d. A voidable contact [b]
211. A contract of life insurance is a
a. Contract of indemnity
b. Contingent contact

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c. Wagering agreement
d. Uncertain agreement [a]
212. A contingent contract dependent on the happening of future uncertain event can be
enforced when that event.
a. Happens
b. Becomes impossible
c. Does not happen
d. Both b and c [b]
213. A contract to pay Rs. 50,000 to B if he (B) marries C. But C died before marriage. The contract
between A and B
a. Cannot be enforced
b. Can be enforced at the option of A
c. Can be enforced if B marries C’s sister
d. Can be enforced at the option of B [a]
214. A agrees to pay Rs. 10,000 to B if a certain ship does not return within a year. The ship sinks
before the expiry of the year. The contract becomes
a. Enforceable
b. Non-enforceable
c. Void
d. Voidable [d]

215. A contingent contract dependent on the happening of impossible event is ______

a. Void
b. Voidable
c. Valid
d. Illegal [a]
216. The term quasi contract is used in the Indian Contract Act, in
a. Sections 68 to 72
b. Section 69 only
c. Section 71 only
d. None of these [d]
217. Which of the following expressions is used in the Indian Contract Act in the part dealing with
quasi contracts?
a. Quasi-contractual obligations
b. Certain relations of quasi-contractual obligations
c. Certain relations resembling those created by contract

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d. Obligations in the absence of actual contract [c]

218. About quasi-contractual obligations, which of the following statements is correct?
a. There is no real contract in existence
b. There is no offer and acceptance
c. There is no intention to make a contract
d. All of these [d]
219. A quasi contract is ______.
a. A contract
b. A legal obligation
c. An agreement
d. A contingent contract [b]
220. The basis of Quasi-contractual relations’ is the
a. Existence of a valid contract between the parties
b. Existence of a voidable contract between the parties
c. Prevention of unjust enrichment at the expense of others
d. Provision contained in Section 10 of the contract Act. [c]
221. The quasi-contractual obligations arise where a person
a. Supplies necessaries to an incompetent person
b. Makes payment of money of delivery of goods by mistake or under coercion
c. Both of these
d. None of these [c]
222. A person supplying ‘necessaries’ to an incompetent person is entitled to be reimbursed from
the
a. Incompetent person personally
b. Parents of incompetent person
c. Property of incompetent person
d. Funds with the state government [c]
223. A’s property was wrongfully advertised for sale for recovery of government revenue due
from B. In order to save his property. A paid the government dues. In this case. A is entitled
to recover the amount of dues paid by him from B on the basis of.
a. Government contract
b. Valid contract
c. Quasi contract
d. None of these [c]
224. Where a person finds certain goods belonging to some other person, the finder

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a. Becomes the owner of the goods and can use them

b. Is under a duty to trace the true owner and return the goods
c. Can sell the perishable goods if the true owner cannot be found
d. Both (B) and (C) [d]
225. A paid some money to B by mistake which was in fact due to C. In this case
a. A is not entitled to recover money as there is no contract between A and B
b. A is entitled to recover money as a mistake makes, the agreement, if any void
c. A is entitled to recover money under section 72 of the Indian Contract Act
d. B is not liable to repay as he did not ask for such payment [c]
226. Conditional contracts are called….contracts
a. Absolute
b. Contingent
c. Quasi
d. Illegal [b]
227. A contingent contract is a contract to do, or not to do something, if some event, to such
contract, does or does not happen.
a. Primary
b. Collateral
c. Exclusive
d. Inclusive [b]
228. Contracts contingent upon the non-happening of an Uncertain Future Event can be enforced
by law –
a. When the happening of that event becomes impossible, and not before
b. Before the happening of that event becomes impossible
c. When the event becomes difficult to perform
d. At the option of the Promisor only. [a]
229. Contracts contingent upon the non-happening of an Uncertain Future Event within a fixed
time, can be enforced by law –
a. When time fixed has expired and such event has not happened
b. Before expiry of the time fixed, it becomes certain that such event will not happen
c. Either a or b
d. Neither a nor b [b]
230. A agrees to pay B a sum of money if B marries C. but C marries D. although it is possible that
D may and that C may afterwards marry B, the marriage of B to C –
a. Will be considered unlawful
b. Will be considered impossible

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c. Will be considered contingent

d. Will be considered necessary [b]
231. A agrees to pay B Rs.10,000 if B will marry A’s daughter C and C was dead at the time of the
agreement. The agreement is –
a. Voidable
b. Void
c. Valid
d. Illegal [b]
232. X leaves his goods at Y’s place who consume them. Y is bound to pay the price. Y’s act of
consumption of goods constitutes an implied promise to pay, under the principle of –
a. Contractual obligations
b. Quasi contractual obligations
c. Semi contractual obligations
d. Deemed contractual obligations [b]
233. When a minor has been supplied with necessaries in credit
a. The minor is not liable
b. The minor’s property is liable
c. The minor is personally liable
d. The minor is liable at his option [b]
234. To claim reimbursement of money paid on behalf of another person, the payment should be
made bonafide, i.e. for protection of own interest of the Payer.
a. True
b. Partly true
c. False
d. None of the above [a]
235. Obligation of person enjoying benefit of non-gratuitous act u/s 70 arises in respect of –
a. Lawful acts only
b. Illegal acts only
c. Either a or b
d. Both a and b [a]
236. A, a tradesman, leaves goods at B’s house by mistake. B treats the goods his own, in such
case –
a. B is bound to pay A for the goods
b. B has no obligations against A
c. B has to return the same goods to A
d. B can avoid payment citing A’s mistake [a]

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237. A Finder of lost goods is a –

a. Bailor
b. Bailee
c. True Owner
d. Thief [b]

PERFORMANCE OF CONTRACT
238. The parties to a contract must
a. Perform their respective promises
b. Offer to perform their respective promises
c. Either a or b
d. Neither a nor b [c]
239. A promise to deliver goods to B on a certain day on payment of Rs.50,000. A dies before that
day
a. The contract becomes void and cannot be enforced against becomes void and cannot
be enforced against legal representatives of A.
b. The contract becomes impossible due to the death of A.
c. The contract can be enforced against A’s representatives and B is bound to pay
Rs.50,000 to A’s representatives
d. The contract is illegal [c]
240. Upon an offer of performance by the promisor, if the promise neglects to provide or does
not provide reasonable facilities for performance, the Promisor is
a. Bound to offer performance again
b. Excused by such neglect or refusal as to any non-performance caused thereby
c. Not entitled to remuneration
d. Not entitled to sue the promise. [b]
241. The offer to perform the contract must be –
a. Unconditional
b. Conditional
c. Rational
d. Irrational [a]
242. A promise can accept the performance from
a. Promisor himself
b. Representative of the promisor competent to perform
c. A third person
d. Any of the above [d]

243. “X” promises to act in a movie for “Y”. in this case –

a. X’s son can perform the promise

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b. X’s servant can perform the promise

c. X’s employer can perform the promise
d. X must perform this promise personally [d]
244. In case of death of a Joint Promisor(s), the Promisee can –
a. Enforce the contract against the survivor(s) of the said Joint Promisor(s)
b. Not enforce the contract against the survivor(s) of the said Joint Promisor(s)
c. Not enforce the contract at all
d. Both a and b [a]
245. A, B and C jointly promise to pay Rs.600 to P. P files a suit to recover the amount against A
a. P must sue all the three
b. P can sue A for the recovery of Rs.100 only
c. Since A, B and C are Joint promisors; P can recover the amount from any one of them.
d. P cannot sue any of A, B or C. [c]
246. In case of a Joint Promise, release of one of Joint Promisors by the Promisee……such Promisor
from responsibility to the other joint promisor(s).
a. Releases
b. Does not release
c. Disables
d. Discharges [b]
247. In a contract where time is not specified for performance, the Promisor can perform the
contract
a. At any time he wishes
b. Within the shortest time
c. Within a reasonable time
d. Within the latest time [c]
248. A owes B Rs.50,000, B accepts some of A’s goods in reduction of debt. In such case, the
delivery of goods
a. Operates as a part of the payment
b. Does not reduce A’s liability to B.
c. Is against the provisions of Contract Act
d. Is without any consideration [a]
249. th
A contracts with B to delivery certain goods at his warehouse on 18 Jan. for which B
promises to pay on delivery. A shall perform his part of delivery –
a. At any time before 18th Jan.
b. On 18th Jan.
c. At any time after 18th Jan.
d. Any one of the above [b]
250. Whether time is the essence of a contract is a
a. Question of law
b. Question of fact
c. Mixed question of fact and law

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d. Question of prudence [c]

251. If Contract does not provide for the order of performance of reciprocal promises, the
promises shall be performed –
a. In the order as directed by the Court
b. In any reasonable order
c. In such order which the nature of transactions require
d. In any order whatsoever [c]
252. Where a contract contains Reciprocal Promises and one party to the contract prevents the
other from performing his promise, the party so prevented is
a. Entitled to avoid the contract
b. Entitled to compensation from the party preventing, for any loss sustained by him as
a result of non-performance of contract.
c. Both a and b
d. Either a or b [c]
253. A owes B totally Rs.25,000. He sends a cheque for Rs.10,000 stating that it shall be
appropriated towards he first sum of Rs.10,000 he took from B. B shall appropriate it –
a. Towards any debt due from A
b. Towards any time barred debt due from A
c. Towards any disputed debt due from A
d. Towards that debt as indicated by A. [d]
254. The general maxim of law is that when money is paid, it is to be applied according to the
expressed will of –
a. The Payer
b. The Receiver
c. Either a or b
d. Both a and b [a]
255. The rule of impossibility is contained in Section of…..the Indian Contract Act,
a. Section 56
b. Section 59
c. Section 60
d. Section 62 [a]
256. A agrees to pay B Rs.10 lakhs and B promises to bring for A, stars from heaven. The
agreement is
a. Void
b. Valid
c. Voidable
d. Illegal [a]
257. The doctrine of impossibility of performance rendering a contract void is based on –
a. Implied term
b. Supervening impossibility
c. Just and reasonable solution

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d. Unjust enrichment [b]

258. Section…..of the Indian Contract Act deals with the doctrine of frustration
a. Section 46
b. Section 48
c. Section 56
d. Section 75 [c]
259. A Contracts to take in cargo for B at a Foreign port. Later, A’s Government declares war
against the country in which the port is situated. The contract
a. Is void ab initio
b. Becomes void
c. Is valid
d. Is voidable at B’s option [b]
260. A contracts to act at a theatre for six months for Rs.5 lakhs paid in advance by B. on several
occasions A is too ill to act. The contract to act becomes void on those occasions due to –
a. Initial impossibility
b. Subsequent illegality
c. Subsequent impossibility
d. Destruction of subject matter [c]
261. The obligation of the parties to perform their respective promise is provided in
a. Section 34
b. Section 35
c. Section 36b
d. Section 37 [d]
262. Performance of contract means the performance of respective obligation under the contract
by
a. Promisor only
b. Promisee only
c. Both the promisor and the promise
d. Court of law [c]
263. The parties to the contract may discharge their duties to perform their respective obligations
by
a. Actual performance
b. Making an offer to perform
c. Either actual performance of offer to perform
d. Approaching the court of law [c]
264. A party bound to perform the promise may make an offer of performance of promise to the
other party, and such ‘an offer to perform’ is known as
a. Tender of performance

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b. Defaulted performance
c. Conditional performance
d. None of these [a]
265. A valid tender of promise
a. Is considered equivalent to performance of promise
b. Cast duty on the promise (i.e., other party) to accept the performance
c. Is allowed under section 37 of the Indian Contract Act.
d. All of these [d]
266. Which of the following is the essential requirement of a valid tender?
a. It must be make at proper time and place
b. It must be unconditional and of the whole obligation
c. It must provide a reasonable opportunity of inspection to the other party
d. All of the above [d]

267. Which of the following persons can perform the contract?

a. Promisor alone
b. Legal representatives of promisor
c. Agent of promisor
d. All of these [d]
268. A promises to paint a picture for B for Rs. 10,000. A dies before paining the picture. In this
case
a. A’s legal representative should arrange a painter and perform the contract
b. Contract comes to an end on the death of A
c. B remains liable to pay the agreed amount to A’s legal representative
d. None of these [b]
269. Where two or more persons jointly enter into an agreement with one or more person, the
promise is known as
a. Joint promise
b. Combined promise
c. Reciprocal promise
d. None of these [a]
270. The rule relating to performance of joint promises are contained in
a. Section 37 to 41
b. Section 42 to 45
c. Section 39

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d. Section 37 [b]
271. On the death of all the joint promisors before the performance of the contract, the legal
representatives of all of them jointly becomes liable to perform the contract. This rule is
known as
a. Devolution of joint liabilities
b. Devolution of joint rights
c. Devolution of performance
d. None of these [a]
272. Where a promisee releases one of the several joint promisors, then the
a. Remaining joint promisors are also discharged
b. Remaining joint promisors remain liable to pay the entire amount.
c. Contract is discharged due to interference in justice
d. Contract becomes voidable at the option of remaining promisors [b]
273. Where the time for performance is not specified in the contract and the promisor himself
has to perform without being asked by the promise, then the promise
a. Must be performed within a reasonable
b. Must be performed at any time suitable to promisor
c. May not be performed at all
d. Must be performed within one year [a]
274. The Expression ‘Time as the essence of contract’ means that the time is an essential element
and the parties must
a. Perform their respective promises within the specified time
b. Enforce the contract in court within the specified time
c. Obey the court order within the specified time
d. Bothe (B) and (C) [a]
275. The promises forming consideration for each other are called
a. Reciprocal promises
b. Mutual promises
c. Independent promises
d. None of these [a]
276. The promises which are to be performed simultaneously are known as
a. Mutual and concurrent
b. Conditional and dependent
c. Mutual and independent
d. None of these [a]
277. The sale of goods for cash is an example of reciprocal promise known as

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a. Mutual and concurrent

b. Conditional and dependent
c. Mutual and independent
d. Cash and concurrent [a]
278. Where each party is a reciprocal promise prevents the other party from performing his
promise, the contract becomes
a. Void and unenforceable
b. Voidable at the option of prevented party
c. Voidable at the option of preventing party
d. Enforceable with the permission of the court [b]
279. A contracted with B to clear B’s mine and remove a rock from there. The crusher for the
purpose was to be supplied by B, but he failed to supply the same. In this case
a. Contract is voidable at A’s option
b. Contract is voidable at B’s option
c. A is entitled to recover compensation from B for any loss suffered due to non-
performance
d. Both (a) and (b) [d]
280. The rules relating to appropriation of payments are contained is
a. Section 57 to 59
b. Section 59 to 61
c. Section 68
d. Section 73 [b]

281. Where payment by a debtor is made without any express indication of appropriation, to
which of the following debts payment can be appropriated by the creditor?
a. Any legal debt
b. Time-barred debt
c. Any debt legal or illegal
d. Both (a) and (b) [d]

DISCHARGE OF CONTRACT
282. Which of the following is a mode of discharge of contract?
a. By performance of contract
b. By agreement
c. By impossibility of performance
d. All of these [d]

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283. In which of the following modes, the contract is discharged?

a. By operation of law
b. By lapse of time
c. By breach of contract
d. All of these [d]
284. The discharge of contract means the
a. Enforcement of obligations of parties
b. Coming to end of obligations of parties
c. Starting of obligation
d. Payment of damages and penalty [b]
285. The legal provisions relating to discharge of contract by impossibility of performance are
contained in
a. Section 55
b. Section 56
c. Section 58
d. Section 59 [b]
286. A contract containing an undertaking to de an impossible act is _________
a. Void ab initio
b. Voidable
c. Valid
d. Illegal [a]
287. A agreed to sell hi hors to B. But unknown to both the parties, the horse was dead at the time
of agreement. In this case, the contract is
a. Void and the parties are discharged from performance
b. Void but the parties are not discharged from performance
c. Voidable at the option of either party
d. Voidable at the option of A only [a]
288. Which of the following is the leading case on the discharge of contract by destruction of
subject matter?
a. Krell v. Henri, (1903) 2 KB 74 CA
b. Taylor v. Caldwell, (1863) 3 B&S 826
c. Taylor v. Portington, (1855) all E.R. 128
d. Carlill v. Carbolic Smoke Ball Co., (1893) 1 Q, B, 256 [b]
289. A contracts to paint a picture for B for Rs. 10,000. A dies before paining the picture. In this
case, on A’s death, the contract becomes
a. Voidable at B’s option

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b. Void and is discharged

c. Voidable at option of A’s legal heirs
d. None of these [b]
290. A contract is discharged on account of change of circumstances where the performance
becomes
a. Virtually impossible
b. Extremely difficult or hazardous
c. Temporarily impossible
d. Both (a) and (b) [b]
291. In which of the following cases, a contract is discharged on the ground of frustration or
subsequent impossibility?
a. Outbreak of war
b. Change of law or government policy
c. Both of these
d. None of these [c]
292. A agreed to supply certain goods to B which were to be procured from C’s factory. Dues to
strike in C’s factory, A could not supply the goods. The contract
a. Is discharged
b. In not discharged
c. Becomes voidable only
d. Becomes Unlawful [b]
Which of the following modes of discharge of contract by fresh agreement are recognized
under the India Contract Act?
a. Novation
b. Rescission
c. Alteration
d. All of these [d]
293. A contract is discharged by rescission, Which means the
a. Cancellation of the existing contract
b. Change in one or more terms of contract
c. Acceptance of lesser performance
d. None of these [a]
294. A owned Rs. 5,000 to B. A paid Rs. 4,000 to B and B accepted it in full satisfaction. In this case
a. A is discharged from his liability of Rs. 5,000
b. A remains liable for the balance Rs. 1,000

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c. Contract becomes voidable at B’s option

d. A is discharged from his liability but the contract is not discharged [a]
295. An insolvent is discharged from all liabilities and debts contracted by him
a. Throughout his life as an insolvent is discharged permanently
b. After the court order declaring him as insolvent
c. Prior to the court order declaring him as insolvent
d. After court order and with the permission of the court [c]
296. A contract to sing in B’s theatre on a particulars show. A died before the show. In this case
the contract
a. Becomes voidable at the option of B
b. Must be performed by A’s legal representatives on his behalf
c. Is discharged as it a contract is a contract involving personal skills of promisor
d. Becomes unlawful being a contract with dead person [c]
297. Which of the following breach acts as a mode of discharge of contract?
a. Actual breach
b. Anticipatory breach
c. Both of these
d. None of these [c]
298. …… signifies that the parties are not further bound under the contract
a. Waiver of a contract
b. Breach of a contract
c. Rescission of a contract
d. Discharge of a contract [d]
299. A contracts to sell his car to B for Rs.4,00,000 and B agrees to pay on delivery. Once the car
is delivered to B and B pays Rs.4,00,000, contract comes to an end. This is called
a. Waiver of a contract
b. Breach of a contract
c. Rescission of a contract
d. Discharge of a contract [d]
300. Rights and obligations under a contract can be enforced only within a specified period called
–
a. Period of performance
b. Period of limitation
c. Period of guarantee
d. Period of rights [b]
301. Limitation period to recover a debt is –
a. 2 years
b. 2.5 years

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c. 3 years
d. 3.5 years [c]
302. L contracts to sell 100 bags of sugar to M. Due to heavy loss by a major fire which leaves
nothing to sell, L applies for insolvency and is adjudged insolvent. The contract is discharged
due to –
a. Performance
b. Breach
c. Operation of law i.e. insolvency
d. Impossibility of performance [c]
303. Material Alteration is one which-
a. Changes the legal identity or character of the contract
b. Alters the rights and liabilities of the parties
c. Either a or b
d. Neither a nor b [c]
304. A agrees upon a Promissory Note to pay Rs.5,000 to B. B alters the amount at Rs.50,000. A is
liable to pay
a. Rs.5,000
b. Rs.50,000
c. Rs.45,000
d. Not liable at all [a]
305. Rescission may be –
a. Total
b. Partial
c. Either a or b
d. Neither a nor b [c]
306. Where a party under a voidable contract, decides to rescind the same, the other party is –
a. Guilty of breach of contract
b. Discharged from his promise
c. Entitled for damages
d. All of the above [b]
307. th
A contracts with B to supply certain goods at B’s warehouse by 15 May and B agrees to pay
on delivery. Both of them may agree to modify the terms, say, delivery. The original contract
is discharged by –
a. Alteration of contract
b. Novation of contract
c. Remission of contract
d. Rescission of contract [a]
308. Abandonment or intentional relinquishment of a right under the contract is called –
a. Waiver
b. Breach
c. Rescission

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d. Alteration [a]
BREACH OF CONTRACT
310. The breach of contract occurs when a party
a. Fails to perform his obligations on de date
b. Declares not to perform his obligation on due date
c. Bothe (a) and (b)
d. None of these [b]
311. Anticipatory breach is the repudiation of the contract
a. On due date of performance
b. During the performance
c. Before the due date of performance
d. Both (a) and (b) [c]
312. The doctrine of anticipatory breach has been incorporated in
a. Section 37
b. Section 39
c. Section 41
d. Section 43 [b]
313. In case of breach of contract, which of the following remedy is available to the aggrieved
party?
a. Suit for rescission
b. Suit for damages
c. Suit for specific performance
d. All of these [d]
314. In case of breach of contract, how an aggrieved party can recover compensation from
defaulting party?
a. By suit for injunction
b. By suit for damages
c. By suit for specific performance
d. None of these [b]
315. Quantum meruit means
a. As much as in earned
b. As much as is paid
c. Non- gratuitous promise
d. Liquidated damages [a]
316. Where a party is entitled to claim compensation in proportion to the work done by him, it

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is possible by way of
a. Suit for damages
b. Suit for injunction
c. Suit for quantum meruit
d. None of these [c]
317. A court order for restraining a person from doing something which he promised not to be
can be obtained by filling a suit for
a. Injunction
b. Specific performance
c. Quantum meruit
d. None of these [a]
318. Special damages are those damages which are
a. Due to some special or unusual circumstances
b. Awarded by way of punishment
c. Agreed at the time of contract
d. Deposited in the court immediately on breach [a]
319. Law governing the payment of damages is based on the leading English Case,
a. Hadley v. Sullian
b. Hobbs v. London Rail Co.
c. Hadley v. Baxandale
d. None of these [c]
320. Special damages i.e., the damages which arise due to some special or unusual
circumstances
a. Are not recoverable altogether
b. Are illegal being punitive in nature
c. Cannot be claimed as a matter of right
d. Can be claimed as a matter of right [c]
321. Nominal damages are very small in amount and are awarded
a. To punish the defaulting party
b. Simply to establish party’s right to claim damages
c. To discourage breach of contract
d. Only to influential parties [b]
322. Law governing the damages is based on the leading English case Hadley v. Baxandale (1854)
9 Ex. 341, and is incorporated in
a. Section 73

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b. Section 74
c. Section 75
d. None of these [a]
323. In case of breach of a contract for the sale of goods, the measure of damages is the
difference between the contract price and market price on the date of
a. Enforcement of contract
b. Breach
c. Making of contract
d. None of these [b]

324. Where a banker wrongfully dishonors a customer’s Cheque, the court may award
a. Ordinary damages
b. Special damages
c. Exemplary damages
d. None of these [c]
325. A stipulation which provides that an increased rate of interest will be paid from the date of
default is regarded as
a. Remote damages
b. Increased damages
c. Liquidated damages
d. Penalty [c]
326. A stipulation which provides that in case of default the whole of the borrowed money shall
become due is
a. Penalty
b. Not penalty
c. Punitive damages
d. None of these [b]
327. Breaking of an obligation which one is bound to do under a contract is called –
a. Avoidance
b. Breach
c. Voidability
d. Rescission [b]
328. Actual Breach may take place –
a. On the due date of performance
b. During the course of performance
c. Neither a nor b
d. Either a or b [d]

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329. A agrees to supply certain goods to B on 1st May, before 1st May. A informs B that he shall
not supply the goods. In this case, there is an –
a. Actual Breach in an express manner
b. Anticipatory Breach in an express manner
c. Actual Breach in an implied manner
d. Anticipatory Breach in an implied manner [b]
330. In cases of refusal to perform by any one party, the other party can –
a. Ignore the notice of refusal for the time being and wait till the time when the contract
is to be executed
b. Waive his right to rescission by acquiescence
c. Treat the repudiation as wrongful putting an end to the contract
d. All the above [d]
331. Where in an anticipatory breach, the Promisee opts to put an end to the contract and treat
the anticipatory breach as actual breach, the Promisee can sue the Promisor for breach of
contract
a. Only after the due date of performance
b. Immediately without waiting till date of performance
c. a or b whichever is earlier
d. a or b whichever is later [b]
332. The promisee’s right of rescission is lost in the following cases –
a. where third parties have acquired rights for good faith and for value
b. where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract
c. both a and b
d. neither a nor b [c]
333. Where the Court directs the defaulting party to carry out the promise according to the
terms of the contract, it is called
a. quantum meruit
b. rescission
c. injunction
d. specific performance [d]
334. …..means an order of the Court restraining a person from doing what he promised not to
do
a. Quantum meruit
b. Rescission
c. Injunction
d. Specific performance [c]
335. A, a trader leaves his goods at B’s place by mistake. B treats the same as his own and uses
it. B is bound to compensate A for it, under the principles of
a. Specific performance
b. Rescission

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c. Damages
d. Quantum meruit [d]
336. A agreed to decorate B’s flat for a lump sum of Rs.3,00,000. A did the work but B complained
of faulty workmanship. It cost B Rs.50,000 to remedy the defect. A can recover from B –
a. Rs.3,00,000
b. Rs.50,000
c. Rs.2,50,000
d. Rs.3,50,000 [c]
337. Section…….of the Indian Contract Act deal with the provisions regarding the measure of
damages for breach of contract
a. Section 71
b. Section 72
c. Section 73 to 75
d. Section 78 [c]
338. Which of the following is not relevant in determining of quantum of damages?
a. Manner of breach
b. Loss suffered
c. Motive of breach
d. Both a and b [c]
339. Damages awarded to compensate the injured party for the actual amount of loss suffered
by him for breach of contract are called –
a. General/ordinary damages
b. Special damages
c. Vindictive damages
d. Nominal damages [a]
340. A contracts to deliver 5,000 bags of rice at Rs.100 per bag on a future date. On due date he
refuses to deliver. Market price on that day is Rs.110 per bag. The Ordinary Damages will
be
a. Rs.5,000
b. Rs.100
c. Rs.110
d. Rs.10 [a]
341. Hadley vs. Baxendale case is a leading case on
a. Breach of Implied Term
b. Anticipatory Breach
c. Remoteness of Damages
d. Bilateral Mistake of Fact [c]
342. Damages that are awarded in the following two circumstances (a) Breach of a promise to
marry (b) Wrongful dishonor of a cheque by a bank are called
a. Nominal damages
b. General damages

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c. Vindictive damages
d. Special damages [c]
343. …….are awarded with a view to punish the defendant, and not solely with the idea of
awarding compensation to the plaintiff.
a. Special damages
b. Ordinary damages
c. Nominal damages
d. Exemplary or vindictive damages [d]
344. ……..stipulated in a contract, acts as a deterrent to avoid performance
a. Exemplary damages
b. Special damages
c. Liquidated damages
d. Penalty [d]
345. …….is a sum which is out of proportion to the loss.
a. Exemplary damages
b. Penalty
c. Liquidated damages
d. Special damages [b]
346. Damages under section 73 of Indian Contract Act are
a. Compensatory
b. Liquidated
c. Penal
d. Collateral [d]

Special Types of Contracts

1. Which one of the following statements is incorrect?

a. An agency relationship may be created through necessity.
b. An agency relationship may be created through estoppel.
c. All agents are entitled to be paid for their services.
d. An agent creates a legal relationship between a third party and a principal.
2. An agency relationship which is made retrospectively is known as an agency by:
a. Estoppel
b. Ratification
c. Necessity
d. Commerce

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3. X Ltd has two directors, Jai and Harish. Neither of the directors have authority to individually
enter contracts on behalf of the company. In practice, Jai (with Harish’s acquiescence)
enters into all the contracts on behalf of the company. What type of agency has been
created when a third party acting in good faith enters into a contract with Jai who states he
is acting on behalf of X Ltd?
a. An express agency.
b. An agency by estoppel.
c. An agency by ratification.
d. An agency of necessity.
4. Cute appoints Govind, to act as his agent for two weeks. Govind agrees to act without
payment. Cute instructs Govind to collect rent each Friday morning from his tenants and
pay the rent into the bank next door. In the second week, Govind collects the rent but fails
to bank it. On the way home he leaves it on the bus and it is never recovered. Can Cute take
action against Govind for breach of his agency duties?
a. No, Cute has provided no Consideration and therefore there is no agency agreement.
b. No, Govind is a gratuitous agent and has no duty to follow instructions.
c. Yes, even though Govind is a gratuitous agent if he must do in accordance with
instructions set out by the principal.
d. Yes, provided he pays Govind for being an agent.
5. Pranab asked his agent, Hari to purchase her 500 shares in X Ltd. Hari owned 600 shares in
X Ltd., so without informing Pranab where the shares come from he sells his shares to
Pranab at market value. Is Hari in breach of his agency duties?
a. Yes, because he has a duty to avoid a conflict of interest.
b. Yes, because he has a duty to account.
c. No, because he has sold Pranab the shares at market value.
d. No, because he has acted according to Pranab’s instructions and she has the shares
as she requested.
6. When does apparent (ostensible) authority of an agent arise?
a. When the agent acts with the usual authority of his job.
b. When the principal gives the agent implied authority to act.
c. When the agent has actual authority to act.
d. When the principal represents to a third party that an agent has authority to act when
in fact he does not.
7. Which one of the following is not a duty of an agent?
a. Duty to exercise care and skill.
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b. Duty to take a commission.

c. Duty to account.
d. Duty to avoid a conflict of interest.
8. Fakir enters into a contract with Shilpa believing that Shilpa is acting on her own behalf
when in fact she is acting as an agent for Dipak on his express instructions. In the event of
a breach of contract, against whom Fakir take action?
a. No-one, the contract is invalid.
b. Shilpa.
c. Dipak.
d. Dipak or Shilpa.
9. What is an undisclosed agency?
a. Where a third party is not informed of the existence of the principal and believes the
agent is acting on his own behalf.
b. Where the agent indicates through conduct he is acting as an agent.
c. Where the principal is not in existence.
d. Where the third party knows there is a principal but does not know his name.
10. Which of the following statements is incorrect?
a. An agency may be terminated by death of either party.
b. An agency may be terminated by express agreement.
c. An agency agreement can always be terminated by a principal.
d. Mental incapacity of an agent will terminate the agency relationship.
11. Principal is NOT liable for the agents act if
a. Agent acts within the scope of his authorit
b. Agent exceeds his authority
c. Fraud or misrepresentation committed for benefit of the principal
d. Work done out of his authority but the principal accepts it
12. An agency comes to an end :-
a. By performance of contract
b. By agreement between the principal and the agent
c. By renunciation of his authority by the agent
d. All of the above
13. An agency is irrecoverable:

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a. Where the authority of agency is one coupled with interest

b. Where the agent has incurred personal liability
c. Both (a) and (b)
d. None of the above
14. In case the contract of agency has been terminated and a third party enters into a contract
with the agent without knowing this fact, then
a. The contract will be binding on the principal
b. The contract will not be binding on the principle
c. The contract will only be binding on the agen
d. None of the above
15. A, an agent engaged in carrying on for B a business, in which it is the custom to invest from
time-to-time, at interest, the moneys which may be in hand, omits to make such
investments.
a. A need not make good to B the interest usually obtained by such investments
b. A can partially make good to B the interest usually obtained by such investments
c. A must make good to B the interest usually obtained by such investments
d. None of these
16. A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit,
without making the proper and usual inquires as to the solvency of B. B at the time of such
sale is insolvent.
a. A need not make compensation to his principal in respect of any loss thereby sustained
b. A can partially make compensation to his principal in respect of any loss thereby
sustained
c. A must make compensation to his principal in respect of any loss thereby sustained
d. None of these
17. Termination of an agency with public authority or a public body may attract judicial
intervention in writ petition:
a. If the termination be unreasonable
b. If the termination be arbitrary
c. If the termination be unconscionable
d. All of them
18. The agency extends to receiving notice on behalf of his principal of whatever is material
to be stated in the course of the proceedings. For this rule to operate:

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I. the agent must be under a duty to communicate

II. the information must be material
III. it must have been obtained in the course of business for which the agent has been
engaged
IV. the agent is not privy to a fraud on the principal
a. A. I, II
b. B. II, IV
c. C. Ill, IV
d. All of them
19. The extent of an agent’s authority, whether express or implied, depends upon:
a. A. The nature of act or business for which he has been appointed
b. Things which are incidental to the business or are usually done in carrying it out
c. The usual customs and usages of the trade
d. All of them
20. The doctrine of apparent authority applies:
I. where a person allows another who is not his agent to appear as his agent
II. where a principal allows his agent to appear to possess more authority than he
actually has
III. where the principal reserves or limits the authority of an agent which the agent
would have in ordinary course of business, but does make this known to third parties
IV. where the principal allows it to appear that the agent has authority although his
authority has been terminated
a. I, II
b. II, IV
c. Ill, IV
d. All of them
21. The conditions which entitle an agent to exceed his authority under the doctrine of
necessity are:
a. A. That he could not communicate with his principal
b. That the course he took was necessary in the sense that it was in the
circumstances the only reasonable and prudent course to take
c. That he acted bona fide in the interest of the parties concerned
d. All of them

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22. Which type of agency is created in relation of husband – wife?

a. Agency of implication
b. Agency of estoppel
c. Agency of necessity
d. Agency of appointed
23. When agent is liable to pay compensation to principal ?
a. Negligence
b. Misconduct
c. Giants of skills
d. All of the above
24. The liability of pretended agent is know as __
a. liability by holding out
b. liability created by law
c. liability by rectification
d. liability of relation
25. To create an agency ………..is not required
a. Principal
b. Agent
c. Consideration
d. None of the above
26. To whom the agent is responsible?
a. Contractor
b. None of these
c. Sub Agent
d. Principal
27. Who creates the contractual relation between two parties?
a. Principal
b. Co-Agent
c. Broker
d. Agent
28. A person employed to do and represent is called ………..

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a. Principal
b. Servant
c. Agent
d. Owner
29. ……….. agents gets extra remuneration.
a. General Agent
b. Broker
c. Sub Agent
d. del credere
30. Who can become an agent?
a. Minor
b. Both Minor & Adult
c. Adult person
d. Dead person
31. Which acts can be rectified by principal?
a. Illegal acts
b. Criminal acts
c. Void acts
d. Legal acts
32. How the agency is create?
a. by ratification
b. by necessity
c. by implication
d. by all of the above methods
33. Auctioneer agent gets ……….. lien.
a. General
b. none of these
c. particular
d. special
34. Broker who does only the work of insurance called __
a. general agent

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b. del credere agent

c. special agent
d. commission agent
35. On whose insolvency the agency is terminated?
a. Sub agent
b. Del credere
c. Agent
d. Principal
36. Under which circumstances agent become personally responsible?
a. fraudulent transactions
b. ultra virus
c. fraud
d. All of above
37. To whom the acts of agent are binding?
a. Del – Credere
b. Sub agent
c. Third party
d. Principal
38. Which Guarantee is given by del credere agent ?
a. Solvency of purchaser
b. Solvency of Agent
c. Own Solvency
d. Solvency of seller
39. A sub-agent is the employee who is specially employed by the original agent to act under
his control in the business of the agency. The usual rule and regulation are that an agent
is not allowed to delegate his authority to another person especially when he/she has
not the permission of his principal. Under what conditions an agent may hire or appoint
a sub-agent and delegate the work?
a. The principal has expressly allowed a delegation of such authority
b. The ordinary custom of trade a sub-agent may be employed.
c. The nature of work is such that a sub-agent is essential
d. All of these

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40. By which methods, agency can be created?

a. by agreement
b. by ratification
c. by estoppel
d. All of these
41. Select the correct statement. Where a sub-agent is appropriately selected and appointed
by an agent to delegate the work :
a. The principal is bound by the acts of the sub-agent as if the subagent was an agent
originally appointed by the principal.
b. The agent is accountable and answerable to the principal for the acts of the
subagent.
c. The sub-agent is accountable and answerable for his acts to the agent, but not to
the principal, except in case of scam or fraud.
d. All of these
42. Which of the following are considered as acting as agents?
a. Auctioneer
b. Company directors and managers
c. Partners in a business partnership
d. All of these
43. A _____________ authorizes the agent to do all acts on behalf of principal
a. Special power of attorney
b. Particular Power of attorney
c. General power of attorney
d. All of the above
44. The power of attorney is an example of agency by ________________________
a. Express Agreement
b. Implied agreement
c. Ratification
d. special agreements
45. In case of ratification, the principal must ratify __________
a. Part transaction based on necessity
b. the agreement of agency

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c. whole transaction
d. the third party about agency
46. _______ means to give full consent or approval to an act which was originally done
without authority
a. Estoppel
b. Ratification
c. Holding out
d. Express agency
47. he consideration in case of Contract of Agency ______________
a. can be past, present, future
b. Need not be adequate
c. Need to be real
d. Not Essential
48. An agent who is appointed to sell a house is ___________
a. General agent
b. Special agent
c. Mercantile agent
d. Non mercantile Agent
49. Advocates are classified as ______________
a. General agent
b. Special agent
c. Mercantile agent
d. Non mercantile Agent
50. In case of war between the principal’s and agent’s countries then the Contract of
agency will be
a. Holding out
b. Terminated by agreement between parties
c. Termination by operation of Law
d. continued as anybody can become an agent.
51. Irrevocable agency will be terminated when
a. death of agent/principal
b. Principal becomes incapable

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c. Time lapses
d. agent’s obligations are performed
52. Agency may be terminated by Operation of Law, on :
a. Lapse of time
b. Death of Agent or Principal
c. Occurrence of a specified event
d. Purpose achieved
53. In pledge contract, bailee is called
a. Pawnor
b. Pawnee
c. Pledger
d. None of above
54. In pledge, bailor is called
a. Pawnor
b. Pawnee
c. Both (a) and (b)
d. None of above
55. The Bailment of goods as security for payment of a debt or performance of a promise
is called:
a. Pledge
b. Bailment
c. Contingent contract
d. Agreement
56. Bailment means ………..
a. temporary delivery of goods
b. permanent delivery of goods
c. part delivery of goods
d. None
57. The pledge is a contract of ………..
a. Bailment
b. Agency

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c. Guarantee
d. Mortgage
58. The bailment of goods as security for payment of a debt or performance of a promise
a. Pledge
b. Lien
c. Agency
d. Bailment
59. Pledgee is also known as
a. Pawnee
b. Pawnor
c. Principal
d. Agent
60. Pledgor is also known as
a. Pawnor
b. Pawnee
c. Bailor
d. Agent
61. 61. The person in respect of whose default, the guarantee is given is called ………..
a. principal debtor
b. principal creditor
c. principal surety
d. principal bailee
62. In contract of indemnity how many parties are required?
a. 4
b. 6
c. 7
d. 2
63. The guarantee of single transaction is ………..
a. general guarantee
b. continuous guarantee
c. implied guarantee

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d. none of these
64. Which type of guarantee is given for series of transaction?
a. general guarantee
b. Implied guarantee
c. continuous guarantee
d. general and continuous guarantee
65. The person to whom the guarantee is given is called ………..
a. Creditor
b. Debtor
c. Surety
d. third party
66. The contract of Guarantee should be ………..
a. Implied
b. only written
c. only oral
d. written or oral
67. Liability of surety is ………..
a. secondary liability
b. preliminary liability
c. subsidiary liability
d. co-related liability
68. In contract of indemnity must be for ………..
a. five parties
b. agreement without consideration
c. implied consideration
d. lawful consideration and object
69. Who is protected under the contract of guarantee?
a. Guarantor
b. Creditor
c. third person
d. debtor

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70. Whose consent is necessary in the contract of guarantee?

a. Surety
b. Creditor
c. Debtor
d. All the above
71. On whose default, the promise of discharge of liability is given in contract of
guarantee?
a. Principal debtor
b. Subsidiary debtor
c. Principal guarantor
d. All above
72. How many parties are there in contract of guarantee ?
a. One
b. At will
c. Three
d. Two
73. The contract of guarantee is for protection of ………..
a. Creditor
b. Debtor
c. Guarantor
d. None of these
74. A continuing guarantee applies to:
a. a specific transaction
b. a specific number of transactions
c. all transactions of specific transaction series
d. reasonable number of transactions.
75. The surety stands discharged:
a. by revocation
b. by death
c. by variance in terms of the contract without his consent
d. in (a), (b) & (c) above.

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76. Under the contract of guarantee, a creditor:

a. has to avail his remedies first against the principal debtor
b. can avail his remedies against the principal debtor as well as the surety
c. can avail his remedy against the surety alone
d. both (b) & (c).
77. Surety stands discharged:
a. by an agreement between the creditor and the principal debtor
b. by an agreement between the creditor & a third party for not to sue the
principal debtor
c. both (a) & (b) above
d. neither (a) nor (b).
78. Under a contract of guarantee:
a. if principal debtor is not liable, guarantor is not liable
b. if principal debtor is not liable, guarantor is liable
c. if principal debtor is liable, guarantor is liable
d. all the above.
79. In a contract of guarantee:
a. there are two parties and one contract
b. there are two parties and two contracts
c. there are three parties & three contracts
d. there are three parties & one contract.
80. In case of co-sureties, release of one surety by the creditor:
a. amounts to discharge of other sureties
b. does not amount to discharge of other sureties
c. amounts to discharge of the surety so released vis-a-vis co-sureties as well
d. none of the above.

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ANSWERS TO SPECIAL TYPES OF CONTRACT

1. C 11. B 21. D 31. D 41. D 51. D 61. A 71. A

2. B 12. D 22. C 32. D 42. D 52. B 62. D 72. C
3. B 13. C 23. D 33. C 43. C 53. B 63. A 73. A
4. C 14. A 24. A 34. C 44. A 54. A 64. C 74. C
5. A 15. C 25. C 35. D 45. C 55. A 65. A 75. C
6. D 16. C 26. D 36. D 46. B 56. A 66. D 76. A
7. B 17. D 27. C 37. D 47. D 57. A 67. A 77. A
8. D 18. D 28. C 38. A 48. B 58. A 68. D 78. C
9. A 19. D 29. D 39. D 49. D 59. A 69. B 79. D
10. A 20. D 30. B 40. D 50. C 60. A 70. D 80. B

PREVIOUS YEARS QUESTIONS

Q.1 Choose the correct answer

1. Asim unlawfully detains Anil to obtain his vacant flat at Safdarjang enclave (valuing
Rs.50,00,000) at Rs.40,00,000. This is a case of
a. Undue influence
b. Coercion
c. Fraud
d. By force
2. A contract which ceases to be enforceable by law becomes
a. Voidable contract
b. Void agreement
c. Void contract
d. Valid contract
3. Mr. A promises to Mr. B without any intention of performing it. This is a case of
a. Cheating
b. Fraud
c. Valid case
d. None of the above
4. An offer comes to an end by
a. Revocation
b. Acceptance
c. Communication
d. None of the above

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5. A stranger to a contract can file

a. A suit
b. A suit only with the permission of court
c. A suit if contract is in writing
d. Can not file a suit
6. Of the following who is competent to enter into a contract?
a. Minor
b. Unsound mind
c. Lunatic
d. Sound mind
7. A minor can be appointed as agent
a. False
b. Valid
c. Voidable
d. Not valid
8. Agreement of which the consideration is inadequate is
a. Void
b. Voidable
c. Valid
d. None of the above
9. Mr. A promises in writing to pay time barred debt to Mr. B this is
a. Not enforceable
b. Enforceable
c. Voidable
d. None of the above
10. When both the parties to an agreement are under a mistake as to matter of fact essential to
an agreement, the agreement is
a. Valid
b. Illegal
c. Voidable
d. Void
11. Under Sec.2(b) of the Indian contract Act, 1872 if the person to whom the proposal is made
signifies his assent thereto the proposal is said to have been
a. Accepted
b. Agreed
c. Provisionally agreed
d. Tentatively accepted
12. Mr. obtained mobile set from Mr. B by fraud. Mr. A has a voidable title at the option of Mr.
B Before Mr. B could rescind the contract, Mr. A sold the same to Mr. C who purchased from
Mr. A in good faith and without knowledge of fraud by Mr. A and paid for it. In this case.
a. Mr. C has a good title to the goods
b. Mr. B has a good title

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c. Mr. C has no right

d. None of the above
13. For a valid contract of sale, delivery may be
a. Actual delivery
b. Symbolic delivery
c. Constructive delivery
d. All of the above
14. Law of contract
a. Is the whole law of obligations
b. Is the whole law of agreements
c. Deals with only such legal obligation which arise from agreement.
d. Deals with social agreements.
15. For an acceptance to be valid, it must be
a. Partial and qualified
b. Absolute and unqualified
c. Partial and unqualified
d. Absolute and qualified
16. If the communication is made by an unauthorized person, it does not result in a/an
a. Contract
b. Agreement
c. Offer
d. Consideration
17. An offer does not lapse if the
a. Offeror dies before acceptance
b. Offeree dies before acceptance
c. Acceptance is made by the offeree in ignorance of the death of the offeror
d. Acceptance is made by the offeree with knowledge of the death of the offeror.
18. An agreement without consideration is void under
a. Sec.25(1) of the Contract Act.
b. Sec.25(3) of the Contract Act.
c. Sec.25(2) of the Contract Act.
d. None of the above clauses in sec.25
19. An agreement without consideration is void except in case of compensation for
a. Voluntary services rendered
b. Voluntary services rendered at the request of the other party to the agreement
c. Voluntary services rendered at the request of third person
d. Reimbursement of expenses incurred
20. Which of the following is not competent to contract?
a. A minor
b. A person of unsound mind
c. A person who has been disqualified from contracting by some law
d. All of the above

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21. ‘Active concealment of fact’ is associated with which one of the following?
a. Misrepresentation
b. Undue influence
c. Fraud
d. Mistake
22. The validity of contract is not affected by
a. Mistake of fact
b. Mistake of Indian law
c. Misrepresentation
d. Fraud
23. A promises B to pay Rs.100 if it rains on Monday and B promises A to pay Rs.100 if it does
not rain on Monday. This agreement is
a. A valid agreement
b. A voidable agreement
c. A wagering agreement
d. An illegal agreement

24. A borrows from B Rs.500 to bet with C. can B recover the amount of the his loan?
a. Yes, the agreement between them is collateral to a wagering agreement and hence
enforceable.
b. Yes, the agreement is not opposed to public policy.
c. No, the agreement is a voidable agreement and can be avoided by A.
d. No, the agreement is wagering agreement and falls under section 23 and hence void.
25. Which of the following statements is true in connection with the contingent contract?
a. The collateral event is contingent
b. The collateral even may be certain or uncertain.
c. The contingency event may be the mere will of the promisor.
d. The main event should be contingent.
26. Quasi-contracts are
a. Not contracts in the real sense of the world.
b. Relations which create certain obligations resembling those created by a contract.
c. Implied contracts
d. Unenforceable contracts
27. If the performance of contract becomes impossible because the subject matter of contract
has ceased to exist then.
a. Both the parties are liable
b. Neither party is liable.
c. Only offeror is liable
d. Only acceptor is liable
28. Right in rem implies:
a. A right available against the whole world.
b. A right available against a particular individual

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c. A right available against the Government

d. None of the above
29. Communication of acceptance is not necessary
a. By performance of conditions of the offer by offeree.
b. By acceptance of benefit/service by the offeree.
c. All of the above
30. According to Indian Contract Act, a promise is
a. A communication of intention to do something.
b. A proposal which has been accepted
c. A gentleman’s word to do something
d. A statement on oath.
31. Contracts contingent upon the non-happening of the future uncertain event becomes void
when such event:
a. Happen
b. Does not happen
c. The event becomes impossible
d. None of the above
32. A telephonic acceptance is complete when the offer is
a. Spoken into the telephone
b. Heard but not understood by the offeror.
c. Heard and understood by the offeror.
d. Received, heard and understood by some person in the offeror’s house.

33. If a minor draws, endorses, delivers or negotiates an instrument, such instrument binds
a. All parties to the instrument including the minor
b. Only the minor and not other parties to the instrument
c. All parties to the instrument except the minor
d. None of the above
34. What can a catalogue of books, listing price of each book and specifying the place where the
listed books are available be termed as?
a. An offer
b. An obligation to sell book
c. An invitation to offer
d. A promise to make available the books at the listed.
35. The inadequacy of consideration may be taken into account by the court
a. In determining the question whether the consent of the promisor was freely given.
b. Always in all cases
c. When the parties complain.
d. When the promisor has not performed his promise.
36. Where consideration is illegal or physically impossible, uncertain or ambiguous, it shall not
be
a. Transferable by law

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b. Unenforceable by law
c. Enforceable by law
d. None of the above
37. Where by the contact, a promisor is to perform his promise without application by the
promise and no time for performance is specified, the engagement must be performed
within a reasonable time. The question ‘ What is a reasonable time’ is in each particular case
is
a. A question of fact
b. A question of law
c. A question of general custom
d. All of the above
38. Unlawful agreements comprise
a. Illegal agreements
b. Immoral agreements only
c. Agreements opposed to public policy only
d. All the agreements mentioned above
39. A and B agree that A shall pay Rs.1000 for which B shall afterwards deliver to either rice or
smuggled opium. In this case
a. The first agreement is void and the second voidable
b. The first is voidable and the second is void
c. The first is valid and the second is void
d. The first is void and the second is valid.
40. When an Instrument is drawn conditionally or for a special purpose as a collateral security
and not for the purpose of transferring property therein, it is called an
a. Escrow Instrument
b. Inchoate Instrument
c. Ambiguous Instrument
d. None of the above
41. A borrows from B Rs.500 to bet with C. Can B recover the amount of his loan?
a. Yes, the agreement between them is collateral to a wagering agreement and hence
enforceable.
b. No, the agreement is opposed to public policy.
c. No, the agreement is a voidable agreement and can be avoided by A.
d. No, the agreement falls under section 23 and hence illegal.
42. A void agreement is one
a. Which is forbidden by law.
b. Enforceable at the option of one of the parties.
c. Which is not enforceable by law.
d. Enforceable by law.
43. A contract is formed when the acceptor.
a. Has done something to signify his intention.
b. Makes his mind to do so.

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c. Reads the offer.

d. All of the above
44. Express offers and acceptances may be proved by the agreement between the parties but
implied offers can be proved only by
a. The words
b. The conduct
c. Circumstantial evidence
d. Both b and c
45. Sections 4 and 5 of the Indian Contract Act provide for communication of offer and
acceptance and revocation thereof. In this relation, which one of the following is not correct?
a. Communication of offer is complete when it reaches the offeree.
b. Revocation of acceptance is complete when acceptance is posted in favor of the
proposer.
c. A proposal may be revoked any time before communication of acceptance
d. Acceptance may be revoked any time before communication of acceptance
46. Consider the following statements: Consideration is
1. A motive for any promise
2. A price for any promise
3. Only a moral obligation
4. Something of value in the eye of law of these statements
a. 1, 2 and 3 are correct
b. 1 and 4 are correct
c. 2 and 4 are correct
d. 3 alone is correct
47. Two persons have the capacity to contract
a. If both are not of unsound mind.
b. If none is disqualified from contracting by any law to which he is subject
c. If both have attained the age of maturity
d. All of the above
48. Which of the following types of persons are not disqualified from contracting?
a. Foreign sovereigns
b. Alien enemy
c. Convicts
d. None of the above
49. When both the parties to an agreement are under a mistake as to a matter of fact essential
to an agreement, the agreement is
a. Void
b. Valid
c. Voidable
d. Illegal
50. A agrees to sell to B a ‘hundred tons of oil’. There is nothing whatever to show what kind of
oil was intended. The agreement is

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a. Valid
b. Void for uncertainty
c. Voidable
d. Illegal
51. A promised B to obtained an employment for him in a public office. B promised to pay
Rs.2,000 to A for this. B gets job through A but refuses to pay the money . A can
a. Challenge B’s appointment on the ground of non-payment of money.
b. Sue B for Rs.2,000.
c. Do nothing
d. Both a and b
52. Which one of the following is not a characteristic of a contingent contract?
a. Performance depends upon a future event
b. The event must be uncertain
c. The event must be collateral to the contract
d. There must be reciprocal promises
53. A gives a reocgnisance binding him in a penalty of Rs.500 to appear in the court on a certain
day. He forfeits his recognizance. He is
a. Liable to pay the whole penalty
b. Not liable to pay the penalty
c. Liable to pay partially
d. None of the above
54. Agreement by way of wager are
a. Valid and enforceable by law
b. Void
c. Voidable at the option of party
d. Illegal
55. A valid tender or offer of performance must be
a. Made at proper time
b. Made at proper place
c. Made to the proper person
d. All of the above
56. Where the sale is not notified to be subject to a right to bid on behalf of seller, and the
Auctioneer knowingly takes any bid from the seller or any such person, the sale shall be
treated as…..by the buyer.
a. Unlawful
b. Illegal
c. Immoral
d. Fraudulent

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Q.2 Match the following

Column A Column B
1. Valid contracts a. Enforceable at law
2. Novation b. Substitution of a new contract
3. Error in consensus c. Absence of consent
4. Offeror d. An offer made to a specific person
5. General offer e. The person who makes the proposal
6. Wagering agreement f. Offer made to an individual or group
7. Condition g. Void
8. Void-ab-initio h. Temporary in capacity
9. Lunatic i. Void from very beginning
Q.3 State whether the following statement is True or False
1. Quasi contract is not a contract.
2. An agreement in restrain of legal proceedings are void.
3. Amount paid under mistake of law can not be recovered back.
4. If consent is not free due to coercion, undue influence the agreement is void.
5. Silence is fraud when silence is, in itself equivalent to speech.
6. When there is breach of contract, the aggrieved party has no remedy.
7. When a person who is in a position to dominate the will of other and uses that
position to obtain unfair advantage over the other. This is a case of coercion.
8. All contracts are agreements.
9. An acceptance will be revoked at any time before the communication of acceptance
is complete against the acceptor, but not afterwards. Is it true or not?
10. A contract is said to be executed when it has been performed wholly on two sides.
11. Can a mere mental resolve to make an offer unless such intention is also
communicated to the other party has agreed to make such statement?
12. After a transaction has ripened into a contract, does it require the consent of both
parties to revoke or modify it?
13. If the agreement is made by obtaining consent by doing an act forbidden by the Indian
Penal Code, the agreement would be caused by fraud.
14. An officer enters into a contract with his subordinate to sell his (subordinate’s) house
at a lower price than that of market price. The subordinate may challenge the contract
on the ground of mistake.
15. Breach of condition give the aggrieved party right to repudiate the contract.
16. All kinds of obligations between the parties from part of the contract.
17. An offer need not be made to an ascertained person.
18. A person is competent to contract if he is a graduate.
19. In the absence of any express or implied directions from the offeror to the contrary,
can an offer be accepted by a letter?

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20. A buys an article thinking that it is worth Rs.100 when in fact it is worth only Rs.50.
there has been no misrepresentation on the part of the seller. The contract is
unenforceable.
21. Appointment of agent for the creation of an agency without any consideration is valid
under Section 185 of the Contract Act.
22. Void contracts do not provide any legal remedy for the parties to the contract
23. Remaining silent with respect to the known defects fraudulent.
24. A mows B’s lawn without asked by B to do so. B watches A do the work but does not
attempt to stop him. Thus A is entitled to get consideration from B
25. A invites b to dinner in a top class restaurant. B accepts the invitation but fails to run
up. A incurred certain expenses on this account. Under the Contract Act, A can sue B
for own damage.
26. In a voidable contract, if a third party who purchased goods in good faith and for
consideration before the contract is repudiated, acquires good title to those goods.
27. If in certain special cases of breach of contract, if the court is of opinion that there is
not standard for ascertaining the actual damage caused by the non-performance, the
court may in such cases, order specific performance of the contract.
Q.4 Answer any four of the following questions:
1. Explain the ‘undue influence’.
2. What are the benefits of non gratuitous act?
3. Under what circumstances contract be discharged by operation of law?
4. Under what conditions promise to compensate for voluntary services is valid?
5. State the rules regarding contingent contract.
6. List out remedies for breach of contract.
7. Define a contract. list the essential constituents of a valid contract.
8. What is an invitation to offer?
9. State whether void agreement and void contract are same.
10. General rule is ex-nudo pacto non oritur action i.e., an agreement made without
consideration is void but there some exception to ‘no consideration. No contract’, state
such exceptions.
11. What are the exceptions to the Rule that a stranger to a contract cannot sue?
12. What are the features of a quasi-contract?

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CHAPTER – 3
THE SALES OF GOODS ACT, 1930
THE SALE OF GOODS ACT, 1930 - CONCEPTS AND DEFINITIONS
Introduction:
Before the enactment of The Sale of Goods Act, 1930 the relating to sale and purchase of goods
were regulated by the Indian Contract Act, 1872. In 1930, Sections 76 to 123 of the Indian
Contract Act, 1872 were repealed and a separate Act called “The Indian Sale of Goods Act, 1930”
was passed.
It came into force on 1st July, 1930. With effect from 22nd September, 1963 the word ‘Indian’
was also removed. Now the present Act is called ‘The Sale of Goods Act, 1930. This act extends
to the whole of India except the State of Jammu and Kashmir.

Basic Concepts:
Section 2 of the Act defines various terms used in the Act. They are:
1. Buyer: [Sec. 2(1)]
Buyer means a person who buys or agrees to buy goods.
2. Seller: [Sec. 2(13)]
Seller means a person who sells or agrees to sell goods.
3. Delivery: [Sec. 2(2)]
Delivery means voluntary transfer of possession from one person to another.
4. Goods: [Sec. 2(7)]
Goods means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or forming part of the land
which are agreed to be severed before sale or under the contract of sale.
5. Document of Title to goods: [Sec. 2(4)]
It includes bill of lading, dock warrant, warehouse keeper’s certificate, wharfinger’s certificate,
railway receipt, warrant or order for the delivery of goods and any other document used in the
ordinary course of business as proof of the possession or control of goods.
6. Future goods: [Sec. 2(6)]
Future goods means goods to be manufactured or produced or acquired by the seller after the
making of the contract of sale.
7. Price: [Sec. 2(10)]
Price means the money consideration for a sale of goods.
8. Property: [Sec. 2(11)]
Property means the general property in goods and not merely a special property.
9. Specific Goods: [Sec. 2(14)]

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It means goods identified and agreed upon at the time a contract of sale is made.

Definition of Contract of Sale :

“A contract of sale of goods is a contract where by the seller transfers or agrees to transfer the
property in the goods to the buyer for a price”- [Sec. 4(1)] of The Sale of Goods Act, 1930].
Contract of Sale is a generic term which includes both sale as well as an agreement to sell:

Essential Elements of Contract of Sale:

Following are the essential elements of a valid contract of sale. They are:
1. Two parties. - Seller and Buyer
2. Subject matter. - Goods (Movable property)
3. Transfer of Property - Transfer of ownership rights i.e. absolute ownership (General
Property)
4. Delivery - Immediate, Delivery in installments, Delivery at a future
date.
5. Price - It means money consideration for sale of goods.
6. A contract of sale may be absolute or conditional.
7. Essential elements of a valid contract.

Differences between Sale and Agreement to Sell:

The following are the differences between Sale and Agreement to Sell:
SALE AGREEMENT TO SELL
1. In case of sale the property transfers The ownership of the goods is transferred to
from seller to the buyer immediately. the buyer at some future date.
2. It is an executed contract. It is an executory contract.
3. It creates right in rem. It creates right in personam.
4. The seller cannot resale the goods. In this case, if the subsequent buyer takes in
good faith and for consideration, he gets a
good title. The original buyer may only sue the
seller for damages.

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5. If goods are destroyed, the loss will be The loss will be borne by the seller even
borne by the buyer even though they though the goods may be in possession of the
may be in possession of the seller. buyer.
6. If the buyer becomes insolvent before Seller may refuse to deliver the goods to the
payment is made, the seller has to deliver official receiver.
the goods to the official receiver unless
he has lien on them.
7. If the seller becomes insolvent after The buyer cannot claim the goods. He can
payment of price, the buyer can claim the only claim rateable dividend for the amount
goods from the official receiver. paid by him.
8. Sale is liable for sales tax. Agreement to sell is not liable for sales tax. It
is liable for sales tax when it is ripens in to
sale.

CLASSIFICATION OF GOODS
Types of Goods:
Goods which form the subject-matter of a contract of sale may be divided into three types namely:
a. Specific goods

1. Existing goods. 2. Future goods. 3. Contingent goods.

1. Existing goods: Goods owned and possessed by the seller at the time of the making of the
contract of sale are called existing goods. Sometimes the seller may be in possession but may
not be the owner of the goods. Example: Mercantile Agent.
The existing goods can be further classified as under:
a. Specific goods: “Specific goods” are those goods which are identified and agreed upon at the
time of contract of sale is made. It is essential that the goods are identified and separated
from the other goods.
b. Ascertained goods: Ascertained goods are identified after the contract of sale as per the
terms decided. The goods which are ascertained or identified only after the formation of the

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contract of sale are known as ascertained goods. The goods which were unascertained at the
time of making contract may become ascertained when they are agreed upon by the parties.
c. Unascertained goods: The goods which are not identified and ascertained at the time of sale
are unascertained goods. They are defined by description only and may form part of lot.
2. Future Goods: It means goods to be manufactured or produced or acquired by the seller
after making of the contract of sale. A contract to sell oil not yet pressed from seeds in his
possession is a contract for the sale of future goods.
3. Contingent Goods: These are a type of future goods, the acquisition of which by the seller
depends upon a contingency which may or may not happen. Goods which might be expected
to come into existence, as
a. Goods to arrive
b. Future crops
c. The eggs.
Such contracts give no right of action if the contingency does not happen.

DOCTRINE OF CAVEAT EMPTOR

In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers
display their goods in the open market, it is for the buyers to make a proper selection or choice
of the goods. If the goods turn out to be defective he cannot hold the seller liable. The seller is
not bound to disclose the defects in the goods which he is selling. If the goods turn out to be
defective or do not serve his purpose or if he depends on his own skill or judgment, the buyer
cannot hold the seller responsible.

EXCEPTIONS
1. Where the buyer makes known to the seller the particular purpose for which the goods are
required, so as to show that he relies on the seller’s skill or judgment and the goods are of a
description which is in the course of seller’s business to supply, it is the duty of the seller to
supply such goods as are reasonably fit for that purpose.
2. Implied condition as to Merchantability where the goods are bought by description from the
seller in goods of that description.
3. Condition as to Wholesomeness in case of foodstuffs and other goods meant for human
consumption.
4. When the seller commits fraud.
5. When there is a usage of trade

TRANSFER OF PROPERTY & RISK IN GOODS

One of the important questions in a contract of sale is, when the property in goods passes from
the seller to the buyer. This is so because the risk associated with the goods is attached with the
property and not with the possession. It is associated with ownership. It is essential to determine

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the exact point of time at which the property in the goods is transferred in favor of the buyer.
The term “property in goods” means the ownership of the goods.
When it is said that the property in goods has passed on to the buyer, the buyer has become true
owner of the goods and any risk and reward associated with the ownership of the goods also
stands transferred to the buyer.

RULES FOR ASCERTAINING PASSING OF PROPERTY

A) Goods must be ascertained (section18)
As per section 18 in a contract for sale of unascertained goods, the property in the goods does
not pass to the buyer unless and until the goods are ascertained.
B) Intention of the parties for such transfer (section 19)
As per section 19(2), in a contract for the sale of specific or ascertained goods the property in
them is transferred to the buyer at such time as the parties to the contract intend it to be
transferred. The intention of the parties is ascertained from the terms of the contract, the
conduct of the parties and the circumstances of the case.
In Agricultural Market Committee VS Halimar Chemical works Ltd ,it was held that an attempt
was made to give effect to the elementary principle of law of contract that the parties may fix the
time when the property in the contract of sale shall be treated to have passed. It may be at the
time of delivery or the time of payment of price or even at the time of making the contract.
When intention of the parties cannot be ascertained, rules contained in section 20-24 are
required to be applied for ascertaining the time of transfer of property which is discussed here
under:
(I) SPECIFIC GOODS
(a) Specific goods in a deliverable state (section 20)
In an unconditional contract for the sale of specific goods in a deliverable state, the property in
the goods passes to the buyer when the contract is made, and it is immaterial whether the time
of payment of the price or the time of delivery of the goods, or both, is postponed. (sec 20).
Goods are said to be in deliverable state when they are in such a state that the buyer would
under the contract is bound to take delivery thereof.
Example: X offer to sell his horse to Y for 1,00,000. The price is to be paid after one week and
delivery of horse to be made on Dhan Teras. Before Y could take delivery of the horse on Dhan
Teras, the horse died of swine flu. The property in horse has passed on from X to Y whether the
delivery thereof is taken or not. The loss will be borne by Y only.
(b) Specific goods to be put into a deliverable state (Sec. 21)
Where there is a contract for the sale of specific goods and the seller is bound to do something
to the goods for the purpose of putting them into a deliverable state, the property does not pass
until such thing is done and the buyer has notice thereof(sec 21).

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(c) Specific goods in a deliverable state, when the seller has to do anything thereto in order to
ascertain price (section 22)
If there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to
weigh, measure, test or do some other act or thing with reference to the goods for the purpose
of ascertaining the price, the property does not pass until such act or thing is done and the buyer
has notice thereof.
(II) UNASCERTAINED GOODS (SEC 23)
(a) Where there is a contract for the sale of unascertained or future goods by description and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer or by the buyer with the assent of
the seller, the property in the goods thereupon passes to the buyer. Such assent may be
expressed or implied, and may be given either before or after the appropriation is made.
Ascertainment is the process by which the goods answering the description to the contract
are identified and set apart. Ascertainment is the unilateral act of seller.
(b) Delivery to carrier:
Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier
or other bailee for the purpose of transmission to the buyer and does not reserve the right of
disposal, he is deemed to have appropriated the goods for the purpose of the contract.
(III) GOODS ON APPROVAL OR ‘ON SALE OR RETURN’
When goods are delivered to the buyer on approval or on sale or return or other similar
terms, the transaction does not culminate into sale until the goods are approved by the
customer and the property in goods still remains with the seller.
In such cases, the property therein passes to the buyer—
a) When he signifies his approval or acceptance to the seller, or
b) When he does any other act adopting the transaction, or
c) If he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, then, if a time has been fixed for the return of the
goods, on the expiration of such time, and, if no time has been fixed, on the expiration
of a reasonable time.

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Transfer of property from seller to the buyer

(Presentation in a Chart)

Unascertained Goods Ascertained/specific Goods Sale on approval

(a) Goods are ascertained (a) On approval Or

(b) Appropriation of goods (b) Adopts the transaction Or
(c) Retains without notice of
rejection for long time.

(a) Deliverable state and (b) Deliverable state but (c) Non-deliverable state
Price is determined price not determined

At the time when After determination of After the process of making

Contract is made price it deliverable is complete

1. Ascertainment: It is a process of identifying the goods and setting apart as per the intended
quality and description.
2. Appropriation of goods: Appropriation of goods involves the satisfaction of the following
conditions:
• Appropriation shall be unconditional
• Made by mutual consent
• The goods shall confirm to the description and quality as mention in the contract
• Goods must be in deliverable state.

RISK PRIMA FACIE PASSES WITH PROPERTY (SECTION 26)

Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is
transferred to the buyer, but when the property therein is transferred to the buyer, the goods
are at the buyer’s risk whether delivery has been made or not.
Effect of Destruction of Goods [Sec 7]

Goods perishing before making of contract (Sec 7) – Where there is a contract for the sale of
specific goods, the contract is void if the goods without the knowledge of the seller have, at the
time when the contract was made, perished or become so damaged as no longer to answer to
their description in the contract.

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Goods perishing before sale but after agreement to sell (Sec 8) – Where there is an agreement
to sell specific goods, and subsequently the goods without any fault on the part of the seller or
buyer perish or become so damaged as no longer to answer to their description in the agreement
before the risk passes to the buyer, the agreement is thereby void. Sec (7 & 8) are applicable only
in case of specific goods and not unascertained/generic goods.
Example :
In Demby Humiltan & Co V Barden Engineering Works ltd 1949 ALL ER 435, A contracted to
purchase 30 tones of apple juice from B. Deliveries were to be made in weekly truckload. B
crushed the apples and put the juice in casks for delivery. A delayed the taking of delivery as a
result juice got deteriorated in quality. It was held that the property in goods has passed on to A.
Accordingly the loss will be borne by A only.

SALE BY PERSON NOT THE OWNER

As per section 27 of the Sale of Goods Act where goods are sold by a person who is not the owner
thereof and who does not sell them under the authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had, unless the owner of the goods is
by conduct precluded from denying the seller’s authority to sell.
A buyer cannot get good title to the goods unless he purchased the goods from a person who is
the owner thereof and sell them under the authority or with the consent of real owner.
Example 1:
X found a golden ring of Y lying in a park. X instead of returning it to Y sold it to Z who purchased
in good faith and for value. Y is entitled to recover it from Z as X has no title to sell it, accordingly
he cannot give a title which he does not have.
Generally the owner alone can transfer property in goods. “Nemodat quod non habet” means
that no one can give what he himself does not have. It means a non-owner cannot make valid
transfer of property in goods. If the title of the seller is defective, the buyer’s title will also be
subject to same defect. If the seller has no title, the buyer does not acquire any title although he
might have acted honestly and might have acquired the goods after due payment. This rule is to
protect the real owner of the goods.
Though this doctrine seeks to protect the interest of real owners, but in the interest of the trade
and commerce there must be some safeguard available to a person who acquired such goods in
good faith for value. Accordingly, the Act provides the following exceptions to this doctrine which
seeks to protect the interest of bonafide buyers:

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Exceptions

1. Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods for document
of title to goods would pass a good title to the buyer in the following circumstances; namely;
a. If he was in possession of the goods or documents with the consent of the owner;
b. If the sale was made by him when acting in the ordinary course of business as a
mercantile agent; and
c. If the buyer had acted in good faith and has at the time of the contract of sale, no
notice of the fact that the seller had no authority to sell (Proviso to Section 27).
2. Sale by one of the joint owners: If one of the several joint owners of goods has the sole
possession of them with the permission of the others, the property in the goods may be
transferred to any person who buys them from such a joint owner in good faith and does not
at the time of the contract of sale have notice that the seller has no authority to sell (Section
28).
3. Sale by a person in possession under a voidable contract: A buyer would acquire a good title
to the goods sold to him by a seller who had obtained possession of the goods under a
contract voidable on the ground of coercion, fraud, misrepresentation or undue influence
provided that the contract had not been rescinded until the time of the sale (Section 29).
4. Sale by one who has already sold the goods but continues in possession thereof: If a person
has sold goods but continues to be in possession of them or of the documents of title to
them, he may sell them to a third person, and if such person obtains the delivery thereof in
good faith and without notice of the previous sale, he would have good title to them,
although the property in the goods had passed to the first buyer earlier.
5. Sale by buyer obtaining possession before the property in the goods has vested in him:
Where a buyer with the consent of the seller obtains possession of the goods before the
property in them has passed to him, he may sell, pledge or otherwise dispose of the goods
to a third person, and if such person obtains delivery of the goods in good faith and without
notice of the lien or other right of the original seller in respect of the goods, he would get a
good title to them [Section 30(2)].
6. Effect of Estoppel: Where the owner is estoppel by the conduct from denying the seller’s
authority to sell, the transferee will get a good title as against the true owner. But before a
good title by estoppel can be made, it must be shown that the true owner had actively
suffered or held out the other person in question as the true owner or as a person authorized
to sell the goods.
7. Sale by an unpaid seller: Where an unpaid seller who had exercised his right of lien or
stoppage in transit resells the goods, the buyer acquires a good title to the goods as against
the original buyer – Section 54 (3).
8. Sale under the provisions of other Acts:
i. Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid
title.
ii. Purchase of goods from a finder of goods will get a valid title under circumstances.
iii. A sale by pawnee can convey a good title to the buyer.

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Conditions & Warranties

CONDITION [SECTION 12(2)]

A condition is a stipulation essential to the main purpose of the contract, the breach of which
gives rise to right to treat the contract as repudiated.
A condition in a contract of sale of goods is of fundamental nature for breach of which the buyer
can repudiate the contract

WARRANTY [SECTION 12(3)]

A warranty is a stipulation collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the goods and treat the contract as
repudiated.
Section 12(4) further states “Whether a stipulation in a contract of sale is condition or a warranty
depends in each case on the construction of the contract, a stipulation may be a condition though
called warranty in a contract.”

DISTINCTION BETWEEN A CONDITION AND A WARRANTY

Sl. No. Basis of distinction Condition Warranty
(i) Value A condition is a stipulation A Warranty is a stipulation
which is essential to the main which is collateral to the
purpose of the contract. main purpose of the
contract.
(ii) Rights The aggrieved party can The aggrieved party can
repudiate the contract of sale claim damages only in case
in case there is a breach of a of breach of a warranty.
condition.

(iii) Treatment A breach of condition may be A breach of a warranty, con

treated as a breach of a not be treated as a breach of
warranty. This would happen a condition.
where the aggrieved party is
contended with damages only

Condition Treated as Warranty

A condition may be treated as a warranty under the following circumstances:
1. At the buyer’s discretion
• The buyer may waive a condition.
• He may elect to treat a breach of condition as a breach of warranty

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2. Acceptance of goods: Where the buyer has accepted the whole or part of goods in case of a
non-severable contract.
3. Impossibility: Where a fulfillment of condition or warranty is excused by the law of the basis
of impossibility of performance or otherwise.

TYPES OF IMPLIED CONDITIONS AND IMPLIED WARRANTIES:

Implied Conditions:
1. Condition as to title: In every contract of sale, there is an implied condition that the seller
has the right to sell the goods. This condition is called “condition as to title”. If a person sells
goods without having title to it, the buyer is entitled to reject the goods and can recover the
purchase price from the seller.
2. Condition as to description: Where goods are sold by description, there is an implied
condition that the goods shall correspond with the description. If they are not, the buyer may
reject them or accept them and claim damages.
3. Condition as to sample: Where goods are sold by sample, there is an implied condition:
a. That the bulk of the goods shall correspond with the sample in quality.
b. That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample, and
c. That the goods shall be free from latent defects. Defects which are not discoverable on
reasonable examination.
4. Condition as to description and sample: Where the goods are sold by sample as well as by
description, there is an implied condition that the goods shall correspond both with the
sample and with the description. If the goods supplied correspond only with the sample and
not with the description or vice versa, the buyer is entitled to reject the goods.
5. Condition as to quality and fitness: There is no implied condition that the goods must be fit
for the particular purpose of buyer. But-
• Where the buyer has disclosed to the seller, the purpose for which the goods are
required.
• And the buyer relies upon seller’s skill or judgment.
• And the seller deals in goods of such description.
There is an implied authority that the goods shall be reasonably fit for the purpose.
However this implied condition does not implied when the specific goods are sold under
theirs patents or trade name.
Mr. A purchased a hot water bottle from chemist the bottle burst and injured his wife. It was
held as a breach of condition of fitness and thus the chemist was liable for refund of price
and damage. [Priest vs. Last]
6. Merchantable quality:
• If the goods are purchased for resale, they should be immediately resalable in the
market. Moreover, the goods or product should be marketable at their full value.

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Example: cement turned to stone by water, is not merchantable.

• If the goods are purchased for self use, then they should be fit for the purpose for
which they are ordinarily used.
• Any goods must be of merchantable quality i.e. it should be in such a condition as a
man of ordinary prudence would accept it as goods of description.
7. Condition as to wholesomeness: In case of eatables it is an implied condition that the goods
shall be wholesome i.e. in a condition fit for human consumption. [Frost V. Alsbery Dairy]

Implied Warranty
1. Warranty of quiet possession: In a contract of sale, there is an implied warranty that the
buyer shall have and enjoy quiet possession of the goods. In case the buyer is in any way
disturbed, he has a right to sue the seller for damages. Such a situation arises when the
seller’s title to goods is defective.
2. Warranty of freedom from encumbrances: There is an implied warranty on the part of the
seller that goods shall be free from any charge or encumbrance in favour of any third party.
Where there is a breach of this implied warranty, the remedy of the buyer is to sue for
damages.
3. Warranty as to fitness: An implied warranty or condition as to quality or fitness for a
particular purpose may be annexed by the usage of trade.
4. Warranty of disclosing the dangerous nature of goods to the ignorant buyer: The third
implied warranty on the part of the seller is that in case the goods sold are of dangerous
nature, he must warn the ignorant buyer of the probable danger. If there is a breach of this
warranty, the buyer is entitled to claim compensation for the injuries caused to him.

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Performance of the Contract of Sale

Performance of the contract of sales means due discharge of the contractual obligations by both
the parties to the contract i.e., Buyer and Seller. The obligation of the seller is to deliver he goods
in accordance with the terms of the contract as to time and place and obligation of the buyer is
to accept the goods and pay the price agreed upon. As per section 31 performance of a contract
of sale means as regards the seller, delivery of the goods to the buyer, and as regards the buyer,
acceptance of the delivery of the goods and payment for them, in accordance with the terms of
sale.
Performance of a contract involves two things timely delivery on the part of the seller and
payment of the price as per the terms of contract by the buyer. Unless otherwise agreed,
delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller
shall be ready and willing to give possession of the goods to the buyer in exchange for the price,
and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.

Delivery
Delivery means “Voluntary transfer of possession of goods from one person to another”.
Modes of delivery:
Delivery of goods may be in three different ways.
1. Actual delivery
2. Symbolic delivery
3. Constructive delivery
1. Actual delivery: It is also called “Physical delivery”. Where the goods are physically handed
over by the seller to the buyer or his agent, the delivery is said to be actual delivery.
Example: The seller of a car hands over the car to the buyer.
2. Symbolic delivery: Where the goods are bulky and incapable of actual delivery “the means
of obtaining possession” of the goods are delivered by the seller to the buyer. Such delivery
is said to be “Symbolic”.
Example: Handing over the key of a ware-house to the buyer is symbolic delivery.

3. Constructive delivery: Where the third party, who is in possession of goods of the seller at
the time of sale, acknowledges to the buyer that he holds goods on his behalf, the delivery is
constructive delivery.

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Example: A sells to B 50 bags of wheat lying in C’s godown. A gives an order to C, asking him
to transfer the goods to B. C assents to such order and transfers the goods in his books to
B.A then hands over the order to B. This is a constructive delivery.

RULES REGARDING DELIVERY OF GOODS:

1. Delivery of goods and payment of price: Delivery of goods and payment of price are
concurrent conditions unless otherwise agreed upon. In other words seller must be ready
and willing to make delivery and buyer must also be willing to take delivery and willing and
ready to pay the price (Sec 32).
Example: A agrees and delivers his car to B and B in turn pays price for it.
2. Effect of part delivery: As per section 34, a delivery of part of goods, in progress of the
delivery of the whole has the same effect, for the purpose of passing the property in such
goods, as a delivery of the whole, but a delivery of part of the goods, with an intention of
severing it from the whole, does not operate as a delivery of the remainder.
Example: A directed the wharfinger to deliver his goods lying at the wharf to B to whom
these goods had been sold. B weighted the goods and took away a part of them. Held, the
delivery of a part of the goods had taken place which has the effect as delivery of the whole.

3. Buyer to apply for delivery: Apart from any express contract, the seller of goods is not bound
to deliver them until the buyer applies for delivery. (Section 35) It may also happen that the
goods are subsequently acquired by the seller, he is to intimate the buyer and the buyer then
should apply for delivery. Buyer has no cause of action against the seller if he does not apply
for delivery, unless otherwise agreed upon.
Example: S agreed to sell his old car to T and T agreed to take delivery thereof on the
auspicious day of Deepawali, S kept the car ready for delivery to T but T did not approach
him for delivery. T has no reason to take any action against S if delivery of car did not take
place on that day.
4. Cost of delivery: All the expenses incurred for putting the goods into a deliverable state are
to be borne by the seller. Similarly all the expenses relating to taking possession the goods
must be borne the buyer.
5. Installment delivery [Sec. 38]: Buyer is not bound to accept installment unless agreed by the
parties. If the contract provide for installment delivery which are to be separately paid for,
and the seller makes no delivery or defective delivery in respect of one or more installments,
or the buyer neglects or refuses to take delivery of or pay for one or more installments, it is
a question in each case depending on the terms of the contract and the circumstances of the
case, whether the breach of contract is a repudiation of the whole contract, or whether it is
a severable breach giving rise to a claim for compensation.
6. Delivery to carrier or wharfinger [Sec. 39]: If, in pursuance of a contract of sale, the goods
are delivered to a carrier for transmission to the buyer or to a wharfinger for safe custody,

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delivery of goods to them is prima facie deemed to be delivery of goods to the buyer. In such
a case the seller must enter into a reasonable contract with the carrier or wharfinger on
behalf of the buyer for same transmission or custody of goods. Failure to do so coupled with
loss of goods in transit, buyer may reject delivery to carrier/wharfinger as delivery to himself
and may hold the seller responsible for such loss.
7. Place of Delivery
Nature of goods Place of delivery
1. Delivery of sold goods Where they are at the time of sale
2. Agreement to sell Where they are at the time of agreement to
sell.
3. Goods not in existence at the time Where they are produced or manufactured.
of Agreement
8. Time of delivery:
• As per the Agreement
• If no specific time given in the contract, then within a reasonable time.
• When terms like “directly” “without loss of time” “forth with “ etc. are given in the
contract, then seller is expected to make quick & immediate delivery
9. Possession of goods by third party:
• Third party holding the goods should acknowledge the buyer that he is holding such on
buyer’s behalf.
• No such acknowledgement is required when goods are sold by delivery/transfer of
document of title.

10. Expenses of Delivery: Unless otherwise provided in the agreement, the seller is to bear the
expenses of bringing the goods into deliverable state.
11. Delivery of wrong quantity:
a) Short Delivery:
• Reject the goods
• Accept the goods & pay as per contracted rate.
b) Excess Delivery:
• Reject in full
• Accept the contracted quantity & reject the excess.
• Accepted the whole quantity
c) Mixed Delivery:
• Accept the contracted goods & reject the rest.
• Reject the entire lot.

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12. Delivery of goods at a distant place: Where the seller agrees to deliver the goods at his own
risk at a place other than where they are sold, the buyer shall bear the risk of deterioration
necessarily incident to the course of transit unless otherwise agreed.
13. Buyer right of examine the goods: If the delivered goods have not been inspected previously,
the seller must give a reasonable opportunity to the buyer to inspect and confirm that the
goods match the contracted goods.

UNPAID SELLER
According to Section 45(a) of the Sale of Goods Act, 1930 the seller of goods is deemed to be an
‘Unpaid Seller’ when-
a. The whole of the price has not been paid or tendered and the seller had an immediate right
of action for the price.
b. A bill of exchange or other negotiable instrument was given as payment, but the same has
been dishonoured, unless this payment was an absolute, and not a conditional payment.
Any person who is in a position of a seller, is also a seller, and may exercise the rights conferred
upon an ‘unpaid seller’ in above said circumstances. For instance, an agent of the seller, to whom
bill of lading has been endorsed, is in the position of seller and may exercise rights of ‘unpaid
seller’.
Example:
X sold certain goods to Y for Rs.5,000. Y paid Rs.4,000 but fails to pay the balance. X is an unpaid
seller.
RIGHTS OF AN UNPAID SELLER

An unpaid seller has been expressly given the rights against the goods as well as the buyer
personally which are discussed as under.
a. A rights of an unpaid seller against the goods: The unpaid seller has the following rights
against the goods whether the property in the goods has passed to the buyer or not.
1. Rights of lien (Section 47): He has a right of lien on the goods for the price while he is
in possession, until the payment or tender of the price of such goods. The right of lien
can be exercised by him in the following cases only:

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a. where goods have been sold without any stipulation of credit;

b. where goods have been sold on credit but the term of credit has expired; or
c. where the buyer becomes insolvent.
However, the unpaid seller loses his right of lien under the following circumstances:
1. When he delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods.
2. Where the buyer or his agent lawfully obtains possession of the goods.
3. Where seller has waived the right of lien.
4. By Estoppel i.e., where the seller so conducts himself that he leads third parties to
believe that the lien does not exist.
Example: A, sold a car to B for Rs.1,00,000 and delivered the same to the railways for the purpose
of transmission to the buyer. The railway receipt was taken in the name of B and sent to B. Now
A cannot exercise the right of lien.
2. Right of stoppage in transit: When the unpaid seller has parted with the goods to a
carrier and the buyer has become insolvent, he can exercise this right of asking the
carrier to return the goods back, or not to deliver the goods to the buyer.
However, the right of stoppage in transit is exercised only when the following conditions are
fulfilled:
a. The seller must be unpaid.
b. He must have parted with the possession of goods.
c. The goods are in transit.
d. The buyer has become insolvent.
e. The right is subject to provisions of the Act.

Example: B at Delhi, orders goods of A, at Mumbai. A consigns and forwards the goods to B. On
arrival at Delhi, they are taken to B‘s warehouse and left there. B refuses to take these goods and
stop payment. The goods are in transit and the unpaid seller can take them back.
3. Right of re-sale: The unpaid seller can exercise the right to re-sell the goods under the
following conditions:
a. Where the goods are of a perishable nature: In such a case the buyer need not be
informed of the intention of resale.
b. Where he gives notice to the buyer of his intention to re-sell: the goods and the buyer
does not within a reasonable time pay or tender the price.

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RIGHTS AGAINST THE BUYER

An unpaid seller in addition to his rights against the goods, has the following rights against the
buyer personally.
1. Suit for price: [Sec. 55] Where the property in goods has passed to the buyer, and the buyer
wrongfully neglects or refuses to pay the price, the seller can sue the buyer for price.
2. Suit for damages for non-acceptance: [Sec. 56] Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, the seller can sue him for damages for non-
acceptance of the goods.
3. Suit for repudiation: Where the buyer repudiates the contract before the date of delivery,
the seller may wait till the date of delivery or may treat the contract as cancelled and sue for
damages for breach.
4. Suit for interest: [Sec. 61] Where there is specific agreement between the seller and the
buyer regarding interest on the price of goods, the seller may claim it from the date when
payment becomes due. If there is no specific agreement, the interest is payable from the
date notified by the seller to the buyer.

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MULTIPLE CHOICE QUESTIONS - BASICS

1. The sale of Goods Act came in to force on
a. 1st March, 1930
b. 1st July, 1930
c. 31st March, 1930
d. 31st July, 1930. [b]
2. The sale of Goods Act, 1930 deals with the
a. Movable goods only
b. Immovable goods only
c. Both movable and immovable goods
d. All goods except ornaments [a]
3. Legally, the term ‘sale’ is defined in
a. Section 4(1)
b. Section 4(2)
c. Section 4(3)
d. Section 4(4) [c]
4. Legally, the term ‘agreement to sell’ is defined in
a. Section 4(1)
b. Section 4(2)
c. Section 4(3)
d. Section 4(4) [c]
5. Where property in the goods (i.e. legal ownership of the goods) is immediately transferred
from the seller to the buyer, it is legally known as
a. Barter
b. Agreement to sell
c. Sale
d. Exchange of goods [c]
6. Where an agreement to sell provides that the ownership of the goods shall be transferred at
some future date, it becomes sale
a. When that date arrives
b. After 30 days that date
c. After 60 days that date
d. None of the above [a]
7. A contract of sale made without consideration, is………….
a. Void
b. Voidable
c. Valid
d. None of these [a]
8. A contract of sale in which consent of the buyer is obtained by fraud or misrepresentation,
is……..

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a. Void
b. Voidable
c. Valid
d. Unlawful [b]
9. The consideration for a contract of sale is…………..
a. Price
b. Buyer’s promise
c. Seller’s promise
d. Exchange of promises [a]
10. A agrees to deliver his old car valued at Rs.80,000 to B, a car dealer, in exchange for a new
car, and agrees to pay the difference in cash, it is
a. Contract of sale
b. Barter
c. Exchange
d. None of these [a]
11. A contract of sale which provides for the postponement of both the payment of price and
delivery of goods, is a
a. Void contract of sale
b. Voidable contract of sale
c. Voidable contract of sale
d. Invalid contract of sale [c]
12. A agreed to sell to B certain standing trees grown in A’s field. They agreed that upon payment
of price, B may cut the trees and take them away. It is a
a. Valid contract of sale as the trees can be severed from land
b. Void contract of sale as the trees are not included in growing crop.
c. Voidable at B’s option as he may enforce the contract if he so wishes
d. Contingent contract of sale dependent on B’s act of cutting the trees. [a]
13. The goods which have been indentified by the parties at the time of contract of sale, are
known as
a. Ascertained goods
b. Specific goods
c. Unascertained goods
d. None of these [b]
14. The good which are to be produced or manufactured by the seller after the contract of sale
is made, are known as
a. Contingent goods
b. Unascertained goods
c. Future goods
d. None of the above [c]
15. Where before making the contract of sale, the goods had perished without the knowledge
of the seller, the contract of sale is void if the contract is for the sale of

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a. Specific goods
b. Future goods
c. Contingent goods
d. Unascertained goods [a]
16. Where after an agreement to sell for the sale of specific goods, the goods perish without any
fault of the seller or buyer, the contract of sale becomes void if the goods perish
a. Without any knowledge of the seller
b. Without any knowledge of the buyer
c. Before the risk passes to the buyer
d. After the risk passes to the buyer [c]
17. The legal provision which provides that a contract for sale of specific goods become void
where the goods had already perished before the contract of sale, is contained in which
section of the sale of goods act, 1930?
a. Section 5
b. Section 6
c. Section 7
d. Section 8 [c]
18. A contract of sale for the sale of ‘future goods’ is …..
a. Sale
b. Agreement to sell
c. Void
d. Voidable [b]
19. Where the customs or usages of trade provide certain principles for determination of the
price, then the price may be determined from the
a. Conduct of the buyer
b. Conduct of the seller
c. Notification issued by the appropriate government
d. Course of dealings between the parties [d]
20. Section….of the sale of goods act, 1930 defines the term ‘delivery’
a. 2(1)
b. 2(2)
c. 2(3)
d. 2(4) [b]
21. Which is an instance of Symbolic Delivery of Goods –
a. Abandonment by a person who is in possession of the goods
b. Transfer of a Bill of Lading
c. Physical Delivery of goods
d. All of the above [b]
22. Under the Sale of Goods Act, 1930 ‘Wharfinger’s Certificate’ is a
a. Document of Title
b. Document showing Title

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c. Certificate equivalent to a Negotiable Instrument

d. Delivery Order [a]
23. Which of the following are not included in the term “goods” under the Sale of Goods Act –
a. Stock and shares
b. Actionable claims
c. Growing Crops, Grass etc.
d. Personal Use Property [b]
24. Under the Sale of Goods Act. “……..Goods” means goods which not yet in existence at the
time of making the contract of sale
a. Ascertained Goods
b. Future Goods
c. Specific Goods
d. Perishable Goods [b]
25. Section….of the Sale of Goods Act, 1930 defines the term “Property”
a. 2(11)
b. 2(12)
c. 2(13)
d. 2(14) [a]
26. An agreement to sell in respect of goods is an ……contract which creates a jus in personam
a. Executed
b. Executory
c. Voidable
d. Void [b]
27. In an agreement to sell, the property in goods is transferred in
a. Past
b. Present
c. Future
d. There is no transfer of property at all. [c]
28. Whether a given contract is one of sale or some other kind of contract, in respect of goods,
is a question of
a. Terminology
b. Law
c. Cannot be determined at all
d. Must be clearly specified in writing [a]
29. A sale of Goods under the Sale of Goods Act, creates –
a. A jus in personam
b. A jus in rem
c. Both a and b
d. Neither a nor b [b]
30. In a contract of sale, where buyer becomes insolvent before payment of price, the seller
a. Has to deliver goods and claim a rateable dividend for price consideration

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b. Has to deliver goods and sue the Official Receiver for the entire price paid
c. Either a or b
d. Can refuse to hand over the goods to the Official receiver unless full price is paid [a]
31. Where goods are not specific and ascertainable at the time of the making of the contract, it
shall
a. Become void
b. Become voidable at the option of the buyer
c. Operate as an agreement to sell
d. Become a valid contract of sale [c]
32. Where by a contract of sale, the seller purports to effect a…..the contract operates as an
agreement to sell.
a. Present sale of existing goods
b. Future sale of existing goods
c. Present sale of future goods
d. Future sale of future goods [c]
33. If specific goods, without the knowledge of the seller have, perished or become so damaged
as no longer to answer to their description in the contract, such contract is void u/s 7. Such
perishing or damage should occur –
a. Before the contract of sale is made
b. After the contract of sale is made
c. At the time when the contract was made
d. At any time after buyer appropriates the goods [c]
34. Section 8 makes agreements void where the goods, without any fault of the seller or buyer
have, perished or become so damaged as no longer to answer to their description in the
agreement, before risk passes to the Buyer. Such goods must be
a. Future goods
b. Contingent goods
c. Specific goods
d. Immovable property [c]
35. A stipulation in a contract of sale with reference to the goods which are the subject matter
thereof may be
a. Condition
b. Warranty
c. Condition precedent
d. Either a or b [d]
36. A warranty ‘ under the sale of goods act, has been defined as a stipulation
a. Collateral to the main purpose of the contract
b. With regard to time
c. Essential to the main purpose of the contract
d. All of the above [a]
37. The breach of a condition in a contract of sale of goods, gives the right to

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a. Repudiate the contract

b. Claim for damages only
c. Either a or b
d. Both a and b [b]
38. Waiver of a condition in a contract of sale, u/s 13 of the Sale of Goods Act, is deemed in cases
of –
a. Legal impossibility
b. Lack of consideration
c. Lack of consensus – ad – idem
d. Destruction of goods [a]
39. When the Buyer’s right of quiet possession of goods is affected by the Seller’s fault the
former can
a. Reject the goods
b. Claim for damages
c. Repudiate the contact
d. All of the above [b]
40. In case of sale of goods by sample as well as by description, the bulk of the goods should
correspond with –
a. The sample
b. Their description
c. Either sample or description
d. Both sample and description [d]
41. Which of the following is not required for invoking the implied condition as to quality or
fitness?
a. Buyer discloses to the seller, the exact purpose for which goods are required
b. Buyer indicates to the seller that he relies on the seller’s skill or judgment
c. Seller’s business is to sell goods of such description
d. Buyer reserves the right to examine the goods and check its quality [d]
42. M purchased ‘Karlos Brand’ Hot Water Bottle from a Chemist. The bottle burst and injured
his wife. Is the Chemist liable?
a. Yes, for breach of express condition as to quality
b. Yes, for breach of implied condition as to quality
c. No, since specific goods are sold under a patent/trade name
d. Yes, since hot water bottle sales are illegal [c]
43. In case of sale of goods by sample, there is…..that the goods shall correspond with the sample
in quality
a. An implied warranty
b. No implied warranty
c. An implied condition
d. No implied condition [c]
44. The Principle of “caveat emptor’ is found, in the Sale of Goods act, under section….

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a. 15
b. 16
c. 17
d. 18 [b]
45. The general rule is that the Buyer of goods must keep his eyes open, his mind active, and be
caution while buying the goods. This doctrine is called –
a. Ignorantia juris non excusat
b. Nemo dat quod non habet
c. Quid pro quo
d. Caveat emptor [d]
46. In case of….goods, property passes to the Buyer, only when the goods are ascertained
a. Future
b. Specific
c. Contingent
d. Unascertained [d]
47. In a sale of specific or ascertained goods, the property therein is transferred to the Buyer
a. Upon delivery of goods
b. Upon payment of price
c. At such time as the parties intend it to be transferred
d. At such time as decided by the court [c]
48. In case of an unconditional contract for sale of specific goods in a deliverable state, the
property passes to the buyer –
a. Upon delivery of goods
b. Upon payment of price
c. At such time as the parties intend it to be transferred
d. At the time when contract is made [d]
49. …..under the sale of goods act, means goods identified in accordance with the
agreement after the contract of sale is made
a. Ascertained goods
b. Unascertained goods
c. Illegal goods
d. Contingent goods [a]
50. Section….of the Sale of Goods Act, deals with cases where though the goods are ascertained
and in a deliverable state, something has to be done by the seller for ascertaining the price
a. 18
b. 20
c. 22
d. 24 [c]
51. Section 23 of the sale of goods act, applies to a contract for sale of unascertained goods
a. By description
b. By sample

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c. By patent or other trade name

d. By description and sample [a]
52. In case of goods sent on approval basis, the goods are at the……if they perish in an inevitable
accident
a. Buyer’s Risk
b. Seller’s Risk
c. Combined Risk of Buyer and seller
d. Carrier’s Risk [b]

53. Seller reserves the right of disposal by specifying conditions to be fulfilled but delivers goods
to the carrier/bailee, for the purpose of transmission to the Buyer. The property in goods –
a. Passes to the Buyer
b. Passes to the Carrier/Bailee
c. Vests with the Seller
d. Vests in the Government [c]
54. Risk prime facie passes with-
a. Property or ownership
b. Completed agreement
c. Verification and delivery of goods
d. Payment of price [a]
55. The Latin maxim “Nemo Dat Quod Non Habet” means –
a. No man can pass a better title than he has
b. Let the Buyer beware
c. No consideration – no contract
d. Ignorance of law is no excuse [a]
56. Section 30(2) provides that the…..can pass a valid title to the subsequent Buyer if the
possession of the property has been obtained with the consent of the seller. It is immaterial
that the consent was subsequently withdrawn
a. Seller in possession of goods
b. Buyer in possession of goods
c. Any party in possession of goods
d. Agent in possession of goods [b]

TRANSFER OF OWNERSHIP

1. The term ‘possession of goods’ means

a. Ownership of goods
b. Custody of goods
c. Both a and b
d. None of these [a]

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2. On transfer of property in goods from seller to the buyer, the

a. Buyer becomes the owner of the goods
b. Buyer becomes agent of the seller
c. Seller ceases to be the owner of the goods
d. Both a and c [d]
3. The delivery of goods should
a. Be voluntary and lawful
b. Have the effect of putting the goods in buyer’s possession
c. Both of these
d. None of these [c]
4. The seller becomes entitled to recover the price of the goods when the
a. Goods are delivered to the buyer
b. Ownership is transferred to the buyer
c. Seller is in need of money
d. Goods are valued in terms of money [b]
5. In case of sale of specific goods, the general rule is that the ownership of the goods is
transferred from the seller to the buyer at the time of
a. Making the contract
b. Making payment of price
c. Delivery of goods to the buyer
d. Completion of payment and delivery formalities [a]
6. In case of unconditional contract of sale, the property passes to the buyer at the time of
making the contract. for the application of this rule, the goods must be
a. Specific
b. In a deliverable state
c. Physically transferred to buyer
d. Both a and b [d]
7. In case of sale of specific goods on installments, the ownership is transferred to the buyer at
the time of
a. Making the contract
b. Paying the first installment
c. Either a or b
d. None of these [d]
8. The ascertainment of goods is a
a. Unilateral act of seller
b. Bilateral act of both
c. Unilateral act of buyer
d. None of these [a]
9. The ‘appropriation’ of goods is a
a. Unilateral act of seller
b. Bilateral act of both

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c. Unilateral act of buyer

d. None of these [b]
10. The act of setting apart the goods by the seller is ‘ascertainment’. And it would amount to
appropriation if it is done
a. At the time of contract
b. During performance of contract
c. Within 30 days of making contract
d. With the consent of buyer [d]
11. A contract for the sale of unascertained goods is
a. Complete sale
b. Agreement to sell
c. Voidable agreement
d. Conditional agreement [c]
12. In case, of ‘sale on approval’ the buyer can return the goods if the goods do not serve his
purpose, but he must exercise the option of returning the goods within
a. 7 days of sale
b. 15 days of sale
c. 30 days of sale
d. Reasonable time [d]
13. A delivered some jewelry to B on ‘sale or return’ basis. B sold the jewelry to C on similar
terms. In this case, the ownership passes to B.
a. On sale by B to C
b. If C fails to return the goods to B
c. If C returns the goods and B accept return
d. If C pays the price to B. [a]
14. Where the seller imposes a condition that the ownership shall not pass to the buyer until
price is paid the
a. Contract is void being conditional
b. Seller is said to have reserve his right of disposal
c. Buyer becomes the owner only when the goods are delivered to him
d. Condition is inoperative being unreasonable [b]
15. The goods are at the risk of the buyer when the
a. Ownership is transferred to him
b. Possession of the goods is given to him
c. Seller reserves to bear the loss of goods
d. Seller reserves his right of disposal [a]
16. The Latin maxim ‘nemo dat quod non habet’ means that
a. Only the seller has the right to sell the goods
b. No one can transfer a better title than he himself has
c. The buyer gets the better title than that of the seller
d. The seller can transfer a title only to the bonafide buyer [b]

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17. A mercantile agent, in possession of the goods, can transfer a better title to a buyer when
a. He gets court permission for the sale of goods
b. He act in the ordinary course of his business
c. The buyer buys the goods in good faith
d. Both the conditions (b) and (c) are satisfied [d]
18. Sale by which of the following persons is valid even if he is not the owner?
a. Pawnee
b. Finder of goods
c. Mercantile agent
d. All of these [d]
19. A person in possession of goods under a voidable contract, can validly sell the goods and the
buyer who buys the goods in good faith gets a valid title if the sale is made
a. Before the contract is rescinded
b. After the contract is rescinded
c. After the contract becomes void
d. Both b and c [a]
20. Transfer of documents of title to the goods sold to the buyer, amounts to
a. Actual delivery
b. Symbolic delivery
c. Constructive delivery
d. None of these [b]
21. A sold 250 bags of rice to B which are in the possession of C, a warehouseman. On A’s
instructions C acknowledges to B that he is now holding goods on B’s behalf. In this case,
there is
a. Actual delivery
b. Symbolic delivery
c. Constructive delivery
d. No delivery at all [c]
22. Where no time of delivery of goods is specified in the contract, then the delivery of goods
should be made within
a. 15 days
b. 30 days
c. One month
d. Reasonable time [d]
23. Where the goods are sold by the transfer of documents of title e.g., bill of lading, railway
receipt etc. the effective delivery takes place on the
a. Transfer of documents of title
b. Third person’s acknowledgement
c. Commencement of transit
d. End of transit [a]

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24. Where the buyer rejects the whole quantity of goods due to short delivery or excess delivery,
the contract is treated as
a. Subsisting
b. Cancelled
c. Void
d. Invalid [a]
25. The delivery of goods by installment, where there is no agreement regarding delivery by
installment, is considered
a. Valid and effective
b. Invalid and ineffective
c. Conditional
d. None of these [b]

CONDITIONS AND WARRANTIES

1. A condition is a stipulation which is
a. Collateral to the main purpose of contract of sale
b. Essential to the main purpose of contract of sale
c. Not essential to the main purpose of contract of sale
d. None of these [b]
2. The term condition is defined in which of the following Section of the Sale of Goods Act,
1930?
a. Section 12(1)
b. Section 12(2)
c. Section 12(3)
d. Section 12(4) [b]
3. A stipulation which is essential to the main purpose of the contract and if proved false, gives
the buyer a right to terminate the contract, is legally known as
a. Condition
b. Warranty
c. Guarantee
d. None of the above [a]
4. In case of breach of condition, the buyer
a. Has no remedy
b. Can reject to goods
c. Cannot reject the goods
d. Can get the seller arrested [b]
5. An implied condition is that which
a. Os expressly included in the contract of sale
b. The law presumes to have been incorporated in the contract of sale
c. Entitles the buyer to get the relief without going to court of law

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d. The seller himself undertakes to fulfill to the satisfaction of buyer [b]

6. Which of the following is not an implied condition in a contract of sale?
a. Condition as to title
b. Condition as to description
c. Condition as to sample
d. Conditions as to free from encumbrance [d]
7. According to implied condition as to title, it is presumed that the seller as the
a. Right to sell the goods
b. Possession of the goods
c. Right to recover damages
d. Enough stock of the goods [a]
8. A sold a stolen car to B which was subsequently recovered by the police from B’s possession
and he (B) was forced to return the same to the true owner. Here, there is breach of implied
condition as to
a. Merchantability
b. Fitness for buyer’s purpose
c. Tile
d. None of these [c]
9. Where the goods are sold by description, there is an implied condition that the goods shall
a. Be fit for buyer’s particular purpose
b. Free from any defect
c. Correspond with the description
d. Free from any encumbrance [c]
10. In those cases, where the buyer buys the goods under a patent or trade name, which of the
following statement is correct?
a. Generally, the condition as to fitness of goods for buyer’s particular purpose does not
apply
b. The condition as to fitness for buyer’s purpose is applicable if the buyer relies upon
seller’s skill and judgment for his particular purpose
c. Both a and b are correct
d. None of them is correct [c]
11. A warranty is a stipulation which is
a. Essential to the main purpose of contract of sale
b. Essential for buyer’s specific purpose
c. Collateral to the main purpose of contract of sale
d. None of these [c]

12. The term ‘warranty’ is defined in which of the following section of the sale of goods act,
1930?
a. Section 12(1)
b. Section 12(2)

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c. Section 12(3)
d. Section 12(4) [c]
13. In case of breach of warranty, the buyer can
a. Claim damages only
b. Reject goods only
c. Either a or b
d. Both a and b [a]
14. In case of every contract of sale, there is an implied warranty that the
a. Buyer shall have quiet possession of goods
b. Goods shall be free from any charge or encumbrance
c. Both of these
d. None of these [c]
15. According to implied warranty as to free from encumbrance, it is presumed that the
a. Goods shall be free from any charge on the goods in favor of any third person
b. Buyer shall be free to create charge in favor of any third person
c. Seller shall create charge only in favor of the buyer
d. Third person’s charge is secured [a]
16. The liability for implied condition and warranties may be excluded by
a. An express agreement between the parties
b. The course of dealings between the parties
c. The customs or usages of a particular trade
d. All of these [d]
17. The doctrine of caveat emptor is incorporated in which of the following section of the Sale
of Goods Act, 1930?
a. Section 15
b. Section 16
c. Section 17
d. Section 18 [b]
18. The seller is required to supply the goods which shall be fit for buyer’s purpose where the
a. Seller is the sole distributor of goods sold
b. Seller knows the particular purpose of buyer
c. Buyer makes his purpose clear and relies upon seller’s skill and judgment
d. Buyer is uneducated and the person of rural background [c]

PERFORMANCE OF CONTRACT OF SALE

1. Under Sec.31, it is the….of the seller to deliver the goods and of the buyer to accept and pay
for them in accordance with the contract of sale.
a. Duty
b. Responsibility
c. Liability

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d. Obligation [a]
2. Delivery of goods sold to the Buyer, u/s Section 33, can be –
a. Actual
b. Constructive
c. Symbolical
d. All of the above [d]
3. When the seller causes a change in the possession of goods without any actual change in
their actual and visible custody, it is a case of –
a. Actual delivery
b. Constructive delivery
c. Symbolical delivery
d. Forward delivery [b]
4. Effect of part delivery of goods under a contract has been dealt with the sale of goods act,
under –
a. Section 32
b. Section 33
c. Section 34
d. Section 35 [c]
5. The seller is not bound to deliver goods until the Buyer applies for delivery. This rule can be
changed by –
a. Implied conduct of parties
b. Express contract
c. Both a and b
d. Either a or b [b]
6. The rules as to delivery of goods, are contained in section….of the sale of goods act.
a. 36
b. 37
c. 38
d. 39 [a]
7. Where the seller is bound to send the goods to the buyer as per the agreement, and there is
no specific time limit goods shall be delivered within
a. A suitable time
b. A minimum time
c. Adequate time
d. A reasonable time [d]
8. Reasonable Hour’ u/s 36(4) of the sale of goods act, is a pure question of…
a. Law
b. Fact
c. Law and fact
d. Judgement [b]
9. In case of short – delivery, i.e. less than the contracted quantity, the Buyer can –

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a. Reject the goods

b. Accept and pay as per the contracted rate
c. Either a or b
d. Neither a nor b [c]
10. In case of a contract for delivery of goods in installments which are to be separately paid for,
and the seller makes no delivery or defective delivery in respect of one or more installment.
a. Buyer has to request seller for proper delivery
b. Buyer has to accept the balance installment
c. Buyer has no obligation to accept the balance of goods
d. Buyer need not pay for the installments already received [c]
11. To make an effective delivery to the buyer, delivery can be made to a carrier whether named
by the buyer or not, for the purpose of
a. Safe custody
b. Transmission to the buyer
c. Either a or b
d. Both a and b [b]
12. Unless otherwise agreed, the…..shall make a contract with the carrier or wharfinger, for safe
transmission or safe custody, having regard to the nature of the good and other
circumstances.
a. Seller
b. Agent of seller
c. Buyer
d. Agent of buyer [a]
13. Where the seller fails to give notice to the buyer u/s 39(3) the risk during sea-transit lies with
the –
a. Buyer
b. Seller
c. Carrier
d. Insurer [b]
14. Examination of goods at the place of delivery does not bar the right to reject the goods on
second examination as regards-
a. Patent defects
b. Latent defects
c. Both a and b
d. Either a or b [b]
15. Buyer’s right to examine the goods on delivery is contained in the sale of goods act, under
a. Section 41
b. Section 42
c. Section 43
d. Section 44 [a]

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RIGHTS OF UNPAID SELLER

1. The legal definition of an ‘unpaid seller’ is given in which of the following section of the sale
of goods act, 1930?
a. Section 44
b. Section 45
c. Section 47
d. Section 48 [b]
2. A seller, to whom only a part of the price has been paid, falls in the category of
a. Seller
b. Partly paid seller
c. Unpaid seller
d. Conditional seller. [c]
3. A sold certain goods to b for Rs.5,000 and B made the payment by cheque. However, the
cheque, when presented for payment, was dishonoured. Here, A is in the position of
a. Unpaid seller
b. Ordinary seller
c. Bailor
d. None of these [a]
4. Which of the following rights are available to an unpaid seller against the buyer?
a. Suit for price
b. Suit for interest
c. Suit for repudiation
d. All of these [d]
5. Where the ownership of the goods is transferred to the buyer, which of the following rights
are available to an unpaid seller.
a. Right of lien
b. Right of stoppage in transit
c. Both a and b
d. None of these [c]
6. The unpaid seller’s right of lien is provided in…..
a. Section 47(1)
b. Section 48(1)
c. Section 49
d. None of these [b]
7. The right of lien is exercised by an unpaid seller in order to
a. Retain possession of goods
b. Recover damages
c. Regain possession of goods
d. Punish the buyer [c]
8. In which of the following cases, the unpaid seller losses his right of lien?

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a. Delivery of the goods to buyer

b. Delivery of goods to carrier
c. Tender of price by buyer
d. All of these [d]
9. The unpaid seller’s right of stoppage of goods in transit is provided in….
a. Section 48
b. Section 49
c. Section 50
d. Section 51 [c]
10. The ‘stoppage in transit’ means the stopping of the goods while they are in the course of
transmission to the
a. Seller
b. Buyer
c. Seller’s agent
d. None of the above [b]
11. After exercising his right of lien, the unpaid seller may give a notice to the buyer of his
intention to resell the goods, and can resell the goods if the buyer fails to pay or tender the
price within
a. 15 days
b. 30 days
c. Reasonable time
d. None of these [c]
12. Where the unpaid seller resells the goods without giving a notice to the buyer and there is
loss on resale, then the unpaid seller
a. is guilty of breach of contract
b. can recover the loss from the buyer
c. cannot recover the loss from the buyer
d. can recover the loss from mercantile association [c]
13. The unpaid seller can withhold the delivery of the goods where the buyer
a. fails to pay the price
b. becomes insolvent
c. fails to pay damages
d. both a and b [d]
14. The unpaid seller is entitled to claim interest only when he is entitled to recover
a. price
b. damages
c. either price or damages
d. none of these [d]
15. Where the buyer repudiates the contract before the due date of delivery of goods, the seller
may treat the contract as
a. subsisting and wait till the due date of delivery

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b. repudiated and bring an immediate action for recovery of damages

c. either a or b
d. only option a is available to the seller [c]
16. The seller of goods is deemed to be an unpaid seller
a. when the whole of the price has not been paid or tendered
b. when a bill of exchange or other negotiable instrument has been received as
conditional payment and the condition has not been fulfilled by reason of the dishonor
of the instrument or otherwise
c. both a and b
d. either a or b [d]
17. The term ‘unpaid seller’ includes
a. agent of the buyer
b. agent of the seller
c. agent of the carrier/transporter
d. all of the above [b]
18. Unpaid seller can exercise his right of re-sale of goods
a. even when property in goods has passed to the buyer
b. only when property in goods has not passed to the buyer
c. either a or b
d. neither a nor b [c]
19. Where the goods have been delivered to a carrier but the document of title (i.e. railway
receipt, bill of lading) is obtained in the seller’s name or that of his agent; i.e. seller has
reserved the right of disposal
a. goods are deemed to be in the possession of the buyer
b. goods are deemed to be in the possession of the seller
c. goods are deemed to be in the possession of the carrier
d. goods are deemed to be in the possession of the insurer [b]
20. Generally, where an unpaid seller has made part delivery of the goods he
a. may exercise his right of lien on the remainder
b. has to honor the entire contract
c. loses his lien on the remainder of the goods
d. can supply defective goods in respect of the remainder [a]
21. Where the unpaid seller has parted with the goods by handing it over to a carrier for
transmission and the goods are in transit, he can reclaim possession thereof. This right is
called
a. right of lien
b. right of stoppage of goods in transit
c. right of withholding delivery of goods
d. right of re-sale [b]
22. Duration of transit of goods has been provided in the sale of goods act, under section
a. 51

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b. 52
c. 53
d. 54 [a]
23. If the buyer or his agent obtains delivery of goods before their arrival at their destination,
transit
a. Is not an end
b. Is deemed to continue
c. Is at an end
d. Is not affected at all [c]
24. When part delivery is intended as delivery of the whole, the right of stoppage in transit,
available to an unpaid seller
a. Can be exercised
b. Is lost
c. Is at the option of the buyer
d. Is at the option of the seller [b]
25. Where the unpaid seller has exercised his right of stoppage in transit, the costs of such
delivery shall be borne by
a. Buyer
b. Carrier
c. Seller
d. Insurance company [c]
26. The unpaid seller’s right of lien is to
a. Re-organize possession of goods
b. Re-sell the goods
c. Regain possession of goods
d. Retain possession of goods [d]
27. To exercise the unpaid seller’s right of stoppage in transit, the seller should have lost his
a. Right of lien
b. Right to sue for damages
c. Right of re-sale
d. Right of repudiation of contract [a]

PREVIOUS YEAR QUESTIONS

CHOOSE THE CORRECT ANSWER:

1. ‘Goods’ as defined in Sale of Goods Act will include
a. Rare coins, goodwill and money.
b. Growing crops agreed to be severed before sale, old coins and copyrights.
c. Goodwill, copyright, patent and foreign currency
d. Both b and c

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2. Merchantable quality of goods means

a. That the goods are commercially saleable
b. They are fit for the purpose for which they are generally used
c. Both a and b
d. The quality should be of high standard.
3. Which of the statement is incorrect in connection with duties of seller and buyer?
a. It is the duty of the seller to deliver the goods.
b. It is the duty of the buyer to accept and pay for them.
c. It is not the duty of the seller to deliver the goods
d. It is the duty of the buyer to take delivery of goods.
4. A finder of goods can sell the goods if
a. The goods are ascertained
b. The goods are un-ascertained
c. The goods are valuable
d. The goods are perishable
5. There are------------modes of delivery
a. Three
b. Two
c. Four
d. Five
6. In an auction sale, the property shall be sold to be
a. Lowest bidder
b. Highest bidder
c. Any bidder
d. All bidders
7. A purchases B’s business of selling neckties in Delhi. A can restrain B from
a. Doing the business of selling neckties again in his life
b. Doing any business in Delhi
c. Doing the business of selling neckties in Delhi for a limited period
d. None of the above
8. In case of contractual obligations where the promisor dies before performance,
a. The legal representatives of the promisor the promise irrespective of the promise
b. The legal representatives of the promisor must perform provided it is not one
dependent on the personal qualifications of the promisor.
c. The legal representatives need not perform the promise
d. The legal representative is not liable to pay damages for non-performance of the
promise.
9. An advertisement for sale of goods by auction. This is a case of
a. General offer
b. An offer to hold such sale
c. An invitation to offer
d. Implied offer

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10. Mr. A delivers a basket of mango to Mr. B mistaking him to be Mr. C and Mr. B consumes
those mangos. Hence
a. Mr. B is bound to pay compensation to Mr. A for the value of Mango.
b. Mr. B is not bound to pay any compensation as there was no agreement and it is ‘A’s
fault.
c. Mr. B is bound to pay compensation for value of mango and damages.
d. None of the above
11. Mr. Ajit threatened to commit suicide if his wife did not execute sale deed in favor of his
sister. Wife executed the sale deed. This is
a. Void
b. Voidable
c. Enforceable
d. None of the above
12. An auction sale is complete on the
a. Payment of price
b. Delivery of goods
c. Fall of hammer
d. Signing of agreement
13. Seller can raise the price by fictitious bids in an auction sale with the help of
a. Pretended bidding
b. Puffers
c. Agent
d. Broker
14. Right of stoppage in transit can be exercised by the unpaid seller where the buyer is
a. Solvent
b. Becomes solvent
c. Acts fraudulently
d. None of the above
15. Delivery of goods means
a. Voluntary transfer of possession
b. Compulsory transfer of possession
c. Exchange of goods
d. Voluntary transfer of ownership
16. Property in the goods in the sale of goods act, means
a. Possession of goods
b. Custody of goods
c. Ownership of goods
d. None of the above
17. A valid contract of sale
a. Includes ‘an agreement to sell’
b. Does not include ‘an agreement to sell’
c. Includes hire purchase contract

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d. Includes contract for work and labour

18. Transfer of documents of title to the goods sold to the buyer, amounts to
a. Actual delivery
b. Symbolic delivery
c. Constructive delivery
d. None of the above
19. Right of Stoppage in transit can be exercised by the Unpaid Seller, where he
a. Has lost his right of lien
b. Still enjoys his right of lien
c. Either a or b
d. Neither a nor b
20. The sale of goods act, 1930 governs the transfer of property in
a. Movable property
b. Immovable property
c. Both movable and immovable property
d. All types of properties
21. Property in the goods ‘in the sale of goods act 1930 means’
a. Ownership of goods
b. Possession of goods
c. Assets in the goods
d. Custody of goods
22. The term ‘unpaid seller’ includes
a. Agent of the buyer
b. Agent of the seller
c. Agent of the carrier/transporter
d. All of the above
23. Right of stoppage in transit may be exercised by the unpaid seller, by
a. Taking actual possession of goods
b. Giving notice of his claim to the carrier/bailee who holds the goods.
c. Either a or b
d. Both a and b
24. A, dealing in baby foods, sends samples by train for being exhibited at a consumer product’s
show which fact was made known to the railway company. the goods reached the
destination after the show was over. A sued the railway company for damages. A will be
entitled to
a. Ordinary damages
b. No damages
c. Exemplary damages
d. Special damages
25. ‘Goods’ means
a. Every kind of movable property other than actionable claims and money
b. Some kinds of immovable property only

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c. Every kind of movable property including actionable claims and money

d. Both a and b
26. ‘Future Goods’
a. Can be the subject matter of sale
b. Cannot be subject matter of sale
c. Sometimes may be the subject matter of sale
d. Depends on circumstances.
27. The doctrine OF Caveat emptor is not applicable
a. In case of sale under a patent name
b. In case of sale under a trade name
c. Where the seller is guilty of fraud
d. Where the buyer relies on the skill and judgement of the seller
28. ‘Nemo dat quad non habet’ means
a. No one is greater than God.
b. None can give everything
c. Every one can give everything he has
d. Everyone is bound by his habit
29. Delivery of goods means
a. Voluntary transfer of possession
b. Compulsory transfer of possession
c. Exchange of goods
d. Voluntary transfer of ownership
30. Unpaid seller can exercise his right of withholding delivery of goods
a. Even when property in goods has passed to the buyer
b. Only when property in goods has not passed to the buyer.
c. Either a or b
d. Neither a nor b
31. The undertaking contained in promissory note, to pay a certain sum of money is
a. Conditional
b. Unconditional
c. May be conditional or unconditional depending upon the circumstances
d. None of the above

MATCH THE FOLLOWING

Column A Column B
1. Puffer e. Delivery
2. Goods f. Auction sale
3. Remission g. Agreement to receive less than what is
4. Price due
5. Constructive delivery h. Money consideration
6. Special offer i. Unconditional order

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7. Condition as to quality or fitness j. Essential to the main purpose of the

contract
k. Let the buyer be aware

STATE WHETHER THE FOLLOWING STATEMENT IS TRUE OR FALSE

1. Risk is associated with possession of goods.
2. A master asks his servant to sell his cycle to him at less than the market price. This contract
can be avoided by the servant on grounds of mistake.
3. Delivery of goods can be actual and constructive.
4. A price list hanging outside the shop is meant for an offer by the owner of the shop.
5. A pawnee may under certain circumstances sell the goods pledged to him on giving the pawner
reasonable notice of the sale.
6. P renders some service to D at D’s desire. After a month D promises to compensate P for the
service rendered to him, it is a future consideration.
7. The unpaid seller has right against the goods sold when the property in the goods has passed
on to the buyer.
8. Mr. A tells Mr. B in presence of Mr. C that he (Mr. A) is the agent of Mr. C , Mr .C maintains
silence instead of denying it. Later Mr. A sells Mr. C’s goods to Mr. B. In this case Mr. C cannot
dispute B’s title to the goods.
9. In the case of sale by auction if the seller makes use of pretended bidding to raise the price,
the sale is void.
10. Seller can sue for price only when property in goods has passed on to the buyer.
11. Right of stoppage of goods in transit can be exercised subject to fulfillment of some conditions.
12. S agreed to sell 10 silver coins for Rs.4,000 to B. this is an example of contract of sale.
13. Conditions and warranties can be implied or expressed.
14. Quiet possession, freedom from encumbrance, disclosing dangerous nature of goods, etc. are
expressed conditions in a contract sale.
15. If a finder of lost goods could not find the true owner with reasonable effort or the true owner
refuses to pay the lawful charges of the finder of lost goods, the finder of lost goods can sell
such goods when the lawful charges of the finder of lost goods amounts to 1/3rd of its value.

ANSWER ANY FOUR OF THE FOLLOWING QUESTIONS:

1. What are the essential elements of contract of sale?
2. Explain pretended bidding.
3. Explain the difference between condition and a warranty.
4. Explain the ‘goods on approval’ or ‘on sale or return’.
5. How and when the ownership in goods passes from the seller to the buyer under sales
known as ‘goods on approval or one sale or return’?

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CHAPTER – 4
NEGOTIABLE INSTRUMENTS ACT, 1881

INTRODUCTION
The law relating to negotiable instruments is contained in the Negotiable Instruments Act,
1881. It is an Act to define and amend the law relating to promissory notes, bills of exchange
and cheques.
The Act does not affect the custom or local usage relating to an instrument in oriental
language i.e., a Hundi .The term “negotiable instrument” means a document transferable
from one person to another. However the Act has not defined the term. It merely says that
“A negotiable instrument” means a promissory note, bill of exchange or Cheque payable
either to order or to bearer. [Section 13(1)]

The following are the conditions of negotiability:

1. The instrument should be freely transferable. An instrument cannot be negotiable
unless it is such and in such state that the true owner could transfer by simple delivery
or endorsement and delivery.
2. The person who takes it for value and in good faith is not affected by the defect in the
title of the transferor.
3. Such a person can sue upon the instrument in his own name.
Negotiability involves two elements namely, transferability free from equities and transferability
by delivery or endorsement (Mookerjee J. In Tailors Priyav. Gulab Chand, AIR 1965 Cal).

Important Characteristics of Negotiable Instruments

Following are the important characteristics of negotiable instruments:

1. The holder of the instrument is presumed to be the owner of the property contained in it.
2. They are freely transferable.
3. A holder in due course gets the instrument free from all defects of title of any previous
holder.
4. The holder in due course is entitled to sue on the instrument in his own name.
5. The instrument is transferable till maturity and in case of cheques till it becomes stale (on
the expiry of 6 months from the date of issue).
6. Certain equal presumptions are applicable to all negotiable instruments unless the
contrary is proved.

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SPECIAL PRESUMPTIONS
Presumptions: Until the contrary is provided, the following aspects are presumed in respect of
Negotiable Instruments –
Presumption as to Description
Consideration • Every Negotiable Instruments was made or drawn for
consideration, and
• Such Negotiable Instrument was accepted, Endorsed,
negotiated or transferred for consideration.
Date Every Negotiable Instrument bearing a date was made or drawn on that
date.
Time of Every Bill of Exchange was accepted within a reasonable time after the
Acceptance date mentioned therein but before the date of its maturity.
Time of Transfer Every transfer of a Negotiable Instrument was made before its maturity.
Order of Endorsements appearing on a Negotiable Instrument were made in
Endorsements the
order in which they appear thereon.
Stamp That a lost Promissory Note, Bill of Exchange or Cheque was duly
stamped.
Holder in due That the holder of a Negotiable Instruments is a holder in due
Course course.
Fact of In a suit for the dishonour of a Negotiable Instrument, the Court
Dishonour shall, on
[Sec.119] proof of protest, presume the fact of dishonour, unless and until it
is
disproved.

CLASSIFICATION OF NEGOTIABLE INSTRUMENTS

1. Bearer and order instruments
A. negotiable instrument is said to be payable to bearer when
a. It is expressed to be so payable
b. Only or last endorsement is a blank endorsement.
A. negotiable instrument is said to be payable to order when
a. It is expressed to be so payable
b. Expressed to be payable to a particular person with restricting its transferability.

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2. Inland and foreign instruments

A bill, promissory note or cheque if both drawn and payable in India or drawn on a person
resident in India is said to be an inland bill.
A bill which is not an inland bill is deemed to be a foreign bill. Foreign bill must be protested
for dishonor if such protest is required by the law of the place where it was drawn, this is not
case with Inland bills where protest for nonpayment is optional as per section 104 of the Act.
3. Demand and time instrument: An instrument is payable on demand when it is expressed to
be so payable or when no time is specified on it. A cheque is always payable on demand. A
note or bill if payable after a specified period or happening of a specified event which is
certain, it is a time instrument. If a promissory note or bill of exchange bears the expression
“at sight” and “on presentation” means on demand (section 21). The words “on demand’ are
usually found in a promissory note, where the words “at sight’ are found in a bill of exchange.
4. Genuine, accommodation and fictitious bill: When a bill is drawn, accepted, or endorsed for
consideration it is a genuine bill. When it is drawn, accepted, or endorsed without
consideration it is accommodation bill. When drawer or payee or both are fictitious the bill
is called fictitious bill.
5. Clean and documentary bill: When no documents relating to goods are annexed to the bill,
it is clean bill. When documents of title or other documents relating to goods are attached,
it is documentary bill.
6. Ambiguous instrument: When an instrument due to faulty drafting may be interpreted
either as bill or note, it is an ambiguous instrument. It is for holder to decide how he wants
the bill to be treated. Ambiguity may also arise when the amount is stated differently in
words and figures. In such case the amount stated in words will be taken into account.
7. Inchoate instrument: An instrument incomplete in some respect is known as inchoate
instrument. When a person signs and delivers to another a blank or incomplete stamped
paper, he authorizes the other person to make or complete upon it a negotiable instrument
for any amount not exceeding the amount covered by the stamp. The effect of such signing
is that the person signing the instrument is liable upon such instrument in the capacity in
which he signed it to holder in due course of the instrument.
8. Escrow Instrument: When an instrument is drawn conditionally or for a special purpose as a
collateral security and not for the purpose of transferring property therein, it is called Escrow
instrument.

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PARTIES TO A NEGOTIABLE INSTRUMENT:

Parties Meaning/definition
Drawer The Maker of a Promissory Note, Bill of Exchange or Cheque.
Drawee The person on whom the instrument is drawn and thereby directed to
pay.
Drawee in • Meaning: The person whose name is given in the bill or on any
case of Endorsement thereof, in addition to the name of the Drawee, who
need should be resorted to in case of need
• Where a Drawee in case of need is named in a B/E or any
endorsement thereon, the B/E is not dishonoured, unless it has
been dishonoured by such Drawee. [Sec.115]
• A Drawee in case of need may accept and pay the B/E, without
previous protest. [Sec.116]
Acceptor When the Drawee signs his assent upon the Bill, and delivers the same
to the holder or some other person on his behalf, he becomes the
“Acceptor”.
Acceptor for • Meaning: Person accepting a B/E (which has been noted or
honour protested for non-acceptance or for better security) supra protest
for honour of the Drawer or of any one of endorsers.
• Acceptor for honour must specify as to whose honour he is
accepting the B/E. Otherwise, it shall be deemed to be made for the
honour of the Drawer.
Payee Payee is the person to whom the amount is payable, which may be
the Drawer himself or any other person.
Holder • Meaning: Any person entitled in his own name to the possession
thereof and to receive or recover the amount due thereon from the
parties thereto.
• Where the instrument is lost or destroyed, its holder is the person
so entitled at the time of such loss or destruction. [Sec.8]
Holder in A Holder in due course is a person who becomes the possessor of the
due instrument
course (a) for consideration,
(b) before maturity, and
(c) without any notice as to the defect in title of the Transferor. [Sec.9]
Endorser Endorser is the person who endorses a Bill.
Endorsee Endorsee is the person to whom the Bill is negotiated by endorsement.

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CAPACITY TO BECOME A PARTY TO A NEGOTIABLE INSTRUMENT

A person competent to contract can become a party to a negotiable instrument. If a party who
makes, draws, endorses, or negotiates a negotiable instrument is incompetent to do so, the
agreement is void as against him. But the contract is still valid against the other parties
competent to contract.
(a) Minor A minor person is not competent to contract; therefore, he cannot bind himself by
becoming a party to a negotiable instrument. But mere presence of a minor as one of the
parties in a negotiable instrument does not make it invalid. A minor can draw, indorse, deliver
and negotiate an instrument so as to bind all parties except himself.
Example: A, B and C, a minor executed a promissory note in favor of P. Held, C’s immunity from
liability did not absolve A and B, other joint promisors, from liability. A minor is not personally
liable on a bill or note given by him for necessaries supplied to him. It is only his estate which
is liable for such a bill or note.
(b) Corporation: Corporation can be a party to a negotiable instrument if authorized by its Article
of Association, otherwise it is ultra vires.
(c) Agent: As per section 27 an agent can bind his principal by acting on his behalf only in the
manner in which he is duly authorized to be become a party to a negotiable instrument. The
agent is required to make it clear that he is acting in representative capacity which must be
evidenced by the manner he signs such document. The form of signature must show that he
does not intend to incur personal liability. Otherwise, he becomes personally liable.
Example: A manager of ABC ltd accepted a bill of exchange and signed A as manager. It was held
that A was personally liable.
(d) Legal Representative: As per section 30 a legal representative of a deceased person who
signs his name to a negotiable instrument incurs personal liability unless by clear words, he
limits his liability to the extent of the assets of the deceased received by him as legal
representative.

DEFINITIONS OF PROMISSORY NOTE, BILL OF EXCHANGE AND CHEQUE

Section 4 of the Negotiable Instruments act, 1881 defines “Promissory Note”: “A Promissory
note is an instrument in writing (not being a bank note or a currency note) containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or
to the order of, a certain person, or to the bearer of the instrument”.
Parties:
1. Maker 2. Payee
1. Maker: The person who makes the promissory note and promises to pay is called the maker.
2. Payee: The person to whom the payment is to be made is called the payee.

ESSENTIALS OF PROMISSORY NOTE

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a. It must be in writing. An oral promise to pay will not do.

b. It must contain an express promise or clear undertaking to pay. A promise to pay cannot be
inferred. A mere acknowledgement of debt is not sufficient. If A writes to B “I owe you (I.O.U.)
Rs. 500”, there is no promise to pay and the instrument is not a promissory note.
c. The promise or undertaking to pay must be unconditional. A promise to pay “when able”, or
“as soon as possible”, or “after your marriage to D”, is conditional. But a promise to pay after
a specific time or on the happening of an event which must happen, is not conditional, e.g.
“I promise to pay Rs. 1,000 ten days after the death of B”, is unconditional.
d. The maker must sign the promissory note in token of an undertaking to pay to the payee or
his order.
e. The maker must be a certain person, i.e., the note must show clearly who is the person
engaging himself to pay.
f. The payee must be certain. The promissory note must contain a promise to pay to some
person or persons ascertained by name or designation or to their order.
g. The sum payable must be certain and the amount must not be capable of contingent
additions or subtractions. If A promises to pay Rs. 100 and all other sums which shall become
due to him, the instrument is not a promissory note.
h. Payment must be in legal money of the country. Thus, a promise to pay Rs. 500 and deliver
10 quintals of rice is not a promissory note.
i. It must be properly stamped in accordance with the provisions of the Indian Stamp Act. Each
stamp must be duly cancelled by maker’s signature or initials.
j. It must contain the name of place, number and the date on which it is made. However, their
omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated
on the date of delivery.

BILLS OF EXCHANGE

Section 5 of the Negotiable Instruments act, 1881 defines “Bill of Exchange”:

“A bill of exchange is an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum of money only to, or to the order of,
a certain person or to the bearer of the instrument”.
Parties:
There are three parties to bill of exchange:
1. The drawer. 2. The drawee. 3. The payee.

1. The drawer: The person who gives the order to pay or who makes the bill is called the drawer.
2. The drawee: The person who is directed to pay is called the drawee. When the drawee
accepts the bill, he is called the acceptor.

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3. The Payee: The person to whom the payment is to be made is called the payee.
Essentials of Bills of Exchange:
1. It must be in writing.
2. It must contain an unconditional order to pay money only and not merely a request.
3. It must be signed by the drawer
4. The sum payable must also be certain.
Requisites of a Bill of Exchange:
1. The consideration of a bill of exchange should be paid only by way of money only.
2. The time of payment must be indicated in the bill with certainty.
3. Order to pay. Order in this section does not mean a command, but a request or a direction.
4. It should specifically mention the date and place the payment or the place where it is drawn.
5. Every Bill of Exchange must be stamped according to the provisions of The Indian Stamp Act,
1899.

CHEQUE

Section 6 of the Negotiable Instruments act, 1881 defines “Cheque”:

“A cheque is a bill of exchange drawn upon a specified banker and payable on demand and it
includes the electronic image of a truncated cheque and a cheque in the electronic form”.

A cheque in the electronic form means “cheque which contains the exact mirror image of a proper
cheque, and is generated, written and signed in a secure system ensuring the minimum safety
standards with the use of digital signature and asymmetric crypto system.

A truncated cheque means a cheque which is truncated during the course of a clearing cycle,
either by the clearing house or by the bank whether paying or receiving payment, immediately
on generation of an electronic image for transmission, substituting the further physical
movement of the cheque in writing.

ESSENTIALS OF CHEQUE
1. A cheque must be an order in writing.
2. It must contain an unconditional order.
3. A cheque must be signed by the maker.
4. The amount must be specifically mentioned in figures and words.
5. A cheque may be drawn payable to order or bearer. There are two kinds of cheques
prevailing now a days. They are:
i. it may be a bearer or order cheque; and
ii. it may be a self cheque.

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6. The cheque must contain the date.

7. Payee to be certain.

WHO CAN CROSS A CHEQUE?

As we have discussed, by crossing the cheque the drawer instructs the banker to not to pay it
over the counter but only credit to the account of the person named therein. It adds to the
security and thus ensures payment to the payee or to his order. A cheque may be crossed by
any of the following persons;
a. The drawer of a cheque.
b. The holder of a cheque. Where a cheque is issued uncrossed, it may be crossed by the holder
generally or specially.
c. The banker in whose favor the cheque has been crossed specially may again cross it specially
in favor of another banker. The latter bank in such a case act as the agent of the former.

DUE DATE OF BILL OR NOTE

Every instrument payable, otherwise than on demand is entitled to three days of grace.
Instruments not entitled to ‘period of grace’ are:
1. A cheque
2. A bill or note payable on demand,
3. A bill or note in which no time is mentioned.
Instruments entitled to ‘period of grace’ are:
1. A bill or note payable on a specified day,
2. A bill or note payable ‘after sight’,
3. A bill or note payable at a certain period on happening of a certain event.
So, in case of time bill or note, it becomes due on the last day of grace period. Where the payment
is to be made in installments, the due date will be the last day of grace period added to each
installment. If the due date falls on a public holiday, the bill becomes due on immediately
preceding business day. If the month in which the period is to terminate has no corresponding
day, the period will terminate on the last day of the month.
Examples:
1. A bill dated 6th February, 2016 is made payable 90 days after date. It’s due date is 9 th May,
2016.
2. A bill dated 1st January, 2016 is made payable one month after date. It falls due on 3rd March,
2016.
3. A bill falls due on 9th May, 2016 which happens to be a Sunday. Then due date becomes 8th
May, 2016.

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Payment in Due Course

Any person liable to make payment under a negotiable instrument, must make the payment of
the amount due there under in due course in order to obtain a valid discharge against the holder.
A payment in due course means a payment in accordance with the apparent tenor of the
instrument, in good faith and without negligence to any person in possession thereof.
A payment will be a payment in due course if:
a. it is in accordance with the apparent tenor of the instrument, i.e., according to what appears
on the face of the instrument to be the intention of the parties;
b. it is made in good faith and without negligence, and under circumstances which do not afford
a ground for believing that the person to whom it is made is not entitled to receive the
amount;
c. it is made to the person in possession of the instrument who is entitled as holder to receive
payment;
d. payment is made under circumstances which do not afford a reasonable ground believing
that he is not entitled to receive payment of the amount mentioned in the instrument; and
e. payment is made in money and money only.

Differences between Promissory Note, Bill of Exchange and Cheque

Point of difference Promissory Note Bill of Exchange Cheque
Parties 2 Parties - maker & payee 3 parties - drawer, drawee 3 parties - drawer,
and Payee banker and payee

Nature Contains an unconditional Contains an unconditional Drawn on

promise by maker to pay order to the drawee to specified banker
the payee pay the payee to pay on
demand.

Acceptance Not necessary Necessary if the bill is Not necessary

payable after sight.
Liability Liability of maker is Liability of drawer is Liability of drawer
primary and absolute. conditional and is conditional and
secondary upon secondary upon
nonpayment by drawee. nonpayment by
banker
Notice of dishonour Not necessary Necessary Not necessary

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Payable On demand or after a On demand or after a On demand even

specified time. Cannot be specified time. Cannot be to bearer if so
made payable to bearer made payable to bearer made.
on demand or even after on demand.
certain period.
Crossing Not possible Not possible Can be crossed
Noting and Not required Required to establish the Not required
protesting in case of fact of dishonour.
dishonour

Grace period Available if payable after Available if payable after Not available.
specified time specified time (usance
bill)

Other features Number, date, place not Number, date, place not Number, date,
essential. Must be essential. Must be place, essential.
stamped. stamped. Need not be
stamped.

Crossing – Meaning, Definition and Types of Crossing

Section 123 to 131-A of the Negotiable Instruments act, 1881 explain about “Crossing”:
A cheque may be a ‘open cheque’ or a ‘crossed cheque’. The former may be presented across,
the counter for payment; the later will have to be presented through another banker. While, in
the case of an open cheque, payment may be obtained in cash, in the case of a crossed cheque,
the amount will be credited to the account of the customer of a bank.

Meaning of Crossing:
The act of drawing two diagonal or transverse parallel lines on the face of a cheque is called
“crossing of the cheque”. In other words, a crossed cheque is one which has two transverse
parallel lines. Crossing is a direction to the banker not to pay the money across the counter. It
means the banker should pay the money only through banker.

Object of Crossing:
The main object of crossing is to give protection and safeguard to the owner of the cheque. The
crossed cheque cannot be paid across the counter but it should be paid only through an account
with a bank, who may be either the drawee banker or a different one. If it is misutilised, it can be
traced very easily and the fraudulent person can easily be detected.

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Kinds of Crossing:
There are different kinds of crossing:
1. General crossing.
2. Special crossing.
1. General Crossing: [Sec. 123] Where a cheque bears across its face an addition of the words
“and company” or any abbreviation thereof, between two parallel transverse lines, or of two
parallel transverse lines simply, either with or without the words “Not negotiable” that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.
a. Two transverse lines are the essentials of general crossing.
b. The lines should not occupy printed letters or numbers or any such written matters.
c. The lines are generally drawn on the left-hand side.
d. The words ‘and company’ / ‘& co.’ may be written between transverse lines. But these
words are not compulsory. The crossing itself sufficient. However, it is the practice of
the people to write those words.
e. The words ‘Not negotiable’ may be added to a crossing. But they themselves do not
constitute crossing.
Forms of General Crossing

Effect of General Crossing:

• It gives a direction to the paying banker
• Sec. 126 of the NI Act, 1881 lays down that when a cheque is crossed generally, the banker
on whom it is drawn shall not pay it otherwise than to a banker. Therefore, this type of
cheque cannot be paid at counter. The payment should be made through an account only.
Thus the General crossing gives protection and avoids fraudulent withdrawals.
• It is the liability of the paying banker to verify proper payment in proper account. The
payment does not constitute “Payment in due course”. The banker is answerable to his
customer, if he pays the money to a third person without the direction of his customer. He
should not make any contract with third party concerning the cheque generally crossed.
2. Special Crossing: [Sec. 124] Where a cheque bears across its face an addition of the name of
a banker, either with or without the words “Not Negotiable”, that addition shall be deemed
a crossing, and the cheque shall be deemed to be crossed specially and to be crossed to that
banker.

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Forms of Special Crossing:

a. Two parallel transverse lines are not essential.

b. The name of the bank should be mentioned with or without crossing. The name of the bank
itself constitutes special crossing.
c. The name of the bank should be written on the left side of cheque.
d. The name of the bank and the words “Not Negotiable” or “A/c Payee” or “Not Negotiable”
or “A/c Payee Only”, may also be mentioned.
Effect of Special Crossing:
• It prevents the fraudulent transactions and misappropriation.
• It is direction to the paying banker to pay the amount to the account holder of that bank, but
not to others.
• If a cheque specially crossed on a particular bank, and if such cheque is presented in another
bank, the paying bank should refuse the payment.
• Special crossing gives more protection than general crossing. In the case of special crossing,
the banker’s name and payee’s name are mentioned, and the banker is well acquainted with
the payee’s name and signature. If there is any forgery he can easily detect it.
Account Payee Crossing:
In the present day transactions, we find the terms “A/c Payee”, “Account Payee”, “Account
Payee Only”, on the cheques. It has developed in the trade and in common to use these terms
on the left side of the cheque between the two transverse lines. But there is no law mentioned
about this type of crossing either in “The Bills of Exchange Act” of Great Britain or in “The
Negotiable Instruments Act, 1881” of India. The terms mean that the amount should not be paid
at counter, but should be credited into the account of the payee only .However, the meaning of
other crossings is also the same. This type of crossing only gives additional protection to the
cheque.

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Effect of Account Payee crossing:

• It is merely in the form of direction to the receiving bank that the drawer desires to pay the
particular cheque into bank which keeps the account of the payee.
• A/c Payee crossing cheque can also be transferable like other cheques
• It gives further protection to the payee. The collecting banker should credit the cheque only
to the mentioned account of the payee
• If the banker credits the cheque to another’s account and not to the account of the payee,
the banker shall be held responsible for his negligence, and shall be held liable to pay the
compensation.
• The safest method is to cross the cheque with the terms of ‘Not Negotiable’ and ‘A/c Payee
only’.
Not Negotiable Crossing: [Sec. 130]
Sections 123 and 124 of the Act permit the use of the words “Not Negotiable” in the crossing.
Section 130 of the Act clarifies the position.
Section 130: A person taking a cheque crossed generally or specially, bearing in either case the
words not negotiable shall not have, and shall not be capable of giving, a better title to the
cheque than that which the person from whom he took it had.
The words “Not Negotiable” do not mean “not transferable”. If it is so, the very meaning and
purpose of the cheque and its character of “Bill of Exchange” will die. “Transferability” is a
narrower term than the word ‘negotiability’. The cheque “not transferable” crossed can also be
transferred like any other cheque. But it gives more protection than General Crossing and Special
Crossing. It is a warning upon the paying and collecting bankers. Both of them should be very
careful in the transaction of this type of cheques.

Object:
The true owner is protected by this type of crossing more perfectly. If it is stolen, the finder cannot
cash it so easily. The good title cannot be passed to him. He will be compelled to return it to
the true owner. The owner’s right is preserved safely against any subsequent holder.

Effect of Not Negotiable crossing:

• It gives more protection and safe to the holder of the cheque
• A third person cannot cash it so easily.
• It can be transferred like any other cheque.
• If the banker is negligent and transfers the amount of that cheque to another account, he
will be held responsible and he will be liable to make the compensation to the sufferer.

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Double Crossing/Second Special Crossing: [Sec. 125]

“Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially
to another banker, his agent for collection” is called Double Crossing.
There a cheque is crossed specially, the banker to whom it is crossed may again cross it specially
to another banker his agent, for collection.
This is the only case where a second special crossing is allowed by the Act, and that can be done
only for the purpose of collection and that too by a banker. Therefore, it is called “Double
Crossing” or “Second Special Crossing”. The private parties are not allowed to utilize double
crossing.

Effect of Double Crossing:

• Double crossing is not permitted to general public. It is practiced only in case of transactions
between the bankers. Others are not allowed to use double crossing.
• It is in practice to cross on the face of the cheque at left side. But in case of Double crossing
it is the regular practice to cross at the back side of the cheque, where sufficient space is
available.
• Sec. 127 lays down that where a cheque is crossed specially to more than one banker except
when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall
refuse payment thereof.
• According to Sec. 127, it means that it is necessary, in all cases, to specify in the second
special crossing that the banker in whose favour it is made is an agent of the first banker for
collection.

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DISHONOUR OF CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE

ACCOUNTS [SECTION 138]
DISHONOR OF CHEQUE FOR INSUFFICIENCY, ETC., OF FUNDS IN THE ACCOUNTS
[SECTION 138]
Where any cheque drawn by a person on an account maintained by him with a banker –

• for payment of any amount of money

• to another person from that account
• for the discharge, in whole or in part, of any debt or other liability, [A cheque given as gift or
donation, or as a security or in discharge of a mere moral obligation, or for an illegal
consideration, would be outside the purview of this section]
• is returned by the bank unpaid,
• either because of the –
➢ amount of money standing to the credit of that account is insufficient to honor the
cheque, or
➢ that is exceeds the amount arranged to be paid from that account by an agreement made
with that bank,

Such person shall be deemed to have committed an offence and shall, be punished with imprisonment
for a term which may extend to two years, or with fine which may extend to twice the amount of the
cheque, or with both.

When section 138 shall be not apply: unless the below given conditions are complied
with –
(a) Cheque presented within validity period: The cheque has been presented to the bank within
a period of three months from the date on which it is drawn or within the period of its validity,
whichever is earlier.
(b) Demand for the payment through the notice: The payee or the holder in due course of the
cheque, as the case may be makes a demand for the payment of the said amount of money
by giving a notice, in writing, to the drawer of the cheque, within 30 days of the receipt of
information by him from the bank regarding the return of the cheque as unpaid, and
(c) Failure of drawer to make payment: The drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may be, to the holder in due course of
the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt
or other liability.

Therefore, we may conclude that complaint can be filed after 45 days of dishonor of the cheque i.e.,
30 days of notice period + 15 days of the receipt of the said notice.

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Example: X issued a post-dated cheque to Y on the account of discharge of its liability. Further, X
instructed to the bank to stop the payment due to unavailability of the adequate amount in the
account. Here, in this instance section 138 of the Act is attracted as when a cheque is dishonoured on
account of stop payment instructions sent by the drawer to his banker in respect of a post- dated
cheque irrespective of insufficiency of funds in the account. A post-dated cheque is deemed to have
been drawn on the date it bears and the three months period for the purposes of section 138 is to be
counted from that date. So, X will be liable for dishonor of cheque. Once a cheque is issued by the
drawer, a presumption under section 139 must follow.

Penalty: According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is
punishable with imprisonment up to 2 years or fine up to twice the amount of cheque or both.

“Section 143A. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the
Court trying an offence under section 138 may order the drawer of the cheque to pay interim
compensation to the complainant –

(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the
complaint; and

(2) The interim compensation under sub-section (1) shall not exceed twenty per cent. of the amount
of the cheque.

(3) The interim compensation shall be paid within sixty days from the date of the order under sub-
section (1), or within such further period not exceeding thirty days as may be directed by the Court
on sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the
drawer the amount of interim compensation, with interest at the bank rate as punished at the Reserve
bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date
of the order, or within such further period not exceeding thirty days as may be directed by the Court
on sufficient cause being shown by the complainant.

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MULTIPLE CHOICE QUESTION

1. The undertaking contained in a promissory note, to pay a certain sum of money is
a. Conditional
b. Unconditional
c. May be conditional or unconditional depending upon the circumstances
d. None of the above [b]
2. The term 'Negotiable instrument' is defined in the Negotiable Instruments Act, 1881, under
section
a. 12
b. 13
c. 13A
d. 12(d) [b]
3. If an instrument may be construed either as a promissory note or bill of exchange, it is
a. a valid instrument
b. an ambiguous instrument
c. a returnable instrument
d. none of the above [b]
4. A cheque is crossed…..when it bears across its face an addition of the name of a banker,
either with or without the words ‘not negotiable’.
a. Specially
b. General
c. Restrictive
d. None of the above [a]
5. Who among the following cannot cross a cheque?
a. Drawer
b. Holder
c. Banker
d. Foreigner [d]
6. The presumption as to the date of a negotiable instrument under section 118 is that, every
negotiable instrument bearing a date was made or drawn
a. Prior to that date
b. On such date
c. May be on or prior to that date
d. None of the above [b]
7. …..is not a negotiable instrument as per customs and usage
a. Delivery note
b. Railway receipt
c. Cheque
d. Government promissory note [c]
8. An instrument incomplete in one way or other is called…..
a. Inchoate instrument

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b. Ambiguous instrument
c. Foreign instrument
d. Dishonored instrument [a]
9. A corporation can be party to a negotiable instrument if
a. Authorized by its article of association
b. Is special permission of board of directors taken
c. If special resolution by share holders is passed
d. Absolutely without any restrictions [a]
10. The grace period for payment of a negotiable instrument other than payable on demand is
…….days/months
a. 7 days
b. 3 days
c. 1 month
d. 15 days [b]
11. How many parties are involved in a Bill of Exchange
a. 2
b. 3
c. 4
d. 1 [b]
12. A promissory note, bill of exchange or cheque drawn or made in India and made payable in,
or drawn upon any person resident in, India is treated as a/an
a. Inland instrument
b. Local instrument
c. Foreign instrument
d. Indigenous instrument [a]
13. If the words ‘not negotiable’ are used with special crossing in a cheque, the cheque is….
a. Not transferable
b. Transferable
c. Negotiable under certain circumstances
d. None of the above [a]
14. When a promise note, bill of exchange or cheque is transferred to any person, so as to
continue the person the holder thereof, the instrument is said
a. To be valid
b. Of its presentation
c. Of its acceptance
d. None of these [d]
15. A bearer instrument is negotiated by…
a. Delivery only
b. Delivery and endorsement
c. Endorsement
d. Stamping and attestation [a]

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16. …. parties are involved in a cheque

a. 2
b. 3
c. 4
d. 1 [b]
17. A bill of exchange does not requires
a. Crossing
b. Acceptance
c. Both
d. Either a or b [c]
18. When an instrument is drawn conditionally or for a special purpose as a collateral security
and not for the purpose of transferring property therein it is called a –
a. Escrow instrument
b. Inchoate instrument
c. Ambiguous instrument
d. None of these [a]
19. When a cheque is payable across the counter of a bank it is called
a. OTC Cheque
b. Open cheque
c. Crossed cheque
d. Restricted cheque [b]
20. A cheque is always payable on
a. The date mentioned therein
b. On demand
c. 3 days after presentation
d. Within 24 hrs of presentation [b]
21. The Negotiable Instruments Act, came into force on the…….
a. 1.1.1881
b. 1.2.1881
c. 1.4.1881
d. 1.12.1981 [c]
22. A “negotiable instrument’ means a promissory note, bill of exchange or cheque payable
either……
a. To order
b. To bearer
c. a or b
d. a and b [c]
23. Which of the following can be considered as characteristics of Negotiable Instruments?
a. The holder of the instrument in presumed to be the owner.
b. They are not freely transferable
c. They are transferable subject to restriction

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d. b or c [a]
24. A promissory note, bill of exchange or cheque is payable to bearer when…….
a. It is expressed to be payable to a particular person
b. It is expressed to be so payable
c. The only or last endorsement on the instrument is an endorsement in blank
d. b or c [c]
25. A promissory note, bill of exchange or cheque is payable to order…….and does not contain
any words prohibiting transfer or indicating an intention that it shall not be transferable
a. which is expressed to be so payable
b. the only or last endorsement on the instrument is an endorsement in blank
c. which is expressed to be payable to a particular person
d. a or c [d]
26. A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or
drawn upon any person, resident in India shall be deemed to be –
a. Foreign instruments
b. An inland instruments
c. Demand instruments
d. Bearer instruments [b]
27. A promissory note or a bill of exchange payable after a fixed period, or after sight, or on
specified day, or on the happening of an event which is certain to happen, is known as a –
a. Time instrument
b. Demand instruments
c. Foreign instruments
d. An inland instrument [a]
28. Expression ‘after sight’ in a promissory note means that –
a. The payment can be demanded without it has been shown to the maker.
b. The payment cannot be demanded on it unless it has been shown to the maker.
c. The holder may treat the instrument, at his option, either as a bill of exchange or as a
promissory note.
d. The payment cannot be demanded [b]
29. An instrument, which in form is such that it may either be treated by the holder as a bill or
as a note, is –
a. Inchoate instrument
b. Order instrument
c. Incomplete instrument
d. An ambiguous instrument [d]
A signs, as maker, a blank stamped paper and gives it to B and authorizes him to fill it as a
note for Rs.5000 to secure an advance which ‘C’ is to make to ‘B’. ‘B’ fraudulently fills it up
as a note for Rs.2,0000 payable to ‘C’ who has in good faith advanced Rs.2,0000. Decide,
whether ‘C’ is entitled to recover the amount, and it so, up to what extent?
a. Rs.5,000

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b. Rs.15,000
c. Rs.20,000
d. Rs.10,000 [c]
30. A promissory note is an instrument…..containing an unconditional undertaking signed by the
maker to pay a certain sum of money to, or to the order of, a certain person, or only to bearer
of the instrument.
a. In writing
b. Made orally
c. Partly in writing
d. None of above [a]
31. A promissory note is an instrument in writing containing an unconditional undertaking,
signed by the…..to pay a certain sum of money to, or to the order of, a certain person, or only
to bearer of the instrument.
a. Payee
b. Holder
c. Endorser
d. Maker [d]
32. The person who makes or executes the note promising to pay the amount stated therein is
called as……
a. the payee
b. the holder
c. the endorser
d. the maker [d]
33. The person to whom the amount is payable is called as…..
a. the payee
b. the holder
c. the endorser
d. the maker [a]
34. The promissory note should be signed by……
a. drawer
b. drawee
c. payee
d. promiser [d]
35. The person who draws the bill is known as……
a. Drawee
b. Drawer
c. Payee
d. Endorser [b]
36. When the holder endorses the bill to anyone else he becomes the…..
a. Endorsee
b. Drawer

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c. Payee
d. Endorser [d]
37. …is the person to whom the stated in the bill is payable.
a. Endorsee
b. Drawee
c. Payee
d. Endorser [c]
38. A bill of exchange must contain…..order to pay money only.
a. A conditional
b. An unconditional
c. A contingent condition
d. An implied [b]
39. A bill drawn and accepted for a genuine trade transactions is termed as a…..
a. Foreign bill
b. Accommodation bill
c. Trade bill
d. Account sale [c]
40. A bill which is drawn accepted or endorsed ….is called an accommodation bill.
a. With consideration
b. Without consideration
c. a or b
d. a and b [b]
41. A….is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.
a. Promissory note
b. Cheque
c. Accommodation bill
d. Trade bill [b]
42. ……means a cheque which contains the exact mirror image of a paper cheque and is
generated, written and signed in a secure system ensuring the minimum safety standards
with the use of digital signature (with or without biometrics signature) and asymmetric
crypto system;
a. A cheque in the electronic form
b. A truncated cheque
c. Bank draft
d. Paper cheque [a]
43. Essential of a cheque……
a. It is always drawn on a banker
b. It is always payable on demand
c. It does not require acceptance
d. All of above [d]

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44. Which of the following type of cheque cannot be paid across the counter but must be
collected through a banker?
a. A crossed cheque
b. An open cheque
c. a or b
d. a and b [a]
45. ….is a direction to the paying banker to pay the money generally to a banker or to a particular
banker and not to pay otherwise
a. A requesting
b. A passing
c. A crossing
d. Any of above [c]
46. In general crossing a cheque bears across its face an addition of….
a. Two parallel transverse lines
b. Three parallel transverse lines
c. Four parallel transverse lines
d. Two cross line [b]
47. “Account Payee” crossing warns the collecting banker that the proceeds are to be credited
only to the……
a. Account of the payee
b. Partly named or his agent
c. Account of the payee, or the party named, or his agent
d. None of above [c]
48. Every instrument payable at…….is entitled to three days of grace.
a. A specified period after date
b. After sight
c. A specified period after date or after sight
d. Demand [c]
49. st
A negotiable instrument dated 31 Jan. 2011 is made payable at one months after date. The
instrument is at maturity on……
a. 31st Jan. 2011
b. 28th Feb. 2011
c. 3rd March, 2011
d. 1st March, 2011 [c]
50. If the day of maturity falls on a public holiday, the instrument is payable on the……
a. Preceding business day
b. Next business day
c. Next Monday
d. Following day [a]
51. If a bill is at maturity on a Sunday. It will be deemed due on…..
a. Monday

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b. Saturday
c. Friday
d. Partly on Saturday and partly on Monday [b]
52. If due date of bill falls on……the due date will be preceding business day.
a. Public holiday
b. Sudden public holiday
c. Private holiday
d. Birthday [a]
53. On 1.1.2019, X draws a bill on Y for Rs.20,000 for 3 months maturity date of the bill will be…
a. 1.4.2019
b. 3.4.2019
c. 4.4.2019
d. 4.5.2019 [b]
54. th
On 15.8.2018, X draws a bill on Y for 3 months for Rs.20,000. 18 Nov. was a sudden holiday,
maturity date of the bill will be…..
a. 17th Nov.
b. 18th Nov.
c. 19th Nov.
d. 15th Nov. [c]
55. X draws a bill on Y for Rs.30,000 on 1.1.2019 X accepts the same on 4.1.2019 for period of 3
months after date. What will be the maturity date of the bill;……
a. 4.4.19
b. 3.4.19
c. 7.4.19
d. 8.4.19 [b]
56. X draws a bill on Y for Rs.20,000 on 1.1.2018 for 3 months after sight, date of acceptance is
6.1.2018. maturity date of the bill will be……
a. 8.4.2018
b. 9.4.2018
c. 10.4.2018
d. 11.4.2018 [b]
57. A demand notice in writing has to be given to the drawer by the payee under Section 138 of
"The Negotiable Instruments Act," 1881, after receiving intimation from the Bank of
Dishonour of cheque, within the period of:
a. 15 days
b. 30 days
c. 60 days
d. None of these [b]
58. The offence of dishonour of cheques, for insufficiency, etc., of funds, in the account of the
drawer, is punishable with:
a. Imprisonment for a term which may extend to one year or with fine which may extend

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to the amount of the cheques, or with both

b. Imprisonment for a term which may extend to two year or with fine which may extend
to twice the amount of the cheques, or with both
c. Imprisonment for a term which may extend to six months or with fine which may
extend five hundred rupees, or with both
d. Imprisonment for a term which may extend to five year or with fine which may extend
to five thousand rupees, or with both [b]
59. A complaint against an offence under section 138 of the Negotiable Instrument Act, 1881
a. Must be in writing (section 142)
b. May be oral or in writing (section 142)
c. Must be in writing containing a declaration by the drawee that he consents to such
filing of the complaint (section 142)
d. None of the above [a]
60. Every trial under Section 143 of the Negotiable Instruments Act shall be conducted as
expeditiously as possible and an endeavour shall be made to conclude the trial:
a. Within three months from the date of filing of the complaint
b. Within one months from the date of filing of the complaint
c. Within six months from the date of filing of the complaint
d. Within one year from the date of filing of the complaint [c]
61. What is main objective of Section 138 of Negotiable Instruments Act
a. Recovery of stolen property
b. Recovery of seized vehicles from RTO
c. Recovery of the cheque amount incase cheque issued by the payer is bounced
d. None of the above [c]
62. The liability under section 138 of the Negotiable Instruments Act, 1881 is
a. Strict liability
b. Vicarious liability
c. Both (A) and (B)
d. None of the above [a]
63. Dishonour of cheque for insufficiency of funds etc. in the account related to
a. Section 137 of Negotiable Instruments Act
b. Section 138 of Negotiable Instruments Act
c. Section 139 of Negotiable Instruments Act
d. Section 141 of Negotiable Instruments Act [b]

PREVIOUS YEAR QUESTIONS

Choose the correct answer
1. Which of these is not a Negotiable Instrument as per the Negotiable Instrument Act, 1881?
a. Bill of exchange
b. Delivery note

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c. Bearer cheque
d. Share certificate
2. When a cheque is payable across the counter of a bank it is called.
a. OTC cheque
b. Open cheque
c. Crossed cheque
d. Restricted cheque
3. The term ‘Negotiable Instrument’ is defined in the Negotiable Instruments Act, 1881, under
section
a. 12
b. 13
c. 13A
d. 2(d)
4. The negotiable Instrument Acts, 1881 came into force on
a. 9th Dec., 1881
b. 19th Dec.1881
c. 1st March, 1882
d. None of the above
5. If a minor draws, indorses, deliver or negotiates an instrument, such instrument binds
a. All parties to the instrument including the minor
b. Only the minor and not other parties to the instrument
c. All parties to the instrument except the minor
d. None of the above
6. A promissory note must be
a. In writing
b. Unconditional
c. Signed by the maker
d. All of the above
7. Every instrument payable otherwise than on demand is entitled to…..days of grace period
a. 2
b. 3
c. 4
d. 5
8. Inchoate instrument is
a. An instrument incomplete in some respect
b. An ambiguous instrument
c. A clean bill
d. Drawn conditionally as collateral security
9. Which of the following is not a Negotiable Instrument as per the Negotiable Instrument Act,
1881?
a. Bill of exchange
b. Delivery note

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c. Cheque
d. Share certificate
10. How many parties are involved in a bill of exchange?
a. 2
b. 3
c. 4
d. 5
11. The term ‘a cheque in the electronic form’ is defined in the negotiable instruments act, 1881-
under.
a. Section 6(a)
b. Section 6(1)(a)
c. Explanation 1(a) of section 6
d. Section 6(A)
12. Lending money to a borrower, at high rate of interest, when the money market is tight
renders the agreement of loan
a. Void
b. Valid
c. Voidable
d. Illegal
Match the following

Column A Column B
1. Promissory note a. Cannot be crossed
2. Bill of exchange b. Delivery by attornment
3. Grace days c. Three days
4. Crossing d. Cheque

State whether the following statement is True or False

1. A negotiable instrument may be payable to two or more persons jointly or it may be made
payable in the alternative to one of two or one or some of several payees.
2. Negotiable Instruments can be transferred ad infinitum.
3. Share Certificates with Blank Transfer deeds, deposit receipts and mate’s receipts are
negotiable instruments.
4. A minor cannot draw indorse, deliver, negotiate a valid negotiable instrument.
5. The holder in due course of a negotiable instrument can sue on the instrument in his own name.
6. When a bill is drawn, accepted or endorsed for consideration it is a fictitious bill.
Answer any four of the following questions:
1. What is ‘Special Crossing’ on a negotiable instrument? Mention the benefits of Special Crossing.
2. What are the requisites of a bill of exchange?
3. What are the characteristics of a negotiable instrument?
4. What is an Escrow Instrument?

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